UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2009
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE 000-18911
GLACIER BANCORP, INC.
MONTANA 81-0519541
(State of Incorporation) (IRS Employer Identification Number)
49 Commons Loop, Kalispell, MT 59901
(Address of Principal Office)
Registrant's telephone number, including area code: (406) 756-4200
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value per share Nasdaq Global Select Market
(Title of Each Class) (Name of Each Exchange on Which Registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [X] Yes [ ] No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No
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] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Website every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months. [ ] Yes [ ] No
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. [X]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (as
defined by Exchange Act Rule 12b-2).
[X] Large accelerated filer [ ] Accelerated filer
[ ] Non-accelerated filer [ ] Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
The aggregate market value of the voting common equity held by non-affiliates of
the Registrant at June 30, 2009 (the last business day of the most recent second
quarter), was $876,495,372 (based on the average bid and ask price as quoted on
the NASDAQ Global Select Market at the close of business on that date).
As of February 15, 2010, there were issued and outstanding 61,619,803 shares of
the Registrant's common stock. No preferred shares are issued or outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the 2010 Annual Meeting Proxy Statement dated March 29, 2010 are
incorporated by reference into Part III of this Form 10-K.
EXPLANATORY NOTE
On March 1, 2010 Glacier Bancorp, Inc. (the "Company") filed with the Securities
and Exchange Commission (the "SEC") its Annual Report on Form 10-K for the
fiscal year ended December 31, 2009 (the "10-K Report"). During the process of
submitting the 10-K Report via EDGAR to the SEC, certain information presented
in tabular form was misaligned requiring this Amendment No. 1 (the "Amendment").
More specifically, the Company is filing this Amendment to the 10-K Report to
(i) amend Item 1 (Business) to correct the non-performing assets by loan type
table included in the lending activity section presented therein; (ii) Item 8
(Financial Statements and Supplementary Data) to correct the operating segment
table for 2009 included in footnote twenty-one presented therein; and (iii) Item
15 (Exhibits and Financial Statement Schedules) to update the consent of the
independent auditors.
No other revisions or amendments have been made to Part I, Part II or Part IV of
the 10-K Report. This Amendment does not reflect events occurring after March 1,
2010, the date of the original filing of our 10-K Report, or modify or update
those disclosures that may have been affected by subsequent events. In addition,
currently-dated certifications from our Chief Executive Officer and Chief
Financial Officer have been included as exhibits to this Amendment.
GLACIER BANCORP, INC.
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT
TABLE OF CONTENTS
Page
----
PART I
Item 1 Business 4
PART II
Item 8 Financial Statements and Supplementary Data 31
PART IV
Item 15 Exhibits and Financial Statement Schedules 78
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Glacier Bancorp, Inc. headquartered in Kalispell, Montana (the "Company"), is a
Montana corporation incorporated in 2004 as a successor corporation to the
Delaware corporation originally incorporated in 1990. The Company is a regional
multi-bank holding company providing commercial banking services from 106
locations in Montana, Idaho, Wyoming, Colorado, Utah and Washington. The Company
offers a wide range of banking products and services, including transaction and
savings deposits, commercial, consumer, and real estate loans, mortgage
origination services, and retail brokerage services. The Company serves
individuals, small to medium-sized businesses, community organizations and
public entities.
SUBSIDIARIES
The Company includes the parent holding company and the following eighteen
subsidiaries which consist of eleven bank subsidiaries and seven trust
subsidiaries.
Bank Subsidiaries
Montana
Glacier Bank ("Glacier") founded in 1955 Idaho
First Security Bank of Missoula ("First Security") founded in 1973 Mountain West Bank ("Mountain West") founded in 1993
Western Security Bank ("Western") founded in 2001 Citizens Community Bank ("Citizens") founded in 1996
Big Sky Western Bank ("Big Sky") founded in 1990
Valley Bank of Helena ("Valley") founded in 1978 Wyoming
First Bank of Montana ("First Bank-MT") founded in 1924 1st Bank ("1st Bank") founded in 1989
First National Bank & Trust ("First National")
Colorado founded in 1912
Bank of the San Juans ("San Juans") founded in 1998
Trust Subsidiaries
Glacier Capital Trust II ("Glacier Trust II")
Glacier Capital Trust III ("Glacier Trust III")
Glacier Capital Trust IV ("Glacier Trust IV")
Citizens (ID) Statutory Trust I ("Citizens Trust I")
Bank of the San Juans Bancorporation Trust I ("San Juans Trust I")
First Company Statutory Trust 2001 ("First Co Trust 01")
First Company Statutory Trust 2003 ("First Co Trust 03")
The Company formed or acquired First Co Trust 01, First Co Trust 03, San Juans
Trust I, Glacier Trust IV, Glacier Trust III, Citizens Trust I, and Glacier
Trust II as financing subsidiaries on October 2, 2009, October 2, 2009, December
1, 2008, August 15, 2006, January 31, 2006, April 1, 2005, and March 24, 2004,
respectively. The trusts were formed for the purpose of issuing trust preferred
securities and, in accordance with Financial Accounting Standards Board ("FASB")
Accounting Standards Codification(TM) ("ASC") Topic 810, Consolidation, the
subsidiaries are not consolidated into the Company's financial statements. The
preferred securities entitle the shareholder to receive cumulative cash
distributions from payments on Subordinated Debentures of the Company. For
additional information regarding the Subordinated Debentures, see Note 10 to the
Consolidated Financial Statements in "Item 8 - Financial Statements and
Supplementary Data."
On February 1, 2009, First National Bank of Morgan ("Morgan") merged into 1st
Bank resulting in operations being conducted under the 1st Bank charter. Prior
period activity of Morgan has been combined and included in 1st Bank's
historical results. The merger has been accounted for as a combination of two
wholly-owned subsidiaries without acquisition accounting.
The Company provides full service brokerage services (selling products such as
stocks, bonds, mutual funds, limited partnerships, annuities and other insurance
products) through Raymond James Financial Services and Morgan Stanley Smith
Barney, both non-affiliated companies. The Company shares in the commissions
generated, without devoting significant management and staff time to this
portion of the business.
4
RECENT AND PENDING ACQUISITIONS
The Company's strategy has been to profitably grow its business through internal
growth and selective acquisitions. The Company continues to look for profitable
expansion opportunities in existing markets and new markets in the Rocky
Mountain states. During the last five years, the Company has completed the
following acquisitions: On October 2, 2009, First Company and its subsidiary,
First National Bank & Trust, was acquired by the Company. On December 1, 2008,
Bank of the San Juans Bancorporation and its subsidiary, Bank of the San Juans
in Durango, Colorado, was acquired by the Company. On April 30, 2007, North Side
State Bank in Rock Springs, Wyoming was acquired and became a part of 1st Bank.
On October 1, 2006, Citizens Development Company ("CDC") and its five bank
subsidiaries located across Montana were acquired by the Company. On September
1, 2006, First National Bank of Morgan and its one branch office in Mountain
Green, Utah was acquired. On October 31, 2005, First State Bank of Thompson
Falls, Montana was acquired and its two branches were merged into First
Security. On May 20, 2005, Zions National Bank branch office in Bonners Ferry,
Idaho was acquired and became a branch of Mountain West. On April 1, 2005,
Citizens Bank Holding Co. and its subsidiary Citizens Community Bank in
Pocatello, Idaho was acquired. On February 28, 2005, First National Bank-West
Co. and its subsidiary, 1st Bank, in Evanston, Wyoming were acquired.
FDIC, FHLB AND FRB
The Federal Deposit Insurance Corporation ("FDIC") insures each bank
subsidiary's deposit accounts. All bank subsidiaries, except San Juans are
members of the Federal Home Loan Bank ("FHLB") of Seattle; however, San Juans is
a member of the FHLB of Topeka, which are two of twelve banks that comprise the
FHLB System. All bank subsidiaries, with the exception of Mountain West,
Citizens and San Juans, are members of the Federal Reserve Bank ("FRB").
BANK LOCATIONS AT DECEMBER 31, 2009
The following is a list of the parent company and bank subsidiaries' main office
locations as of December 31, 2009. See "Item 2. Properties."
Glacier Bancorp, Inc. 49 Commons Loop, Kalispell, MT 59901 (406) 756-4200
Glacier 202 Main Street, Kalispell, MT 59901 (406) 756-4200
Mountain West 125 Ironwood Drive, Coeur d'Alene, Idaho 83814 (208) 765-0284
First Security 1704 Dearborn, Missoula, MT 59801 (406) 728-3115
1st Bank 1001 Main Street, Evanston, WY 82930 (307) 789-3864
Western 2812 1st Avenue North, Billings, MT 59101 (406) 371-8258
Big Sky 4150 Valley Commons, Bozeman, MT 59718 (406) 587-2922
Valley 3030 North Montana Avenue, Helena, MT 59601 (406) 495-2400
First National 245 East First Street, Powell, WY 82435 (307) 754-2201
Citizens 280 South Arthur, Pocatello, ID 83204 (208) 232-5373
First Bank-MT 224 West Main, Lewistown, MT 59457 (406) 538-7471
San Juans 144 East Eighth Street, Durango, CO 81301 (970) 247-1818
5
FINANCIAL INFORMATION ABOUT SEGMENTS
The following abbreviated organizational chart illustrates the various existing
parent and subsidiary relationships at December 31, 2009:
---------------------------------
| Glacier Bancorp, Inc. |
| (Parent Holding Company) |
| |
---------------------------------
|
-------------------------------------------------------------|-----------------------------------------------------------
| Glacier Bank | | Mountain West Bank | | | First Security Bank | | 1st Bank |
| (MT Community Bank) | | (ID Community Bank) | | | of Missoula | | (WY Community Bank) |
| | | | | | (MT Community Bank) | | |
----------------------------- ---------------------------- | --------------------------- ----------------------------
|
-------------------------------------------------------------|-----------------------------------------------------------
| Western Security Bank | | Big Sky | | | Valley Bank | | First National Bank |
| (MT Community Bank) | | Western Bank | | | of Helena | | & Trust |
| | | (MT Community Bank) | | | (MT Community Bank) | | (WY Community Bank) |
----------------------------- ---------------------------- | --------------------------- ----------------------------
|
-------------------------------------------------------------|-----------------------------------------------------------
| Citizens Community Bank | | First Bank of Montana | | | Bank of the | | |
| (ID Community Bank) | | (MT Community Bank) | | | San Juans | | Glacier Capital Trust II |
| | | | | | (CO Community Bank) | | |
----------------------------- ---------------------------- | --------------------------- ----------------------------
|
-------------------------------------------------------------|-----------------------------------------------------------
| | | | | | Citizens (ID) Statutory | | |
| Glacier Capital Trust III | | Glacier Capital Trust IV | | | Trust I | | San Juans Trust I |
| | | | | | | | |
----------------------------- ---------------------------- | --------------------------- ----------------------------
|
------------------------------------------------------------
| First Company | | First Company |
| Statutory Trust 2001 | | Statutory Trust 2003 |
| | | |
---------------------------- ---------------------------
For information regarding the parent company, separate from the subsidiaries,
see "Item 7 - Management's Discussion & Analysis" and Note 16 to the
Consolidated Financial Statements in "Item 8 - Financial Statements and
Supplementary Data."
The business of the Company's bank subsidiaries (collectively referred to
hereafter as the "Banks") consists primarily of attracting deposit accounts from
the general public and originating commercial, residential, and consumer loans.
The Banks' principal sources of revenue are interest on loans, loan origination
fees, fees on deposit accounts and interest and dividends on investment
securities. The principal sources of expenses are interest on deposits, FHLB
advances, repurchase agreements, subordinated debentures, and other borrowings,
as well as general and administrative expenses.
BUSINESS SEGMENT RESULTS
The Company defines operating segments and evaluates segment performance
internally based on individual bank charters. Centrally provided services to the
banks are allocated based on estimated usage of those services. If required,
variable interest entities ("VIEs") are consolidated into the operating segment
which invested into such entities. Intersegment revenues primarily represents
interest income on intercompany borrowings, management fees, and data processing
fees received by individual banks or the parent company. Intersegment revenues,
expenses and assets are eliminated in order to report results in accordance with
accounting principles generally accepted in the United States of America.
On February 1, 2009, Morgan merged into 1st Bank resulting in operations being
conducted under the 1st Bank charter. On April 30, 2008, Glacier Bank of
Whitefish ("Whitefish") merged into Glacier with operations conducted under the
Glacier charter. The five bank subsidiaries acquired as a result of the
acquisition of CDC included Citizens State Bank, First Citizens Bank of
Billings, First National Bank of Lewistown, Western Bank of Chinook, and First
Citizens Bank, N.A. On January 26, 2007, Citizens State Bank, First Citizens
Bank of Billings, and First Citizens Bank, N.A. were merged into First Security,
Western, and Glacier, respectively. On June 21, 2007, Western Bank of Chinook
merged into First National Bank of Lewistown and renamed First Bank of Montana.
Prior period activity of the merged banks has been combined and included in the
acquiring bank subsidiaries' historical results.
6
Glacier Mountain West First Security
---------------------------------- --------------------------------- ----------------------------
(Dollars in thousands) 2009 2008 2007 2009 2008 2007 2009 2008 2007
---------------------- ---------- --------- --------- --------- --------- --------- ------- ------- --------
Condensed Income Statements
Net interest income $ 57,139 52,900 40,270 53,302 45,614 41,115 35,788 34,212 32,674
Noninterest income 15,387 13,926 13,473 27,882 20,353 19,861 8,103 6,987 6,844
---------- --------- --------- --------- --------- --------- ------- ------- -------
Total revenues 72,526 66,826 53,743 81,184 65,967 60,976 43,891 41,199 39,518
Provision for loan losses (32,000) (8,825) (1,580) (50,500) (11,150) (2,225) (10,450) (1,750) (1,100)
Core deposit intangible
expense (330) (392) (415) (184) (196) (208) (468) (511) (554)
Other noninterest expense (27,325) (27,074) (25,231) (51,525) (41,922) (36,745) (18,897) (17,128) (17,295)
---------- --------- --------- --------- --------- --------- ------- ------- -------
Pretax earnings 12,871 30,535 26,517 (21,025) 12,699 21,798 14,076 21,810 20,569
Income tax (expense) benefit (2,803) (10,910) (9,294) 9,764 (3,628) (7,701) (3,372) (7,282) (7,027)
---------- --------- --------- --------- --------- --------- ------- ------- -------
Net income (loss) 10,068 19,625 17,223 (11,261) 9,071 14,097 10,704 14,528 13,542
========== ========= ========= ========= ========= ========= ======= ======= =======
Average Balance Sheet Data
Total assets $1,249,755 1,165,234 1,032,420 1,219,435 1,105,761 966,955 916,115 862,203 812,554
Total loans 967,239 938,824 797,705 976,132 897,841 774,784 580,401 561,258 549,869
Total deposits 605,928 546,569 610,869 709,834 662,505 693,768 567,649 536,400 553,923
Stockholders' equity 137,188 124,163 111,191 135,932 120,606 109,378 122,153 113,653 107,503
End of Year Balance Sheet
Data
Total assets $1,325,039 1,250,774 1,101,112 1,172,331 1,226,869 1,038,294 890,672 954,218 792,882
Loans, net of ALLL 903,276 963,107 863,253 919,901 955,486 836,426 548,471 561,691 548,379
Total deposits 726,403 609,473 579,190 793,006 680,404 666,330 588,858 545,199 533,260
Stockholders' equity 139,799 129,890 115,247 146,720 124,881 114,538 120,044 116,856 109,320
Performance Ratios
Return on average assets 0.81% 1.68% 1.67% -0.92% 0.82% 1.46% 1.17% 1.68% 1.67%
Return on average equity 7.34% 15.81% 15.49% -8.28% 7.52% 12.89% 8.76% 12.78% 12.60%
Efficiency ratio 38.13% 41.10% 47.72% 63.69% 63.85% 60.60% 44.12% 42.81% 45.17%
Regulatory Capital Ratios &
Other
Tier I risk-based capital
ratio 12.33% 11.31% 10.75% 13.39% 10.62% 10.45% 14.91% 14.29% 13.67%
Total risk-based capital
ratio 13.61% 12.57% 11.92% 14.67% 11.88% 11.67% 16.18% 15.55% 14.92%
Leverage capital ratio 10.09% 9.79% 9.62% 10.98% 8.68% 9.01% 11.32% 11.31% 11.11%
Full time equivalent
employees 274 283 274 376 393 354 178 178 181
Locations 17 17 16 29 29 30 13 13 13
1st Bank Western Big Sky
---------------------------- --------------------------- ---------------------------
(Dollars in thousands) 2009 2008 2007 2009 2008 2007 2009 2008 2007
---------------------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Condensed Income Statements
Net interest income $ 24,057 22,695 20,135 21,233 20,713 19,043 15,700 15,595 12,610
Noninterest income 4,628 4,728 4,212 8,631 3,306 8,896 3,564 3,608 3,583
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues 28,685 27,423 24,347 29,864 24,019 27,939 19,264 19,203 16,193
Provision for loan losses (10,800) (2,012) (630) (3,200) (540) -- (9,200) (2,200) (645)
Core deposit intangible
expense (652) (712) (688) (571) (623) (675) (23) (23) (23)
Other noninterest expense (14,943) (14,143) (13,015) (16,342) (16,151) (16,050) (8,441) (7,390) (7,220)
-------- ------- ------- ------- ------- ------- ------- ------- -------
Pretax earnings 2,290 10,556 10,014 9,751 6,705 11,214 1,600 9,590 8,305
Income tax (expense) benefit (309) (3,631) (3,482) (2,813) (1,818) (4,129) (121) (3,587) (3,144)
-------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) 1,981 6,925 6,532 6,938 4,887 7,085 1,479 6,003 5,161
======== ======= ======= ======= ======= ======= ======= ======= =======
Average Balance Sheet Data
Total assets $606,649 563,588 510,449 604,020 566,364 545,074 340,827 325,976 286,537
Total loans 312,372 315,007 255,401 344,456 347,075 322,845 287,338 283,512 239,919
Total deposits 414,059 416,173 406,300 410,490 342,793 373,682 178,465 180,860 215,784
Stockholders' equity 97,859 87,948 79,942 87,837 83,915 85,581 45,683 38,220 33,833
End of Year Balance Sheet
Data
Total assets $650,072 566,869 551,327 624,077 609,868 508,915 368,571 332,325 315,885
Loans, net of ALLL 286,019 320,370 298,800 314,613 354,199 321,533 260,433 287,394 262,934
Total deposits 421,271 418,231 439,281 504,619 357,729 345,273 184,278 179,834 215,771
Stockholders' equity 101,789 95,200 87,523 85,259 83,843 83,226 51,614 40,384 35,406
Performance Ratios
Return on average assets 0.33% 1.23% 1.28% 1.15% 0.86% 1.30% 0.43% 1.84% 1.80%
Return on average equity 2.02% 7.87% 8.17% 7.90% 5.82% 8.28% 3.24% 15.71% 15.25%
Efficiency ratio 54.37% 54.17% 56.28% 56.63% 69.84% 59.86% 43.94% 38.60% 44.73%
Regulatory Capital Ratios &
Other
Tier I risk-based capital
ratio 14.99% 12.58% 11.27% 14.67% 13.26% 14.22% 16.06% 11.89% 11.04%
Total risk-based capital
ratio 16.26% 13.83% 12.50% 15.93% 14.52% 15.48% 17.34% 13.15% 12.29%
Leverage capital ratio 9.74% 8.08% 7.41% 10.19% 10.71% 11.18% 13.67% 11.62% 11.17%
Full time equivalent
employees 141 148 153 161 161 161 83 83 82
Locations 12 12 11 8 8 8 5 5 5
7
Valley First National Citizens
---------------------------- ---------------------- ---------------------------
(Dollars in thousands) 2009 2008 2007 2009(1) 2008 2007 2009 2008 2007
---------------------- -------- ------- ------- -------- ---- ---- ------- ------- -------
Condensed Income Statements
Net interest income $ 14,051 12,719 10,641 3,964 -- -- 10,437 7,676 7,532
Noninterest income 5,717 4,673 4,807 4,187 -- -- 4,235 2,855 2,550
-------- ------- ------- ------- --- --- ------- ------- -------
Total revenues 19,768 17,392 15,448 8,151 -- -- 14,672 10,531 10,082
Provision for loan losses (1,200) (810) (405) (1,683) -- -- (2,800) (750) (75)
Core deposit intangible
expense (42) (42) (42) (144) -- -- (111) (128) (146)
Other noninterest expense (9,229) (8,770) (8,335) (2,011) -- -- (7,992) (6,407) (6,102)
-------- ------- ------- ------- --- --- ------- ------- -------
Pretax earnings 9,297 7,770 6,666 4,313 -- -- 3,769 3,246 3,759
Income tax (expense) benefit (2,740) (2,251) (1,955) (230) -- -- (1,332) (1,092) (1,403)
-------- ------- ------- ------- --- --- ------- ------- -------
Net income (loss) 6,557 5,519 4,711 4,083 -- -- 2,437 2,154 2,356
======== ======= ======= ======= === === ======= ======= =======
Average Balance Sheet Data
Total assets $312,273 302,754 277,569 72,641 -- -- 234,382 201,258 178,994
Total loans 195,007 199,080 190,718 39,416 -- -- 168,675 143,946 134,353
Total deposits 196,506 186,004 189,547 60,832 -- -- 146,780 136,997 137,861
Stockholders' equity 34,246 29,487 25,951 7,870 -- -- 30,814 28,137 26,888
End of Year Balance Sheet
Data
Total assets $351,228 298,392 283,155 295,953 -- -- 241,807 217,697 182,769
Loans, net of ALLL 182,916 195,504 194,912 151,379 -- -- 161,182 159,412 131,988
Total deposits 211,935 185,505 187,657 247,256 -- -- 159,763 135,970 139,228
Stockholders' equity 30,585 31,483 27,323 31,364 -- -- 31,969 29,110 27,808
Performance Ratios
Return on average assets 2.10% 1.82% 1.70% 5.62% -- -- 1.04% 1.07% 1.32%
Return on average equity 19.15% 18.72% 18.15% 51.88% -- -- 7.91% 7.66% 8.76%
Efficiency ratio 46.90% 50.67% 54.23% 26.44% -- -- 55.23% 62.05% 61.97%
Regulatory Capital Ratios &
Other
Tier I risk-based capital
ratio 13.11% 13.65% 11.68% 15.98% -- -- 11.32% 10.84% 11.92%
Total risk-based capital
ratio 14.37% 14.91% 12.93% 16.89% -- -- 12.59% 12.10% 13.17%
Leverage capital ratio 8.57% 9.11% 9.03% 10.38% -- -- 9.62% 9.46% 10.10%
Full time equivalent
employees 85 83 80 75 -- -- 70 63 61
Locations 6 6 6 3 -- -- 6 5 5
First Bank - MT San Juans Parent
---------------------------- ------------------------- ---------------------------
(Dollars in thousands) 2009 2008 2007 2009 2008(2) 2007 2009 2008 2007
---------------------- -------- ------- ------- ------- -------- ---- ------- ------- -------
Condensed Income Statements
Net interest income $ 7,900 6,676 6,308 8,021 575 -- (6,265) (6,762) (6,859)
Noninterest income 929 768 736 1,329 85 -- 52,466 83,891 84,025
-------- ------- ------- ------- ------- --- ------- ------- -------
Total revenues 8,829 7,444 7,044 9,350 660 -- 46,201 77,129 77,166
Provision for loan losses (985) (390) (20) (1,800) (53) -- -- -- --
Core deposit intangible
expense (358) (405) (451) (233) (19) -- -- -- --
Other noninterest expense (3,189) (3,083) (3,426) (5,435) (397) -- (13,769) (13,424) (13,006)
-------- ------- ------- ------- ------- --- ------- ------- -------
Pretax earnings 4,297 3,566 3,147 1,882 191 -- 32,432 63,705 64,160
Income tax (expense) benefit (1,426) (1,279) (1,395) (551) (75) -- 1,942 1,952 4,443
-------- ------- ------- ------- ------- --- ------- ------- -------
Net income (loss) 2,871 2,287 1,752 1,331 116 -- 34,374 65,657 68,603
======== ======= ======= ======= ======= === ======= ======= =======
Average Balance Sheet Data
Total assets $179,885 152,354 142,401 175,107 12,983 -- 824,527 689,132 619,391
Total loans 119,840 109,706 98,402 149,665 12,172 -- -- -- --
Total deposits 121,770 109,067 107,491 140,528 11,292 -- -- -- --
Stockholders' equity 30,955 28,172 26,557 23,396 1,171 -- 691,922 564,785 496,393
End of Year Balance Sheet
Data
Total assets $217,379 154,645 149,483 184,528 165,784 -- 832,916 814,883 660,892
Loans, net of ALLL 114,113 114,177 98,897 145,015 142,114 -- -- -- --
Total deposits 143,552 113,531 113,692 148,474 143,056 -- -- -- --
Stockholders' equity 32,627 29,329 26,941 25,410 21,207 -- 685,890 676,940 528,576
Performance Ratios
Return on average assets 1.60% 1.50% 1.23% 0.76% 0.89% --
Return on average equity 9.27% 8.12% 6.60% 5.69% 9.91% --
Efficiency ratio 40.17% 46.86% 55.04% 60.62% 63.03% --
Regulatory Capital Ratios &
Other
Tier I risk-based capital
ratio 12.73% 11.70% 10.79% 11.11% 9.26% --
Total risk-based capital
ratio 13.99% 12.95% 12.04% 12.37% 10.51% --
Leverage capital ratio 9.19% 10.17% 9.26% 10.33% 9.66% --
Full time equivalent
employees 40 37 35 41 31 -- 119 111 99
Locations 3 3 3 3 3 -- 1 -- --
8
Eliminations Consolidation
----------------------------------- ---------------------------------
(Dollars in thousands) 2009 2008 2007 2009 2008 2007
---------------------- ----------- ---------- -------- --------- --------- ---------
Condensed Income Statements
Net interest income $ -- -- -- 245,327 212,613 183,469
Noninterest income (50,584) (84,146) (84,169) 86,474 61,034 64,818
----------- ---------- -------- --------- --------- ---------
Total revenues (50,584) (84,146) (84,169) 331,801 273,647 248,287
Provision for loan losses -- -- -- (124,618) (28,480) (6,680)
Core deposit intangible
expense -- -- -- (3,116) (3,051) (3,202)
Other noninterest expense 13,396 13,031 11,710 (165,702) (142,858) (134,715)
----------- ---------- -------- --------- --------- ---------
Pretax earnings (37,188) (71,115) (72,459) 38,365 99,258 103,690
Income tax (expense) benefit -- -- -- (3,991) (33,601) (35,087)
----------- ---------- -------- --------- --------- ---------
Net income (loss) (37,188) (71,115) (72,459) 34,374 65,657 68,603
=========== ========== ======== ========= ========= =========
Average Balance Sheet Data
Total assets $(1,043,687) (918,204) (766,262) 5,691,929 5,029,403 4,606,082
Total loans -- -- (3,669) 4,140,541 3,808,421 3,360,327
Total deposits (59,234) (28,155) (23,470) 3,493,607 3,100,505 3,265,755
Stockholders' equity (753,933) (655,472) (606,824) 691,922 564,785 496,393
End of Year Balance Sheet
Data
Total assets $ (962,778) (1,038,354) (767,384) 6,191,795 5,553,970 4,817,330
Loans, net of ALLL -- -- -- 3,987,318 4,053,454 3,557,122
Total deposits (29,263) (106,457) (35,204) 4,100,152 3,262,475 3,184,478
Stockholders' equity (797,180) (702,183) (627,332) 685,890 676,940 528,576
Performance Ratios
Return on average assets 0.60% 1.31% 1.49%
Return on average equity 4.97% 11.63% 13.82%
Efficiency ratio 50.88% 53.32% 55.55%
Regulatory Capital Ratios &
Other
Tier I risk-based capital
ratio 14.02% 14.30% 12.17%
Total risk-based capital
ratio 15.29% 15.55% 13.42%
Leverage capital ratio 11.20% 12.38% 10.48%
Full time equivalent
employees 1,643 1,571 1,480
Locations 106 101 97
(1) The average balance sheet data is based on daily averages for the entire
year, with First National being acquired October 2, 2009.
