HomeMy WebLinkAbout18- RFP Submission - Professional Services to Provide City of Bozeman Sports Park Loan - First Security Bank2017 ANNUAL REPORT
2017________________
ANNUAL REPORT
INVESTOR INFORMATION
2017 Cash Dividends Declared
Frequency Record Date Payment Date Per Share Amount
Quarterly (1) April 11, 2017 April 20, 2017 $0.21
Quarterly (2) July 12, 2017 July 21, 2017 $0.21
Quarterly (3) September 21, 2017 September 28, 2017 $0.21
Special September 22, 2017 September 29, 2017 $0.30
Quarterly (4) December 5, 2017 December 14, 2017 $0.21
Ten-Year Common Stock Price and Dividend History
Common Stock Price Cash Dividends
Year High Low Close Declared Per Share
2008 $40.05 $13.29 $19.02 $0.52
2009 $19.61 $11.80 $13.72 $0.52
2010 $19.00 $12.84 $15.11 $0.52
2011 $16.00 $8.95 $12.03 $0.52
2012 $16.33 $12.12 $14.71 $0.53
2013 $30.88 $14.76 $29.79 $0.60
2014 $30.79 $24.27 $27.77 $0.98
2015 $30.29 $22.16 $26.53 $1.05
2016 $37.87 $21.90 $36.23 $1.10
2017 $41.23 $31.38 $39.39 $1.14
2018 Anticipated Dividend Dates 1 2018 Anticipated Earnings Dates 1
Quarter Record Date Payment Date Quarter Announcement Date
1 April 10, 2018 April 19, 2018 1 April 19, 2018
2 July 10, 2018 July 19, 2018 2 July 19, 2018
3 October 9, 2018 October 18, 2018 3 October 18, 2018
4 December 11, 2018 December 20, 2018 4 January 24, 2019
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1 Subject to approval by the Board of Directors
Stock Listing
Glacier Bancorp, Inc.'s common stock trades on the
NASDAQ Global Select Market under the symbol:
GBCI. There are approximately 1,691 shareholders
of record for Glacier Bancorp, Inc. stock.
Annual Meeting
The Annual Meeting of Shareholders will be held
April 25, 2018 at 9:00 a.m. Mountain Time at The Hilton
Garden Inn, 1840 Highway 93 South, Kalispell, Montana.
Automatic Dividend Reinvestment Plan
Shareholders may reinvest their dividends and make
additional cash purchases of common stock by
participating in the Company's dividend
reinvestment plan. Call American Stock Transfer
& Trust Company at (877) 390-3076 for more
information and to request a prospectus.
Email Notifications
Readers may subscribe to Glacier Bancorp, Inc. email
notifications for corporate events, document filings,
press releases and end-of-day stock quotes in the Email
Notification section of the Company's website.
Corporate Headquarters
49 Commons Loop
Kalispell, Montana 59901
(406) 751-7708
www.glacierbancorp.com
Stock Transfer Agent
American Stock Transfer & Trust Company, LLC
Brooklyn, New York
www.amstock.com
Independent Registered Public Accountants
BKD, LLP
Denver, Colorado
www.bkd.com
Legal Counsel
Moore, Cockrell, Goicoechea & Johnson, P.C.
Kalispell, Montana
www.mcgalaw.com
Miller Nash Graham & Dunn LLP
Seattle, Washington
www.millernash.com
LETTER TO SHAREHOLDERS
Dear Shareholder,
2017 was an excellent year for the Company. Our team of 2,354 talented employees did a fantastic job of growing
the business and building long-term franchise value. Our Western U.S. markets showed strong economic growth,
we expanded into Arizona by closing on our acquisition of The Foothills Bank, and we announced two new terrific
acquisitions that closed in early 2018. We were also successful in keeping the Company’s total asset size below
$10 billion at year end, avoiding a significant reduction in fee income associated with crossing that threshold for
another year. And once again, we were recognized by Forbes and Bank Director Magazine as one of the top ten
performing banks in America.
We operate in a constantly changing industry and environment, but despite this your Company remains strong -
stronger than we have ever been. This strength comes from our exceptional Directors, Bank Presidents, Senior
Staff and employees who are all committed to serving our customers and communities with excellence.
The Tax Act
The Tax Cuts and Jobs Act (“Tax Act”) was enacted in late December 2017 and, despite being a drag on performance
in the fourth quarter, the Tax Act will benefit the Company for years to come. The Tax Act lowers federal income
tax in 2018 and future years from a maximum corporate rate of 35% to 21%. This required us to take a one time
tax expense charge of $19.7 million and reduce the value of the Company’s net deferred tax assets in the fourth
quarter because we will recognize the future tax benefits when the lower corporate income tax rate will be in effect.
The good news is we will start benefiting from the lower federal income tax rate starting in 2018. This makes
talking about our financial performance for 2017 a little difficult because we feel investors will get a better view
of the core performance of the Company by looking past the one time Tax Act adjustment in 2017.
I will do my best in this letter to present our financial results clearly and readers can also review the 10-K included
in this Annual Report which has helpful information regarding the impact of the one time Tax Act adjustment in
2017 and full year financial performance.
