Business Context and Reporting Period
Company: Glacier Bancorp, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2001
Headquarters: Kalispell, Montana
Glacier Bancorp is a bank holding company operating nine wholly-owned subsidiaries across Montana, Idaho, and Utah. The reporting period was significantly impacted by major strategic transactions, including the acquisition of WesterFed Financial Corporation (completed February 28, 2001) and seven branches from Wells Fargo and First Security Corporation (completed March 15, 2001). These acquisitions, accounted for under the purchase method, drove substantial growth in assets and liabilities. The company also sold six branches in North Central Montana in June 2001.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2001 |
Nine Months Ended Sep 30, 2001 |
Nine Months Ended Sep 30, 2000 |
|---|---|---|---|
| Total Assets | $2,094,965 | $2,094,965 | $1,026,041 |
| Total Loans (Net) | $1,357,824 | $1,357,824 | $723,026 |
| Total Deposits | $1,453,919 | $1,453,919 | $716,987 |
| Net Interest Income | $19,199 | $51,428 | $30,579 |
| Net Earnings | $5,707 | $15,229 | $10,273 |
| Diluted EPS | $0.33 | $0.96 | $0.89 |
| Return on Average Assets | 1.06% | 1.06% | 1.37% |
| Return on Average Equity | 13.50% | 13.41% | 15.82% |
| Net Interest Margin | 4.08% | 3.98% | 4.40% |
| Allowance for Loan Losses | $18,528 | $18,528 | $7,808 |
| Non-Performing Assets | $11,270 | $11,270 | $2,195 |
Note: All dollar figures in thousands except per share data.
Material Changes vs. Prior Period
- Asset Growth: Total assets increased by $1.069 billion (104%) compared to September 30, 2000, primarily due to the WesterFed and Wells Fargo/First Security acquisitions. Net loans grew by $635 million (88%).
- Revenue Expansion: Net interest income rose 82% for the quarter and 68% for the nine-month period. Total revenue increased 77% for the quarter and 67% year-to-date.
- Expense Increases: Non-interest expenses surged 102% for the quarter and 77% year-to-date. This includes $325,000 in merger/conversion expenses for the quarter and $1.25 million for the nine-month period. Intangible asset amortization (goodwill and core deposit) increased significantly due to acquisitions.
- Margin Compression: Net interest margin declined from 4.50% to 4.08% for the quarter and from 4.40% to 3.98% year-to-date. Management attributes this to the lower yield on assets acquired in purchase transactions compared to the existing asset base.
- Credit Quality: Non-performing assets increased to $11.27 million (0.54% of total assets) from $2.195 million (0.21%) in the prior year. The allowance for loan losses increased to $18.528 million (1.35% of total loans) to reflect the larger loan volume and a shift toward higher-risk commercial loans.
Guidance, Outlook, and Risks
Management Commentary: Management notes that the company is now the largest publicly traded bank holding company headquartered in the inland northwest. The conversion of Western Security Bank to the company's in-house system in July 2001 is expected to yield cost savings. The company continues to sell the majority of its real estate loan production and has discontinued the origination of dealer-originated consumer loans acquired with WesterFed.
Accounting Changes: The company is adopting FASB Statements No. 141 and 142 effective January 1, 2002. These standards will require goodwill and intangible assets with indefinite lives to be tested for impairment annually rather than amortized. The company expects to have $34.8 million in unamortized goodwill and $8.2 million in unamortized identifiable intangible assets subject to these new rules. The impact of potential transitional impairment losses cannot be reasonably estimated at this time.
Risks and Contingencies:
- Interest Rate Risk: The primary market risk is interest rate sensitivity. As of July 31, 2001, a 200 basis point increase in rates was estimated to decrease net interest income by 2.74% ($2.439 million), while a 200 basis point decrease would increase income by 0.55% ($493 thousand).
- Forward-Looking Statements: Results are subject to risks including general economic conditions, regulatory changes, competitive factors, and fluctuating interest rates.
Investor Verification Checklist
- Acquisition Integration: Verify the realization of cost synergies from the WesterFed and Wells Fargo/First Security acquisitions, particularly regarding the Western Security Bank system conversion.
- Margin Trends: Monitor the net interest margin to determine if the compression caused by acquired assets stabilizes or if further yield declines occur.
- Goodwill Impairment: Assess the impact of the upcoming adoption of FASB 142 on the $34.8 million goodwill balance and potential impairment charges in 2002.
- Credit Quality: Track the ratio of non-performing assets to total loans, given the strategic shift toward commercial lending which carries a historically higher risk profile.
- Expense Management: Review future quarters to ensure that merger-related expenses are one-time items and that operating leverage improves as revenue growth outpaces expense growth.