(2) The average balance sheet data is based on daily averages for the entire
year, with San Juans being acquired December 1, 2008.
INTERNET ACCESS
Copies of the Company's Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available free of charge through the Company's website
(www.glacierbancorp.com) as soon as reasonably practicable after the Company has
filed the material with, or furnished it to, the Securities and Exchange
Commission ("SEC"). Copies can also be obtained by accessing the SEC's website
(www.sec.gov).
MARKET AREA
The Company has 106 locations, of which 9 are loan or administration offices, in
35 counties within 6 states including Montana, Idaho, Wyoming, Colorado, Utah,
and Washington. The Company has 53 locations in Montana. In Idaho there are 30
locations. In Wyoming, there are 13 locations. In Utah, there are 4 locations.
In Washington, there are 3 locations. In Colorado, there are 3 locations.
The market area's economic base primarily focuses on tourism, construction,
manufacturing, service industry, and health care. The tourism industry is highly
influenced by two national parks, several ski resorts, large lakes, and rural
scenic areas. Construction development is a result of the high population growth
that has occurred in the market areas, in particular Idaho and western Montana.
COMPETITION
Based on the FDIC summary of deposits survey as of June 30, 2009, the Company
has approximately 20 percent of the total FDIC insured deposits in the 13
counties that it services in Montana. In Idaho, the Company has approximately 6
percent of the deposits in the 9 counties that it services. In Wyoming, the
Company has 22 percent of the deposits in the 6 counties it services. In
Colorado, the Company has 10 percent of the deposits in the 2 counties it
serves. In Utah, the Company has 3 percent of the deposits in the 3 counties it
services.
9
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 including
on-line banking 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.
10
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 and interest rate spread; and (iv) net interest margin and
net interest margin tax-equivalent; and (v) return on average assets and return
on average equity.
Year ended 12/31/2009 Year ended 12/31/2008 Year ended 12/31/2007
------------------------------ ------------------------------ ------------------------------
Interest Average Interest Average Interest Average
Average and Yield/ Average and Yield/ Average and Yield/
(Dollars in thousands) Balance Dividends Rate Balance Dividends Rate Balance Dividends Rate
---------------------- ---------- --------- ------- ---------- --------- ------- ---------- --------- -------
ASSETS:
Residential real estate loans $ 829,348 $ 54,498 6.57% $ 746,135 $ 51,166 6.86% $ 798,841 $ 59,664 7.47%
Commercial loans 2,608,961 151,580 5.81% 2,390,990 165,119 6.91% 1,957,252 157,644 8.05%
Consumer and other loans 702,232 44,844 6.39% 671,296 47,725 7.11% 604,234 48,105 7.96%
---------- -------- ---------- -------- ---------- --------
Total loans 4,140,541 250,922 6.06% 3,808,421 264,010 6.93% 3,360,327 265,413 7.90%
Tax-exempt investment securities
(1) 445,063 22,196 4.99% 282,884 13,901 4.91% 272,042 13,427 4.94%
Taxable investment securities 707,062 29,376 4.15% 555,955 25,074 4.51% 574,913 25,920 4.51%
---------- -------- ---------- -------- ---------- --------
Total earning assets 5,292,666 302,494 5.72% 4,647,260 302,985 6.52% 4,207,282 304,760 7.24%
Goodwill and intangibles 158,896 152,822 149,934
Non-earning assets 240,367 229,321 248,866
---------- ---------- ----------
Total assets $5,691,929 $5,029,403 $4,606,082
========== ========== ==========
LIABILITIES:
NOW accounts $ 572,260 $ 2,275 0.40% $ 467,374 $ 3,014 0.64% $ 461,341 $ 4,708 1.02%
Savings accounts 303,794 947 0.31% 272,673 1,865 0.68% 268,175 2,679 1.00%
Money market demand accounts 768,939 8,436 1.10% 760,599 17,234 2.27% 754,995 27,248 3.61%
Certificate
accounts 960,403 24,719 2.57% 853,076 32,634 3.83% 1,000,797 46,824 4.68%
Wholesale deposits (2) 133,083 2,052 1.54% 7,704 265 3.44% -- -- 0.00%
Advances from FHLB 473,038 7,952 1.68% 566,933 15,355 2.71% 382,243 18,897 4.94%
Securities sold under agreements
to repurchase and other
borrowed funds 995,006 10,786 1.08% 752,958 20,005 2.66% 412,237 20,935 5.08%
---------- -------- ---------- -------- ---------- --------
Total interest bearing
liabilities 4,206,523 57,167 1.36% 3,681,317 90,372 2.46% 3,279,788 121,291 3.70%
-------- -------- --------
Non-interest bearing deposits 755,128 739,079 781,447
Other liabilities 38,356 44,222 48,454
---------- ---------- ----------
Total liabilities 5,000,007 4,464,618 4,109,689
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common stock 615 548 532
Paid-in capital 495,340 393,158 361,003
Retained earnings 193,973 171,385 132,352
Accumulated other comprehensive
income (loss) 1,994 (306) 2,506
---------- ---------- ----------
Total stockholders' equity 691,922 564,785 496,393
Total liabilities and
stockholders' equity $5,691,929 $5,029,403 $4,606,082
========== ========== ==========
NET INTEREST INCOME $245,327 $212,613 $183,469
-------- -------- --------
NET INTEREST SPREAD 4.36% 4.06% 3.54%
NET INTEREST MARGIN 4.64% 4.58% 4.36%
NET INTEREST MARGIN
(TAX-EQUIVALENT) 4.82% 4.70% 4.50%
(1) Without tax effect on non-taxable securities income of $9,827,000,
$6,155,000 and $5,944,000 for the years ended December 31, 2009, 2008, and
2007, respectively.
(2) Wholesale deposits include brokered deposits classified as NOW, money
market demand, and certificate accounts.
11
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,
2009 vs. 2008 2008 vs. 2007
Increase (Decrease) Due to: Increase (Decrease) Due to:
----------------------------- -----------------------------
(Dollars in thousands) Volume Rate Net Volume Rate Net
---------------------- ------- -------- -------- ------- -------- --------
INTEREST INCOME:
Residential real estate loans $ 5,706 $ (2,374) $ 3,332 $(3,936) $ (4,562) $ (8,498)
Commercial loans 15,053 (28,592) (13,539) 34,934 (27,459) 7,475
Consumer and other loans 2,199 (5,080) (2,881) 5,339 (5,719) (380)
Investment securities 14,556 (1,959) 12,597 (377) 5 (372)
------- -------- -------- ------- -------- --------
Total interest income 37,514 (38,005) (491) 35,960 (37,735) (1,775)
------- -------- -------- ------- -------- --------
INTEREST EXPENSE:
NOW accounts 676 (1,415) (739) 62 (1,756) (1,694)
Savings accounts 213 (1,130) (917) 45 (860) (815)
Money market demand accounts 188 (8,987) (8,799) 202 (10,215) (10,013)
Certificate accounts 4,106 (12,021) (7,915) (6,911) (7,278) (14,189)
Wholesale deposits 4,310 (2,523) 1,787 360 (96) 264
FHLB advances (2,544) (4,859) (7,403) 9,131 (12,673) (3,542)
Repurchase agreements and
other borrowed funds 6,432 (15,651) (9,219) 17,303 (18,233) (930)
------- -------- -------- ------- -------- --------
Total Interest Expense 13,381 (46,586) (33,205) 20,192 (51,111) (30,919)
------- -------- -------- ------- -------- --------
NET INTEREST INCOME $24,133 $ 8,581 $ 32,714 $15,768 $ 13,376 $ 29,144
======= ======== ======== ======= ======== ========
Net interest income increased $33 million in 2009 over 2008. The increase was
primarily due to increases in loan and investment volumes and decrease in
deposit and borrowing rates which combined outpaced the decrease in loan rates.
For additional information see "Item 7 - Management's Discussion and Analysis".
INVESTMENT ACTIVITIES
It has generally been the Company's policy to maintain a liquid portfolio above
policy limits. The Company's investment securities are generally classified as
available-for-sale and are carried at estimated fair value with unrealized gains
or losses, net of tax, reflected as an adjustment to stockholders' equity. The
Company uses the federal statutory rate of 35 percent in calculating its
tax-equivalent yield. Approximately $467 million of the investment portfolio is
comprised of tax-exempt investments which is an increase of $49 million from the
prior year.
For information about the Company's equity investment in the stock of the FHLB,
see "Sources of Funds - Advances and Other Borrowings".
For additional investment activity information, see "Item 7 - Management's
Discussion & Analysis" and Note 3 to the Consolidated Financial Statements in
"Item 8 - Financial Statements and Supplementary Data".
12
LENDING ACTIVITY
GENERAL
The Banks focus their lending activity primarily on the following 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. "Item 7 - Management's Discussion & Analysis" and Note 4 to
the Consolidated Financial Statements in "Item 8 - Financial Statements and
Supplementary Data" provide more information about the loan portfolio.
LOAN PORTFOLIO COMPOSITION
The following table summarizes the Company's loan portfolio:
AT At At At At
12/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005
------------------- ------------------- ------------------- ------------------- -------------------
(Dollars in thousands) AMOUNT PERCENT Amount Percent Amount Percent Amount Percent Amount Percent
---------------------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
REAL ESTATE LOANS:
Residential $ 746,050 18.71% $ 786,869 19.41% $ 689,238 19.38% $ 758,921 23.97% $ 589,260 24.58%
Held for sale 66,330 1.66% 54,976 1.36% 40,123 1.13% 35,135 1.11% 22,540 0.94%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total 812,380 20.37% 841,845 20.77% 729,361 20.51% 794,056 25.08% 611,800 25.52%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
COMMERCIAL LOANS:
Real estate 1,900,438 47.66% 1,935,341 47.74% 1,617,076 45.46% 1,165,617 36.83% 935,460 39.02%
Other commercial 724,966 18.18% 645,033 15.91% 636,351 17.89% 691,667 21.85% 425,236 17.74%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total 2,625,404 65.84% 2,580,374 63.65% 2,253,427 63.35% 1,857,284 58.68% 1,360,696 56.76%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
CONSUMER AND OTHER LOANS:
Consumer 201,001 5.04% 208,166 5.14% 206,724 5.81% 218,640 6.91% 175,503 7.32%
Home equity 501,920 12.59% 507,831 12.53% 432,217 12.15% 356,477 11.26% 295,992 12.35%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total 702,921 17.63% 715,997 17.67% 638,941 17.96% 575,117 18.17% 471,495 19.67%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Net deferred loan fees,
premiums and
discounts (10,460) -0.26% (8,023) -0.20% (10,194) -0.29% (11,674) -0.37% (8,149) -0.34%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
LOANS RECEIVABLE, GROSS 4,130,245 103.58% 4,130,193 101.89% 3,611,535 101.53% 3,214,783 101.56% 2,435,842 101.61%
Allowance for loan and
lease losses (142,927) -3.58% (76,739) -1.89% (54,413) -1.53% (49,259) -1.56% (38,655) -1.61%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
LOANS RECEIVABLE, NET $3,987,318 100.00% $4,053,454 100.00% $3,557,122 100.00% $3,165,524 100.00% $2,397,187 100.00%
========== ====== ========== ====== ========== ====== ========== ====== ========== ======
LOAN PORTFOLIO MATURITIES OR REPRICING TERM
The stated maturities or first repricing term (if applicable) for the loan
portfolio at December 31, 2009 was as follows:
Residential Consumer
(Dollars in thousands) Real Estate Commercial and Other Totals
---------------------- ----------- ---------- --------- ---------
Variable rate maturing or repricing in:
One year or less $207,181 939,514 290,003 1,436,698
One to five years 177,185 779,525 49,569 1,006,279
Thereafter 10,932 115,084 2,054 128,070
Fixed rate maturing or repricing in:
One year or less 261,162 281,282 146,013 688,457
One to five years 130,329 328,365 193,475 652,169
Thereafter 25,591 181,634 21,807 229,032
-------- --------- ------- ---------
Totals $812,380 2,625,404 702,921 4,140,705
======== ========= ======= =========
13
RESIDENTIAL REAL ESTATE LENDING
The Company's lending activities consist of the origination of both construction
and permanent loans on residential real estate loans. The Company actively
solicits residential real estate loan applications from real estate brokers,
contractors, existing customers, customer referrals, and walk-ins to their
offices. The Company's lending policies generally limit the maximum
loan-to-value ratio on residential mortgage loans to 80 percent of the lesser of
the appraised value or purchase price or above 80 percent of the loan if insured
by a private mortgage insurance company. The Company also provides interim
construction financing for single-family dwellings. These loans are supported by
a term take out commitment.
CONSUMER LAND OR LOT LOANS
The Company originates land and lot acquisition loans to borrowers who intend to
construct their primary residence on the respective land or lot. These loans are
generally for a term of three to five years and are secured by the developed
land or lot with the loan to value limited to the lesser of 75% of cost or
appraised value.
UNIMPROVED LAND AND LAND DEVELOPMENT LOANS
Where real estate market conditions warrant, the Company makes land acquisition
and development loans on properties intended for residential and commercial use.
These loans are generally made for a term of 18 months to two years and secured
by the developed property with a loan-to-value not to exceed the lesser of 75
percent of cost or 65 percent of the appraised discounted bulk sale value upon
completion of the improvements. The loans are made to borrowers with real estate
development experience and appropriate financial strength. Generally it is
required that a certain percentage of the development be pre-sold or that
construction and term take out commitments are in place prior to funding the
loan.
RESIDENTIAL BUILDER GUIDANCE LINES
The Company provides Builder Guidance Lines that are comprised of pre-sold and
spec-home construction and lot acquisition loans. The spec-home construction and
lot acquisition loans are limited to a set number and maximum amount. Generally
the individual loans will not exceed a one year maturity. The homes under
construction are inspected on a regular basis and advances made on a percentage
of completion basis.
COMMERCIAL REAL ESTATE LOANS
Loans are made to purchase, construct and finance commercial real estate
properties. These loans are generally made to borrowers who own and will occupy
the property. Loans to finance investment or income properties are made, but
require additional equity and a higher debt service coverage margin commensurate
with the specific property and projected income.
CONSUMER LENDING
The majority of consumer loans are secured by real estate, automobiles, or other
assets. The Banks intend to continue making such loans because of their
short-term nature, generally between three months and five years. Moreover,
interest rates on consumer loans are generally higher than on residential
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 percent of the current appraised value of the
property.
14
LOAN PORTFOLIO BY BANK SUBSIDIARY AND REGULATORY CLASSIFICATION
The following tables summarize selected information on the Company's loan
portfolio:
LOANS RECEIVABLE, GROSS BY BANK
December 31,
----------------------
(Dollars in thousands) 2009 2008 $ Change % Change
---------------------- ---------- --------- -------- --------
Glacier $ 942,254 982,098 (39,844) -4%
Mountain West 957,451 971,468 (14,017) -1%
First Security 566,713 573,228 (6,515) -1%
1st Bank 296,913 326,381 (29,468) -9%
Western 323,375 361,261 (37,886) -10%
Big Sky 270,970 293,626 (22,656) -8%
Valley 187,283 199,085 (11,802) -6%
First National 153,058 -- 153,058 n/m
Citizens 166,049 162,133 3,916 2%
First Bank-MT 117,017 116,122 895 1%
San Juans 149,162 144,791 4,371 3%
---------- --------- -------
Total $4,130,245 4,130,193 52 0%
========== ========= =======
LAND, LOT AND OTHER CONSTRUCTION LOANS BY BANK
December 31,
----------------------
(Dollars in thousands) 2009 2008 $ Change % Change
---------------------- ---------- --------- -------- --------
Glacier $165,734 204,479 (38,745) -19%
Mountain West 217,078 249,916 (32,838) -13%
First Security 71,404 95,960 (24,556) -26%
1st Bank 36,888 41,667 (4,779) -11%
Western 32,045 45,457 (13,412) -30%
Big Sky 71,365 81,869 (10,504) -13%
Valley 14,704 17,918 (3,214) -18%
First National 10,247 -- 10,247 n/m
Citizens 13,263 14,827 (1,564) -11%
First Bank-MT 1,010 4,507 (3,497) -78%
San Juans 39,621 36,793 2,828 8%
-------- ------- --------
Total $673,359 793,393 (120,034) -15%
======== ======= ========
LAND, LOT AND OTHER CONSTRUCTION LOANS AT 12/31/09 BY BANK, BY TYPE
Consumer Developed Commercial
Land Land or Unimproved Lots for Developed Other
(Dollars in thousands) Development Lot Land Operative Builders Lot Construction
---------------------- ----------- -------- ---------- ------------------ ---------- ------------
Glacier $ 80,881 33,025 29,850 8,625 13,353 --
Mountain West 55,908 74,914 29,684 31,655 10,664 14,253
First Security 30,569 7,208 26,372 4,525 518 2,212
1st Bank 14,447 12,223 4,448 225 2,513 3,032
Western 16,309 7,823 5,159 587 1,914 253
Big Sky 22,909 18,882 9,925 1,992 8,420 9,237
Valley 2,597 5,867 4,513 159 349 1,219
First National 1,961 2,934 733 250 2,245 2,124
Citizens 2,868 2,633 2,652 506 655 3,949
First Bank-MT -- 65 820 -- -- 125
San Juans 417 26,838 45 -- 3,878 8,443
-------- ------- ------- ------ ------ ------
Total $228,866 192,412 114,201 48,524 44,509 44,847
======== ======= ======= ====== ====== ======
15
RESIDENTIAL CONSTRUCTION LOANS BY BANK, BY TYPE
Custom and
December 31, Owner Pre-Sold
------------------ Occupied and Spec
(Dollars in thousands) 2009 2008 $ Change % Change 12/31/2009 12/31/2009
---------------------- -------- ------- -------- -------- ---------- ----------
Glacier $ 57,183 84,161 (26,978) -32% $ 9,762 47,421
Mountain West 57,437 100,289 (42,852) -43% 23,606 33,831
First Security 19,664 19,910 (246) -1% 9,985 9,679
1st Bank 17,633 30,742 (13,109) -43% 11,010 6,623
Western 2,245 6,993 (4,748) -68% 1,830 415
Big Sky 20,679 28,356 (7,677) -27% 3,169 17,510
Valley 5,170 8,265 (3,095) -37% 4,222 948
First National 2,612 -- 2,612 n/m 1,505 1,107
Citizens 13,211 17,909 (4,698) -26% 6,619 6,592
First Bank-MT 234 1,384 (1,150) -83% 174 60
San Juans 13,811 11,425 2,386 21% 6,753 7,058
-------- ------- ------- ------- -------
Total $209,879 309,434 (99,555) -32% $78,635 131,244
======== ======= ======= ======= =======
SINGLE FAMILY RESIDENTIAL LOANS BY BANK, BY TYPE
December 31, 1st Junior
------------------ Lien Lien
(Dollars in thousands) 2009 2008 $ Change % Change 12/31/2009 12/31/2009
---------------------- -------- ------- -------- -------- ---------- ----------
Glacier $204,789 198,654 6,135 3% $183,647 21,142
Mountain West 278,158 274,119 4,039 1% 236,962 41,196
First Security 82,141 79,107 3,034 4% 68,266 13,875
1st Bank 65,555 62,954 2,601 4% 60,566 4,989
Western 50,502 56,789 (6,287) -11% 48,099 2,403
Big Sky 33,308 29,493 3,815 13% 29,482 3,826
Valley 66,644 70,935 (4,291) -6% 54,255 12,389
First National 19,239 -- 19,239 n/m 16,150 3,089
Citizens 20,937 18,903 2,034 11% 18,695 2,242
First Bank-MT 10,003 10,341 (338) -3% 8,536 1,467
San Juans 22,811 23,605 (794) -3% 21,305 1,506
-------- ------- ------ -------- -------
Total $854,087 824,900 29,187 4% $745,963 108,124
======== ======= ====== ======== =======
COMMERCIAL REAL ESTATE LOANS BY BANK, BY TYPE
December 31, Owner Non-Owner
---------------------- Occupied Occupied
(Dollars in thousands) 2009 2008 $ Change % Change 12/31/2009 12/31/2009
---------------------- ---------- --------- -------- -------- ---------- ----------
Glacier $ 232,552 223,449 9,103 4% $117,243 115,309
Mountain West 230,383 180,215 50,168 28% 164,625 65,758
First Security 224,425 192,352 32,073 17% 150,733 73,692
1st Bank 64,008 67,249 (3,241) -5% 54,852 9,156
Western 107,173 98,290 8,883 9% 54,113 53,060
Big Sky 82,303 80,053 2,250 3% 50,699 31,604
Valley 48,144 46,850 1,294 3% 31,353 16,791
First National 26,703 -- 26,703 n/m 18,329 8,374
Citizens 55,660 53,813 1,847 3% 42,786 12,874
First Bank-MT 18,827 17,397 1,430 8% 12,597 6,230
San Juans 47,838 50,925 (3,087) -6% 27,306 20,532
---------- --------- ------- -------- -------
Total $1,138,016 1,010,593 127,423 13% $724,636 413,380
========== ========= ======= ======== =======
16
CONSUMER AND OTHER LOANS BY BANK, BY TYPE
December 31, Home Equity Other
------------------ Line of Credit Consumer
(Dollars in thousands) 2009 2008 $ Change % Change 12/31/2009 12/31/2009
---------------------- -------- ------- -------- -------- -------------- ----------
Glacier $162,723 170,713 (7,990) -5% $145,377 17,346
Mountain West 71,702 72,584 (882) -1% 61,896 9,806
First Security 78,345 85,646 (7,301) -9% 51,110 27,235
1st Bank 46,455 50,723 (4,268) -8% 17,575 28,880
Western 48,946 55,714 (6,768) -12% 33,679 15,267
Big Sky 28,903 33,147 (4,244) -13% 25,569 3,334
Valley 24,625 25,802 (1,177) -5% 15,938 8,687
First National 27,320 -- 27,320 n/m 16,803 10,517
Citizens 29,253 28,633 620 2% 22,872 6,381
First Bank-MT 7,650 7,251 399 6% 3,777 3,873
San Juans 14,189 12,204 1,985 16% 12,439 1,750
-------- ------- ------ -------- -------
Total $540,111 542,417 (2,306) 0% $407,035 133,076
======== ======= ====== ======== =======
n/m - not measurable
CREDIT RISK MANAGEMENT
The Company's credit risk management includes stringent credit policies,
concentration limits, individual loan approval limits and committee approval of
larger loan requests. Management practices also include regular internal and
external credit examinations and an independent stress testing of the land
acquisition/development and commercial real estate portfolios. On a quarterly
basis, both the Banks and parent company management review loans experiencing
deterioration of credit quality, including a review of the acquisition and
development loans, and spec/pre-sold home loans. A review of loans by
concentration limits is performed on a quarterly basis. Federal and state
regulatory safety and soundness examinations are conducted annually at Glacier,
Mountain West, First Security, 1st Bank and Western and every eighteen months
for all other bank subsidiaries.
LOAN APPROVAL LIMITS
Individual loan approval limits have been established for each lender based on
the loan types and experience of the individual. Each bank subsidiary has an
Officer Loan Committee consisting of senior lenders and members of senior
management. The Officer Loan Committee for each bank has approval authority up
to its respective bank's Board of Directors loan approval authority. The Banks'
Board of Directors approval authority is $1,000,000 at First National and
$2,000,000 at all other banks. Loans over these limits up to $10,000,000 are
subject to approval by the Executive Loan Committee consisting of the Banks'
senior loan officers and the Company's Credit Administrator. Loans greater than
$10,000,000 are subject to approval by the Company's Board of Directors. Under
banking laws, loans to one borrower and related entities are limited to a set
percentage of the unimpaired capital and surplus of each bank subsidiary.
LOAN PURCHASES AND SALES
Fixed-rate, long-term mortgage loans are generally sold in the secondary market.
The Company is active in the secondary market, primarily through the origination
of conventional, FHA and VA residential mortgages. The sale of loans in the
secondary mortgage market reduces the Company's risk of holding long-term,
fixed-rate loans during periods of rising rates. The sale of loans also allows
the Company to make loans during periods when funds are not otherwise available
for lending purposes. In connection with conventional loan sales, the Company
typically sells a majority of mortgage loans originated with servicing released.
The Company has also been very active in generating commercial SBA loans, and
other commercial loans, with a portion of those loans sold to investors. As of
December 31, 2009, loans serviced for others aggregated approximately $176
million. The Company has not originated any type of subprime mortgages, either
for the loan portfolio or for sale to investors. In addition, the Company has
not purchased securities that were collateralized with subprime mortgages. The
Company has not purchased loans outside the Company or originate loans outside
the existing geographic market area.
LOAN ORIGINATION AND OTHER FEES
In addition to interest earned on loans, the Company receives fees for
originating loans. Loan fees generally are a percentage of the principal amount
of the loan and are charged to the borrower, and are normally deducted from the
proceeds of the loan. Loan origination fees are generally 1.0 percent to 1.5
percent on residential mortgages and .5 percent to 1.5 percent on commercial
loans. Consumer loans require a flat fee as well as a minimum interest amount.
The Company also receives other fees and charges relating to existing loans,
which include charges and fees collected in connection with loan modifications.
17
NON-PERFORMING LOANS AND REAL ESTATE OWNED
Loans are designated non-accrual and the accrual of interest is discontinued
when the collection of the contractual principal or interest is unlikely. The
Company typically places loans on non-accrual when principal or interest is due
and has remained unpaid for ninety days or more unless the loan is in process of
collection and well-secured by collateral the fair value of which is sufficient
to pay off the debt in full. When a loan is placed on non-accrual status,
interest previously accrued but not collected is reversed against current period
interest income. Subsequent payments are applied to the outstanding principal
balance if doubt remains as to the ultimate collectability of the loan. Interest
accruals are resumed on such loans only when they are brought fully current with
respect to interest and principal and when, in the judgment of management, the
loans are estimated to be fully collectible as to both principal and interest.
The following tables set forth information regarding non-performing assets at
the dates indicated, including breakouts by regulatory and bank subsidiary
classification:
AT At At At At
(Dollars in thousands) 12/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005
---------------------- ----------- ----------- ---------- ----------- ----------
NON-ACCRUAL LOANS:
Residential real estate $ 20,093 $ 3,575 $ 934 $1,806 $ 726
Commercial 168,328 58,454 7,192 3,721 4,045
Consumer and other 9,860 2,272 434 538 481
-------- ------- ------- ------ -------
Total 198,281 64,301 8,560 6,065 5,252
-------- ------- ------- ------ -------
ACCRUING LOANS 90 DAYS OR MORE OVERDUE:
Residential real estate 1,965 4,103 840 554 1,659
Commercial 1,311 2,897 1,216 638 2,199
Consumer and other 2,261 1,613 629 153 647
-------- ------- ------- ------ -------
Total 5,537 8,613 2,685 1,345 4,505
-------- ------- ------- ------ -------
REAL ESTATE AND OTHER ASSETS OWNED 57,320 11,539 2,043 1,484 332
-------- ------- ------- ------ -------
Total non-performing loans and real
estate and other assets owned 261,138 84,453 13,288 8,894 10,089
-------- ------- ------- ------ -------
As a percentage of total bank assets 4.13% 1.46% 0.27% 0.19% 0.26%
-------- ------- ------- ------ -------
Interest income (1) $ 11,730 $ 4,434 $ 683 $ 462 $ 359
-------- ------- ------- ------ -------
(1) Amount of interest that would have been recorded on loans accounted for on
a non-accrual basis as of the end of each period if such loans had been
current for the entire period.
18
Non-Performing
Assets, Net of Gov't.