A Record year
Key Performance Measurements
Tangible stockholders’ equity of your Company increased $49.6 million or 5% to $1.007 billion and tangible book
value per common share increased 3% or $0.40 from a year ago to $12.91 in 2017.
Net income for 2017 was a record $136 million, an increase of $14.9 million, or 12%, from the $121 million of
net income in 2016, excluding the impact of the Tax Act.
Return on Equity (“ROE”) for the year was a very strong 11.46%, excluding the impact of the Tax Act.
The Company declared and paid a regular dividend of $0.21 per share in the fourth quarter of 2017, which was
the 131st consecutive quarterly dividend paid by the Company. For the full year we paid regular dividends of $0.84
per share and a special dividend of $0.30 per share for a total of $1.14 per share, or 65% of earnings, excluding
the impact of the Tax Act. We prefer paying dividends as a way to distribute excess capital back to shareholders
and we expect to continue this practice.
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Total Shareholder Return (“TSR”) for the year was 13.2%. This measure shows the return a shareholder would
have received on our stock for the year if the stock price appreciation and dividends paid to a shareholder are
calculated as a total return. We encourage shareholders to view this measure over a longer term (see the chart we
provide on page 21 of the 10-K included in this Annual Report) as we don’t have any control over the broader
stock market and the market volatility can impact this measure. TSR over the last 5 years was 217%. Compared
to our peer group, we rank in the 95th percentile of performance for TSR over this period.
In addition to strong financial performance, giving back to the communities in which we operate remains a key
priority for the Company and once again the team did an outstanding job for the year by contributing a record
13,000 hours to over 700 non-profits, donating or investing over $33 million, and making over $250 million in
Community Development loans. We are committed to making the communities we serve a better place to live.
Key Initiatives and Operating Results
We successfully executed our strategy to stay below $10 billion in total assets at the end of 2017 in order to delay
the impact of the Durbin Amendment for one additional year, saving the Company from an annual reduction in
fee income of about $14 million that would have started in July of 2018. The Durbin Amendment, which came
into effect as part of the Dodd-Frank Act, establishes limits on the amount of interchange fees that can be charged
to merchants for debit card processing and will reduce our interchange fee income when we become subject to
this requirement. The team worked together to accomplish delaying the impact of the Durbin Amendment without
materially impacting customer relationships or profitability. We accomplished this strategy by selectively
redeploying investment cash flow and by temporarily moving deposits off of our balance sheet. We exceeded $10
billion in assets at the end of January 2018, but because we ended 2017 below $10 billion, we will not be subject
to the Durbin Amendment until July 2019.
Core deposits increased $380 million, or 5%, from the prior year end to $7.420 billion. We moved $433 million
in deposits off balance sheet, but these deposits can be brought back onto our balance sheet at our discretion without
any customer inconvenience. Including the deposit accounts moved off balance sheet, organic core deposits actually
increased $478 million, or 7%, in 2017 and we were very pleased to see our non-interest bearing deposit accounts
increase $270 million, or 13%, to $2.312 billion at year end. Stable, low cost core deposit funding has always
been important to our Company but it appeared to become less important to the industry over the last several years
as deposits flowed rather effortlessly into the banking system. I am happy to report that we never took our eye off
of the core deposit ball and our team has diligently grown this important part of the business year after year. We
offer our totally free checking product for businesses and consumers to help us consistently grow and retain
accounts.
Organic loan growth for the year was $601 million, or 11 %, and our portfolio of loans grew to $6.6 billion. This
increase primarily came from growth in commercial real estate lending and other commercial loans. In 2017 we
were able to launch a new consumer lending platform to help deliver more consistent service to customers across
the business and we also started the roll out of new commercial loan pricing technology to give us better information
on how to price individual loans more effectively. We continue to enjoy solid growth as most of our markets in
the West are growing faster than the U.S. average, and we benefit from our long term relationships with strong
customers. However, we continue to keep a close eye on our growth rate and take the time to get comfortable that
the quality of our loans meet our high standards. It’s easy to grow when every one in the industry is growing, but
more difficult to slow down when the prevailing wisdom says there is smooth sailing ahead. We don’t see storm
clouds on the horizon, but we continue to closely monitor our portfolio and markets to make sure we are not entering
a credit downturn. We are, after all, in a long term cyclical industry and can’t lose sight of this.
The total funding cost for 2017 (including non-interest bearing deposits) was 36 basis points compared to 37 basis
points for 2016. This remarkable performance reflects the very stable nature of our core deposits that I touched
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on earlier. If interest rates rise as anticipated over the next few years, these stable deposits will continue to serve
us well.
The net interest margin as a percentage of earning assets was 4.12%, a 10 basis point increase from the net interest
margin of 4.02% for 2016. The increase in the margin was primarily attributable to a shift in earning assets from
our lower yielding investment portfolio to higher yielding loans as well as stable cost of funds and good pricing
on new loans. We expect to continue to see these dynamics continue in 2018.
The efficiency ratio, which measures expenses as a percent of revenues, was 53.94% for 2017 which was a decrease
from the prior year of nearly 200 basis points. The improvement was driven by the increase in net interest income
which was largely due to higher interest income on commercial loans. Like the game of golf, a lower number is
better when scoring efficiency. We had a goal of 55% for the year and we were very pleased to handily beat this
target. The team delivered another strong performance in this area by remaining very focused on managing
expenses. While we don’t expect a repeat of the large decrease we saw last year, we do expect to improve our
efficiency each year by carefully reviewing operations and identifying areas where we can do better.
On the loan side of the ledger, non-performing assets at year end were $65.1 million, a decrease of $6.2 million,
or 9%, from a year ago. Non-performing assets as a percentage of subsidiary assets at year end were 0.68%, which
was a decrease of 8 basis points from the prior year end of 0.76%. Credit quality trends generally are positive and
credit risk appears to be low at this point.
The allowance for loan and lease losses as a percent of total loans outstanding at December 31, 2017 was 1.97
percent, a decrease of 31 basis points from 2.28 percent at December 31, 2016. This decrease was primarily driven
by loan growth and stabilizing credit quality. We continue to think that it is prudent to carry a loan loss provision
that reflects our conservative nature and outlook. It’s better to be realistic in this area than overly optimistic.
Acquisitions
In 2016 the Company announced the acquisition of The Foothills Bank, a community bank based in Yuma, Arizona
with assets of $377 million and loans of $325 at year end 2017. This acquisition was completed in April of 2017.
We are excited about entering the Arizona market and we welcome the terrific Foothills team to the Glacier family.
During 2017 we announced the acquisition of Collegiate Peaks Bank in Colorado and First Security Bank in
Bozeman, Montana. Both acquisitions provide significant strategic advantages. Ron Copher (our Chief Financial
Officer) and Don Chery (our Chief Administrative Officer) and I spent many days doing due diligence on both of
these transactions and we are very confident that these transactions will be great additions to the Company. These
acquisitions mark the Company’s nineteenth and twentieth acquisitions since 2000 and the eighth and ninth
announced transactions in the past five years.
Collegiate Peaks Bank was founded in 1987 and purchased in 2006 by a group of investors led by David Boyles,
John Perkins, and Charlie Forster who had previously left a large bank in Denver with a dream to build an exceptional
community bank focused on personalized service. We were fortunate to be given the opportunity to provide
financing to the bank a number of years ago and to get to know the management team at that time. When they
decided to consider future options, they contacted us and we were able to work directly with them to announce a
transaction. Collegiate Peaks Bank is located in the mountain towns of Buena Vista and Salida and in the Denver
area. Collegiate Peaks provides us with a strong presence in mountain markets as well as the fast growing Denver
region and provides us with a platform to further grow along the bustling Colorado Front Range. At year end 2017,
they recorded total assets of $533 million, gross loans of $346 million, and total deposits of $464 million. We
closed this transaction at the end of January 2018 and we welcome the exceptional Collegiate team to the Glacier
family.
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First Security Bank was founded almost 100 years ago and has grown to be the largest community bank in the
Bozeman area. A group of local families have carefully built the bank over a number of generations. The Board
of First Security Bank put a lot of thought into their future and decided that partnering with our Company was the
best path forward. We had talked with the owners of First Security Bank on and off about a partnership for a
number of years and we were pleased to be considered when the time came for them to choose a partner. Our
approach to acquisitions matched what they were looking for and we were very fortunate to agree upon terms and
announce we had a deal in October of 2017. With First Security Bank we gain a leadership position in the high
growth Bozeman market and the rich agricultural area known as the Golden Triangle. We feel the long term growth
prospects are exceptional and being the largest community bank in these markets will generate future significant
benefits for the Company. In addition, First Security Bank has very talented executives and staff that will join
our team and we welcome them all. We closed this transaction at the end of February 2018. At year end, First
Security Bank had total assets of $1.028 billion, gross loans of $640 million and total deposits of $891 million.
The Year Ahead
We have a very exciting year in sight for 2018. With the Tax Act now signed into law, we see a lot of optimism
among our business customers and hope to see the corresponding increase in our business as a result. We are
taking a bit of a cautious approach and would like to see tangible signs of improvement before we declare the
economic outlook materially changed for the better.
We will grow the Company 15% in the first quarter alone by closing on Collegiate Peaks Bank and First Security
Bank. We expect to convert these banks over to our core processing system in the second half of the year. This
will take a lot of work but we have an incredibly talented team in place with strong acquisition and conversion
experience. We are going to stay focused on our core business in 2018 while closing and converting these two
banks. In addition, we want to continue to ensure our customer service experience is best in class and further
strengthen our unique and very successful business model. Building on the strong foundation we have in place,
we are positioning your Company to continue to be the first choice for banking in all of our markets. We are
keeping what works and changing what doesn’t, all with an eye toward the future. This alone is a full agenda and,
while we always remain ready to react to the unexpected, we look forward to accomplishing these things in the
coming year.
Our future success continues to be driven by our exceptional team as we could not have delivered the results
covered in this letter without their unwavering dedication to serving our customers. I am very confident that under
the guidance of our terrific Board of Directors, our Bank Presidents and Senior Staff, our employees, will make
2018 another record year for Glacier Bancorp.
Our annual meeting will be held in Kalispell, Montana at 9:00 a.m. on April 25 so please stop by the Hilton Garden
Inn and join us if you are in town.