Guarantees by Loan Type Non- Accruing Other
December 31, Accruing Loans 90 Real Estate
----------------------- Loans Days or More Owned
(Dollars in thousands) 2009 2008 12/31/2009 12/31/2009 12/31/2009
---------------------- -------- ------ ---------- ------------ -----------
Custom and owner
occupied construction $ 3,281 451 2,499 -- 782
Pre-sold and spec construction 29,580 21,903 20,849 420 8,311
Land development 88,488 23,597 70,277 -- 18,211
Consumer land or lots 10,120 1,511 6,161 54 3,905
Unimproved land 32,453 8,920 20,303 135 12,015
Developed lots for operative
builders 11,565 5,567 6,350 114 5,101
Commercial lots 909 280 909 -- --
Other construction -- 2,668 -- -- --
Commercial real estate 32,300 3,391 29,859 144 2,297
Commercial and industrial 12,271 6,983 11,669 565 37
1-4 family 30,868 6,666 22,596 2,750 5,522
Home equity lines of credit 6,234 1,807 4,711 1,183 340
Consumer 1,042 602 476 172 394
Other 2,027 107 1,622 -- 405
-------- ------ ------- ----- ------
Total $261,138 84,453 198,281 5,537 57,320
======== ====== ======= ===== ======
Accruing 30 - 89
Days Delinquent
Loans and Non-
Performing Assets,
Net of Gov't.
Guarantees by Bank Accruing Non-Accrual and Other
December 31, 30-89 Days Accruing Loans 90 Real Estate
------------------ Delinquent Days or More Owned
(Dollars in thousands) 2009 2008 12/31/2009 12/31/2009 12/31/2009
---------------------- -------- ------- ---------- ----------------- -----------
Glacier $ 97,666 41,691 18,677 72,157 6,832
Mountain West 109,187 41,415 32,506 62,855 13,826
First Security 59,351 18,793 14,934 31,665 12,752
1st Bank 21,117 14,355 4,210 7,673 9,234
Western 9,315 3,364 1,796 3,295 4,224
Big Sky 31,711 10,978 5,280 17,908 8,523
Valley 2,542 2,855 1,783 679 80
First National 9,290 -- 5,744 3,407 139
Citizens 5,340 5,080 1,910 1,873 1,557
First Bank - MT 800 563 608 39 153
San Juans 2,310 146 43 2,267 --
-------- ------- ------ ------- ------
Total $348,629 139,240 87,491 203,818 57,320
======== ======= ====== ======= ======
Non-performing assets as a percentage of the Bank's total assets at December 31,
2009 were at 4.13 percent, up from 1.46 percent as of December 31, 2008. The
allowance for loan and lease losses ("ALLL" or "allowance") was 55 percent of
non-performing assets at December 31, 2009, down from 91 percent for the prior
year end. The Company increased the provision for loan loss from $28.5 million
in 2008 to $124.6 million in 2009 resulting in a significant increase in the
ALLL. Such increase was outpaced by the increase in non-performing assets,
resulting in a decrease in the ALLL as a percentage of non-performing assets.
Most of the Company's non-performing assets are secured by real estate and,
based on the most current information available to management, including updated
appraisals where appropriate, the Company believes the value of the underlying
real estate collateral is adequate to minimize significant charge-offs or loss
to the Company. Each bank subsidiary evaluates the level of its non-performing
assets, the values of the underlying real estate and other collateral, and
related trends in net charge-offs. Through pro-active credit administration, the
Banks work closely with borrowers to seek favorable resolution to the extent
possible, thereby attempting to minimize net charge-offs or losses to the
Company.
19
A loan is considered impaired when, based upon current information and events,
it is probable that the Company will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement. The amount of the impairment is measured using cash flows discounted
at the loan's effective interest rate, except when it is determined that
repayment of the loan is expected to be provided solely by the underlying
collateral. For collateral dependent loans, impairment is measured by the fair
value of the collateral less the cost to sell. When the ultimate collectability
of the total principal of an impaired loan is in doubt and is designated as
non-accrual, all payments are applied to principal under the cost recovery
method. When the ultimate collectability of the total principal on an impaired
loan is not in doubt, contractual interest is generally credited to interest
income when received under the cash basis method. Total interest income
recognized for impaired loans under the cash basis for the years ended December
31, 2009 and 2008 was not significant. Impaired loans, net of government
guaranteed amounts, were $218.7 million and $79.9 million as of December 31,
2009 and 2008, respectively. The ALLL includes valuation allowances of $19.8
million and $8.0 million specific to impaired loans as of December 31, 2009 and
2008, respectively. The Company's troubled debt restructuring loans are included
in the impaired loans amount. As of December 31, 2009, the Company had troubled
debt restructuring loans of $64.6 million, of which there were $1.2 million of
additional outstanding commitments.
The combined total of lot acquisition loans to borrowers who intend to construct
a primary residence on the lot, and other construction and land acquisition and
development loans is $883 million and represents 21.4 percent of the total loans
as of December 31, 2009. At December 31, 2008, the comparable total was $1.103
billion, or 26.7 percent of total loans. Outstanding balances are centered in
Western Montana, and Northern Idaho as well as Boise, Ketchum and Sun Valley
Idaho.
Property acquired by foreclosure or deed-in-lieu of foreclosure is carried at
the lower of fair value at acquisition date or current 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 in other expenses and the asset carrying value is reduced. Any
gain or loss on disposition of real estate owned is recorded in other income or
other expense. The following table sets forth the changes in real estate and
other assets owned for the years ended December 31, 2009 and 2008:
Years ended
December 31,
-----------------
(Dollars in thousands) 2009 2008
---------------------- -------- ------
Balance at beginning of period $ 11,539 2,043
Additions 71,967 16,661
Capital improvments 2,403 188
Sales and write-downs (28,589) (7,353)
-------- ------
Balance at end of period $ 57,320 11,539
======== ======
ALLOWANCE FOR LOAN AND LEASE LOSSES
Determining the adequacy of the ALLL involves a high degree of judgment and is
inevitably imprecise as the risk of loss is difficult to quantify. The ALLL
methodology is designed to reasonably estimate the probable loan and lease
losses within each bank subsidiary's loan and lease portfolios. Accordingly, the
ALLL is maintained within a range of estimated losses. The determination of the
ALLL and the related provision for loan losses is a critical accounting estimate
that involves management's judgments about all known relevant internal and
external environmental factors that affect loan losses, including the credit
risk inherent in the loan and lease portfolios, economic conditions nationally
and in the local markets in which the community bank subsidiaries operate,
changes in collateral values, delinquencies, non-performing assets and net
charge-offs. Although the Company and the Banks continue to actively monitor
economic trends, a softening of economic conditions combined with declines in
the values of real estate that collateralize most of the Company's loan and
lease portfolios may adversely affect the credit risk and potential for loss to
the Company.
The ALLL evaluation is well documented and approved by each bank subsidiary's
Board of Directors and reviewed by the parent company's Board of Directors. In
addition, the policy and procedures for determining the balance of the ALLL are
reviewed annually by each bank subsidiary's Board of Directors, the parent
company's Board of Directors, independent credit reviewer and state and federal
bank regulatory agencies.
At the end of each quarter, each of the community bank subsidiaries analyzes its
loan and lease portfolio and maintain an ALLL at a level that is appropriate and
determined in accordance with accounting principles generally accepted in the
United States of America. The ALLL balance covers estimated credit losses on
individually evaluated loans, including those which are determined to be
impaired, as well as estimated credit losses inherent in the remainder of the
loan and lease portfolios. Each of the Bank's ALLL is considered adequate to
absorb losses from any segment of its loan and lease portfolio.
20
The Company is committed to a conservative management of the credit risk within
the loan and lease portfolios, including the early recognition of problem loans.
The Company's credit risk management includes stringent credit policies,
individual loan approval limits, limits on concentrations of credit, and
committee approval of larger loan requests. Management practices also include
regular internal and external credit examinations, identification and review of
individual loans and leases experiencing deterioration of credit quality,
procedures for the collection of non-performing assets, quarterly monitoring of
the loan and lease portfolios, semi-annual review of loans by industry, and
periodic stress testing of the loans secured by real estate.
The Company's model of eleven wholly-owned, independent community banks, each
with its own loan committee, chief credit officer and Board of Directors,
provides substantial local oversight to the lending and credit management
function. Unlike a traditional, single-bank holding company, the Company's
decentralized business model affords multiple reviews of larger loans before
credit is extended, a significant benefit in mitigating and managing the
Company's credit risk. The geographic dispersion of the market areas in which
the Company and the community bank subsidiaries operate further mitigates the
risk of credit loss. While this process is intended to limit credit exposure,
there can be no assurance that problem credits will not arise and loan losses
incurred, particularly in periods of rapid economic downturns.
The primary responsibility for credit risk assessment and identification of
problem loans rests with the loan officer of the account. This continuous
process, utilizing each of the Banks' internal credit risk rating process, is
necessary to support management's evaluation of the ALLL adequacy. An
independent loan review function verifying credit risk ratings evaluates the
loan officer and management's evaluation of the loan portfolio credit quality.
The loan review function also assesses the evaluation process and provides an
independent analysis of the adequacy of the ALLL.
The Company considers the ALLL balance of $142.9 million adequate to cover
inherent losses in the loan and lease portfolios as of December 31, 2009.
However, no assurance can be given that the Company will not, in any particular
period, sustain losses that are significant relative to the amount reserved, or
that subsequent evaluations of the loan and lease portfolios applying
management's judgment about then current factors, including economic and
regulatory developments, will not require significant changes in the ALLL. Under
such circumstances, this could result in enhanced provisions for loan losses.
See additional risk factors in Part I - Item 1A - Risk Factors.
LOAN LOSS EXPERIENCE
The following tables set forth information regarding the Banks' loan loss
experience for the periods indicated:
Years ended December 31,
--------------------------------------------
(Dollars in thousands) 2009 2008 2007 2006 2005
---------------------- -------- ------ ------ ------ ------
BALANCE AT BEGINNING OF PERIOD $ 76,739 54,413 49,259 38,655 26,492
CHARGE-OFFS:
Residential real estate (18,854) (3,233) (306) (14) (115)
Commercial loans (35,077) (4,957) (2,367) (1,187) (744)
Consumer and other loans (6,965) (1,649) (714) (448) (539)
-------- ------ ------ ------ ------
Total charge offs (60,896) (9,839) (3,387) (1,649) (1,398)
-------- ------ ------ ------ ------
RECOVERIES:
Residential real estate 423 23 208 341 82
Commercial loans 1,636 716 656 331 414
Consumer and other loans 407 321 358 298 415
-------- ------ ------ ------ ------
Total recoveries 2,466 1,060 1,222 970 911
-------- ------ ------ ------ ------
CHARGE-OFFS, NET OF RECOVERIES (58,430) (8,779) (2,165) (679) (487)
Acquisitions (1) -- 2,625 639 6,091 6,627
PROVISION FOR LOAN LOSSES 124,618 28,480 6,680 5,192 6,023
-------- ------ ------ ------ ------
BALANCE AT END OF PERIOD $142,927 76,739 54,413 49,259 38,655
======== ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding during the period 1.41% 0.23% 0.06% 0.02% 0.02%
Allowance for loan and lease losses as a
percentage of total loan and leases 3.46% 1.86% 1.51% 1.53% 1.59%
(1) Acquisition of San Juans in 2008, North Side in 2007, CDC and Morgan in
2006, First State Bank, Citizens and 1st Bank in 2005
21
Allowance for Loan Provision
and Lease Losses Provision for Year ALLL
December 31, for Year Ended 12/31/09 as a Percent
------------------ Ended Over Net of Loans
(Dollars in thousands) 2009 2008 12/31/2009 Charge-Offs 12/31/2009
---------------------- -------- ------ ---------- -------------- ------------
Glacier $ 38,978 18,990 32,000 2.7 4.14%
Mountain West 37,551 15,982 50,500 1.7 3.92%
First Security 18,242 11,537 10,450 2.8 3.22%
1st Bank 10,895 6,012 10,800 1.8 3.67%
Western 8,762 7,062 3,200 2.1 2.71%
Big Sky 10,536 6,232 9,200 1.9 3.89%
Valley 4,367 3,581 1,200 2.9 2.33%
First National 1,679 -- 1,683 420.8 1.10%
Citizens 4,865 2,721 2,800 4.3 2.93%
First Bank - MT 2,904 1,945 985 37.9 2.48%
San Juans 4,148 2,677 1,800 5.5 2.78%
-------- ------ -------
Total $142,927 76,739 124,618 2.1 3.46%
======== ====== =======
Net
Charge-Offs,
Year-to-Date
Period Ending
Year Ended
December 31,
--------------- Charge-Offs Recoveries
(Dollars in thousands) 2009 2008 12/31/2009 12/31/2009
---------------------- ------- ----- ----------- ----------
Glacier $12,012 1,121 12,117 105
Mountain West 28,931 5,557 29,766 835
First Security 3,745 425 3,931 186
1st Bank 5,917 347 6,215 298
Western 1,500 282 1,896 396
Big Sky 4,896 600 5,433 537
Valley 414 127 457 43
First National 4 -- 4 --
Citizens 656 302 683 27
First Bank-MT 26 17 57 31
San Juans 329 1 337 8
------- ----- ------ -----
Total $58,430 8,779 60,896 2,466
======= ===== ====== =====
ALLOCATION OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES
2009 2008 2007
-------------------------- -------------------------- --------------------------
ALLOWANCE PERCENT Allowance Percent Allowance Percent
FOR LOAN AND OF LOANS IN for Loan and of Loans in for Loan and of Loans in
(Dollars in thousands) LEASE LOSSES CATEGORY Lease Losses Category Lease Losses Category
---------------------- ------------ ----------- ------------ ----------- ------------ -----------
Residential real estate $ 13,496 19.6% 7,233 20.3% 4,755 20.2%
Commercial real estate 66,791 45.9% 35,305 46.8% 23,010 44.6%
Other commercial 39,558 17.5% 21,590 15.6% 17,453 17.6%
Consumer and other loans 23,082 17.0% 12,611 17.3% 9,195 17.6%
-------- ----- ------ ----- ------ -----
Totals $142,927 100.0% 76,739 100.0% 54,413 100.0%
======== ===== ====== ===== ====== =====
2006 2005
-------------------------- --------------------------
Allowance Percent Allowance Percent
for Loan and of Loans in for Loan and of Loans in
(Dollars in thousands) Lease Losses Category Lease Losses Category
---------------------- ------------ ----------- ------------ -----------
Residential real estate 5,421 24.6% 4,318 25.0%
Commercial real estate 16,741 36.1% 14,370 38.3%
Other commercial 18,361 21.5% 12,566 17.4%
Consumer and other loans 8,736 17.8% 7,401 19.3%
------ ----- ------ -----
Totals 49,259 100.0% 38,655 100.0%
====== ===== ====== =====
22
The increase in the ALLL was primarily due to the increase in non-performing
assets since December 31, 2008 and a downturn in global, national and local
economies. The ALLL has increased $66.2 million, or 86 percent, from a year ago.
The ALLL of $142.9 million is 3.46 percent of December 31, 2009 total loans
outstanding, up from 1.86 percent at prior year end. The provision for loan
losses expense was $124.6 million, an increase of $96.1 million from 2008. Net
loans and lease charge-offs were $58.4 million, or 1.41 percent of average loans
and leases in 2009, compared to net charge-offs of $8.8 million, or 0.23 percent
of average loans and leases in 2008. Each of the Banks' charge-off policy is
consistent with bank regulatory standards. Consumer loans are generally charged
off when the loan becomes over 120 days delinquent. Loan portfolio growth,
composition, average loan size, credit quality considerations, and other
environmental factors will continue to determine the level of additional
provision expense.
For additional information regarding the ALLL, its relation to the provision for
loan losses and risk related to asset quality, see Note 4 to the Consolidated
Financial Statements in "Item 8 - Financial Statements and Supplementary Data."
SOURCES OF FUNDS
GENERAL
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, and 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. In addition, the Banks obtain wholesale deposits through
various programs including the Certificate of Deposit Account Registry System
("CDARS").
The Banks also obtain funds from loan repayments, advances from the FHLB,
borrowings through the FRB, borrowings from the U.S. Treasury Tax and Loan
funds, 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 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
Deposits are obtained primarily from individual and business residents of the
Banks' market area. The Banks issue negotiated-rate certificate of deposits
accounts and have paid a limited amount of fees to brokers to obtain deposits.
The following table illustrates the amounts outstanding for deposits $100,000
and greater, according to the time remaining to maturity, of which $224 million
consists of CDARS deposits.
Certificate Demand
(Dollars in thousands) of Deposits Deposits Totals
---------------------- ----------- --------- ---------
Within three months ............... $231,811 1,586,604 1,818,415
Three months to six months ........ 144,914 -- 144,914
Seven months to twelve months ..... 260,038 -- 260,038
Over twelve months ................ 92,383 -- 92,383
-------- --------- ---------
Totals ......................... $729,146 1,586,604 2,315,750
======== ========= =========
For additional deposit information, see "Item 7 - Management's Discussion &
Analysis" and Note 7 to the Consolidated Financial Statements in "Item 8 --
Financial Statements and Supplementary Data".
23
ADVANCES AND OTHER BORROWINGS
As members of the FHLB, the Banks may borrow from such entity on the security of
FHLB stock, which the Banks are required to own as a member. The borrowings are
collateralized by eligible categories of loans and investment securities
(principally, securities which are obligations of, or guaranteed by, the United
States and its agencies), 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 total assets 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 deposits
and to expand lending by matching a portion of the estimated amortization and
prepayments of retained fixed rate mortgages. All bank subsidiaries, except San
Juans, are members of the FHLB of Seattle; however, San Juans is a member of the
FHLB of Topeka.
The Banks also borrow funds from the FRB and from the U.S. Treasury Tax and Loan
program. Both programs require pledging of certain loans or investment
securities of the Banks and are generally short term obligations.
From time to time, primarily as a short-term financing arrangement for
investment or liquidity purposes, the Banks have made use of repurchase
agreements. 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 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 each of the bank's Board of Directors, the
Banks enter into repurchase agreements with local municipalities, and certain
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, repurchase agreements, U.S. Treasury Tax
and Loan borrowings, and FRB borrowings:
Years ended December 31,
------------------------------
(Dollars in thousands) 2009 2008 2007
---------------------- ---------- ------- -------
FHLB advances:
Amount outstanding at end of period ...... $ 790,367 338,456 538,949
Average balance .......................... $ 473,038 566,933 382,243
Maximum outstanding at any month-end ..... $ 790,367 822,107 538,949
Weighted average interest rate ........... 1.68% 2.71% 4.94%
Repurchase agreements:
Amount outstanding at end of period ...... $ 212,506 188,363 178,041
Average balance .......................... $ 204,503 188,952 171,290
Maximum outstanding at any month-end ..... $ 234,914 196,461 193,421
Weighted average interest rate ........... 0.98% 2.02% 4.35%
U.S. Treasury Tax and Loan:
Amount outstanding at end of period ...... $ 5,136 6,067 221,409
Average balance .......................... $ 3,686 165,690 120,188
Maximum outstanding at any month-end ..... $ 5,136 385,246 244,012
Weighted average interest rate ........... 0.00% 2.28% 5.03%
Federal Reserve Bank discount window:
Amount outstanding at end of period ...... $ 225,000 914,000 --
Average balance .......................... $ 658,262 277,611 --
Maximum outstanding at any month-end ..... $1,005,000 928,000 --
Weighted average interest rate ........... 0.26% 1.76% --
For additional information concerning the Company's borrowings and repurchase
agreements, see Notes 8 and 9 to the Consolidated Financial Statements in "Item
8 -- Financial Statements and Supplementary Data".
24
SUBORDINATED DEBENTURES
In addition to funds obtained in the ordinary course of business, the Company
formed Glacier Trust II, Glacier Trust III, and Glacier Trust IV as financing
subsidiaries and obtained Citizens Trust I in connection with the acquisition of
Citizens on April 1, 2005, San Juans Trust I in connection with the acquisition
of San Juans on December 1, 2008, and First Co Trust 01 and First Co Trust 03 in
connection with the acquisition of First National on October 2, 2009. The trusts
issued preferred securities that entitle the shareholder to receive cumulative
cash distributions from payments thereon. The Subordinated Debentures
outstanding as of December 31, 2009 are $124,988,000, including fair value
adjustments from acquisitions. For additional information regarding the
subordinated debentures, see Note 10 to the Consolidated Financial Statements
"Item 8 - Financial Statements and Supplementary Data".
EMPLOYEES
As of December 31, 2009, the Company employed 1,739 persons, 1,497 of whom 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, profit sharing plan, savings plan and employee
stock options. The Company considers its employee relations to be excellent. See
Note 13 in the Consolidated Financial Statements in "Item 8 - Financial
Statements and Supplementary Data" for detailed information regarding employee
benefit plans and eligibility.
SUPERVISION AND REGULATION
INTRODUCTION
The following discussion provides an overview of certain elements of the
extensive regulatory framework applicable to the Company and the Banks. This
regulatory framework is primarily designed for the protection of depositors,
federal deposit insurance funds and the banking system as a whole, rather than
specifically for the protection of shareholders. Due to the breadth and growth
of this regulatory framework, the costs of compliance continue to increase in
order to monitor and satisfy these requirements.
To the extent that this section describes statutory and regulatory provisions,
it is qualified by reference to those provisions. These statutes and
regulations, as well as related policies, are subject to change by Congress,
state legislatures and federal and state regulators. Changes in statutes,
regulations or regulatory policies applicable to the Company, including the
interpretation or implementation thereof, could have a material effect on the
Company's business or operations. Recently, in light of the recent financial
crisis, numerous proposals to modify or expand banking regulation have surfaced.
Based on past history, if any are approved, they will add to the complexity and
cost of the Company's business.
BANK HOLDING COMPANY REGULATION
General. The Company is a bank holding company as defined in the Bank Holding
Company Act of 1956, as amended ("BHCA"), due to its ownership of the bank
subsidiaries listed below. Glacier, First Security, Western, Big Sky, Valley,
and First Bank-MT are Montana state-chartered banks and are members of the
Federal Reserve System; Mountain West and Citizens are Idaho state-chartered
banks; 1st Bank is a Wyoming state-chartered bank and is a member of the Federal
Reserve System; First National is a nationally chartered bank and is a member of
the Federal Reserve System; and San Juans is a Colorado state-chartered bank.
The deposits of the Banks are insured by the FDIC.
As a bank holding company, the Company is subject to regulation, supervision and
examination by the Federal Reserve. In general, the BHCA limits the business of
bank holding companies to owning or controlling banks and engaging in other
activities closely related to banking. The Company must also file reports with
and provide additional information to the Federal Reserve. Under the Financial
Services Modernization Act of 1999, a bank holding company may apply to the
Federal Reserve to become a financial holding company, and thereby engage
(directly or through a subsidiary) in certain expanded activities deemed
financial in nature, such as securities brokerage and insurance underwriting.
Holding Company Bank Ownership. The BHCA requires every bank holding company to
obtain the prior approval of the Federal Reserve before (i) acquiring, directly
or indirectly, ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than 5%
of such shares; (ii) acquiring all or substantially all of the assets of another
bank or bank holding company; or (iii) merging or consolidating with another
bank holding company.
25
Holding Company Control of Nonbanks. With some exceptions, the BHCA also
prohibits a bank holding company from acquiring or retaining direct or indirect
ownership or control of more than 5% of the voting shares of any company that is
not a bank or bank holding company, or from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain non-bank activities that, by federal statute,
agency regulation or order, have been identified as activities closely related
to the business of banking or of managing or controlling banks.
Transactions with Affiliates.
Bank subsidiaries of a bank holding company are subject to restrictions imposed
by the Federal Reserve Act on extensions of credit to the holding company or its
subsidiaries, on investments in their securities, and on the use of their
securities as collateral for loans to any borrower. These regulations and
restrictions may limit the Company's ability to obtain funds from the bank
subsidiaries for its cash needs, including funds for payment of dividends,
interest and operational expenses.
Tying Arrangements. The Company is prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions,
neither the Company nor the Banks may condition an extension of credit to a
customer on either (i) a requirement that the customer obtain additional
services provided by the Company or Banks; or (ii) an agreement by the customer
to refrain from obtaining other services from a competitor.
Support of Bank Subsidiaries. Under Federal Reserve policy, the Company is
expected to act as a source of financial and managerial strength to its banks.
This means that the Company is required to commit, as necessary, resources to
support the Banks. Any capital loans a bank holding company makes to its bank
subsidiaries are subordinate to deposits and to certain other indebtedness of
those bank subsidiaries.
State Law Restrictions. As a Montana corporation, the Company is subject to
certain limitations and restrictions under applicable Montana corporate law. For
example, state law restrictions in Montana include limitations and restrictions
relating to indemnification of directors, distributions to shareholders,
transactions involving directors, officers or interested shareholders,
maintenance of books, records and minutes, and observance of certain corporate
formalities.
THE BANK SUBSIDIARIES
Glacier, First Security, Western, Big Sky, Valley, and First Bank-MT are subject
to regulation and supervision by the Montana Department of Administration's
Banking and Financial Institutions Division and the Federal Reserve as a result
of their membership in the Federal Reserve System.
Mountain West and Citizens are subject to regulation by the Idaho Department of
Finance and by the FDIC. In addition, Mountain West's Utah and Washington
branches are primarily regulated by the Utah Department of Financial
Institutions and the Washington Department of Financial Institutions,
respectively.
1st Bank is a member of the Federal Reserve System and is subject to regulation
and supervision by the Federal Reserve and also the Wyoming Division of Banking
as a Wyoming state chartered bank. First National is a member of the Federal
Reserve System and is subject to regulation and supervision by the Federal
Reserve and also the Office of Comptroller of the Currency ("OCC") as a
nationally chartered bank, and to a certain extent, by the Wyoming Division of
Banking.
San Juans is subject to regulation by the Colorado Department of Regulatory
Agencies-Division of Banking and by the FDIC.
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, amount of, and
collateral for loans. Federal laws also regulate community reinvestment and
insider credit transactions and impose safety and soundness standards.
Community Reinvestment. The Community Reinvestment Act of 1977 requires that, in
connection with examinations of financial institutions within their
jurisdiction, federal bank regulators 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. A bank's community reinvestment record is also
considered by the applicable banking agencies in evaluating mergers,
acquisitions, and applications to open a branch or facility.
26
Insider Credit Transactions. Banks are also subject to certain restrictions on
extensions of credit to executive officers, directors, principal shareholders,
and their related interests. Extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral, and
follow credit underwriting procedures that are at least as stringent, as those
prevailing at the time for comparable transactions with persons not covered
above and who are not employees; and (ii) must not involve more than the normal
risk of repayment or present other unfavorable features. Banks are also subject
to certain lending limits and restrictions on overdrafts to insiders. A
violation of these restrictions may result in the assessment of substantial
civil monetary penalties, the imposition of a cease and desist order, and other
regulatory sanctions.
Regulation of Management. Federal law (i) sets forth circumstances under which
officers or directors of a bank may be removed by the institution's federal
supervisory agency; (ii) places restraints on lending by a bank to its executive
officers, directors, principal shareholders, and their related interests; and
(iii) prohibits management personnel of a bank from serving as a director or in
other management positions of another financial institution whose assets exceed
a specified amount or which has an office within a specified geographic area.
Safety and Soundness Standards. Federal law imposes upon banks certain
non-capital safety and soundness standards. These standards cover, among other
things, 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. An institution that fails to meet these standards
must develop a plan acceptable to its regulators, specifying the steps that the
institution will take to meet the standards. Failure to submit or implement such
a plan may subject the institution to regulatory sanctions.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") relaxed prior interstate branching restrictions under federal
law by permitting nationwide interstate banking and branching under certain
circumstances. Generally, bank holding companies may purchase banks in any state
and states may not prohibit these 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 under the legislation. The Interstate Act requires regulators
to consult with community organizations before permitting an interstate
institution to close a branch in a low-income area. Federal bank regulations
prohibit banks from using their interstate branches primarily for deposit
production and federal bank regulatory agencies have implemented a
loan-to-deposit ratio screen to ensure compliance with this prohibition.