Once again, thank you for your trust and confidence,
Randall “Randy” Chesler
President and Chief Executive Officer
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FINANCIAL HIGHLIGHTS
At or for the Years ended December 31,
(Dollars in thousands, except per share data)2017 2016 2015 2014 2013
Selected Statements of Financial Condition Information
Total assets $9,706,349 9,450,600 9,089,232 8,306,507 7,884,350
Investment securities 2,426,556 3,101,151 3,312,832 2,908,425 3,222,829
Loans receivable, net 6,448,256 5,554,891 4,948,984 4,358,342 3,932,487
Allowance for loan and lease losses (129,568)(129,572)(129,697)(129,753)(130,351)
Goodwill and intangibles 191,995 159,400 155,193 140,606 139,218
Deposits 7,579,747 7,372,279 6,945,008 6,345,212 5,579,967
Federal Home Loan Bank advances 353,995 251,749 394,131 296,944 840,182
Securities sold under agreements to repurchase
and other borrowed funds 370,797 478,090 430,016 404,418 321,781
Stockholders’ equity 1,199,057 1,116,869 1,076,650 1,028,047 963,250
Equity per share 15.37 14.59 14.15 13.70 12.95
Equity as a percentage of total assets 12.35%11.82%11.85%12.38%12.22%
Summary Statements of Operations
Interest income $375,022 344,153 319,681 299,919 263,576
Interest expense 29,864 29,631 29,275 26,966 28,758
Net interest income 345,158 314,522 290,406 272,953 234,818
Provision for loan losses 10,824 2,333 2,284 1,912 6,887
Non-interest income 112,239 107,318 98,761 90,302 93,047
Non-interest expense 265,571 258,714 236,757 212,679 195,317
Income before income taxes 181,002 160,793 150,126 148,664 125,661
Federal and state income tax expense 1 44,926 39,662 33,999 35,909 30,017
Net income 1 $136,076 121,131 116,127 112,755 95,644
Basic earnings per share 1 $1.75 1.59 1.54 1.51 1.31
Diluted earnings per share 1 $1.75 1.59 1.54 1.51 1.31
Dividends declared per share 2 $1.14 1.10 1.05 0.98 0.60
Selected Ratios and Other Data
Return on average assets 1 1.41%1.32%1.36%1.42%1.23%
Return on average equity 1 11.46%10.79%10.84%11.11%10.22%
Dividend payout ratio 1,2 65.14%69.18%68.18%64.90%45.80%
Average equity to average asset ratio 12.27%12.27%12.52%12.81%11.99%
Total capital (to risk-weighted assets)15.64%16.38%17.17%18.93%18.97%
Tier 1 capital (to risk-weighted assets)14.39%15.12%15.91%17.67%17.70%
Common Equity Tier 1 (to risk-weighted assets)12.81%13.42%14.06%N/A N/A
Tier 1 capital (to average assets)11.90%11.90%12.01%12.45%12.11%
Net interest margin on average earning assets (tax-equivalent)4.12%4.02%4.00%3.98%3.48%
Efficiency ratio 3 53.94%55.88%55.40%54.31%54.51%
Allowance for loan and lease losses as a percent of loans 1.97%2.28%2.55%2.89%3.21%
Allowance for loan and lease losses as a percent of
nonperforming loans 255%257%244%209%158%
Non-performing assets as a percentage of subsidiary assets 0.68%0.76%0.88%1.08%1.39%
Non-performing assets $65,179 71,385 80,079 89,900 109,420
Loans originated and acquired $3,629,493 3,474,000 3,000,830 2,404,299 2,477,804
Number of full time equivalent employees 2,278 2,222 2,149 1,943 1,837
Number of locations 145 142 144 129 118
______________________________
1 Excludes a one-time revaluation of the deferred tax assets and deferred tax liabilities as a result of The Tax Cuts and Jobs Act for the year ended December 31, 2017. For
additional information on the revaluation, see the “Non-GAAP Financial Measures” section in “Item 6. Selected Financial Data” of the attached Form 10-K.
2 Includes a special dividend declared of $0.30 per share for 2017, 2016, 2015 and 2014.
3 Non-interest expense before other real estate owned (“OREO”) expenses, core deposit intangibles amortization, goodwill impairment charges, and non-recurring expense
items as a percentage of tax-equivalent net interest income and non-interest income, excluding gains or losses on sale of investments, OREO income, and non-recurring
income items.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________
FORM 10-K
______________________________________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 000-18911______________________________________________________________________
GLACIER BANCORP, INC.
(Exact name of registrant as specified in its charter) ______________________________________________________________________
MONTANA 81-0519541
(State or other jurisdiction ofincorporation or organization)(IRS EmployerIdentification No.)
49 Commons Loop, Kalispell, Montana 59901
(Address of principal executive offices)(Zip Code)
(406) 756-4200
(Registrant’s telephone number, including area code)
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. 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 No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, 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.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the voting common equity held by non-affiliates of the Registrant at June 30, 2017 (the last business day of the
most recent second quarter), was $2,837,602,927 (based on the average bid and ask price as quoted on the NASDAQ Global Select Market at
the close of business on that date).
The number of shares of Registrant’s common stock outstanding on February 5, 2018 was 79,785,733. No preferred shares are issued or
outstanding.
Document Incorporated by Reference
Portions of the 2018 Annual Meeting Proxy Statement dated on or about March 15, 2018 are incorporated by reference into Parts I and III of
this Form 10-K.