With regard to interstate bank mergers, Montana "opted-out" of the Interstate
Act. Subject to certain conditions, an in-state bank that has been in existence
for at least 5 years may merge with an out-of-state bank. 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.
Under Wyoming law, banks located in Wyoming may be acquired by out-of-state
banks so long as (i) with certain exceptions, the resulting bank and its
affiliates would not control 30% or more of the total deposits held by all
insured depository institutions in Wyoming; and (ii) the in-state bank has been
in existence for at least three years. Branches may not be acquired or opened
separately in Wyoming by an out-of-state bank, but once an out-of-state bank has
acquired a bank within Wyoming, 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 Wyoming.
Under Colorado law, an out-of-state bank holding company may not acquire control
of, or acquire all or substantially all of the assets of, a Colorado bank unless
such bank has been in operation for at least five years. An out-of-state bank
holding company acquiring control of a Colorado bank holding company may acquire
control of any Colorado bank controlled by the Colorado bank holding company
even though such bank has been in operation for less than five years.
27
Utah and Washington have each enacted "opting in" legislation similar in certain
respects to that enacted by Idaho, allowing banks to engage in interstate merger
transactions subject to certain aging requirements. Under Utah law, an
out-of-state bank may acquire a bank branch located in Utah, but it may not
establish a de novo branch in Utah if its home state does not have reciprocal
laws on de novo branching. Under Washington law, an out-of-state bank may,
subject to the Director's approval, open de novo branches in Washington or
acquire an in-state branch so long as the home state of the out-of-state bank
has reciprocal laws with respect to de novo branching or branch acquisitions.
DIVIDENDS
The principal source of the Company's cash is from dividends received from the
Banks, which are subject to government regulation and limitation. Regulatory
authorities may prohibit banks and bank holding companies from paying dividends
in a manner that 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. State law and, in the case of First National, national
banking laws and related OCC regulations, limit a bank's ability to pay
dividends that are greater than a certain amount without approval of the
applicable agency. Additionally, current guidance from the Federal Reserve
provides, among other things, that dividends per share on the Company's common
stock generally should not exceed earnings per share, measured over the previous
four fiscal quarters.
CAPITAL ADEQUACY
Regulatory Capital Guidelines. Federal bank regulatory agencies use capital
adequacy guidelines in the examination and regulation of bank holding companies
and banks. The guidelines are "risk-based," meaning that they are designed to
make capital requirements more sensitive to differences in risk profiles among
banks and bank holding companies.
Tier I and Tier II Capital. Under the guidelines, an institution's capital is
divided into two broad categories, Tier I capital and Tier II capital. Tier I
capital generally consists of common shareholders' equity, surplus, undivided
profits, and subordinated debentures. Tier II capital generally consists of the
allowance for loan and lease losses, hybrid capital instruments, and
subordinated debt. The sum of Tier I capital and Tier II capital represents an
institution's total capital. The guidelines require that at least 50% of an
institution's total capital consist of Tier I capital.
Risk-based Capital Ratios. The adequacy of an institution's capital is gauged
primarily with reference to the institution's risk-weighted assets. The
guidelines assign risk weightings to an institution's assets in an effort to
quantify the relative risk of each asset and to determine the minimum capital
required to support that risk. An institution's risk-weighted assets are then
compared with its Tier I capital and total capital to arrive at a Tier I
risk-based ratio and a total risk-based ratio, respectively. The guidelines
provide that an institution must have a minimum Tier I risk-based ratio of 4%
and a minimum total risk-based ratio of 8%.
Leverage Ratio. The guidelines also employ a leverage ratio, which is Tier I
capital as a percentage of average total assets, less intangibles. The principal
objective of the leverage ratio is to constrain the maximum degree to which a
bank holding company may leverage its equity capital base. The minimum leverage
ratio is 4%.
Prompt Corrective Action. Under the guidelines, an institution is assigned to
one of five capital categories depending on its total risk-based capital ratio,
Tier I risk-based capital ratio, and leverage ratio, together with certain
subjective factors. The categories range from "well capitalized" to "critically
undercapitalized." Institutions that are "undercapitalized" or lower are subject
to certain mandatory supervisory corrective actions. During these challenging
economic time, the federal banking regulators have actively enforced these
provisions.
REGULATORY OVERSIGHT AND EXAMINATION
The Federal Reserve conducts periodic inspections of bank holding companies,
which are performed both onsite and offsite. The supervisory objectives of the
inspection program are to ascertain whether the financial strength of the bank
holding company is being maintained on an ongoing basis and to determine the
effects or consequences of transactions between a holding company or its
non-banking subsidiaries and its bank subsidiaries. For holding companies under
$10 billion in assets, the inspection type and frequency varies depending on
asset size, complexity of the organization, and the holding company's rating at
its last inspection.
28
Banks are subject to periodic examinations by their primary regulators. Bank
examinations have evolved from reliance on transaction testing in assessing a
bank's condition to a risk-focused approach. These examinations are extensive
and cover the entire breadth of operations of the bank. Generally, safety and
soundness examinations occur on an 18-month cycle for banks under $500 million
in total assets that are well capitalized and without regulatory issues, and
12-months otherwise. Examinations alternate between the federal and state bank
regulatory agency or may occur on a combined schedule. The frequency of consumer
compliance and CRA examinations is linked to the size of the institution and its
compliance and CRA ratings at its most recent examinations. However, the
examination authority of the Federal Reserve and the FDIC allows them to examine
supervised banks as frequently as deemed necessary based on the condition of the
bank or as a result of certain triggering events.
CORPORATE GOVERNANCE AND ACCOUNTING LEGISLATION
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (the "Act")
addresses, among other things, corporate governance, auditing and accounting,
enhanced and timely disclosure of corporate information, and penalties for
non-compliance. Generally, the Act (i) requires chief executive officers and
chief financial officers to certify to the accuracy of periodic reports filed
with the Securities and Exchange Commission (the 'SEC"); (ii) imposes specific
and enhanced corporate disclosure requirements; (iii) accelerates the time frame
for reporting of insider transactions and periodic disclosures by public
companies; (iv) requires companies to adopt and disclose information about
corporate governance practices, including whether or not they have adopted a
code of ethics for senior financial officers and whether the audit committee
includes at least one "audit committee financial expert;" and (v) requires the
SEC, based on certain enumerated factors, to regularly and systematically review
corporate filings.
To deter wrongdoing, the Act: (i) subjects bonuses issued to top executives to
disgorgement if a restatement of a company's financial statements was due to
corporate misconduct; (ii) prohibits an officer or director misleading or
coercing an auditor; (iii) prohibits insider trades during retirement plan
"blackout periods"; (iv) imposes new criminal penalties for fraud and other
wrongful acts; and (v) extends the period during which certain securities fraud
lawsuits can be brought against a company or its officers.
As a publicly reporting company, the Company is subject to the requirements of
the Act and related rules and regulations issued by the SEC and NASDAQ. After
enactment, the Company updated its policies and procedures to comply with the
Act's requirements and has found that such compliance, including compliance with
Section 404 of the Act relating to management control over financial reporting,
has resulted in significant additional expense for the Company. The Company
anticipates that it will continue to incur such additional expense in its
ongoing compliance.
ANTI-TERRORISM LEGISLATION
USA Patriot Act of 2001. The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
intended to combat terrorism, was renewed with certain amendments in 2006 (the
"Patriot Act"). Certain provisions of the Patriot Act were made permanent and
other sections were made subject to extended "sunset" provisions. The Patriot
Act, in relevant part, (i) prohibits banks from providing correspondent accounts
directly to foreign shell banks; (ii) imposes due diligence requirements on
banks opening or holding accounts for foreign financial institutions or wealthy
foreign individuals; (iii) requires financial institutions to establish an
anti-money-laundering compliance program; and (iv) eliminates civil liability
for persons who file suspicious activity reports. The Act also includes
provisions providing the government with power to investigate terrorism,
including expanded government access to bank account records. While the Patriot
Act has had minimal affect on the Company's and the bank subsidiaries' record
keeping and reporting expenses, it is likely that the renewal and amendment will
not have a material adverse effect on business or operations.
FINANCIAL SERVICES MODERNIZATION
Gramm-Leach-Bliley Act of 1999. The Gramm-Leach-Bliley Financial Services
Modernization Act of 1999 brought about significant changes to the laws
affecting banks and bank holding companies. Generally, the Act (i) repeals
historical restrictions on preventing banks from affiliating with securities
firms; (ii) provides a uniform framework for the activities of banks, savings
institutions and their holding companies; (iii) broadens the activities that may
be conducted by national banks and banking subsidiaries of bank holding
companies; (iv) provides an enhanced framework for protecting the privacy of
consumer information and requires notification to consumers of bank privacy
policies; and (v) addresses a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term activities of financial
institutions. Bank holding companies that qualify and elect to become financial
holding companies can engage in a wider variety of financial activities than
permitted under previous law, particularly with respect to insurance and
securities underwriting activities.
29
RECENT LEGISLATION
Emergency Economic Stabilization Act of 2008. In response to the recent
financial crisis, the United States government passed the Emergency Economic
Stabilization Act of 2008 (the "EESA") on October 3, 2008, which provides the
United States Treasury Department (the "Treasury") with broad authority to
implement certain actions intended to help restore stability and liquidity to
the U.S. financial markets.
Insurance of Deposit Accounts. The EESA included a provision for a temporary
increase from $100,000 to $250,000 per depositor in deposit insurance effective
October 3, 2008 through December 31, 2013.
Deposit Insurance Assessments. The FDIC imposes an assessment against
institutions for deposit insurance. This assessment is based on the risk
category of the institution and ranges from 7 to 77.5 basis points of the
institution's deposits. In December 2008, the FDIC adopted a rule that raised
the current deposit insurance assessment rates uniformly for all institutions by
7 basis points (to a range from 12 to 50 basis points) for the first quarter of
2009. In February of 2009, the FDIC adopted a final rule modifying the
risk-based assessment system and setting initial base assessment rates beginning
April 1, 2009 at 12 to 45 basis points. The rule also gives the FDIC the
authority to, as necessary, implement emergency special assessments to maintain
the deposit insurance fund.
Prepaid Assessments. On November 12, 2009, the FDIC approved a final rule
requiring all FDIC-insured depository institutions to prepay estimated quarterly
assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012.
The prepayment was collected on December 30, 2009, along with institutions'
regular quarterly deposit insurance assessments for the third quarter of 2009.
For the fourth quarter of 2009 and all of 2010, the prepaid assessments will be
based on an institution's total base assessment rate in effect on September 30,
2009. That rate will be increased by three basis points for 2011 and 2012
prepayments. The prepaid assessments will be accounted for as a prepaid expense
amortized over the three year period.
Troubled Asset Relief Program. Pursuant to the EESA, the Treasury has the
ability to purchase or insure up to $700 billion in troubled assets held by
financial institutions under the Troubled Asset Relief Program ("TARP"). On
October 14, 2008, the Treasury announced it would initially purchase equity
stakes in financial institutions under a Capital Purchase Program (the "CPP") of
up to $350 billion of the $700 billion authorized under the TARP legislation.
The CPP provides direct equity investment of perpetual preferred stock by the
Treasury in qualified financial institutions. The program is voluntary and
requires an institution to comply with a number of restrictions and provisions,
including limits on executive compensation, stock redemptions and declaration of
dividends. The Company received approval for, but determined not to participate
in the CPP in light of its successful sale of common stock in November 2008.
Temporary Liquidity Guarantee Program. In October 2008, the FDIC announced the
Temporary Liquidity Guarantee Program, which has two components--the Debt
Guarantee Program and the Transaction Account Guarantee Program. Under the
Transaction Account Guarantee Program any participating depository institution
is able to provide full deposit insurance coverage for non-interest bearing
transaction accounts, regardless of the dollar amount. Non-interest bearing
transaction accounts include demand accounts and NOW accounts contractually
limited to paying 50 basis points or less. Under the program, effective November
14, 2008, insured depository institutions that have not opted out of the FDIC
Temporary Liquidity Guarantee Program will be subject to a 0.10% surcharge
applied to non-interest bearing transaction deposit account balances in excess
of $250,000, which surcharge will be added to the institution's existing
risk-based deposit insurance assessments. Under the Debt Guarantee Program,
qualifying unsecured senior debt issued by a participating institution can be
guaranteed by the FDIC. The Company and its bank subsidiaries chose to
participate in both components of the FDIC Temporary Liquidity Guaranty Program.
American Recovery and Reinvestment Act of 2009. On February 17, 2009 the
American Recovery and Reinvestment Act of 2009 ("ARRA") was signed into law.
ARRA is intended to help stimulate the economy and is a combination of tax cuts
and spending provisions applicable to a broad range of areas with an estimated
cost of about $780 billion. The impact that ARRA may have on the US economy, the
Company and the Banks cannot be predicted with reasonable certainty.
30
PROPOSED LEGISLATION
Proposed legislation is introduced in almost every legislative session. Such
legislation could dramatically affect the regulation of the banking industry. In
light of the 2008 financial crisis, legislation reshaping the regulatory
landscape for financial institutions has been proposed. A current proposal
includes measures aimed to prevent another financial crisis like the one in 2008
by forming a federal regulatory body to protect the interests of consumers by
preventing abusive and risky lending practices, increasing supervision and
regulation on financial firms deemed too big to fail, giving shareholders an
advisory vote on executive pay, and regulating complex derivatives instruments.
The Company cannot predict if any such legislation will be adopted or if it is
adopted how it would affect the business of the Company or the Banks. Past
history has demonstrated that new legislation or changes to existing laws or
regulations usually results in a greater compliance burden and, therefore,
generally increases the cost of doing business.
EFFECTS OF GOVERNMENT MONETARY POLICY
The Company's earnings and growth are affected not only by general economic
conditions, but also by the fiscal and monetary policies of the federal
government, particularly the Federal Reserve. The Federal Reserve implements
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. The nature and impact of future changes in
monetary policies and their impact on the Company or the Banks cannot be
predicted with certainty.
TAXATION
FEDERAL TAXATION
The Company files a consolidated federal income tax return, using the accrual
method of accounting. All required tax returns have been timely 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.
STATE TAXATION
Under Montana, Idaho, Colorado and Utah law, financial institutions are subject
to a corporation tax, which incorporates or is substantially similar to
applicable provisions of the Internal Revenue Code. The corporation tax is
imposed on federal taxable income, subject to certain adjustments. State taxes
are incurred at the rate of 6.75 percent in Montana, 7.6 percent in Idaho, 5
percent in Utah and 4.63 percent in Colorado. Wyoming and Washington do not
impose a corporate income tax.
See Note 12 to the Consolidated Financial Statements in "Item 8 - Financial
Statements and Supplementary Data" for additional information.
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit Committee, Board of Directors and Stockholders
Glacier Bancorp, Inc.
Kalispell, Montana
We have audited the accompanying consolidated statements of financial condition
of Glacier Bancorp, Inc. as of December 31, 2009 and 2008, 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, 2009. The Company's management is responsible for these financial
statements. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. Our audits included
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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Glacier Bancorp,
Inc. as December 31, 2009 and 2008, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
2009, in conformity with accounting principles generally accepted in the Unites
States of America.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Glacier Bancorp, Inc.'s internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
March 1, 2010, expressed an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting.
/s/ BKD, LLP
Denver, Colorado
March 1, 2010
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit Committee, Board of Directors and Stockholders
Glacier Bancorp, Inc.
Kalispell, Montana
We have audited Glacier Bancorp, Inc.'s internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Report of Management. Our responsibility
is to express an opinion on the Company's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of reliable financial statements in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that receipts
and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention, or timely detection and correction of
unauthorized acquisition, use, or disposition of the company's assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
33
In our opinion, Glacier Bancorp, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements of Glacier Bancorp, Inc. and our report dated March 1, 2010,
expressed an unqualified opinion thereon.
/s/ BKD, LLP
Denver, Colorado
March 1, 2010
34
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
----------------------
(Dollars in thousands, except per share data) 2009 2008
--------------------------------------------- ---------- ---------
ASSETS:
Cash on hand and in banks ................................................. $ 120,731 125,123
Federal funds sold ........................................................ 87,155 6,480
Interest bearing cash deposits ............................................ 2,689 3,652
---------- ---------
Cash and cash equivalents .............................................. 210,575 135,255
Investment securities, available-for-sale ................................. 1,506,394 990,092
Loans receivable, net of allowance for loan and lease losses of $142,927
and $76,739 at December 31, 2009 and 2008, respectively ................ 3,920,988 3,998,478
Loans held for sale ....................................................... 66,330 54,976
Premises and equipment, net ............................................... 140,921 133,949
Real estate and other assets owned, net ................................... 57,320 11,539
Accrued interest receivable ............................................... 29,729 28,777
Deferred tax asset ........................................................ 41,082 14,292
Core deposit intangible, net of accumulated amortization of $17,910
and $14,794 at December 31, 2009 and 2008, respectively ................ 13,937 13,013
Goodwill .................................................................. 146,259 146,752
Other assets .............................................................. 58,260 26,847
---------- ---------
Total assets ........................................................... $6,191,795 5,553,970
========== =========
LIABILITIES:
Non-interest bearing deposits ............................................. $ 810,550 747,439
Interest bearing deposits ................................................. 3,289,602 2,515,036
Advances from Federal Home Loan Bank ...................................... 790,367 338,456
Securities sold under agreements to repurchase ............................ 212,506 188,363
Federal Reserve Bank discount window ...................................... 225,000 914,000
Other borrowed funds ...................................................... 13,745 8,368
Accrued interest payable .................................................. 7,928 9,751
Subordinated debentures ................................................... 124,988 121,037
Other liabilities ......................................................... 31,219 34,580
---------- ---------
Total liabilities ...................................................... 5,505,905 4,877,030
---------- ---------
STOCKHOLDERS' EQUITY:
Preferred shares, $0.01 par value per share. 1,000,000 shares authorized.
none issued or outstanding at December 31, 2009 and 2008 ............... -- --
Common stock, $0.01 par value per share. 117,187,500 and 117,187,500
shares authorized, 61,619,803 and 61,331,273 issued and outstanding
at December 31, 2009 and 2008, respectively ............................ 616 613
Paid-in capital ........................................................... 497,493 491,794
Retained earnings - substantially restricted .............................. 188,129 185,776
Accumulated other comprehensive loss ...................................... (348) (1,243)
---------- ---------
Total stockholders' equity ............................................. 685,890 676,940
---------- ---------
Total liabilities and stockholders' equity ............................. $6,191,795 5,553,970
========== =========
See accompanying notes to consolidated financial statements.
35
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
----------------------------
(Dollars in thousands, except per share data) 2009 2008 2007
--------------------------------------------- -------- ------- -------
INTEREST INCOME:
Residential real estate loans ........................... $ 54,498 51,166 59,664
Commercial loans ........................................ 151,580 165,119 157,644
Consumer and other loans ................................ 44,844 47,725 48,105
Investment securities and other ......................... 51,572 38,975 39,347
-------- ------- -------
Total interest income ................................ 302,494 302,985 304,760
-------- ------- -------
INTEREST EXPENSE:
Deposits ................................................ 38,429 55,012 81,459
Federal Home Loan Bank advances ......................... 7,952 15,355 18,897
Securities sold under agreements to repurchase .......... 2,007 3,823 7,445
Subordinated debentures ................................. 6,818 7,430 7,537
Other borrowed funds .................................... 1,961 8,752 5,953
-------- ------- -------
Total interest expense ............................... 57,167 90,372 121,291
-------- ------- -------
NET INTEREST INCOME .................................. 245,327 212,613 183,469
Provision for loan losses ............................... 124,618 28,480 6,680
-------- ------- -------
Net interest income after provision for loan losses .. 120,709 184,133 176,789
NON-INTEREST INCOME:
Service charges and other fees .......................... 40,465 41,550 37,931
Miscellaneous loan fees and charges ..................... 5,406 5,956 7,555
Gain on sale of loans ................................... 26,923 14,849 13,283
Gain (loss) on investments .............................. 5,995 (7,345) (8)
Other income ............................................ 7,685 6,024 6,057
-------- ------- -------
Total non-interest income ............................ 86,474 61,034 64,818
-------- ------- -------
NON-INTEREST EXPENSE:
Compensation, employee benefits and related expense ..... 84,965 82,027 79,070
Occupancy and equipment expense ......................... 23,471 21,674 19,152
Advertising and promotions .............................. 6,477 6,989 6,306
Outsourced data processing expense ...................... 3,031 2,508 2,755
Core deposit intangibles amortization ................... 3,116 3,051 3,202
Foreclosed asset expenses, losses and write-downs ....... 9,092 1,176 193
Federal Deposit Insurance Corporation premiums .......... 8,639 1,377 755
Other expense ........................................... 30,027 27,107 26,484
-------- ------- -------
Total non-interest expense ........................... 168,818 145,909 137,917
-------- ------- -------
EARNINGS BEFORE INCOME TAXES ............................... 38,365 99,258 103,690
Federal and state income tax expense .................... 3,991 33,601 35,087
-------- ------- -------
NET EARNINGS ............................................... $ 34,374 65,657 68,603
======== ======= =======
BASIC EARNINGS PER SHARE ............................. $ 0.56 1.20 1.29
DILUTED EARNINGS PER SHARE ........................... $ 0.56 1.19 1.28
See accompanying notes to consolidated financial statements.
36
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
Retained Accumulated Total
Common Stock Earnings Other Comp- Stock-
------------------- Paid-in Substantially rehensive holders'
(Dollars in thousands, except per share data) Shares Amount Capital Restricted Income (Loss) Equity
--------------------------------------------- ---------- ------ ------- ------------- ------------- --------
Balance at December 31, 2006 ........................... 52,302,820 $523 344,265 108,286 3,069 456,143
Comprehensive income:
Net earnings ........................................ -- -- -- 68,603 -- 68,603
Unrealized gain on securities, net of
reclassification adjustment and taxes ............ -- -- -- -- 48 48
-------
Total comprehensive income ............................. 68,651
-------
Cash dividends declared ($0.50 per share) .............. -- -- -- (26,694) -- (26,694)
Stock options exercised ................................ 550,080 6 6,148 -- -- 6,154
Stock issued in connection with acquisitions ........... 793,580 7 18,993 -- -- 19,000
Stock-based compensation and tax benefit ............... -- -- 5,322 -- -- 5,322
---------- ---- ------- ------- ------- -------
Balance at December 31, 2007 ........................... 53,646,480 $536 374,728 150,195 3,117 528,576
Comprehensive income:
Net earnings ........................................ -- -- -- 65,657 -- 65,657
Unrealized loss on securities, net of
reclassification adjustment and taxes ............ -- -- -- -- (4,360) (4,360)
-------
Total comprehensive income ............................. 61,297
-------
Cash dividends declared ($0.52 per share) .............. -- -- -- (29,079) -- (29,079)
Stock options exercised ................................ 719,858 7 9,789 -- -- 9,796
Stock issued in connection with acquisition ............ 639,935 7 9,280 -- -- 9,287
Public offering of stock issued ........................ 6,325,000 63 93,890 -- -- 93,953
Cumulative effect of a change in accounting principle .. -- -- -- (997) -- (997)
Stock-based compensation and tax benefit ............... -- -- 4,107 -- -- 4,107
---------- ---- ------- ------- ------- -------
Balance at December 31, 2008 ........................... 61,331,273 $613 491,794 185,776 (1,243) 676,940
Comprehensive income:
Net earnings ........................................ -- -- -- 34,374 -- 34,374
Unrealized gain on securities, net of
reclassification adjustment and taxes ............ -- -- -- -- 895 895
-------
Total comprehensive income ............................. 35,269
-------
Cash dividends declared ($0.52 per share) .............. -- -- -- (32,021) -- (32,021)
Stock options exercised ................................ 188,535 2 2,552 -- -- 2,554
Stock issued in connection with acquisition ............ 99,995 1 1,419 -- -- 1,420
Stock-based compensation and tax benefit ............... -- -- 1,728 -- -- 1,728
---------- ---- ------- ------- ------- -------
Balance at December 31, 2009 ........................... 61,619,803 $616 497,493 188,129 (348) 685,890
========== ==== ======= ======= ======= =======
Year ended December 31,
------------------------
2009 2008 2007
------- ------- ----
Disclosure of reclassification amount:
Unrealized and realized holding gain (loss) arising
during the year .................................. $ 7,474 (14,540) 70
Tax (expense) benefit ............................... (2,933) 5,699 (27)
------- ------- ---
Net after tax .................................... 4,541 (8,841) 43
------- ------- ---
Reclassification adjustment for net (gain) loss
included in net income ........................... (5,995) 7,345 8
Tax expense (benefit) ............................... 2,349 (2,864) (3)
------- ------- ---
Net after tax .................................... (3,646) 4,481 5
------- ------- ---
Net change in unrealized gain (loss) on
available-for-sale securities .............. $ 895 (4,360) 48
======= ======= ===
See accompanying notes to consolidated financial statements.
37
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
-------------------------------------
(Dollars in thousands) 2009 2008 2007
---------------------- ----------- ---------- ----------
OPERATING ACTIVITIES:
Net earnings .......................................................... $ 34,374 65,657 68,603
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Mortgage loans held for sale originated or acquired ................ (1,239,862) (675,280) (618,523)
Proceeds from sales of mortgage loans held for sale ................ 1,255,432 675,276 626,818
Provision for loan losses .......................................... 124,618 28,480 6,680
Depreciation of premises and equipment ............................. 10,450 9,814 8,508
Amortization of core deposit intangible ............................ 3,116 3,051 3,202
(Gain) loss on sale of investments ................................. (5,995) 7,345 8
Gain on sale of loans .............................................. (26,923) (14,849) (13,283)
Loss (gain) on OREO and writedown .................................. 5,676 149 (182)
Bargain purchase gain .............................................. (3,482) -- --
Amortization of investment securities premiums and discounts, net .. (73) 1,400 2,737
FHLB stock dividends ............................................... (16) -- --
Gain on sale of Western's Lewistown branch ......................... -- -- (1,575)
Deferred (benefit) tax expense ..................................... (29,755) (11,032) 1,569
Stock compensation expense, net of tax benefits .................... 1,863 1,686 2,187
Excess tax benefits related to the exercise of stock options ....... (75) (1,325) (1,745)
Net decrease (increase) in accrued interest receivable ............. 1,312 (2,135) 44
Net (decrease) increase in accrued interest payable ................ (2,241) (3,656) 2,162
Net (decrease) increase in current income taxes payable ............ (2,913) 2,636 970
Net increase in other assets ....................................... (26,982) (519) (1,332)
Net (decrease) increase in other liabilities ....................... (1,787) 517 1,988
----------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ....................... 96,737 87,215 88,836
----------- ---------- ----------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of investment
securities available-for-sale ...................................... 310,809 280,051 273,323
Purchases of investment securities available-for-sale ................. (768,045) (584,058) (88,715)
Principal collected on installment and commercial loans ............... 1,002,856 1,088,871 1,125,275
Installment and commercial loans originated or acquired ............... (1,006,751) (1,420,609) (1,598,253)
Principal collections on mortgage loans ............................... 237,883 305,353 455,337
Mortgage loans originated or acquired ................................. (184,354) (357,951) (359,484)
Proceeds from sale of OREO ............................................ 14,763 4,294 --
Net purchase of FHLB and FRB stock .................................... (701) (640) (3,854)
Net cash received (paid) for acquisition of banks ..................... 41,716 (7,133) 8,953
Net cash paid for sale of Western's Lewistown branch .................. -- -- (6,846)
Net addition of premises and equipment ................................ (11,859) (15,336) (18,033)
----------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES .............................. (363,683) (707,158) (212,297)
----------- ---------- ----------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits ................................... 601,062 (40,936) (97,214)
Net increase (decrease) in FHLB advances .............................. 451,910 (209,829) 231,427
Net increase in securities sold under repurchase agreements ........... 8,251 10,322 7,825
Net (decrease) increase in Federal Reserve Bank discount window ....... (689,000) 914,000 --
Net (decrease) increase in U.S. Treasury Tax and Loan funds ........... (930) (215,342) 54,865
Net increase (decrease) in other borrowed funds ....................... 365 (6,621) (55)
Cash dividends paid ................................................... (32,021) (29,079) (26,694)
Excess tax benefits related to the exercise of stock options .......... 75 1,325 1,745
Proceeds from exercise of stock options and other stock issued ........ 2,554 103,749 6,154
----------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................... 342,266 527,589 178,053
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. 75,320 (92,354) 54,592
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........................ 135,255 227,609 173,017
----------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR .............................. $ 210,575 135,255 227,609
=========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest ................................ $ 59,408 94,028 118,840
Cash paid during the year for income taxes ............................ 36,778 43,114 34,798
Sale and refinancing of other real estate owned ....................... 8,150 2,909 --
Other real estate acquired in settlement of loans ..................... 71,967 16,661 558
The following schedule summarizes the Company's acquisitions in 2009, 2008
and 2007:
FIRST NATIONAL BANK OF THE NORTH SIDE
BANK & TRUST SAN JUANS STATE BANK
-------------- ------------ --------------
Date acquired Oct. 2, 2009 Dec. 1, 2008 April 30, 2007
Fair Value of assets acquired $272,280 $157,648 $128,252
Cash paid for the capital stock 621 7,133 8,953
Capital stock issued 9,995 9,287 19,000
Liabilities assumed 266,758 139,016 100,348
See accompanying notes to consolidated financial statements.