1
TABLE OF CONTENTS
Page
PART I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Mine Safety Disclosures
PART II
Item 5 Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6 Selected Financial Data
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosure about Market Risk
Item 8 Financial Statements and Supplementary Data
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accounting Fees and Services
PART IV
Item 15 Exhibits, Financial Statement Schedules
Item 16 Form 10-K Summary
SIGNATURES
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ABBREVIATIONS/ACRONYMS
ALCO – Asset Liability Committee GLBA – Gramm-Leach-Bliley Financial Services
ALLL or allowance – allowance for loan and lease losses Modernization Act of 1999
ASC – Accounting Standards CodificationTM Interstate Act – Riegle-Neal Interstate Banking and Branching
ATM – automated teller machine Efficiency Act of 1994
Bank – Glacier Bank IRS – Internal Revenue Service
Basel III – third installment of the Basel Accords LIBOR – London Interbank Offered Rate
BHCA – Bank Holding Company Act of 1956, as amended LIHTC – Low-Income Housing Tax Credit
Board – Glacier Bancorp, Inc.’s Board of Directors NII – net interest income
bp or bps – basis point(s)NMTC – New Markets Tax Credits
BSA – Bank Secrecy Act NOW – negotiable order of withdrawal
CCP – Core Consolidation Project NRSRO – Nationally Recognized Statistical Rating Organizations
CDE – Certified Development Entity OCI – other comprehensive income
CDFI Fund – Community Development Financial Institutions Fund OREO – other real estate owned
CEO – Chief Executive Officer Patriot Act – Uniting and Strengthening America by Providing Appropriate
CFO – Chief Financial Officer Tools Required to Intercept and Obstruct Terrorism Act of 2001
CFPB – Consumer Financial Protection Bureau PCAOB – Public Company Accounting Oversight Board (United States)
Collegiate – Columbine Capital Corp. and its subsidiary,Proxy Statement – the 2018 Annual Meeting Proxy Statement
Collegiate Peaks Bank Repurchase agreements – securities sold under agreements
Company – Glacier Bancorp, Inc.to repurchase
COSO – Committee of Sponsoring Organizations of the S&P – Standard and Poor’s
Treadway Commission SAB – SEC Staff Accounting Bulletin
CRA – Community Reinvestment Act of 1977 SEC – United States Securities and Exchange Commission
DDA – demand deposit account SERP – Supplemental Executive Retirement Plan
DIF – federal Deposit Insurance Fund SOX Act – Sarbanes-Oxley Act of 2002
DFAST – Dodd-Frank Act stress test Tax Act – The Tax Cuts and Jobs Act
Dodd-Frank Act – Dodd-Frank Wall Street Reform and TSB – Treasure State Bank
Consumer Protection Act of 2010 TDR – troubled debt restructuring
EVE – economic value of equity VIE – variable interest entity
Fannie Mae – Federal National Mortgage Association
FASB – Financial Accounting Standards Board
FDIC – Federal Deposit Insurance Corporation
FHLB – Federal Home Loan Bank
Final Rules – final rules implemented by the federal banking
agencies that amended regulatory risk-based capital rules
Foothills – TFB Bancorp, Inc. and its subsidiary,
The Foothills Bank
FRB – Federal Reserve Bank
Freddie Mac – Federal Home Loan Mortgage Corporation
FSB – Inter-Mountain Bancorp., Inc., and its subsidiary,
First Security Bank
GAAP – accounting principles generally accepted in the
United States of America
Ginnie Mae – Government National Mortgage Association
3
4
PART I
Item 1. Business
Glacier Bancorp, Inc. (“Company”), headquartered in Kalispell, Montana, is a Montana corporation incorporated in 2004 as a successor
corporation to the Delaware corporation originally incorporated in 1990. The Company is a publicly-traded company and its common
stock trades on the NASDAQ Global Select Market under the symbol GBCI. The Company provides commercial banking services from
145 locations in Montana, Idaho, Utah, Washington, Wyoming, Colorado, and Arizona through its wholly-owned bank subsidiary, Glacier
Bank (“Bank”). The Company offers a wide range of banking products and services, including: 1) retail banking; 2) business banking;
3) real estate, commercial, agriculture and consumer loans; and 4) mortgage origination services. The Company serves individuals, small
to medium-sized businesses, community organizations and public entities. For information regarding the Company’s lending, investment
and funding activities, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Subsidiaries
The Company includes the parent holding company and the Bank. As of December 31, 2017, the Bank consists of fourteen bank divisions,
a treasury division, an information technology division and a centralized mortgage division. The Bank divisions operate under separate
names, management teams and advisory directors. and include the following:
• Glacier Bank (Kalispell, Montana) with operations in Montana;
• First Security Bank of Missoula (Missoula, Montana) with operations in Montana;
• Valley Bank of Helena (Helena, Montana) with operations in Montana;
• Big Sky Western Bank (Bozeman, Montana) with operations in Montana;
• Western Security Bank (Billings, Montana) with operations in Montana;
• First Bank of Montana (Lewistown, Montana) with operations in Montana;
• Mountain West Bank (Coeur d’Alene, Idaho) with operations in Idaho, Utah and Washington;
• Citizens Community Bank (Pocatello, Idaho) with operations in Idaho;
• 1st Bank (Evanston, Wyoming) with operations in Wyoming and Utah;
• First Bank of Wyoming (Powell, Wyoming) with operations in Wyoming;
• First State Bank (Wheatland, Wyoming) with operations in Wyoming;
• North Cascades Bank (Chelan, Washington) with operations in Washington;
• Bank of the San Juans (Durango, Colorado) with operations in Colorado; and
• The Foothills Bank (Yuma, Arizona) with operations in Arizona.
In January 2018, the Company combined the 1st Bank and First Bank of Wyoming divisions into one Bank division and named it First
Bank. The combination was the result of the Company’s assessment of local market areas and determination that the Bank divisions
would be more efficiently operated under one division. The treasury division includes the Bank’s investment portfolio and wholesale
borrowings, the information technology division includes the Bank’s internal data processing, and the centralized mortgage division
includes mortgage loan servicing and secondary market originations and sales. The Company considers the Bank to be its sole operating
segment.
The Bank has subsidiary interests in variable interest entities (“VIE”) for which the Bank has both the power to direct the VIE’s significant
activities and the obligation to absorb losses or right to receive benefits of the VIE that could potentially be significant to the VIE. These
subsidiary interests are included in the Company’s consolidated financial statements. The Bank also has subsidiary interests in VIEs for
which the Bank does not have a controlling financial interest and is not the primary beneficiary. These subsidiary interests are not included
in the Company’s consolidated financial statements.
The parent holding company owns non-bank subsidiaries that have issued trust preferred securities as Tier 1 capital instruments. The
trust subsidiaries are not included in the Company’s consolidated financial statements. The Company's investments in the trust subsidiaries
are included in non-marketable equity securities on the Company's statements of financial condition.
As of December 31, 2017, the Company and its subsidiaries were not engaged in any operations in foreign countries.
5
Recent and Pending Acquisitions
The Company’s strategy is to profitably grow its business through internal growth and selective acquisitions. The Company continues
to look for profitable expansion opportunities primarily in existing and new markets in the Rocky Mountain states. The Company has
completed the following acquisitions during the last five years:
(Dollars in thousands)Date TotalAssets GrossLoans TotalDeposits
TFB Bancorp, Inc. and its subsidiary, The Foothills Bank(collectively, “Foothills”)April 30, 2017 $385,839 292,529 296,760
Treasure State Bank (“TSB”)August 31, 2016 76,165 51,875 58,364
Cañon Bank Corporation and its subsidiary, Cañon National Bank October 31, 2015 270,121 159,759 237,326
Montana Community Banks, Inc. and its subsidiary,Community Bank February 28, 2015 175,774 84,689 237,326
FNBR Holding Corporation and its subsidiary,First National Bank of the Rockies August 31, 2014 349,167 137,488 309,641
North Cascades Bancshares, Inc. and its subsidiary,North Cascades National Bank July 31, 2013 330,028 215,986 294,980
Wheatland Bankshares, Inc. and its subsidiary, First State Bank May 31, 2013 300,541 171,199 255,197
In January 2018, the Company acquired the outstanding common stock of Columbine Capital Corp., and its wholly-owned subsidiary,
Collegiate Peaks Bank, a community bank based in Buena Vista, Colorado (collectively, “Collegiate”). Collegiate provides banking
services to businesses and individuals in the Mountain and Front Range communities of Colorado, with banking offices located in Aurora,
Buena Vista, Denver and Salida. As of December 31, 2017, Collegiate had total assets of $533 million, gross loans of $346 million and
total deposits of $464 million. Collegiate operates as a division of the Bank under the name “Collegiate Peaks Bank, division of Glacier
Bank.”
In October 2017, the Company announced the signing of a definitive agreement to acquire Inter-Mountain Bancorp., Inc., and its wholly-
owned subsidiary, First Security Bank, a community bank based in Bozeman, Montana (collectively, “FSB”). FSB provides banking
services to businesses and individuals throughout Montana, with banking offices located in Bozeman, Belgrade, Big Sky, Choteau,
Fairfield, Fort Benton, Three Forks, Vaughn and West Yellowstone. As of December 31, 2017, FSB had total assets of $1.028 billion,
gross loans of $640 million and total deposits of $891 million. The acquisition has received the required regulatory approvals, is subject
to other customary conditions of closing and is expected to be completed in February 2018. Upon closing of the transaction, FSB will
be merged into the Bank and will operate as a separate bank division under its existing name. Big Sky Western Bank, the Bank’s existing
Bozeman-based division, will combine with the new FSB division. The agriculture-focused northern branches of FSB, located in the
area known as the Golden Triangle, will combine with the Bank’s First Bank of Montana division.
See Notes 22 and 23 in the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for additional
information regarding these acquisitions.
Market Area
The Company and the Bank have 145 locations, of which 9 are loan or administration offices, in 51 counties within 7 states including
Montana, Idaho, Utah, Washington, Wyoming, Colorado, and Arizona. The Company and the Bank have 59 locations in Montana, 28
locations in Idaho, 4 locations in Utah, 13 locations in Washington, 16 locations in Wyoming, 20 locations in Colorado, and 5 locations
in Arizona.