38
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) GENERAL
Glacier Bancorp, Inc. ("Company") is a Montana corporation incorporated in 2004
as a successor corporation to the Delaware corporation incorporated in 1990. The
Company is a regional multi-bank holding company that provides a full range of
banking services to individual and corporate customers in Montana, Idaho,
Wyoming, Colorado, Utah and Washington through its bank subsidiaries. The bank
subsidiaries are subject to competition from other financial service providers.
The bank subsidiaries are also subject to the regulations of certain government
agencies and undergo periodic examinations by those regulatory authorities.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan and lease losses ("ALLL"
or "allowance") and the valuations related to investments, business
combinations, goodwill, deferred tax assets and real estate acquired in
connection with foreclosures or in satisfaction of loans. In connection with the
determination of the ALLL and other valuation estimates management obtains
independent appraisals for significant items.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its eleven wholly-owned operating subsidiaries as of December 31, 2009; Glacier
Bank ("Glacier"), First Security Bank of Missoula ("First Security"), Western
Security Bank ("Western"), Big Sky Western Bank ("Big Sky"), Valley Bank of
Helena ("Valley"), and First Bank of Montana ("First Bank-MT"), all located in
Montana, Mountain West Bank ("Mountain West") and Citizens Community Bank
("Citizens") located in Idaho, 1st Bank ("1st Bank") and First National Bank &
Trust ("First National") located in Wyoming, and Bank of the San Juans ("San
Juans") located in Colorado. All significant inter-company transactions have
been eliminated in consolidation.
In addition, the Company owns seven trust subsidiaries, Glacier Capital Trust II
("Glacier Trust II"), Glacier Capital Trust III ("Glacier Trust III"), Glacier
Capital Trust IV ("Glacier Trust IV"), Citizens (ID) Statutory Trust I
("Citizens Trust I"), Bank of the San Juans Bancorporation Trust I ("San Juans
Trust I"), First Company Statutory Trust 2001 ("First Co Trust 01") and First
Company Statutory Trust 2003 ("First Co Trust 03") for the purpose of issuing
trust preferred securities and, in accordance with Financial Accounting
Standards Board ("FASB") Accounting Standards Codification(TM) ("ASC") Topic
810, Consolidation, the trust subsidiaries are not consolidated into the
Company's financial statements. The Company does not have any other off-balance
sheet entities.
On October 2, 2009, First Company and its subsidiary, First National, was
acquired by the Company. On December 1, 2008, Bank of the San Juans
Bancorporation and its subsidiary, San Juans, was acquired by the Company. The
acquired banks became wholly-owned subsidiaries of the Company.
On February 1, 2009, First National Bank of Morgan ("Morgan") merged into 1st
Bank resulting in operations being conducted under the 1st Bank charter. Prior
period activity of Morgan has been combined and included in 1st Bank's
historical results. On April 30, 2008, Glacier Bank of Whitefish ("Whitefish")
merged into Glacier with operations conducted under the Glacier charter. The
mergers were accounted for as a combination of two wholly-owned subsidiaries
without acquisition accounting and prior period activity of the merged banks has
been combined and included in the acquiring bank subsidiaries' historical
results.
(C) VARIABLE INTEREST ENTITIES
FASB ASC Topic 810, Consolidation, provides guidance as to when a company should
consolidate the assets, liabilities, and activities of a variable interest
entity ("VIE") in its financial statements, and when a company should disclose
information about its relationship with a VIE. A VIE is a legal structure used
to conduct activities or hold assets, and a VIE must be consolidated by a
company if it is the primary beneficiary that absorbs the majority of the
entity's expected losses, receives a majority of the entity's expected residual
returns, or both. For additional information relating to 2009 amendments to this
topic, see Note 22.
39
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . CONTINUED
The Company has equity investments in Certified Development Entities ("CDE")
which have received allocations of new market tax credits ("NMTC"). The Company
also has equity investments in low-income housing tax credit ("LIHTC")
partnerships. The CDE's and the LIHTC partnerships are VIE's. The underlying
activities of the VIE's are community development projects designed primarily to
promote community welfare, such as economic rehabilitation and development of
low-income areas by providing housing, services, or jobs for residents. The
maximum exposure to loss in the VIE's is the amount of equity invested or credit
extended by the Company; however, the Company has credit protection in the form
of indemnification agreements, guarantees, and collateral arrangements. The
Company has evaluated the variable interests held by the Company and others and
where the Company is the primary beneficiary of a VIE, the VIE has been
consolidated into the bank subsidiary which holds the direct investment in the
VIE. Currently, only CDE (NMTC) investments are consolidated into the Company's
financial statements. For the CDE (NMTC) investments, the creditors and other
beneficial interest holders have no recourse to the general credit of the bank
subsidiaries. As of December 31, 2009, the Company had investments in VIE's of
$30,513,000 and $2,331,000 for the CDE (NMTC) and LIHTC partnerships,
respectively. The consolidated VIE's as well as the unconsolidated VIE's are
regularly monitored by the Company to determine if any reconsideration events
have occurred that could cause its primary beneficiary status to change.
(D) 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, federal funds
sold and liquid investments with original maturities of three months or less.
(E) 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. As of December 31, 2009 and 2008, the Company only has
available-for-sale securities.
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. If
impairment of securities is determined to be other-than-temporary, an impairment
loss is recognized by reducing the amortized cost for the credit loss portion of
the impairment with a corresponding charge to earnings for a like amount.
The Company holds stock in the Federal Home Loan Bank ("FHLB") and the Federal
Reserve Bank ("FRB"). FHLB stock and FRB stock is restricted because such stock
may only be sold to the FHLB or FRB at its par value. Due to restrictive terms,
and the lack of a readily determinable market value, FHLB and FRB stocks are
carried at cost.
For additional information relating to investment securities, see Note 3.
(F) LOANS RECEIVABLE
Loans that are intended to be held to maturity are reported at their unpaid
principal balance less charge-offs, specific valuation accounts, and any
deferred fees or costs on originated loans. Acquired loans are reported net of
unamortized premiums or discounts. Interest income is reported on the interest
method and includes discounts and premiums on acquired loans and net loan fees
on originated loans which are amortized over the expected life of loans using
methods that approximate the effective interest method. For additional
information relating to loans, see Note 4.
Loans are designated non-accrual and the accrual of interest is discontinued
when the collection of the contractual principal or interest is unlikely. A loan
is typically placed on non-accrual when principal or interest is due and has
remained unpaid for ninety days or more unless the loan is in process of
collection and well-secured by collateral the fair value of which is sufficient
to pay off the debt in full. When a loan is placed on non-accrual status,
interest previously accrued but not collected is reversed against current period
interest income. Subsequent payments are applied to the outstanding principal
balance if doubt remains as to the ultimate collectability of the loan. Interest
accruals are resumed on such loans only when they are brought fully current with
respect to interest and principal and when, in the judgment of management, the
loans are estimated to be fully collectible as to both principal and interest.
40
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . CONTINUED
Loans are designated impaired when, based upon current information and events,
it is probable that the Company will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement. The amount of the impairment is measured using cash flows discounted
at the loan's effective interest rate, except when it is determined that
repayment of the loan is expected to be provided solely by the underlying
collateral. For collateral dependent loans, impairment is measured by the fair
value of the collateral less the cost to sell. When the ultimate collectability
of the total principal of an impaired loan is in doubt and designated is
non-accrual, all payments are applied to principal under the cost recovery
method. When the ultimate collectability of the total principal on an impaired
loan is not in doubt, contractual interest is generally credited to interest
income when received under the cash basis method.
A restructured loan is considered a troubled debt restructuring if the creditor,
for economic or legal reasons related to the debtor's financial difficulties,
grants a concession to the debtor that it would not otherwise consider. The
Company's troubled debt restructuring loans are considered impaired loans.
(G) 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.
(H) ALLOWANCE FOR LOAN AND LEASE LOSSES
Based upon management's analysis of the Company's loan and lease portfolio, the
balance of the ALLL is an estimate of probable credit losses known and inherent
in the loan and lease portfolio as of the date of the consolidated financial
statements. The ALLL is increased by provisions for loan losses which are
charged to expense. The portions of loan balances determined by management to be
uncollectible are charged off in reduction of the allowance. Recoveries of
amounts previously charged off are credited as an increase to the allowance.
The allowance for estimated losses on loans and leases is determined by each
bank subsidiary based upon past loss experience, adjusted for changes in trends
and conditions of certain items, including:
- Adverse situations that may affect specific borrowers' ability to
repay;
- Current collateral values, where appropriate;
- Delinquencies and non-performing loans;
- Amount and timing of future cash flows expected on impaired loans;
- Criticized and classified loans;
- Credit concentrations by credit type, industry, geography;
- Recoveries and dispositions of balances previously charge-off;
- Volume and terms of loans;
- Loan size and complexity;
- Competition and bank size;
- Local market areas and national economic conditions;
- Effects of changes in lending policies and procedures;
- Experience, ability, and depth of lending management and credit
administration staff; and
- Effects of legal and regulatory developments.
41
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . CONTINUED
Individually significant loans and major lending areas are reviewed periodically
to determine potential problems at an early date. A loan is considered impaired
when, based upon current information and events, it is probable that the Company
will be unable to collect the scheduled payments of principal or interest when
due according to the contractual terms of the loan agreement. The amount of the
impairment is measured using cash flows discounted at the loan's effective
interest rate, except when it is determined that repayment of the loan is
expected to be provided solely by the underlying collateral. For collateral
dependent loans, impairment is measured by the fair value of the collateral less
the cost to sell. The Company considers its investment in one-to-four family
residential loans, consumer and home equity loans to be homogeneous and
therefore evaluates such loans for impairment on a pooled basis.
(I) TEMPORARY VERSUS OTHER-THAN-TEMPORARY IMPAIRMENT
The Company views the determination of whether an investment security is
temporarily or other-than-temporarily impaired as a critical accounting policy,
as the estimate is susceptible to significant change from period to period
because it requires management to make significant judgments, assumptions and
estimates in the preparation of its consolidated financial statements. The
Company assesses individual securities in its investment securities portfolio
for impairment at least on a quarterly basis, and more frequently when economic
or market conditions warrant. An investment is impaired if the fair value of the
security is less than its carrying value at the financial statement date. If
impairment is determined to be other-than-temporary, an impairment loss is
recognized by reducing the amortized cost for the credit loss portion of the
impairment with a corresponding charge to earnings.
Management considers whether an investment security is other-than-temporarily
impaired under the guidance promulgated in FASB ASC Topic 320, Investments -
Debt and Equity Securities.
For additional information relating to investment securities, see Note 3.
In evaluating impaired securities for other-than-temporary impairment losses,
management considers, among other things, (i) the severity and duration of the
impairment, (ii) the credit ratings of the security, (iii) the overall deal
structure, including the Company's position within the structure, the overall
and near term financial performance of the issuer and underlying collateral,
delinquencies, defaults, loss severities, recoveries, prepayments, cumulative
loss projections, discounted cash flows and fair value estimates. The Company
also considers its intent and ability to retain the investment security for a
period of time sufficient to allow for anticipated recovery in fair value. In so
doing, the Company considers (i) contractual constraints, liquidity and capital
needs of the Company, and (ii) management's approach to managing the investment
portfolio including intent, if any, to dispose of impaired investment securities
in periods subsequent to the impairment analysis date.
(J) 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. The estimated useful life for office buildings is 15 - 40
years and the estimated useful life for furniture, fixtures, and equipment is 3
- 10 years. Interest is capitalized for any significant building projects. For
additional information relating to premises and equipment, see Note 5.
(K) REAL ESTATE OWNED
Property acquired by foreclosure or deed-in-lieu of foreclosure is carried at
the lower of fair value at acquisition date or current 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 in other expenses and the asset carrying value is reduced. Any
gain or loss on disposition of real estate owned is recorded in other income or
other expense.
(L) BUSINESS COMBINATIONS AND INTANGIBLE ASSETS
Acquisitions are accounted for as prescribed by FASB ASC Topic 805, Business
Combinations. This Topic was amended January 1, 2009; for additional information
relating to the amendment, see Note 22. Acquisition 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 if the purchase price exceeds the net fair value of assets acquired
and a bargain purchase gain is recorded in other income if the net fair value of
assets acquired exceeds the purchase price.
42
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . CONTINUED
Adjustment of the allocated purchase price may be related to fair value
estimates for which all information has not been obtained on 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.
Core deposit intangible represents 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. The useful life of the core deposit
intangible is reevaluated on an annual basis, with any changes in estimated
useful life accounted for prospectively over the revised remaining life. For
additional information relating to core deposit intangibles, see Note 6.
On an annual basis, as required by FASB ASC Topic 350, Intangibles - Goodwill
and Other, the Company tests goodwill and other intangible assets for impairment
at the subsidiary level annually during the third quarter. In addition, goodwill
and other intangible assets of a subsidiary are tested for impairment between
annual tests if an event occurs or circumstances change that would
more-likely-than not reduce the fair value of a reporting unit below its
carrying amount. For additional information relating to goodwill, see Note 6.
(M) 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.
Deferred tax assets are reduced by a valuation allowance, if based on the weight
of available evidence, it is more-likely-than-not that some portion or all of
the deferred tax assets will not be realized. The term more-likely-than not
means a likelihood of more than 50 percent. The recognition threshold considers
the facts, circumstances, and information available at the reporting date and is
subject to the Company's judgment. In assessing the need for a valuation
allowance, the Company considers both positive and negative evidence. For
additional information relating to income taxes, see Note 12.
(N) ADVERTISING AND PROMOTION
Advertising and promotion costs are recognized in the period incurred.
(O) STOCK-BASED COMPENSATION
Compensation cost related to the share-based payment transactions is recognized
in the financial statements over the requisite service period, which is the
vesting period. Compensation cost is measured using the fair value of an award
on the grant date by using the Black Scholes option-pricing model. For
additional information relating to stock-based compensation, see Note 15.
(P) LONG-LIVED ASSETS
Long-lived assets 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, 2009 and 2008, no assets were considered impaired.
43
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . CONTINUED
(Q) MORTGAGE SERVICING RIGHTS
The Company recognizes the rights to service mortgage loans for others, whether
acquired or internally originated. Loan servicing rights are initially recorded
at fair value based on comparable market quotes and are amortized as other
expense in proportion to and over the period of estimated net servicing income.
Loan servicing rights are evaluated quarterly for impairment by discounting the
expected future cash flows, taking into consideration the estimated level of
prepayments based on current industry expectations and the predominant risk
characteristics of the underlying loans including loan type, note rate and loan
term. Impairment adjustments, if any, are recorded through a valuation
allowance. For additional information relating to mortgage servicing rights, see
Note 6.
As of December 31, 2009 and 2008, the carrying value of mortgage servicing
rights was approximately $1,041,000 and $1,262,000, respectively. Amortization
expense of $250,000, $176,000, and $188,000 was recognized in the years ended
December 31, 2009, 2008, and 2007, respectively. The servicing rights are
included in other assets on the balance sheet and are amortized over the period
of estimated net servicing income. There was no impairment of carrying value at
December 31, 2009 or 2008. At December 31, 2009, the fair value of mortgage
servicing rights was approximately $1,708,000.
(R) EARNINGS PER SHARE
Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of shares of common stock outstanding
during the year. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential shares had been issued,
as well as any adjustment to income that would result from the issuance.
Potential common shares that may be issued by the Company relate to outstanding
stock options, and are determined using the treasury stock method. For
additional information relating earnings per share, see Note 14.
(S) LEASES
The Company leases certain land, premises and equipment from third parties under
operating and capital leases. The lease payments for operating lease agreements
are recognized on a straight-line basis. The present value of the future minimum
rental payments for capital leases is recognized as an asset when the lease is
formed. Lease improvements incurred at the inception of the lease are recorded
as an asset and depreciated over the initial term of the lease and lease
improvements incurred subsequently are depreciated over the remaining term of
the lease. For additional information relating to leases, see Note 19.
(T) 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, net of tax expense
(benefit), on available-for-sale securities.
(U) RECLASSIFICATIONS
Certain reclassifications have been made to the 2008 and 2007 financial
statements to conform to the 2009 presentation.
2. CASH ON HAND AND IN BANKS
At December 31, 2009 and 2008, cash and cash equivalents primarily consisted of
Federal funds sold, cash on hand, and cash items in process. The bank
subsidiaries are required to maintain an average reserve balance with either the
Federal Reserve or in the form of cash on hand. The amount of this required
reserve balance at December 31, 2009 was $12,412,000.
The financial institutions holding the Company's cash accounts are participating
in the Federal Deposit Insurance Corporation's ("FDIC") Transaction Account
Guarantee Program. Under that program, through June 30, 2010, all
noninterest-bearing transaction accounts are fully guaranteed by the FDIC for
the entire amount in the account.
At December 31, 2009, the Company had overnight Federal funds sold of
$87,155,000, which are not guaranteed by the FDIC. The Company performs a
quarterly review of the institutions at which balances are maintained. The
review encompasses the financial condition of each institution including capital
level, credit quality, earnings level, and other factors including trends
affecting the financial condition of the institution.
44
3. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE
A comparison of the amortized cost and estimated fair value of the Company's
investment securities designated as available-for-sale is presented below.
YEAR ENDED DECEMBER 31, 2009
----------------------------------------------------
GROSS UNREALIZED ESTIMATED
WEIGHTED AMORTIZED ---------------- FAIR
(Dollars in thousands) YIELD COST GAINS LOSSES VALUE
---------------------- -------- ---------- ------ ------- ---------
U.S. Government and federal agency:
Maturing within one year ..................... 1.62% $ 210 -- (1) 209
Government sponsored enterprises:
Maturing within one year ..................... 0.00% -- -- -- --
Maturing after one year through five years ... 3.21% 74 -- -- 74
Maturing after five years through ten years .. 1.64% 40 -- -- 40
Maturing after ten years ..................... 2.05% 63 -- -- 63
---------- ------ ------- ---------
2.43% 177 -- -- 177
---------- ------ ------- ---------
State and local governments and other issues:
Maturing within one year ..................... 2.48% 2,040 6 -- 2,046
Maturing after one year through five years ... 3.30% 9,326 208 (12) 9,522
Maturing after five years through ten years .. 3.84% 27,125 786 (168) 27,743
Maturing after ten years ..................... 4.92% 448,853 10,140 (10,539) 448,454
---------- ------ ------- ---------
4.82% 487,344 11,140 (10,719) 487,765
---------- ------ ------- ---------
Residential mortgage-backed securities .......... 3.42% 956,033 15,167 (16,158) 955,042
---------- ------ ------- ---------
Total marketable securities ............... 3.89% 1,443,764 26,307 (26,878) 1,443,193
---------- ------ ------- ---------
Other investments:
FHLB and FRB stock, at cost .................. 1.30% 62,577 -- -- 62,577
Other stock, at cost ......................... 0.05% 624 -- -- 624
---------- ------ ------- ---------
Total investments ......................... 3.78% $1,506,965 26,307 (26,878) 1,506,394
========== ====== ======= =========
45
3. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE . . . CONTINUED
Year ended December 31, 2008
---------------------------------------------------
Gross Unrealized Estimated
Weighted Amortized ---------------- Fair
(Dollars in thousands) Yield Cost Gains Losses Value
---------------------- -------- --------- ------ ------- ---------
U.S. Government and federal agency:
Maturing within one year ..................... 1.62% $ 213 4 -- 217
Government sponsored enterprises:
Maturing within one year ..................... 0.00% -- -- -- --
Maturing after one year through five years ... 0.00% -- -- -- --
Maturing after five years through ten years .. 4.12% 246 -- (2) 244
Maturing after ten years ..................... 3.75% 68 -- -- 68
-------- ------ ------- -------
4.04% 314 -- (2) 312
-------- ------ ------- -------
State and local governments and other issues:
Maturing within one year ..................... 3.76% 940 6 -- 946
Maturing after one year through five years ... 4.61% 4,482 104 (9) 4,577
Maturing after five years through ten years .. 5.08% 20,219 1,030 (80) 21,169
Maturing after ten years ..................... 5.08% 408,603 8,121 (9,733) 406,991
-------- ------ ------- -------
5.07% 434,244 9,261 (9,822) 433,683
-------- ------ ------- -------
Residential mortgage-backed securities .......... 4.62% 495,961 4,956 (6,447) 494,470
-------- ------ ------- -------
Total marketable securities ............... 4.83% 930,732 14,221 (16,271) 928,682
-------- ------ ------- -------
Other investments:
FHLB and FRB stock, at cost .................. 1.72% 60,945 -- -- 60,945
Other stock, at cost ......................... 3.10% 465 -- -- 465
-------- ------ ------- -------
Total investments ......................... 4.64% $992,142 14,221 (16,271) 990,092
======== ====== ======= =======
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. Weighted yields on tax-exempt
investment securities exclude the tax effect.
The amortized cost of securities at December 31, 2007 was as follows:
December 31,
(Dollars in thousands) 2007
---------------------- ------------
U.S. Government and federal agency ................. $ 2,550
Government sponsored enterprises ................... 1,314
State and local governments and other issues ....... 277,212
Residential mortgage-backed securities ............. 346,085
FHLMC and FNMA stock ............................... 7,593
Certificates of deposit with over 90 day maturity .. 199
FHLB and FRB stock ................................. 59,815
Other stock ........................................ 413
--------
$695,181
========
46
3. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE . . . CONTINUED
Interest income includes tax-exempt interest for the years ended December 31,
2009, 2008, and 2007 of $22,196,000, $13,901,000, and $13,427,000, respectively.
Gross proceeds from sales of investment securities for the years ended December
31, 2009, 2008, and 2007 were approximately $85,224,000, $97,002,000 and
$55,501,000, respectively, resulting in gross gains of approximately $7,113,000,
$0 and $1,000 and gross losses of approximately $1,118,000, $0 and $9,000
respectively. During the first quarter of 2008, the Company realized a gain of
$130,000 from extinguishment of the Company's share ownership in Principal
Financial Group and a gain of $118,000 from the mandatory redemption of a
portion of Visa, Inc. shares from its recent initial public offering. During the
third quarter of 2008, the Company incurred a $7,593,000 other-than-temporary
impairment ("OTTI") charge with respect to its investments in Federal Home Loan
Mortgage Corporation ("Freddie Mac") preferred stock and Federal National
Mortgage Association ("Fannie Mae") common stock. The Fannie Mae and Freddie Mac
stock was written down to a $0 value, however, the shares were still owned by
the Company at December 31, 2009. The cost of any investment sold is determined
by specific identification.
At December 31, 2009, the Company had investment securities with carrying values
of approximately $1,114,749,000, pledged as collateral for FHLB advances, FRB
borrowings, securities sold under agreements to repurchase, U.S. Treasury Tax
and Loan borrowings and deposits of several local government units.
The investments in FHLB stock are required investments related to the Company's
borrowings from FHLB. FHLB obtains its funding primarily through issuance of
consolidated obligations of the FHLB system. The U.S. Government does not
guarantee these obligations, and each of the 12 FHLBs are jointly and severally
liable for repayment of each other's debt.
The following is a summary of investments with unrealized loss positions at
December 31, 2009:
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
--------------------- ------------------- --------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
(Dollars in thousands) VALUE LOSS VALUE LOSS VALUE LOSS
---------------------- -------- ---------- ------ ---------- ------- ----------
U.S. Government and federal agency ............ $ 208 1 -- -- 208 1
State and local governments and other issues .. 74,045 1,835 18,094 985 92,139 2,820
Collateralized debt obligations ............... 6,789 7,899 -- -- 6,789 7,899
Residential mortgage-backed securities ........ 466,196 3,861 39,780 12,297 505,976 16,158
-------- ------ ------ ------ ------- ------
Total temporarily impaired securities ...... $547,238 13,596 57,874 13,282 605,112 26,878
======== ====== ====== ====== ======= ======
The following is a summary of investments with unrealized loss positions at
December 31, 2008:
Less than 12 months 12 Months or More Total
--------------------- ------------------- --------------------
Fair Unrealized Fair Unrealized Fair Unrealized
(Dollars in thousands) Value Loss Value Loss Value Loss
---------------------- -------- ---------- ------ ---------- ------- ----------
Government sponsored enterprises .............. $ 104 1 205 1 309 2
State and local governments and other issues .. 142,826 9,772 1,621 50 144,447 9,822
Residential mortgage-backed securities ........ 116,004 5,758 12,403 689 128,407 6,447
-------- ------ ------ --- ------- ------
Total temporarily impaired securities ...... $258,934 15,531 14,229 740 273,163 16,271
======== ====== ====== === ======= ======
47
3. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE . . . CONTINUED
The Company assesses individual securities in its investment securities
portfolio for impairment at least on a quarterly basis, and more frequently when
economic or market conditions warrant. An investment is impaired if the fair
value of the security is less than its carrying value at the financial statement
date. If impairment is determined to be other-than-temporary, an impairment loss
is recognized by reducing the amortized cost for the credit loss portion of the
impairment with a corresponding charge to earnings.
For fair value estimates provided by third party vendors, management also
considered the models and methodology, for appropriate consideration of both
observable and unobservable inputs, including appropriately adjusted discount
rates and credit spreads for securities with limited or inactive markets, and
whether the quoted prices reflect orderly transactions, For certain securities,
the Company obtained independent estimates of inputs, including cash flows, in
supplement to third party vendor provided information. The Company also reviewed
financial statements of select issuers, with follow up discussions with issuers'
management for clarification and verification of information relevant to the
Company's impairment analysis.
In evaluating debt securities for other-than-temporary impairment losses,
management assesses whether the Company intends to sell or if it is more
likely-than-not that it will be required to sell impaired debt securities. In so
doing, management considers contractual constraints, liquidity, capital, asset /
liability management and securities portfolio objectives. With respect to its
impaired debt securities at December 31, 2009, management determined that it
does not intend to sell and that there is no expected requirement to sell any of
its impaired debt securities.