The market area’s economic base primarily focuses on tourism, construction, mining, energy, manufacturing, agriculture, service industry,
and health care. The tourism industry is highly influenced by national parks, ski resorts, significant lakes and rural scenic areas.
Competition
Commercial banking is a highly competitive business and operates in a rapidly changing environment. There are a large number of
depository institutions including savings and loans, commercial banks, and credit unions in the markets in which the Company has offices.
Competition is also increasing for deposit and lending services from internet-based competitors. Non-depository financial service
institutions, primarily in the securities, insurance and retail industries, have also become competitors for retail savings, investment funds
and lending activities. In addition to offering competitive interest rates, the principal methods used by the Bank to attract deposits include
the offering of a variety of services including on-line banking, mobile 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.
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Based on the Federal Deposit Insurance Corporation (“FDIC”) summary of deposits survey as of June 30, 2017, the Bank has approximately
24 percent of the total FDIC insured deposits in the 13 counties that it services in Montana. In Idaho, the Bank has approximately 7
percent of the deposits in the 9 counties that it services. In Utah, the Bank has 11 percent of the deposits in the 3 counties it services. In
Washington, the Bank has 4 percent of the deposits in the 6 counties it services. In Wyoming, the Bank has 24 percent of the deposits
in the 8 counties it services. In Colorado, the Bank has 5 percent of the deposits in the 9 counties it services. In Arizona, the Bank has
4 percent of the deposits in the 3 counties it services.
Employees
As of December 31, 2017, the Company and the Bank employed 2,354 persons, 2,179 of whom were employed full time and none of
whom were represented by a collective bargaining group. The Company and the Bank provide their qualifying employees with a
comprehensive benefit program, including health, dental and vision insurance, life and accident insurance, short- and long-term disability
coverage, vacation and sick leave, 401(k) plan, profit sharing plan, stock-based compensation plan, deferred compensation plans, and a
supplemental executive retirement plan. 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 requirements.
Board of Directors and Committees
The Company’s Board of Directors (“Board”) has the ultimate authority and responsibility for overseeing risk management at the Company.
Some aspects of risk oversight are fulfilled at the Board level, and the Board delegates other aspects of its risk oversight function to its
committees. The Board has established, among others, an Audit Committee, a Compensation Committee, a Nominating/Corporate
Governance Committee, a Compliance Committee, and a Risk Oversight Committee. Additional information regarding Board committees
is set forth under the heading “Meetings and Committees of the Board of Directors - Committee Membership” in the Company’s 2018
Annual Meeting Proxy Statement (“Proxy Statement”) and is incorporated herein by reference.
Website 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 United States Securities and Exchange Commission (“SEC”). Copies can also be obtained by accessing the
SEC’s website (www.sec.gov).
Supervision and Regulation
The Company and the Bank are subject to extensive regulation under federal and state laws. This section provides a general overview
of the federal and state regulatory framework applicable to the Company and the Bank. In general, this regulatory framework is designed
to protect depositors, the federal Deposit Insurance Fund (“DIF”), and the federal and state banking system as a whole, rather than
specifically for the protection of shareholders. Note that this section is not intended to summarize all laws and regulations applicable to
the Company and the Bank. Descriptions of statutory or regulatory provisions do not purport to be complete and are qualified by reference
to those provisions.
These statutes and regulations, as well as related policies, continue to be subject to change by Congress, state legislatures, and federal
and state regulators. Changes in statutes, regulations, or regulatory policies applicable to the Company and the Bank (including their
interpretation or implementation) cannot be predicted and could have a material effect on the Company’s and the Bank’s business and
operations. Numerous changes to the statutes, regulations, and regulatory policies applicable to the Company and the Bank have been
made or proposed in recent years. Continued efforts to monitor and comply with new regulatory requirements add to the complexity and
cost of the Company’s and the Bank's business and operations.
The Company is subject to regulation and supervision by the Federal Reserve (as a bank holding company) and regulation by the State
of Montana (as a Montana corporation). The Company is also subject to the disclosure and regulatory requirements of the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the SEC. The Bank is subject to
regulation and supervision by the FDIC, the Montana Department of Administration's Banking and Financial Institutions Division, and,
with respect to Bank branches outside of the State of Montana, the respective regulators in those states.
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Federal Bank Holding Company Regulation
General. The Company is a bank holding company under the Bank Holding Company Act of 1956, as amended (“BHCA”), due to its
ownership of and control over the Bank. 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 a bank holding company to owning or controlling banks and engaging
in other activities closely related to the business of banking. In addition, the Company must also file reports with and provide additional
information to the Federal Reserve.
Holding Company Bank Ownership. The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve
before: 1) 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 percent of such shares; 2) acquiring all or substantially all of the assets of another
bank or bank holding company; or 3) merging or consolidating with another bank holding company.
Holding Company Control of Non-banks. With some exceptions, the BHCA prohibits a bank holding company from acquiring or retaining
direct or indirect ownership or control of more than 5 percent 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 securities, and on the use of securities as collateral
for loans to any borrower. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) further
extended the definition of an “affiliate” and treats credit exposure arising from derivative transactions, securities lending, and borrowing
transactions as covered transactions under the regulations. It also 1) expands the scope of covered transactions required to be collateralized;
2) requires collateral to be maintained at all times for covered transactions required to be collateralized; and 3) places limits on acceptable
collateral. These regulations and restrictions may limit the Company’s ability to obtain funds from the Bank for its cash needs, including
funds for payments 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 Bank may condition
an extension of credit to a customer on either 1) a requirement that the customer obtain additional services provided by the Company or
the Bank; or 2) an agreement by the customer to refrain from obtaining other services from a competitor.