As of December 31, 2009, there were 273 investments in an unrealized loss
position and were considered to be temporarily impaired and therefore an
impairment charge has not been recorded. All of such temporarily impaired
investments are debt securities. Residential mortgage-backed securities have the
largest unrealized loss. The fair value of these securities, which have
underlying collateral consisting of U.S. government sponsored enterprise
guaranteed mortgages and non-guaranteed private label whole loan mortgages, were
$505,976,000 at December 31, 2009 of which $454,516,000 was purchased during
2009, the remainder of which had a fair market value of $73,624,000 at December
31, 2008. For the securities purchased in 2009 there has been an unrealized loss
of $3,607,000 since purchase. Of the remaining residential mortgage-backed
securities in a loss position the unrealized loss increased from 8.3 percent of
fair value at December 31, 2008 to 24.4 percent of fair value at December 31,
2009. The fair value of Collateralized Debt Obligation securities in an
unrealized loss position is $6,789,000 with unrealized losses of $7,899,000 or
116 percent of fair value at December 31, 2009; such investments had an
unrealized gain position at December 31, 2008. The fair value of State and Local
Government were $92,139,000 at December 31, 2009 of which $42,703,000 was
purchased during 2009, the remainder of which had a fair market value of
$47,907,000 at December 31, 2008. For the securities purchased in 2009 there has
been an unrealized loss of $1,212,000 since purchase. Of the remaining State and
Local Government securities in a loss position the unrealized loss decreased
from 10.1 percent of fair value at December 31, 2008 to 3.3 percent of fair
value at December 31, 2009.
The Company stratified the 273 debt securities for both severity and duration of
impairment. With respect to severity, the following table provides the number of
securities and amount of unrealized loss in the various ranges of unrealized
loss as a percent of book value.
Unrealized Number of
(Dollars in thousands) Loss Bonds
---------------------- ---------- ---------
Greater than 40.0% $ 7,859 6
30.1% to 40.0% 1,370 1
20.1% to 30.0% 7,160 5
15.1% to 20.0% 4,180 10
10.1% to 15.0% 125 3
5.1% to 10.0% 705 14
0.1% to 5.0% 5,479 234
------- ---
Total $26,878 273
======= ===
48
3. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE . . . CONTINUED
With respect to the duration of the impaired securities, the Company identified
39 securities which have been continuously impaired for the 12 months ending
December 31, 2009. The valuation history of such securities in the prior year(s)
was also reviewed to determine the number of months in prior year(s) in which
the identified securities was in an unrealized loss position. 13 of these 39
securities are non-guaranteed, non-Agency CMOs with an aggregate unrealized loss
of $12,291,000, the most notable of which had an unrealized loss of $1,536,000.
17 of the 39 securities are state and local tax-exempt securities with an
unrealized loss of $985,000, the most notable of which had an unrealized loss of
$233,000. 8 of the 39 securities are residential mortgage-backed securities
issued by U.S. government sponsored agencies, i.e., GNMA, FNMA, FHLMC and SBA,
the aggregate unrealized loss of which was $6,000.
For impaired debt securities for which there was no intent or expected
requirement to sell, management considers available evidence to assess whether
it is more likely-than-not that all amounts due would not be collected In such
assessment, management considers the severity and duration of the impairment,
the credit ratings of the security, the overall deal and payment structure,
including the Company's position within the structure, underlying obligors,
financial condition and near term prospects of the issuer, delinquencies,
defaults, loss severities, recoveries, prepayments, cumulative loss projections,
discounted cash flows and fair value estimates.
Based on an analysis of its impaired securities as of December 31, 2009, the
Company determined that none of such securities had other-than-temporary
impairment.
4. LOANS RECEIVABLE, NET AND LOANS HELD FOR SALE
The following is a summary of loans receivable, net and loans held for sale at:
December 31,
----------------------
(Dollars in thousands) 2009 2008
---------------------- ---------- ---------
Residential real estate ...................... $ 746,050 786,869
Loans held for sale .......................... 66,330 54,976
Commercial real estate ....................... 1,900,438 1,935,341
Other commercial ............................. 724,966 645,033
Consumer ..................................... 201,001 208,166
Home equity .................................. 501,920 507,831
---------- ---------
4,140,705 4,138,216
Net deferred loan fees, premiums and discounts .. (10,460) (8,023)
---------- ---------
4,130,245 4,130,193
Allowance for loan and lease losses ............. (142,927) (76,739)
---------- ---------
$3,987,318 4,053,454
========== =========
Substantially all of the loans held for sale at December 31, 2009 and 2008 were
committed to be sold. At December 31, 2009, the Company had $2,571,047,000 in
variable rate loans and $1,569,658,000 in fixed rate loans. The weighted average
interest rate on loans was 6.06 percent and 6.93 percent at December 31, 2009
and 2008, respectively. At December 31, 2009, 2008 and 2007, loans sold and
serviced for others were $176,231,000, $181,351,000, and $177,173,000,
respectively. At December 31, 2009, the Company had loans of approximately
$2,502,684,000 pledged as collateral for FHLB advances, FRB and U.S. Treasury
Tax and Loan borrowings.
Substantially all of the Company's loan receivables are with customers within
the Company's market areas. 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. The bank subsidiaries are subject to regulatory limits for the amount of
loans to any individual borrower and all bank subsidiaries are in compliance as
of December 31, 2009. No borrower had outstanding loans or commitments exceeding
10 percent of the Company's consolidated stockholders' equity as of December 31,
2009.
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, 2009 and 2008 was approximately
$86,037,000 and $92,107,000, respectively. During 2009, new loans to such
related parties were approximately $18,882,000 and repayments were approximately
$24,952,000.
49
4. LOANS RECEIVABLE, NET AND LOANS HELD FOR SALE . . . CONTINUED
The following is a summary of activity in the ALLL:
Years ended December 31,
--------------------------
(Dollars in thousands) 2009 2008 2007
---------------------- -------- ------ ------
Balance at beginning of period .. $ 76,739 54,413 49,259
Acquisitions .................... -- 2,625 639
Net charge offs ................. (58,430) (8,779) (2,165)
Provision ....................... 124,618 28,480 6,680
-------- ------ ------
Balance at end of period ........ $142,927 76,739 54,413
======== ====== ======
The increase in the ALLL was primarily due to the increase in non-performing
assets since December 31, 2008 and a downturn in global, national and local
economies.
Following is the allocation of the ALLL and the percent of loans in each
category at:
DECEMBER 31, 2009 December 31, 2008
---------------------- ---------------------
PERCENT OF Percent of
OF LOANS IN of Loans in
(Dollars in thousands) AMOUNT CATEGORY Amount Category
---------------------- -------- ----------- ------- -----------
Residential real estate and loans held for sale .. $ 13,496 19.6% $ 7,233 20.3%
Commercial real estate ........................... 66,791 45.9% 35,305 46.8%
Other commercial ................................. 39,558 17.5% 21,590 15.6%
Consumer ......................................... 9,663 4.9% 5,636 5.0%
Home equity ...................................... 13,419 12.1% 6,975 12.3%
-------- ----- ------- -----
$142,927 100.0% $76,739 100.0%
======== ===== ======= =====
The following is a summary of the non-performing loans:
Years ended December 31,
--------------------------
(Dollars in thousands) 2009 2008 2007
---------------------- -------- ------ ------
Impaired loans ................................. $218,742 79,949 12,152
Average recorded investment in impaired loans .. 145,230 40,985 7,311
Impairment allowance ........................... 19,760 7,999 2,827
Non-accrual loans .............................. 198,281 64,301 8,560
Accruing loans 90 days or more overdue ......... 5,537 8,613 2,685
As of December 31, 2009, the Company had impaired loans without a valuation
allowance of $141,613,000 and impaired loans with a valuation allowance of
$77,129,000. Interest income that would have been recorded on non-accrual loans
if such loans had been current for the entire period would have been
approximately $11,730,000, $4,434,000, and $683,000 for the years ended December
31, 2009, 2008, and 2007. Interest income recognized on non-accruing loans for
the years ended December 31, 2009, 2008, and 2007 was not significant.
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.
50
4. LOANS RECEIVABLE, NET AND LOANS HELD FOR SALE . . . CONTINUED
The Company's troubled debt restructuring loans are included in the amount of
impaired loans. As of December 31, 2009, the Company had troubled debt
restructuring loans of $64,618,000, of which there were $1,245,000 of additional
outstanding commitments. The amount of charge-offs on troubled debt
restructuring loans during 2009 was $7,776,000.
The Company had outstanding commitments as follows:
December 31,
------------------
(Dollars in thousands) 2009 2008
---------------------- -------- -------
Loans and loans in process ......... $457,754 648,788
Unused consumer lines of credit .... 286,621 272,181
Letters of credit .................. 28,691 36,934
-------- -------
$773,066 957,903
======== =======
5. PREMISES AND EQUIPMENT, NET
Premises and equipment, net of accumulated depreciation, consist of the
following at:
December 31,
------------------
(Dollars in thousands) 2009 2008
---------------------- -------- -------
Land ............................... $ 23,315 20,633
Office buildings and construction
in progress ..................... 119,420 113,742
Furniture, fixtures and equipment .. 58,013 53,593
Leasehold improvements ............. 8,969 7,528
Accumulated depreciation ........... (68,796) (61,547)
-------- -------
$140,921 133,949
======== =======
Depreciation expense for the years ended December 31, 2009, 2008, and 2007 was
$10,450,000, $9,814,000, and $8,508,000, respectively. Interest expense
capitalized for various construction projects for the years ended December 31,
2009, 2008 and 2007 was $33,000, $71,000 and $264,000, respectively.
51
6. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table sets forth information regarding the Company's core deposit
intangibles and mortgage servicing rights:
Mortgage
Core Deposit Servicing
(Dollars in thousands) Intangible Rights(1) Total
---------------------- ------------ ---------- ------
AS OF DECEMBER 31, 2009
Gross carrying value $ 31,847
Accumulated amortization (17,910)
--------
Net carrying value $ 13,937 1,041 14,978
========
AS OF DECEMBER 31, 2008
Gross carrying value $ 27,807
Accumulated amortization (14,794)
--------
Net carrying value $ 13,013 1,262 14,275
========
WEIGHTED-AVERAGE AMORTIZATION PERIOD
(Period in years) 9.1 9.4 9.1
AGGREGATE AMORTIZATION EXPENSE
For the year ended December 31, 2009 $ 3,116 250 3,366
For the year ended December 31, 2008 3,051 176 3,227
For the year ended December 31, 2007 3,202 188 3,390
ESTIMATED AMORTIZATION EXPENSE
For the year ended December 31, 2010 $ 2,603 74 2,677
For the year ended December 31, 2011 1,895 72 1,967
For the year ended December 31, 2012 1,534 70 1,604
For the year ended December 31, 2013 1,283 68 1,351
For the year ended December 31, 2014 1,034 65 1,099
(1) Gross carrying value and accumulated amortization are not readily available
The following is a summary of activity in goodwill for the years ended December
31, 2009 and 2008:
Years ended
December 31,
------------------
(Dollars in thousands) 2009 2008
---------------------- -------- -------
Balance at beginning of period $146,752 140,301
Acquisition of San Juans (493) 6,451
-------- -------
Balance at end of period $146,259 146,752
======== =======
52
7. DEPOSITS
Deposits consist of the following at:
December 31,
--------------------------------------
(Dollars in thousands) 2009 2008
---------------------- ------------------ -----------------
Demand accounts ............................... $ 810,550 19.8% 747,439 22.9%
---------- ----- --------- -----
NOW accounts .................................. 749,535 18.3% 515,211 15.8%
Savings accounts .............................. 324,234 7.9% 280,895 8.6%
Money market demand accounts .................. 907,949 22.1% 779,154 23.9%
Certificates of deposit ....................... 1,307,884 31.9% 939,776 28.8%
---------- ----- --------- -----
Total interest bearing deposits ............ 3,289,602 80.2% 2,515,036 77.1%
---------- ----- --------- -----
Total deposits ............................. $4,100,152 100.0% 3,262,475 100.0%
========== ===== ========= =====
Deposits with a balance $100,000 and greater .. $2,315,750 1,621,430
========== =========
At December 31, 2009, scheduled maturities of certificates of deposit are as
follows:
Years ending December 31,
--------------------------------------------------
(Dollars in thousands) TOTAL 2010 2011 2012 2013 Thereafter
---------------------- ---------- --------- ------- ------ ------ ----------
1.00% and lower ...... $ 170,133 169,896 36 194 7 --
1.01% to 2.00% ....... 590,288 553,632 33,922 1,844 356 534
2.01% to 3.00% ....... 379,977 280,048 64,292 29,374 1,724 4,539
3.01% to 4.00% ....... 93,894 48,593 23,189 4,807 5,806 11,499
4.01% to 5.00% ....... 43,226 26,662 8,863 4,445 3,069 187
5.01% to 6.00% ....... 30,098 12,429 10,849 6,598 101 121
6.01% to 7.00% ....... 246 120 126 -- -- --
7.01% to 8.00% ....... 22 -- -- 22 -- --
---------- --------- ------- ------ ------ ------
$1,307,884 1,091,380 141,277 47,284 11,063 16,880
========== ========= ======= ====== ====== ======
Interest expense on deposits is summarized as follows:
Years ended December 31,
-------------------------
(Dollars in thousands) 2009 2008 2007
---------------------- ------- ------ ------
NOW accounts ............................. $ 2,280 3,014 4,708
Savings accounts ......................... 947 1,865 2,679
Money market demand accounts ............. 8,564 17,234 27,248
Certificates of deposit .................. 26,638 32,899 46,824
------- ------ ------
$38,429 55,012 81,459
======= ====== ======
The Company reclassified approximately $2,894,000 and $3,199,000 of overdraft
demand deposits to loans as of December 31, 2009 and 2008, respectively. NOW,
money market demand and certificates of deposit totals include wholesale
deposits of $350,760,000 as of December 31, 2009. The Company has entered into
deposit transactions with its executive officers, directors, significant
shareholders, and their affiliates. The aggregate amount of deposits with such
related parties at December 31, 2009, and 2008 was approximately $53,082,000 and
$59,343,000, respectively.
53
8. BORROWINGS
Advances from the FHLB consist of the following:
Totals as of
Maturing in Years ending December 31, December 31,
--------------------------------------------------- -----------------
(Dollars in thousands) 2010 2011 2012 2013 2014 Thereafter 2009 2008
---------------------- -------- ---- ------ ---- ---- ---------- ------- -------
0.00% to 1.00% ....... $585,282 -- -- -- -- -- 585,282 175,900
1.01% to 2.00% ....... -- -- -- -- -- -- -- --
2.01% to 3.00% ....... -- -- -- -- -- 20,000 20,000 --
3.01% to 4.00% ....... -- -- 40,000 -- -- 100,000 140,000 116,000
4.01% to 5.00% ....... 750 207 42,000 -- -- 779 43,736 45,142
5.01% to 6.00% ....... -- -- -- -- -- 1,074 1,074 1,091
6.01% to 7.00% ....... 25 -- -- -- -- 250 275 323
-------- --- ------ --- --- ------- ------- -------
$586,057 207 82,000 -- -- 122,103 790,367 338,456
======== === ====== === === ======= ======= =======
In addition to specifically pledged loans and investment securities, the FHLB
advances are collateralized by FHLB stock owned by the Company and a blanket
assignment of the unpledged qualifying loans and investments. The total amount
of advances available as of December 31, 2009 was approximately $309,476,000.
The weighted average fixed interest rate on these advances was 1.14 percent and
2.10 percent at December 31, 2009 and 2008, respectively.
With respect to $202,000,000 of advances at December 31, 2009, the FHLB holds
put options that will be exercised on the quarterly measurement date, after the
initial call date, if three month LIBOR is greater than 8%. The FHLB put options
as of December 31, 2009 are summarized as follows:
(Dollars in thousands)
---------------------------------------------
Interest Earliest
Amount Rate Maturity Call
-------- ------------ -------- --------
$ 82,000 3.49% - 4.83% 2012 2010
75,000 3.16% - 4.64% 2015 2010
45,000 2.93% - 3.05% 2016 2010
--------
$202,000
========
The Company had borrowings through the FRB of $225,000,000 and $914,000,000 as
of December 31, 2009 and 2008, respectively. The borrowings have a weighted
average fixed interest rate of 0.26 percent, mature in 2010 and are
collateralized by loans and investments with an available balance of
$564,414,000 as of December 31, 2009.
The Company had U.S. Treasury Tax and Loan borrowings of $5,136,000 and
$6,067,000 as of December 31, 2009 and 2008, respectively. The borrowings as of
December 31, 2009 are short term and have an interest rate of fed funds less 25
basis points and are collateralized with loans and investments with an available
balance of $9,060,000.
54
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase consist of the following at:
BOOK MARKET
WEIGHTED VALUE OF VALUE OF
December 31, 2009 REPURCHASE AVERAGE UNDERLYING UNDERLYING
(Dollars in thousands) AMOUNT FIXED RATE ASSETS ASSETS
---------------------- ---------- ---------- ---------- ----------
Securities sold under agreements
to repurchase within:
Overnight ................... $210,132 0.92% $210,449 206,450
Term up to 30 days .......... 410 2.75% 476 487
Term over 90 days ........... 1,964 2.34% 2,284 2,339
-------- -------- -------
$212,506 0.94% $213,209 209,276
======== ======== =======
December 31, 2008
(Dollars in thousands)
----------------------
Securities sold under agreements
to repurchase within:
Overnight ................... $186,217 1.22% $201,185 191,985
Term 30 - 90 days ........... 2,146 2.74% -- --
-------- -------- -------
$188,363 1.23% $201,185 191,985
======== ======== =======
The securities, consisting of U.S. Agency and U.S. Government Sponsored
Enterprises issued or guaranteed residential mortgage-backed securities, subject
to agreements to repurchase are for the same securities originally sold, and are
held in a custody account by a third party. For the years ended December 31,
2009 and 2008, securities sold under agreements to repurchase averaged
approximately $204,503,000 and $188,952,000, respectively, and the maximum
outstanding at any month end during the year was approximately $234,914,000 and
$196,461,000, respectively.
55
10. SUBORDINATED DEBENTURES
Trust Preferred Securities were issued by the Company's seven trust
subsidiaries, the common stock of which is wholly-owned by the Company, in
conjunction with the Company issuing Subordinated Debentures to the trust
subsidiaries. The terms of the Subordinated Debentures are the same as the terms
of the Trust Preferred Securities. The Company guaranteed the payment of
distributions and payments for redemption or liquidation of the Trust Preferred
Securities to the extent of funds held by the trust subsidiaries. The
obligations of the Company under the Subordinated Debentures together with the
guarantee and other back-up obligations, in the aggregate, constitute a full and
unconditional guarantee by the Company of the obligations of all trusts under
the Trust Preferred Securities.
The Trust Preferred Securities are subject to mandatory redemption upon
repayment of the Subordinated Debentures at their stated maturity date or the
earlier redemption in an amount equal to their liquidation amount plus
accumulated and unpaid distributions to the date of redemption. Interest
distributions are payable quarterly. The Company may defer the payment of
interest at any time from time to time for a period not exceeding 20 consecutive
quarters provided that the deferral period does not extend past the stated
maturity. During any such deferral period, distributions on the Trust Preferred
Securities will also be deferred and the Company's ability to pay dividends on
its common shares will be restricted.
Subject to approval by the FRB, the Trust Preferred Securities may be redeemed
at par prior to maturity at the Company's option on or after the redemption
date. The Trust Preferred Securities may also be redeemed at any time in whole
(but not in part) for the Trusts in the event of unfavorable changes in laws or
regulations that result in (1) subsidiary trusts becoming subject to federal
income tax on income received on the Subordinated Debentures, (2) interest
payable by the Company on the Subordinated Debentures becoming non-deductible
for federal tax purposes, (3) the requirement for the trusts to register under
the Investment Company Act of 1940, as amended, or (4) loss of the ability to
treat the Trust Preferred Securities as "Tier 1 Capital" under the FRB capital
adequacy guidelines.
The terms of the Subordinated Debentures, arranged by maturity date, are
reflected in the table below. The amounts include fair value adjustments from
acquisitions.
Rate at
December 31, Fixed/ Variable Rate Maturity Redemption
(Dollars in thousands) Amount 2009 Variable Structure (1) Date Date
---------------------- -------- ------------ ------------- --------------------- -------- ----------
First Co Trust 01 .................... $ 2,766 3.581% Variable 3 mo LIBOR plus 3.30% 07/31/31 07/31/11
First Co Trust 03 .................... 2,047 3.501% Variable 3 mo LIBOR plus 3.25% 03/26/33 03/26/08
Glacier Capital Trust II ............. 46,393 3.034% Variable 3 mo LIBOR plus 2.75% 04/07/34 04/07/09
Citizens Capital Trust I ............. 5,155 2.903% Variable 3 mo LIBOR plus 2.65% 06/17/34 06/17/09
Glacier Capital Trust III ............ 36,083 6.078% Fixed 5 years 3 mo LIBOR plus 1.29% 04/07/36 04/07/11
Glacier Capital Trust IV ............. 30,928 7.235% Fixed 5 years 3 mo LIBOR plus 1.57% 09/15/36 09/15/11
San Juan Trust I ..................... 1,616 6.681% Fixed 5 years 3 mo LIBOR plus 1.82% 03/01/37 03/01/12
--------
$124,988
========
(1) For fixed rate debentures, this will be the rate structure upon conversion
to variable rate.
56
11. REGULATORY CAPITAL
The FRB 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 FRB's adequacy guidelines and the Company's and bank
subsidiaries' compliance with those guidelines as of December 31, 2009.
Minimum Capital Well Capitalized
Actual Requirement Requirement
--------------- --------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
Tier 1 capital (to risk weighted assets)
Consolidated ........................ 656,880 14.02% 187,439 4.00% 281,158 6.00%
Glacier ............................. 128,765 12.33% 41,781 4.00% 62,672 6.00%
Mountain West ....................... 129,649 13.39% 38,728 4.00% 58,092 6.00%
First Security ...................... 99,762 14.91% 26,756 4.00% 40,135 6.00%
1st Bank ............................ 58,119 14.99% 15,504 4.00% 23,256 6.00%
Western ............................. 61,594 14.67% 16,794 4.00% 25,191 6.00%
Big Sky ............................. 49,766 16.06% 12,393 4.00% 18,589 6.00%
Valley .............................. 28,495 13.11% 8,694 4.00% 13,041 6.00%
First National ...................... 29,517 15.98% 7,390 4.00% 11,084 6.00%
Citizens ............................ 22,201 11.32% 7,844 4.00% 11,766 6.00%
First Bank-MT ....................... 18,437 12.73% 5,794 4.00% 8,691 6.00%
San Juans ........................... 17,942 11.11% 6,462 4.00% 9,693 6.00%
Total capital (to risk weighted assets)
Consolidated ........................ 716,498 15.29% 374,877 8.00% 468,597 10.00%
Glacier ............................. 142,142 13.61% 83,562 8.00% 104,453 10.00%
Mountain West ....................... 142,066 14.67% 77,456 8.00% 96,820 10.00%
First Security ...................... 108,246 16.18% 53,513 8.00% 66,891 10.00%
1st Bank ............................ 63,039 16.26% 31,009 8.00% 38,761 10.00%
Western ............................. 66,886 15.93% 33,588 8.00% 41,985 10.00%
Big Sky ............................. 53,721 17.34% 24,786 8.00% 30,982 10.00%
Valley .............................. 31,232 14.37% 17,388 8.00% 21,734 10.00%
First National ...................... 31,196 16.89% 14,779 8.00% 18,474 10.00%
Citizens ............................ 24,682 12.59% 15,688 8.00% 19,610 10.00%
First Bank-MT ....................... 20,261 13.99% 11,588 8.00% 14,485 10.00%
San Juans ........................... 19,988 12.37% 12,924 8.00% 16,155 10.00%
Leverage capital (to average assets)
Consolidated ........................ 656,880 11.20% 234,518 4.00% N/A N/A
Glacier ............................. 128,765 10.09% 51,043 4.00% 63,803 5.00%
Mountain West ....................... 129,649 10.98% 47,217 4.00% 59,021 5.00%
First Security ...................... 99,762 11.32% 35,237 4.00% 44,046 5.00%
1st Bank ............................ 58,119 9.74% 23,865 4.00% 29,832 5.00%
Western ............................. 61,594 10.19% 24,185 4.00% 30,231 5.00%
Big Sky ............................. 49,766 13.67% 14,561 4.00% 18,201 5.00%
Valley .............................. 28,495 8.57% 13,297 4.00% 16,621 5.00%
First National ...................... 29,517 10.38% 11,376 4.00% 14,220 5.00%
Citizens ............................ 22,201 9.62% 9,227 4.00% 11,534 5.00%
First Bank-MT ....................... 18,437 9.19% 8,020 4.00% 10,026 5.00%
San Juans ........................... 17,942 10.33% 6,948 4.00% 8,685 5.00%
57
11. REGULATORY CAPITAL . . . CONTINUED
The following table illustrates the FRB's adequacy guidelines and the Company's
and bank subsidiaries' compliance with those guidelines as of December 31, 2008:
Minimum Capital Well Capitalized
Actual requirement requirement
--------------- --------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
Tier 1 capital (to risk weighted assets)
Consolidated ........................ 640,275 14.30% 179,117 4.00% 268,676 6.00%
Glacier ............................. 119,748 11.31% 42,341 4.00% 63,512 6.00%
Mountain West ....................... 101,315 10.62% 38,151 4.00% 57,226 6.00%
First Security ...................... 96,800 14.29% 27,088 4.00% 40,632 6.00%
1st Bank ............................ 38,527 12.58% 12,252 4.00% 18,378 6.00%
Western ............................. 59,825 13.26% 18,043 4.00% 27,065 6.00%
Big Sky ............................. 38,561 11.89% 12,974 4.00% 19,462 6.00%
Valley .............................. 29,269 13.65% 8,574 4.00% 12,861 6.00%
Citizens ............................ 19,564 10.84% 7,217 4.00% 10,826 6.00%
First Bank-MT ....................... 15,149 11.70% 5,179 4.00% 7,769 6.00%
San Juans ........................... 13,490 9.26% 5,830 4.00% 8,745 6.00%
Total capital (to risk weighted assets)
Consolidated ........................ 696,505 15.55% 358,234 8.00% 447,793 10.00%
Glacier ............................. 133,051 12.57% 84,682 8.00% 105,853 10.00%
Mountain West ....................... 113,287 11.88% 76,302 8.00% 95,377 10.00%
First Security ...................... 105,303 15.55% 54,176 8.00% 67,719 10.00%
1st Bank ............................ 42,370 13.83% 24,504 8.00% 30,630 10.00%
Western ............................. 65,481 14.52% 36,087 8.00% 45,108 10.00%
Big Sky ............................. 42,642 13.15% 25,949 8.00% 32,436 10.00%
Valley .............................. 31,959 14.91% 17,148 8.00% 21,435 10.00%
Citizens ............................ 21,825 12.10% 14,434 8.00% 18,043 10.00%
First Bank-MT ....................... 16,772 12.95% 10,358 8.00% 12,948 10.00%
San Juans ........................... 15,322 10.51% 11,660 8.00% 14,575 10.00%
Leverage capital (to average assets)
Consolidated ........................ 640,275 12.38% 206,812 4.00% N/A N/A
Glacier ............................. 119,748 9.79% 48,929 4.00% 61,161 5.00%
Mountain West ....................... 101,315 8.68% 46,707 4.00% 58,383 5.00%
First Security ...................... 96,800 11.31% 34,229 4.00% 42,786 5.00%
1st Bank ............................ 38,527 8.08% 19,077 4.00% 23,847 5.00%
Western ............................. 59,825 10.71% 22,335 4.00% 27,919 5.00%
Big Sky ............................. 38,561 11.62% 13,272 4.00% 16,589 5.00%
Valley .............................. 29,269 9.11% 12,846 4.00% 16,058 5.00%
Citizens ............................ 19,564 9.46% 8,274 4.00% 10,343 5.00%
First Bank-MT ....................... 15,149 10.17% 5,961 4.00% 7,451 5.00%
San Juans ........................... 13,490 9.66% 5,586 4.00% 6,982 5.00%
N/A - not applicable
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 bank holding company if the
institution would thereafter be capitalized at less than 8 percent total capital
(to risk weighted assets), 4 percent tier 1 capital (to risk weighted assets),
or a 4 percent tier 1 capital (to average assets). At December 31, 2009 and
2008, each of the bank subsidiaries' capital measures exceed the highest
supervisory threshold, which requires total capital (to risk weighted assets) of
at least 10 percent, tier 1 capital (to risk weighted assets) of at least 6
percent, and a leverage capital (to average assets) of at least 5 percent.
58
11. REGULATORY CAPITAL . . . CONTINUED
Each of the bank subsidiaries was considered well capitalized by the respective
regulator as of December 31, 2009 and 2008. There are no conditions or events
since year end that management believes have changed the Company's or
subsidiaries' risk-based capital category. In addition to the minimum regulatory
capital requirements, certain bank subsidiaries have added regulatory capital
requirements of which they are in compliance as of December 31, 2009.
Current guidance from the Federal Reserve provides, among other things, that
dividends per share on the Company's common stock generally should not exceed
earnings per share, measured over the previous four fiscal quarters. The bank
subsidiaries are subject to certain restrictions on the amount of dividends that
they may declare without prior regulatory approval. At December 31, 2009,
$71,537,000 of retained earnings at the bank subsidiaries is available to the
parent company without regulatory approval.
12. FEDERAL AND STATE INCOME TAXES
The following is a summary of consolidated income tax expense for:
Years ended December 31,
---------------------------
(Dollars in thousands) 2009 2008 2007
---------------------- -------- ------- ------
Current:
Federal ............................. $ 26,557 37,373 29,016
State ............................... 7,189 8,271 6,491
-------- ------- ------
Total current tax expense ........ 33,746 45,644 35,507
-------- ------- ------
Deferred:
Federal ............................. (24,656) (9,979) (348)
State ............................... (5,099) (2,064) (72)
-------- ------- ------
Total deferred tax benefit ....... (29,755) (12,043) (420)
-------- ------- ------
Total income tax expense ...... $ 3,991 33,601 35,087
======== ======= ======
Combined federal and state income tax expense differs from that computed at the
federal statutory corporate tax rate as follows for:
Years ended
December 31,
--------------------
2009 2008 2007
----- ---- ----
Federal statutory rate ........................... 35.0% 35.0% 35.0%
State taxes, net of federal income tax benefit ... 3.8% 4.1% 4.0%
Tax-exempt interest income ....................... -21.0% -4.9% -4.4%
Tax credits ...................................... -3.3% -0.1% 0.0%
Bargain purchase gain ............................ -3.2% 0.0% 0.0%
Other, net ....................................... -0.9% -0.2% -0.8%
----- ---- ----
10.4% 33.9% 33.8%
===== ==== ====
59
12. FEDERAL AND STATE INCOME TAXES . . . CONTINUED
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) 2009 2008
---------------------- -------- -------
Deferred tax assets:
Allowance for loan and lease losses................. $ 56,067 30,061
Non-accrual interest ............................... 4,524 1,652
Stock based compensation ........................... 3,612 3,100
Impairment of equity securities (FHLMC & FNMA) ..... 2,976 2,976
Deferred compensation .............................. 2,877 2,896
Employee benefits .................................. 2,046 1,617
Available-for-sale securities ...................... 224 803
Other .............................................. 1,539 671
-------- -------
Total gross deferred tax assets ................. 73,865 43,776
-------- -------
Deferred tax liabilities:
Federal Home Loan Bank stock dividends ............. (10,234) (10,012)
Intangibles ........................................ (8,352) (7,897)
Fixed assets, due to differences in depreciation ... (7,704) (6,393)
Deferred loan costs ................................ (4,338) (3,768)
Other .............................................. (2,155) (1,414)
-------- -------
Total gross deferred tax liabilities ............ (32,783) (29,484)
-------- -------
Net deferred tax asset ....................... $ 41,082 14,292
======== =======
The Company and its bank subsidiaries join together in the filing of
consolidated income tax returns in the following jurisdictions: federal,
Montana, Idaho, Colorado and Utah. Although 1st Bank and First National have
operations in Wyoming and Mountain has operations in Washington, neither Wyoming
nor Washington imposes a corporate-level income tax. All required income tax
returns have been timely filed. The following schedule summarizes the years that
remain subject to examination:
Years ended December 31,
------------------------
Federal 2006, 2007 and 2008
Montana 2003, 2004, 2005, 2006, 2007 and 2008
Idaho 2003, 2004, 2005, 2006, 2007 and 2008
Colorado 2005, 2006, 2007 and 2008
Utah 2006, 2007 and 2008
During 2009, the Company made investments in CDE's which received NMTC
allocations. Administered by the Community Development Financial Institutions
Fund of the U.S. Department of the Treasury, the NMTC program is aimed at
stimulating economic and community development and job creation in low-income
communities. The federal income tax credits received are claimed over a
seven-year credit allowance period. In addition to previous LIHTC investments,
during the third quarter 2009, the Company made another investment in a LIHTC.
The LIHTC is an indirect Federal subsidy used to finance the development of
affordable rental housing for low-income households. The federal income tax
credits received are claimed over a ten-year credit allowance period. During the
year, the Company invested in Qualified Zone Academy and Qualified School
Construction bonds whereby the Company receives quarterly federal income tax
credits until the bonds mature. The federal income tax credits on the bonds are
subject to federal and state income tax.
60
12. FEDERAL AND STATE INCOME TAXES . . . CONTINUED
Following is a list of expected federal income tax credits to be received in the
years indicated.
New Low-Income Investment
Years ended Market Housing Securities
(Dollars in thousands) Tax Credits Tax Credits Tax Credits
---------------------- ----------- ----------- -----------
2010 1,530 337 536
2011 1,530 785 541
2012 1,836 785 541
2013 1,836 785 541
2014 1,836 785 541
Thereafter 1,836 3,324 3,834
------- ----- -----
$10,404 6,801 6,534
======= ===== =====
In accordance with FASB ASC Topic 740, Income Taxes, the Company determined its
unrecognized tax benefit to be $0 and $152,000 as of December 31, 2009 and 2008,
respectively. A reconciliation of the beginning and ending amounts of
unrecognized tax benefits is as follows:
December 31,
------------
(Dollars in thousands) 2009 2008
---------------------- ----- ----
Balance at beginning of period .................................. $ 152 210
Reduction of unrecognized tax benefits for expired periods ...... (152) (58)
----- ----
Balance at end of period ........................................ $ -- 152
===== ====
The Company recognizes interest related to unrecognized income tax benefits in
interest expense and penalties are recognized in other expense. During the years
ended December 31, 2009 and 2008, the Company recognized $0 interest expense and
recognized $0 penalty with respect to income tax liabilities. The Company had
approximately $0 and $37,000 accrued for the payment of interest at December 31,
2009 and 2008, respectively. The Company had accrued $0 for the payment of
penalties at December 31, 2009 and 2008.
Deferred tax assets are reduced by a valuation allowance, if based on the weight
of available evidence, it is more-likely-than not that some portion or all of
the deferred tax assets will not be realized. The term more-likely-than not
means a likelihood of more than 50 percent. The Company has assessed the need
for a valuation allowance and determined that a valuation allowance is not
necessary at December 31, 2009 and 2008. The Company believes that it is more
likely than not that the Company's deferred tax assets will be realized by
offsetting taxable income in carryback years, and by offsetting future taxable
income from reversing taxable temporary differences and anticipated future
taxable income (exclusive of reversing temporary differences). In its
assessment, the Company considered its strong earnings history, no history of
tax credit carryforwards expiring unused, and no future net operating losses
(for tax purposes) expected for any bank subsidiary.
Retained earnings at December 31, 2009 includes approximately $3,600,000 for
which no provision for federal income tax has been made. This amount represents
the base year federal reserve for bad debt, 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 bad debt 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 reserve for bad debt into taxable income.
61
13. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan that is subject to a "safe harbor"
provision requiring an annual 3 percent non-elective contribution by the
Company. The Company amended the plan during 2009, retaining the same safe
harbor contribution and modifying the 401(k) match to be discretionary. To be
considered eligible for the plan, an employee must be 21 year of age and have
been employed for a full calendar quarter. In addition, elective contributions,
depending on the Company's profitability, may be made to the plan. To be
considered eligible for the elective contributions, an employee must be 21 years
of age, worked 501 hours in the plan year and be employed as of the last day of
the plan year. Entry dates for the profit sharing plan are the first day of the
plan year and first day of the fourth, seventh, and tenth months. Participants
are at all times fully vested in all contributions. The total profit sharing
plan expense for the years ended December 31, 2009, 2008, and 2007 was
approximately $2,149,000, $3,034,000 and $3,964,000 respectively.
The Company also has an employees' savings plan. The plan allows eligible
employees to contribute up to 60 percent of their eligible annual compensation.
Currently, the Company matches an amount equal to 50 percent of the employee's
contribution, up to 6 percent of the employee's eligible compensation. Entry
dates for the employees' savings plan are the first day of the plan year and
first day of the fourth, seventh, and tenth months. Participants are at all
times fully vested in all contributions. The Company's contribution to the
savings plan for the years ended December 31, 2009, 2008 and 2007 was
approximately $1,538,000, $1,445,000, and $1,333,000, 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 50
percent of a participants' salary, and for 100 percent of bonuses and directors
fees, at the election of the participant. The total amount deferred was
approximately $408,000, $461,000, and $543,000, for the years ending December
31, 2009, 2008, and 2007, respectively. The participant receives an earnings
credit at a rate equal to 50 percent of the Company's return on equity. The
total earnings for the years ended 2009, 2008, and 2007 for this plan were
approximately $124,000, $261,000, and $259,000, respectively. In connection with
several acquisitions, the Company assumed the obligations of deferred
compensation plans for certain key employees. As of December 31, 2009, the
liability related to the obligations was approximately $1,500,000 and was
included in other liabilities of the Consolidated Statements of Financial
Condition. The amount expensed related to the obligations during 2009 was
insignificant.
The Company has a Supplemental Executive Retirement Plan ("SERP") which is
intended to supplement payments due to participants upon retirement under the
Company's other qualified plans. The Company credits the participant's account
on annual basis for an amount equal to employer contributions that would have
otherwise been allocated to the participant's account under the tax-qualified
plans were it not for limitations imposed by the Internal Revenue Service
("IRS"), or the participation in the non-funded deferred compensation plan.
Eligible employees include participants of the non-funded deferred compensation
plan and employees whose benefits were limited as a result of IRS regulations.
The Company's required contribution to the SERP for the years ended December 31,
2009, 2008 and 2007 was approximately $20,000, $31,000, and $70,000,
respectively. The participant receives an earnings credit at a rate equal to 50
percent of the Company's return on equity. The total earnings for the years
ended 2009, 2008, and 2007 for this plan were approximately $24,000, $50,000,
and $52,000, respectively.
The Company has elected to self-insure certain costs related to employee health
and dental benefit programs. Costs resulting from noninsured losses are expensed
as incurred. The Company has purchased insurance that limits its exposure on an
aggregate and individual claims basis for the employee health and dental benefit
programs.
The Company has entered into employment contracts with 16 senior officers that
provide benefits under certain conditions following a change in control of the
Company.
62
14. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Years Ended December 31,
--------------------------------------
2009 2008 2007
----------- ---------- -----------
Net earnings available to common
stockholders, basic and diluted .... $34,374,000 65,657,000 68,603,000
Average outstanding shares - basic .... 61,529,944 54,851,145 53,236,489
Add: Dilutive stock options ........... 1,696 152,669 511,909
----------- ---------- ----------
Average outstanding shares - diluted .. 61,531,640 55,003,814 53,748,398
=========== ========== ==========
Basic earnings per share .............. $ 0.56 1.20 1.29
=========== ========== ==========
Diluted earnings per share ............ $ 0.56 1.19 1.28
=========== ========== ==========
There were approximately 2,717,000, 1,421,000, and 701,000 options excluded from
the diluted share calculation for December 31, 2009, 2008, and 2007,
respectively, due to the option exercise price exceeding the market price of the
Company's common stock.
15. STOCK OPTION PLANS
The Company has stock-based compensation plans outstanding. The Directors 1994
Stock Option Plan was approved to provide for the grant of stock options to
outside Directors of the Company. The Directors 1994 Stock Option Plan expired
in March of 2009 and has granted but unexpired stock options outstanding. The
Employees 1995 Stock Option Plan was approved to provide the grant of stock
options to certain full-time employees of the Company. The Employees 1995 Stock
Option Plan expired in April 2005 and has granted but unexpired stock options
outstanding. The 2005 Stock Incentive Plan provides awards to certain full-time
employees and directors of the Company. The 2005 Stock Incentive Plan permits
the granting of stock options, share appreciation rights, restricted shares,
restricted share units, and unrestricted shares, deferred share units, and
performance awards. Upon exercise of the stock options, the shares are obtained
from the authorized and unissued stock.
The 1994, 1995, and 2005 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 stock 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. The option price at which
the Company's common stock may be purchased upon exercise of stock 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. All stock option shares are
adjusted for stock splits and stock dividends. The term of the stock options may
not exceed five years from the date the options are granted. The employee stock
options generally vest over a period of two years and the director options vest
over a period of six months.
Compensation cost is based on the fair value of the stock options at the grant
date. Additionally, the compensation cost for the portion of awards outstanding
for which the requisite service has not been rendered that are outstanding as of
the required effective date are recognized as the requisite service is rendered
on or after the required effective date. For the twelve months ended December
31, 2009, the compensation cost for the stock option plans was $1,842,000, with
a corresponding income tax benefit of $726,000, resulting in a net earnings and
cash flow from operations reduction of $1,116,000, or a decrease of $.02 per
share for both basic and diluted earnings per share. Additionally, in the
Consolidated Statement of Cash Flows, the excess tax benefit from stock options
decreased the net cash provided from operating activities and increased the net
cash provided by financing activities by $75,000 for the twelve months ended
December 31, 2009. Total unrecognized compensation cost, net of income tax
benefit, related to non-vested awards which are expected to be recognized over
the next weighted period of 1 year was $958,000 as of December 31, 2009. The
total fair value of shares vested for the year ended December 31, 2009 and 2008
was $3,334,000 and $3,596,000, respectively.
63
15. STOCK OPTION PLANS . . . CONTINUED
The per share weighted-average fair value of stock options on the date of grant
was based on the Black Scholes option-pricing model. The Company uses historical
data to estimate option exercise and termination within the valuation model.
Employee and director awards, which have dissimilar historical exercise
behavior, are considered separately for valuation purposes. The risk-free
interest rate for periods within the contractual life of the stock option is
based on the U.S. Treasury yield in effect at the time of the grant. The stock
option awards generally vest upon six months or two years of service for
directors and employees, respectively, and generally expire in five years.
Expected volatilities are based on historical volatility and other factors. The
following lists the various assumptions and fair value of the grants awarded
during the year.
Options Granted
During
---------------------
2009 2008 2007
----- ----- -----
Fair value of stock options - Black Scholes .. $4.26 $3.56 $5.05
Expected volatility .......................... 44% 29% 26%
Expected dividends ........................... 2.74% 2.30% 2.12%
Risk free interest rate ...................... 1.40% 2.49% 4.80%
Expected life ................................ 3.47 3.46 3.47
At December 31, 2009, total shares available for stock option grants to
employees and directors are 2,716,109. Changes in shares granted for stock
options for the year ended December 31, 2009 are summarized as follows:
Weighted
Average
Options Exercise Price
--------- --------------
Outstanding at December 31, 2008 ... 2,628,609 $19.73
Canceled ........................... (185,144) 18.41
Granted ............................ 440,715 15.37
Exercised .......................... (188,535) 13.55
---------
Outstanding at December 31, 2009 ... 2,695,645 19.52
=========
Excercisable at December 31, 2009 .. 1,862,865 20.67
=========
The range of exercise prices on options outstanding and exercisable at December
31, 2009 is as follows:
Options Exercisable
----------------------------
Weighted Weighted Weighted
Options Average Average Options Average
Price Range Outstanding Exercise Price Life of Options Exercisable Exercise Price
----------- ----------- -------------- --------------- ----------- --------------
$13.91 - $18.19 1,346,245 $16.65 3.2 years 514,465 $16.73
$18.74 - $24.73 1,349,400 22.47 1.7 years 1,348,400 22.47
--------- ---------
2,695,645 19.52 2.6 years 1,862,865 20.67
========= =========
64
16. PARENT COMPANY INFORMATION (CONDENSED)
The following condensed financial information is the unconsolidated (parent
company only) information for the Company:
STATEMENTS OF FINANCIAL CONDITION
December 31,
------------------
(Dollars in thousands) 2009 2008
---------------------- -------- -------
Assets:
Cash ....................................... $ 565 1,036
Interest bearing cash deposits ............. 17,764 97,221
-------- -------
Cash and cash equivalents ............... 18,329 98,257
Investment securities, available-for-sale .. 1,111 --
Other assets ............................... 15,319 14,443
Investment in subsidiaries ................. 797,180 702,183
-------- -------
$831,939 814,883
======== =======
Liabilities and Stockholders' Equity:
Dividends payable .......................... $ 8,011 7,973
Subordinated debentures .................... 124,988 121,037
Other liabilities .......................... 13,050 8,933
-------- -------
Total liabilities ....................... 146,049 137,943
-------- -------
Common stock ............................... 616 613
Paid-in capital ............................ 497,493 491,794
Retained earnings .......................... 188,129 185,776
Accumulated other comprehensive loss ....... (348) (1,243)
-------- -------
Total stockholders' equity .............. 685,890 676,940
-------- -------
$831,939 814,883
======== =======
STATEMENT OF OPERATIONS
Years ended December 31,
-------------------------
(Dollars in thousands) 2009 2008 2007
---------------------- ------- ------ ------
Revenues:
Dividends from subsidiaries .................................. $24,300 20,500 40,550
Other income ................................................. 2,775 747 889
Intercompany charges for services ............................ 13,108 12,656 11,345
------- ------ ------
Total revenues ............................................ 40,183 33,903 52,784
Expenses:
Employee compensation and benefits ........................... 7,793 7,769 7,564
Other operating expenses ..................................... 12,845 13,044 12,969
------- ------ ------
Total expenses ............................................ 20,638 20,813 20,533
Earnings before income tax benefit and equity in undistributed
earnings of subsidiaries .................................. 19,545 13,090 32,251
Income tax benefit ........................................... 1,942 1,952 4,444
------- ------ ------
Income before equity in undistributed earnings of subsidiaries 21,487 15,042 36,695
Subsidiary earnings in excess of dividends distributed ....... 12,887 50,615 31,908
------- ------ ------
Net earnings .................................................... $34,374 65,657 68,603
======= ====== ======
65
16. PARENT COMPANY INFORMATION (CONDENSED) . . . CONTINUED
STATEMENTS OF CASH FLOWS
Years ended December 31,
----------------------------
(Dollars in thousands) 2009 2008 2007
---------------------- -------- ------- -------
Operating activities:
Net earnings .................................................... $ 34,374 65,657 68,603
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Subsidiary earnings in excess of dividends distributed .......... (12,887) (50,615) (31,908)
Gain on sale of investments ..................................... (2,147) -- --
Excess tax benefits related to the exercise of stock options .... (75) (1,325) (1,745)
Net increase in other assets and other liabilities .............. 1,356 3,411 5,316
-------- ------- -------
Net cash provided by operating activities .......................... 20,621 17,128 40,266
-------- ------- -------
Investing activities:
Proceeds from sales, maturities and prepayments of
securities available-for-sale ................................ 2,267 1,270 --
Purchases of investment securities available-for-sale ........... (285) -- --
Equity contribution to subsidiary banks ......................... (68,753) (15,455) (10,416)
Net addition of premises and equipment .......................... (4,451) (2,741) (3,401)
-------- ------- -------
Net cash used by investing activities .............................. (71,222) (16,926) (13,817)
-------- ------- -------
Financing activities:
Net increase in other borrowed funds ............................ 65 -- --
Cash dividends paid ............................................. (32,021) (29,079) (26,694)
Excess tax benefits from stock options .......................... 75 1,325 1,745
Proceeds from exercise of stock options and other stock issued .. 2,554 103,749 6,154
-------- ------- -------
Net cash provided by (used in) financing activities ................ (29,327) 75,995 (18,795)
-------- ------- -------
Net increase in cash and cash equivalents .......................... (79,928) 76,197 7,654
Cash and cash equivalents at beginning of year ..................... 98,257 22,060 14,406
-------- ------- -------
Cash and cash equivalents at end of year ........................... $ 18,329 98,257 22,060
======== ======= =======
17. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data is as follows:
QUARTERS ENDED, 2009
-------------------------------------------------------------
(Dollars in thousands, except per share data) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------------------------------------- ------------- ------------- ------------- -------------
Interest income ............................. $ 75,532 74,420 74,430 78,112
Interest expense ............................ 15,154 13,939 13,801 14,273
------------- ------------- ------------- -------------
Net interest income ......................... 60,378 60,481 60,629 63,839
Gain on investments ......................... -- -- 2,667 3,328
Provision for loan losses ................... 15,715 25,140 47,050 36,713
Earnings (loss) before income taxes ......... 22,414 13,696 (6,617) 8,872
Net earnings (loss) ......................... 15,779 10,652 (1,531) 9,474
Basic earnings (loss) per share ............. 0.26 0.17 (0.02) 0.15
Diluted earnings (loss) per share ........... 0.26 0.17 (0.02) 0.15
Dividends per share ......................... 0.13 0.13 0.13 0.13
Market range high-low ....................... $19.36-$12.15 $18.97-$14.67 $16.80-$12.92 $14.62-$11.92
66
17. UNAUDITED QUARTERLY FINANCIAL DATA . . . CONTINUED
Quarters ended, 2008
-------------------------------------------------------------
(Dollars in thousands, except per share data) March 31 June 30 September 30 December 31
--------------------------------------------- ------------- ------------- ------------- -------------
Interest income ............................. $ 76,016 74,573 75,689 76,707
Interest expense ............................ 27,387 22,273 22,113 18,599
------------- ------------- ------------- -------------
Net interest income ......................... 48,629 52,300 53,576 58,108
Gain (loss) on investments .................. 248 -- (7,593) --
Provision for loan losses ................... 2,500 5,042 8,715 12,223
Earnings before income taxes ................ 26,778 28,196 18,854 25,430
Net earnings ................................ 17,399 18,459 12,785 17,014
Basic earnings per share .................... 0.32 0.35 0.23 0.30
Diluted earnings per share .................. 0.32 0.34 0.24 0.29
Dividends per share ......................... 0.13 0.13 0.13 0.13
Market range high-low ....................... $20.48-$15.54 $21.78-$15.99 $27.72-$14.46 $25.36-$14.12
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires the
Company to disclose information relating to fair value. Fair value is defined as
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. The Standard establishes a fair value hierarchy which requires
an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities
Level 2 Observable inputs other than Level 1 prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the
assets or liabilities
Level 3 Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities
The following are the assets measured at fair value on a recurring basis at and
for the period ended December 31, 2009 and 2008:
ASSETS/ QUOTED PRICES SIGNIFICANT
LIABILITIES IN ACTIVE MARKETS OTHER SIGNIFICANT
MEASURED AT FOR IDENTICAL OBSERVABLE UNOBSERVABLE
FAIR VALUE ASSETS INPUTS INPUTS
(Dollars in thousands) 12/31/2009 (LEVEL 1) (LEVEL 2) (LEVEL 3)
-------------------------------------------------- ----------- ----------------- ----------- ------------
Financial assets:
U.S. government agencies ...................... $ 209 -- 209 --
Government sponsored enterprises .............. 177 -- 177 --
State and local governments and other issues .. 480,976 -- 478,888 2,088
Collateralized debt obligations ............... 6,789 -- -- 6,789
Residential mortgage-backed securities ........ 955,042 -- 953,931 1,111
---------- --- --------- -----
Total financial assets ..................... $1,443,193 -- 1,433,205 9,988
========== === ========= =====
67
18. FAIR VALUE OF FINANCIAL INSTRUMENTS . . . CONTINUED
Assets/ Quoted Prices Significant
Liabilities in Active Markets Other Significant
Measured at for Identical Observable Unobservable
Fair Value Assets Inputs Inputs
(Dollars in thousands) 12/31/2008 (Level 1) (Level 2) (Level 3)
---------------------- ----------- ----------------- ----------- ------------
Financial assets:
U.S. government agencies ...................... $ 217 -- 217 --
Government sponsored enterprises .............. 312 -- 312 --
State and local governments and other issues .. 418,143 -- 417,859 284
Collateralized debt obligations ............... 15,540 -- -- 15,540
Residential mortgage-backed securities ........ 494,470 -- 486,873 7,597
-------- --- ------- ------
Total financial assets ..................... $928,682 -- 905,261 23,421
======== === ======= ======
The following is a description of the valuation methodologies used for financial
assets measured at fair value on a recurring basis. There have been no
significant changes in the valuation techniques during the period.
Investment securities - fair value for available-for-sale securities is
estimated by obtaining quoted market prices for identical assets, where
available. If such prices are not available, fair value is based on independent
asset pricing services and models, the inputs of which are market-based or
independently sourced market parameters, including, but not limited to, yield
curves, interest rates, volatilities, prepayments, defaults, cumulative loss
projections, and cash flows. For those securities where greater reliance on
unobservable inputs occurs, such securities are classified as Level 3 within the
hierarchy.
The following is a reconciliation of the beginning and ending balances for
assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) during the periods ended December 31, 2009 and
2008.
December 31,
----------------
(Dollars in thousands) 2009 2008
---------------------- ------- ------
Balance at beginning of year ................... $23,421 16,948
Total unrealized gains included in
other comprehensive income .................. (7,264) (747)
Amortization, accretion or principal payments .. (539) (377)
Purchases ...................................... 2,251 --
Transfers into level 3 ......................... -- 7,597
Transfers out of level 3 ....................... (7,881) --
------- ------
Balance at end of year ......................... $ 9,988 23,421
======= ======
The change in unrealized gains (losses) related to available-for-sale securities
is reported in the accumulated other comprehensive income (loss).
68
18. FAIR VALUE OF FINANCIAL INSTRUMENTS . . . CONTINUED
Certain financial assets or liabilities are not measured at fair value on a
recurring basis, but are subject to fair value measurement in certain
circumstances, for example upon acquisition or when there is evidence of
impairment. The following are the assets measured at fair value on a
nonrecurring basis at December 31, 2009 and 2008:
ASSETS/ QUOTED PRICES SIGNIFICANT
LIABILITIES IN ACTIVE MARKETS OTHER SIGNIFICANT
MEASURED AT FOR IDENTICAL OBSERVABLE UNOBSERVABLE
FAIR VALUE ASSETS INPUTS INPUTS
(Dollars in thousands) 12/31/2009 (LEVEL 1) (LEVEL 2) (LEVEL 3)
---------------------- ----------- ----------------- ----------- ------------
Financial assets:
Real estate and other assets owned, net .. $ 57,320 -- -- 57,320
Impaired loans, net of allowance
for loan and lease .................... 198,982 -- -- 198,982
-------- --- --- -------
Total financial assets ................ $256,302 -- -- 256,302
======== === === =======
Assets/ Quoted Prices Significant
Liabilities in Active Markets Other Significant
Measured at for Identical Observable Unobservable
Fair Value Assets Inputs Inputs
(Dollars in thousands) 12/31/2008 (Level 1) (Level 2) (Level 3)
---------------------- ----------- ----------------- ----------- ------------
Financial assets:
Real estate and other assets owned, net .. $11,539 -- -- 11,539
Impaired loans, net of allowance
for loan and lease .................... 71,950 -- -- 71,950
------- --- --- ------
Total financial assets ................ $83,489 -- -- 83,489
======= === === ======
The following is a description of the valuation methodologies used for financial
assets measured at fair value on a nonrecurring basis. There have been no
significant changes in the valuation techniques during the period.
Real estate and other assets owned, net - real estate and other assets owned are
carried at the lower of fair value at acquisition date or current estimated fair
value, less estimated cost to sell. Estimated fair value of real estate and
other assets owned is based on appraisals. Real estate and other assets owned
are classified within Level 3 of the fair value hierarchy.
Impaired loans, net of ALLL - loans included in the Company's financials for
which it is probable that the Company will not collect all principal and
interest due according to contractual terms are considered impaired in
accordance with FASB ASC Topic 310, Receivables. Allowable methods for
estimating fair value include using the fair value of the collateral for
collateral dependent loans or, where a loan is determined not to be collateral
dependent, using the discounted cash flow method. Impaired loans are primarily
collateral-dependent and the estimated fair value is based on the fair value of
the collateral. Impaired loans are classified within Level 3 of the fair value
hierarchy.
69
18. FAIR VALUE OF FINANCIAL INSTRUMENTS . . . CONTINUED
The following presents the carrying amounts and estimated fair values in
accordance with FASB ASC Topic 825, Financial Instruments, as of December 31,
2009 and 2008.
DECEMBER 31, 2009 December 31, 2008
----------------------- ----------------------
(Dollars in thousands) AMOUNT FAIR VALUE Amount Fair Value
---------------------- ---------- ---------- --------- ----------
Financial assets:
Cash on hand and in banks ..................................... $ 120,731 120,731 125,123 125,123
Federal funds sold ............................................ 87,155 87,155 6,480 6,480
Interest bearing cash deposits ................................ 2,689 2,689 3,652 3,652
Investment securities ......................................... 488,775 488,775 434,677 434,677
Residential mortgage-backed securities ........................ 955,042 955,042 494,470 494,470
FHLB and FRB stock ............................................ 62,577 62,577 60,945 60,945
Loans receivable, net of allowance for loan and lease losses .. 3,987,318 3,989,168 4,053,454 4,064,215
Accrued interest receivable ................................... 29,729 29,729 28,777 28,777
---------- --------- --------- ---------
Total financial assets ..................................... $5,734,016 5,735,866 5,207,578 5,218,339
========== ========= ========= =========
Financial liabilities:
Deposits ...................................................... $4,100,152 4,111,909 3,262,475 3,273,076
Advances from Federal Home Loan Bank .......................... 790,367 798,509 338,456 344,597
Federal Reserve Bank discount window .......................... 225,000 225,000 914,000 914,000
Repurchase agreements and other borrowed funds ................ 226,251 226,271 196,731 196,749
Subordinated debentures ....................................... 124,988 80,473 121,037 63,840
Accrued interest payable ...................................... 7,928 7,928 9,751 9,751
---------- --------- --------- ---------
Total financial liabilities ................................ $5,474,686 5,450,090 4,842,450 4,802,013
========== ========= ========= =========
The following is a description of the methods used to estimate the fair value of
all other financial instruments recognized at amounts other than fair value.
Financial Assets
The estimated fair value of cash, federal funds sold, interest bearing cash
deposits, and accrued interest receivable is the book value of such financial
assets.
The estimated fair value of FHLB and FRB stock is book value due to the
restrictions that such stock may only be sold to another member institution or
the FHLB or FRB at par value.
Loans receivable, net of ALLL - fair value for unimpaired loans, net of ALLL, is
estimated by discounting the future cash flows using the rates at which similar
notes would be written for the same remaining maturities. Impaired loans are
primarily collateral-dependent and the estimated fair value is based on the fair
value of the collateral.
Financial Liabilities
The estimated fair value of accrued interest payable is the book value of such
financial liabilities.
Deposits - fair value of term deposits is estimated by discounting the future
cash flows using rates of similar deposits with similar maturities. The
estimated fair value of demand, NOW, savings, and money market deposits is the
book value since rates are regularly adjusted to market rates.
70
18. FAIR VALUE OF FINANCIAL INSTRUMENTS . . . CONTINUED
Advances from FHLB - fair value of advances is estimated based on borrowing
rates currently available to the Company for advances with similar terms and
maturities.
FRB borrowings - fair value of borrowings through the FRB is estimated based on
borrowing rates currently available to the Company through FRB discount window
programs with similar terms and maturities.
Repurchase agreements and other borrowed funds - fair value of term repurchase
agreements and other term borrowings is estimated based on current repurchase
rates and borrowing rates currently available to the Company for repurchases and
borrowings with similar terms and maturities. The estimated fair value for
overnight repurchase agreements and other borrowings is book value.
Subordinated debentures - fair value of the subordinated debt is estimated by
discounting the estimated future cash flows using current estimated market rates
for subordinated debt issuances with similar characteristics.
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, such that no adjustment is necessary to reflect these commitments at
market value. See Note 4 to consolidated financial statements.
19. CONTINGENCIES AND COMMITMENTS
The Company leases certain land, premises and equipment from third parties under
operating and capital leases. Total rent expense for the years ended December
31, 2009, 2008, and 2007 was approximately $3,306,000, $2,561,000, and
$2,099,000, respectively. Amortization of building capital lease assets is
included in depreciation. One of the Company's subsidiaries has entered into
lease transactions with two of its directors and the related party rent expense
for the years ended December 31, 2009, 2008, and 2007 was approximately
$703,000, $476,000, and $346,000. The total future minimum rental commitments
required under operating and capital leases that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 2009 are as
follows:
Capital Operating
(Dollars in thousands) Leases Leases Total
---------------------- ------- --------- ------
Years ended December 31,
2010 $ 231 2,912 3,143
2011 233 2,621 2,854
2012 235 2,130 2,365
2013 238 1,902 2,140
2014 838 1,739 2,577
Thereafter 1,341 9,533 10,874
------ ------ ------
Total minimum lease payments 3,116 20,837 23,953
====== ======
Less: Amount representing interest 1,079
------
Present value of minimum lease payments 2,037
Less: Current portion of
obligations under capital leases 74
------
Long-term portion of
obligations under capital leases $1,963
======
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.
71
20. ACQUISITIONS
On October 2, 2009, the Company acquired First Company and its bank subsidiary,
First National, with total assets of $272,280,000, loans of $160,538,000 and
deposits of $236,529,000. The purchase price included core deposit intangible of
$4,040,000. The acquisition resulted in a $3,482,000 one-time bargain purchase
gain recorded in other income which was based on the estimated fair value of the
assets acquired and liabilities assumed.
On December 1, 2008, the Company acquired Bank of the San Juans Bancorporation
and its bank subsidiary, San Juans, with total assets of $157,155,000, loans of
$139,376,000 and deposits of $119,019,000. The purchase price included core
deposit intangible of $2,101,000 and goodwill of $5,958,000.
Adjustment of the allocated acquisition price may be related to fair value
estimates for which all information has not been obtained on 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.
21. OPERATING SEGMENT INFORMATION
FASB ASC Topic 280, Segment Reporting, requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. 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 makers in deciding how to
allocate resources and in assessing performance. The Company defines operating
segments and evaluates segment performance internally based on individual bank
charters. If required, VIEs are consolidated into the operating segment which
invested into such entities.
On February 1, 2009, Morgan merged into 1st Bank resulting in operations being
conducted under the 1st Bank charter. On April 30, 2008, Whitefish merged into
Glacier with operations conducted under the Glacier charter. The five bank
subsidiaries acquired as a result of the acquisition of CDC included Citizens
State Bank, First Citizens Bank of Billings, First National Bank of Lewistown,
Western Bank of Chinook, and First Citizens Bank, N.A. On January 26, 2007,
Citizens State Bank, First Citizens Bank of Billings, and First Citizens Bank,
N.A. were merged into First Security, Western, and Glacier, respectively. On
June 21, 2007, Western Bank of Chinook merged into First National Bank of
Lewistown and renamed First Bank of Montana. Prior period activity of the merged
banks has been combined and included in the acquiring bank subsidiaries'
historical results.
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 conducted at fair value, resulting in profits that are eliminated
for reporting consolidated results of operations. Intersegment revenues
primarily represents interest income on intercompany borrowings, management
fees, and data processing fees received by individual banks or the parent
company. Intersegment revenues, expenses and assets are eliminated in order to
report results in accordance with accounting principles generally accepted in
the United States of America. Expenses for centrally provided services are
allocated based on the estimated usage of those services.
72
21. OPERATING SEGMENT INFORMATION . . . CONTINUED
The following is a summary of selected operating segment information for the
years ended and as of December 31, 2009, 2008, and 2007.
2009 Mountain First 1st
(Dollars in thousands) Glacier West Security Bank Western Big Sky Valley
---------------------- ---------- --------- -------- ------- ------- ------- -------
Net interest income ..................... $ 57,139 53,302 35,788 24,057 21,233 15,700 14,051
Provision for loan losses ............... (32,000) (50,500) (10,450) (10,800) (3,200) (9,200) (1,200)
---------- --------- ------- ------- ------- ------- -------
Net interest income after
provision for loan and lease losses .. 25,139 2,802 25,338 13,257 18,033 6,500 12,851
Non-interest income ..................... 15,387 27,882 8,103 4,628 8,631 3,564 5,717
Core deposit amortization ............... (330) (184) (468) (652) (571) (23) (42)
Other non-interest expense .............. (27,325) (51,525) (18,897) (14,943) (16,342) (8,441) (9,229)
---------- --------- ------- ------- ------- ------- -------
Earnings before income taxes ............ 12,871 (21,025) 14,076 2,290 9,751 1,600 9,297
Income tax (expense) benefit ............ (2,803) 9,764 (3,372) (309) (2,813) (121) (2,740)
---------- --------- ------- ------- ------- ------- -------
Net income (loss) ....................... $ 10,068 (11,261) 10,704 1,981 6,938 1,479 6,557
========== ========= ======= ======= ======= ======= =======
Assets .................................. $1,325,039 1,172,331 890,672 650,072 624,077 368,571 351,228
Loans, net of ALLL ...................... 903,276 919,901 548,471 286,019 314,613 260,433 182,916
Goodwill ................................ 8,900 23,159 18,582 41,718 22,311 1,752 1,770
Deposits ................................ 726,403 793,006 588,858 421,271 504,619 184,278 211,935
Stockholders' equity .................... 139,799 146,720 120,044 101,789 85,259 51,614 30,585
First First San
National Citizens Bank-MT Juans Parent Eliminations Consolidated
-------- -------- ------- -------- ------- ------------ ------------
Net interest income ..................... $ 3,964 10,437 7,900 8,021 (6,265) -- 245,327
Provision for loan losses ............... (1,683) (2,800) (985) (1,800) -- -- (124,618)
-------- ------- ------- -------- ------- -------- ---------
Net interest income after
provision for loan and lease losses .. 2,281 7,637 6,915 6,221 (6,265) -- 120,709
Non-interest income ..................... 4,187 4,235 929 1,329 52,466 (50,584) 86,474
Core deposit amortization ............... (144) (111) (358) (233) -- -- (3,116)
Other non-interest expense .............. (2,011) (7,992) (3,189) (5,435) (13,769) 13,396 (165,702)
-------- ------- ------- -------- ------- -------- ---------
Earnings before income taxes ............ 4,313 3,769 4,297 1,882 32,432 (37,188) 38,365
Income tax (expense) benefit ............ (230) (1,332) (1,426) (551) 1,942 -- (3,991)
-------- ------- ------- -------- ------- -------- ---------
Net income .............................. $ 4,083 2,437 2,871 1,331 34,374 (37,188) 34,374
======== ======= ======= ======== ======= ======== =========
Assets .................................. $295,953 241,807 217,379 184,528 832,916 (962,778) 6,191,795
Loans, net of ALLL ...................... 151,379 161,182 114,113 145,015 -- -- 3,987,318
Goodwill ................................ -- 9,553 12,556 5,958 -- -- 146,259
Deposits ................................ 247,256 159,763 143,552 148,474 -- (29,263) 4,100,152
Stockholders' equity .................... 31,364 31,969 32,627 25,410 685,890 (797,180) 685,890
73
21. OPERATING SEGMENT INFORMATION . . . CONTINUED
2008 Mountain First 1st
(Dollars in thousands) Glacier West Security Bank Western Big Sky Valley
---------------------- ---------- --------- -------- ------- ------- ------- -------
Net interest income ..................... $ 52,900 45,614 34,212 22,695 20,713 15,595 12,719
Provision for loan losses ............... (8,825) (11,150) (1,750) (2,012) (540) (2,200) (810)
---------- --------- ------- ------- ------- ------- -------
Net interest income after
provision for loan and lease losses .. 44,075 34,464 32,462 20,683 20,173 13,395 11,909
Non-interest income ..................... 13,926 20,353 6,987 4,728 3,306 3,608 4,673
Core deposit amortization ............... (392) (196) (511) (712) (623) (23) (42)
Other non-interest expense .............. (27,074) (41,922) (17,128) (14,143) (16,151) (7,390) (8,770)
---------- --------- ------- ------- ------- ------- -------
Earnings before income taxes ............ 30,535 12,699 21,810 10,556 6,705 9,590 7,770
Income tax (expense) benefit ............ (10,910) (3,628) (7,282) (3,631) (1,818) (3,587) (2,251)
---------- --------- ------- ------- ------- ------- -------
Net income .............................. $ 19,625 9,071 14,528 6,925 4,887 6,003 5,519
========== ========= ======= ======= ======= ======= =======
Assets .................................. $1,250,774 1,226,869 954,218 566,869 609,868 332,325 298,392
Loans, net of ALLL ...................... 963,107 955,486 561,691 320,370 354,199 287,394 195,504
Goodwill ................................ 8,900 23,159 18,582 41,718 22,311 1,752 1,770
Deposits ................................ 609,473 680,404 545,199 418,231 357,729 179,834 185,505
Stockholders' equity .................... 129,890 124,881 116,856 95,200 83,843 40,384 31,483
First San
Citizens Bank-MT Juans Parent Eliminations Consolidated
-------- ------- ------- ------- ------------ ------------
Net interest income ..................... $ 7,676 6,676 575 (6,762) -- 212,613
Provision for loan losses ............... (750) (390) (53) -- -- (28,480)
-------- ------- ------- ------- ---------- ---------
Net interest income after
provision for loan and lease losses .. 6,926 6,286 522 (6,762) -- 184,133
Non-interest income ..................... 2,855 768 85 83,891 (84,146) 61,034
Core deposit amortization ............... (128) (405) (19) -- -- (3,051)
Other non-interest expense .............. (6,407) (3,083) (397) (13,424) 13,031 (142,858)
-------- ------- ------- ------- ---------- ---------
Earnings before income taxes ............ 3,246 3,566 191 63,705 (71,115) 99,258
Income tax (expense) benefit ............ (1,092) (1,279) (75) 1,952 -- (33,601)
-------- ------- ------- ------- ---------- ---------
Net income .............................. $ 2,154 2,287 116 65,657 (71,115) 65,657
======== ======= ======= ======= ========== =========
Assets .................................. $217,697 154,645 165,784 814,883 (1,038,354) 5,553,970
Loans, net of ALLL ...................... 159,412 114,177 142,114 -- -- 4,053,454
Goodwill ................................ 9,553 12,556 6,451 -- -- 146,752
Deposits ................................ 135,970 113,531 143,056 -- (106,457) 3,262,475
Stockholders' equity .................... 29,110 29,329 21,207 676,940 (702,183) 676,940
74
21. OPERATING SEGMENT INFORMATION . . . CONTINUED
2007 Mountain First 1st
(Dollars in thousands) Glacier West Security Bank Western Big Sky Valley
---------------------- ---------- --------- ------- ------- ------- ------- -------
Net interest income ..................... $ 40,270 41,115 32,674 20,135 19,043 12,610 10,641
Provision for loan losses ............... (1,580) (2,225) (1,100) (630) -- (645) (405)
---------- --------- ------- ------- ------- ------- -------
Net interest income after
provision for loan and lease losses .. 38,690 38,890 31,574 19,505 19,043 11,965 10,236
Non-interest income ..................... 13,473 19,861 6,844 4,212 8,896 3,583 4,807
Core deposit amortization ............... (415) (208) (554) (688) (675) (23) (42)
Other non-interest expense .............. (25,231) (36,745) (17,295) (13,015) (16,050) (7,220) (8,335)
---------- --------- ------- ------- ------- ------- -------
Earnings before income taxes ............ 26,517 21,798 20,569 10,014 11,214 8,305 6,666
Income tax (expense) benefit ............ (9,294) (7,701) (7,027) (3,482) (4,129) (3,144) (1,955)
---------- --------- ------- ------- ------- ------- -------
Net income .............................. $ 17,223 14,097 13,542 6,532 7,085 5,161 4,711
========== ========= ======= ======= ======= ======= =======
Assets .................................. $1,101,112 1,038,294 792,882 551,327 508,915 315,885 283,155
Loans, net of ALLL ...................... 863,253 836,426 548,379 298,800 321,533 262,934 194,912
Goodwill ................................ 8,900 23,159 18,582 41,718 22,311 1,752 1,770
Deposits ................................ 579,190 666,330 533,260 439,281 345,273 215,771 187,657
Stockholders' equity .................... 115,247 114,538 109,320 87,523 83,226 35,406 27,323
First
Citizens Bank-MT Parent Eliminations Consolidated
-------- ------- ------- ------------ ------------
Net interest income ..................... $ 7,532 6,308 (6,859) -- 183,469
Provision for loan losses ............... (75) (20) -- -- (6,680)
-------- ------- ------- -------- ---------
Net interest income after
provision for loan and lease losses .. 7,457 6,288 (6,859) -- 176,789
Non-interest income ..................... 2,550 736 84,025 (84,169) 64,818
Core deposit amortization ............... (146) (451) -- -- (3,202)
Other non-interest expense .............. (6,102) (3,426) (13,006) 11,710 (134,715)
-------- ------- ------- -------- ---------
Earnings before income taxes ............ 3,759 3,147 64,160 (72,459) 103,690
Income tax (expense) benefit ............ (1,403) (1,395) 4,443 -- (35,087)
-------- ------- ------- -------- ---------
Net income .............................. $ 2,356 1,752 68,603 (72,459) 68,603
======== ======= ======= ======== =========
Assets .................................. $182,769 149,483 660,892 (767,384) 4,817,330
Loans, net of ALLL ...................... 131,988 98,897 -- -- 3,557,122
Goodwill ................................ 9,553 12,556 -- -- 140,301
Deposits ................................ 139,228 113,692 -- (35,204) 3,184,478
Stockholders' equity .................... 27,808 26,941 528,576 (627,332) 528,576
22. IMPACT OF RECENT AUTHORITATIVE ACCOUNTING GUIDANCE
The Accounting Standards Codification became FASB's officially recognized source
of authoritative U.S. generally accepted accounting principles ("GAAP")
applicable to all public and non-public non-governmental entities. Rules and
interpretive releases of the Securities and Exchange Commission ("SEC") under
the authority of the federal securities laws are also sources of authoritative
GAAP for SEC registrants. All other accounting literature is considered
non-authoritative. The Company adopted the topic effective for the period ending
September 30, 2009 and determined there was not a material effect on the
Company's financial position or results of operations.
75
22. IMPACT OF RECENT AUTHORITATIVE ACCOUNTING GUIDANCE . . . CONTINUED
In January 2010, FASB issued an amendment to FASB ASC Topic 820, Fair Value
Measurements and Disclosures, that will provide more robust disclosures about 1)
the different classes of assets and liabilities measured at fair value, 2) the
valuation techniques and inputs used, 3) the activity in Level 3 fair value
measurements, and 4) the transfers between Levels 1, 2, and 3. The new
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about the activity in Level
3 fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010. The Company is currently evaluating the
impact of the adoption of this amendment, but does not expect it to have a
material effect on the Company's financial position or results of operations.
In August 2009, FASB issued an amendment to FASB ASC Subtopic 820-10, Fair Value
Measurements and Disclosures - Overall, for the fair value measurement of
liabilities. The Update provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting unit is required to measure fair value using one or more of the
following techniques: 1) A valuation technique that uses a) the quoted price of
the identical liability when trades as an asset b) quoted prices for similar
liabilities or similar liabilities when traded as assets 2) Another valuation
technique that is consistent with the principals FASB ASC Topic 820, Fair Value
Measurements and Disclosures. The Update is effective for the first reporting
period (including interim periods) beginning after issuance. The Company adopted
the standard effective for the period ending September 30, 2009 and determined
there was not a material effect on the Company's financial position or results
of operations.
In June 2009, FASB issued an amendment to FASB ASC Topic 810, Consolidation. The
objective of this standard is to amend certain requirements to improve financial
reporting by enterprises involved with variable interest entities and to provide
more relevant and reliable information to users of financial statements. This
standard shall be effective as of the beginning of each reporting entity's first
annual reporting period that begins after November 15, 2009, for interim periods
within that first annual reporting period, and for interim and annual reporting
periods thereafter. The Company is currently evaluating the impact of the
adoption of this amendment, but does not expect it to have a material effect on
the Company's financial position or results of operations.
In June 2009, FASB issued an amendment to FASB ASC Topic 860, Transfers and
Servicing. The objective of this standard is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a transfer of financial
assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement in
transferred financial assets. This standard shall be effective as of the
beginning of each reporting entity's first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter. The Company is
currently evaluating the impact of the adoption of this amendment, but does not
expect it to have a material effect on the Company's financial position or
results of operations.
In April 2009, FASB issued an amendment to FASB ASC Topic 320, Investments -
Debt and Equity Securities, relating to the recognition and presentation of
other-than-temporary impairments. The objective of an other-than-temporary
impairment analysis under existing GAAP is to determine whether the holder of an
investment in a debt or equity security for which changes in fair value are not
regularly recognized in earnings (such as securities classified as
held-to-maturity or available-for-sale) should recognize a loss in earnings when
the investment is impaired. An investment is impaired if the fair value of the
investment is less than its amortized cost basis. This standard amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. This standard does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities. The standard is effective for interim and annual reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. The Company has evaluated the impact of the adoption of
this standard and determined there was not a material effect on the Company's
financial position or results of operations.
In April 2009, FASB issued an amendment to FASB ASC Topic 820, Fair Value
Measurements and Disclosures, which provides additional guidance for estimating
fair value when the volume and level of activity for the asset or liability have
significantly decreased. This standard also includes guidance on identifying
circumstances that indicate a transaction is not orderly. This standard
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. This standard is effective for interim and
annual reporting periods ending after June 15, 2009, and shall be applied
prospectively. Early adoption was permitted for periods ending after March 15,
2009. The Company has evaluated the impact of the adoption of this standard and
determined there was not a material effect on the Company's financial position
or results of operations..
76
22. IMPACT OF RECENT AUTHORITATIVE ACCOUNTING GUIDANCE . . . CONTINUED
In April 2009, FASB issued an amendment to FASB ASC Topic 825, Financial
Instruments, which requires disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. An entity shall disclose in the body or in
the accompanying notes of its summarized financial information for interim
reporting periods and in its financial statements for annual reporting periods
the fair value of all financial instruments for which it is practicable to
estimate that value, whether recognized or not recognized in the statement of
financial position. Fair value information disclosed in the notes shall be
presented together with the related carrying amount in a form that makes it
clear whether the fair value and carrying amount represent assets or liabilities
and how the carrying amount relates to what is reported in the statement of
financial position. An entity also shall disclose the method(s) and significant
assumptions used to estimate the fair value of financial instruments and shall
describe changes in method(s) and significant assumptions, if any, during the
period. This standard shall be effective for interim reporting periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. The Company has evaluated the impact of the adoption of this
standard and determined there was not a material effect on the Company's
financial position or results of operations. For additional information on
disclosures about fair value of financial instruments see Part I, Item 2
"Financial Statements - Note 13, Fair Value Measurements".
In December 2008, the FASB issued ASC Topic 820, Fair Value Measurements and
Disclosures. The standard requires public entities to provide additional
disclosures about transfers of financial assets and their involvement with
variable interest entities. Additionally, this standard requires certain
disclosures to be provided by a public enterprise that is (a) a sponsor of a
qualifying special purpose entity (SPE) that holds a variable interest in the
qualifying SPE but was not the transferor (nontransferor) of financial assets to
the qualifying SPE and (b) a servicer of a qualifying SPE that holds a
significant variable interest in the qualifying SPE but was not the transferor
(nontransferor) of financial assets to the qualifying SPE. The disclosures
required by this standard are intended to provide greater transparency to
financial statement users about a transferor's continuing involvement with
transferred financial assets and an enterprise's involvement with variable
interest entities and qualifying SPEs. The issue is effective for the first
reporting period (interim or annual) ending after December 15, 2008. The Company
has evaluated the impact of the adoption of this standard and determined there
was not a material effect on the Company's financial position or results of
operations.
In April 2008, the FASB issued ASC Topic 350, Intangibles - Goodwill and Other.
This standard amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized
intangible asset. The intent of this standard is to improve the consistency
between the useful life of a recognized intangible asset and the period of
expected cash flows used to measure the fair value of the asset. This standard
is effective for financial statements issued for fiscal years beginning after
December 15, 2008. The Company has evaluated the impact of the adoption of this
standard and determined there was not a material effect on the Company's
financial position or results of operations.
In March 2008, the FASB issued ASC Topic 815, Derivatives and Hedging. This
topic changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for, and (c) how derivative instruments
and related hedged items affect an entity's financial position, financial
performance, and cash flows. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The Company has evaluated the impact of the adoption of this standard
and determined there was not a material effect on the Company's financial
position or results of operations.
In December 2007, FASB issued new standards relating to business combinations
which are included in FASB ASC Topic 805, Business Combinations. The objective
of this standard is to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. The Statement
establishes principles and requirements for how the acquirer: a) recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree, b)
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase, and c) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This Statement applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The Company has evaluated the impact of the adoption of this standard
and determined there was not a material effect on the Company's financial
position or results of operations.
77
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report:
(1) Financial Statements and
(2) Financial Statement schedules required to be filed by Item 8 of this
report.
(3) The following exhibits are required by Item 601 of Regulation S-K and
are included as part of this Form 10-K:
EXHIBIT NO. EXHIBIT
----------- -------
3(a) Amended and Restated Articles of Incorporation (1)
3(b) Amended and Restated Bylaws (1)
10(a) (7) Amended and Restated 1995 Employee Stock Option Plan and related
agreements (2)
10(b) (7) Amended and Restated 1994 Director Stock Option Plan and related
agreements (2)
10(c) (7) Amended and Restated Deferred Compensation Plan effective January
1, 2008 (3)
10(d) (7) Amended and Restated Supplemental Executive Retirement Agreement
effective January 1, 2008 (3)
10(e) (7) 2005 Stock Incentive Plan and related agreements (4)
10(f) (7) Employment Agreement dated January 1, 2010 between the Company
and Michael J. Blodnick (5)
10(g) (7) Employment Agreement dated January 1, 2010 between the Company
and Ron J. Copher (5)
10(h) (7) Employment Agreement date January 1, 2010 between the Company
and Don Chery (5)
14 Code of Ethics (6)
21 Subsidiaries of the Company (See item 1, "Subsidiaries")
23 Consent of BKD LLP
31.1 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
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
(1) Incorporated by reference to Exhibits 3.i. and 3.ii included in the
Company's Quarterly Report on form 10-Q for the quarter ended June 30,
2008.
(2) Incorporated by reference to Exhibits 99.1 - 99.4 of the Company's S-8
Registration Statement (No. 333-105995).
(3) Incorporated by reference to Exhibits 10(c) and 10(d) of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
(4) Incorporated by reference to Exhibits 99.1 through 99.3 of the Company's
S-8 Registration Statement (No. 333-125024).
(5) Incorporated by reference to Exhibits 10.1 through 10.3 included in the
Company's Form 8-K filed by the Company on December 29, 2009.
(6) Incorporated by reference to Exhibit 14, included in the Company's Form
10-K for the year ended December 31, 2003.
(7) Compensatory Plan or Arrangement
All other financial statement schedules 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.
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 1 to this report
to be signed on its behalf by the undersigned on March 12, 2010.
GLACIER BANCORP, INC.
By: /s/ Michael J. Blodnick
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Michael J. Blodnick
President/CEO/Director
(Principal Executive Officer)
By: /s/ Ron J. Copher
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Ron J. Copher
Senior Vice President and CFO
(Principal Financial Accounting
Officer)
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