Support of Bank Subsidiaries. Under Federal Reserve policy and the Dodd-Frank Act, the Company is required to act as a source of
financial and managerial strength to the Bank. This means that the Company is required to commit, as necessary, capital and resources
to support the Bank, including at times when the Company may not be in a financial position to provide such resources or when it may
not be in the Company's or its shareholders' best interests to do so. Any capital loans a bank holding company makes to its bank subsidiaries
are subordinate to deposits and to certain other indebtedness of the 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, Montana corporate law includes 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.
Federal and State Regulation of the Bank
General. Deposits in the Bank, a Montana state-chartered bank with branches in Montana, Idaho, Utah, Washington, Wyoming, Colorado
and Arizona, are insured by the FDIC. The Bank is subject to primary supervision, periodic examination, and regulation of the FDIC
and the Montana Department of Administration's Banking and Financial Institutions Division. These agencies have the authority to
prohibit the Bank from engaging in what they believe constitutes unsafe or unsound banking practices. The federal laws that apply to
the Bank regulate, among other things, the scope of its business, its investments, its 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. In addition to federal law and the laws of the State of Montana, with
respect to the Bank's branches in Idaho, Utah, Washington, Wyoming, Colorado and Arizona, the Bank is also subject to the various laws
and regulations governing its activities in those states.
8
Consumer Protection. The Bank is subject to a variety of federal and state consumer protection laws and regulations that govern its
relationships and interactions with consumers, including laws and regulations that impose certain disclosure requirements and that govern
the manner in which the Bank takes deposits, makes and collects loans, and provides other services. In recent years, examination and
enforcement by federal and state banking agencies for non-compliance with consumer protection laws and regulations have increased
and become more intense. Failure to comply with these laws and regulations may subject the Bank to various penalties, including but
not limited to enforcement actions, injunctions, fines, civil monetary penalties, criminal penalties, punitive damages, and the loss of
certain contractual rights. The Bank has established a comprehensive compliance system to ensure consumer protection.
Community Reinvestment. The Community Reinvestment Act of 1977 (“CRA”) requires that, in connection with examinations of financial
institutions within their jurisdiction, federal bank regulators evaluate the record of financial institutions in meeting the credit needs of its
local communities, including low and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions.
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. In some cases, a bank's failure to comply with the CRA or CRA protests filed by interested
parties during applicable comment periods can result in the denial or delay of such transactions. The Bank received a “satisfactory”
rating in its most recent CRA examination.
Insider Credit Transactions. Banks are subject to certain restrictions on extensions of credit to executive officers, directors, principal
shareholders, and their related interests. Extensions of credit 1) 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 related to the lending bank; and 2) 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, regulatory enforcement actions, and other regulatory
sanctions. The Dodd-Frank Act and federal regulations place additional restrictions on loans to insiders and generally prohibit loans to
senior officers other than for certain specified purposes.
Regulation of Management. Federal law 1) sets forth circumstances under which officers or directors of a bank may be removed by the
bank's federal supervisory agency; 2) as discussed above, places restraints on lending by a bank to its executive officers, directors, principal
shareholders, and their related interests; and 3) generally prohibits management personnel of a bank from serving as directors 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. Certain non-capital safety and soundness standards are also imposed upon banks. 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. In addition, each insured depository institution
must implement a comprehensive written information security program that includes administrative, technical, and physical safeguards
appropriate to the institution’s size and complexity and the nature and scope of its activities. The information security program must be
designed to ensure the security and confidentiality of customer information, protect against unauthorized access to or use of such
information, and ensure the proper disposal of customer and consumer information. An institution that fails to meet these standards may
be required to submit a compliance plan, or be subject to regulatory sanctions, including restrictions on growth. The Bank has established
comprehensive policies and risk management procedures to ensure the safety and soundness of the Bank.
Interstate Banking and Branching
The Dodd-Frank Act eliminated interstate branching restrictions that were implemented as part of the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 ("Interstate Act"), and removed many restrictions on de novo interstate branching by state and
federally chartered banks. Federal regulators now have authority to approve applications by such banks to establish de novo branches
in states other than the bank's home state if the host state's banks could establish a branch at the same location. 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.
9
Dividends
A principal source of the Company’s cash is from dividends received from the Bank, which are subject to regulation and limitation. As
a general rule, regulatory authorities may prohibit banks and bank holding companies from paying dividends in a manner that would
constitute an unsafe or unsound banking practice. For example, regulators have stated that paying dividends that deplete an institution's
capital base to an inadequate level would be an unsafe and unsound banking practice and that an institution should generally pay dividends
only out of current operating earnings. 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. 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. Under Montana law, the Bank may not declare a dividend greater than the previous two
years' net earnings without providing notice to the Montana Department of Administration's Banking and Financial Institutions Division.
Rules adopted in accordance with the third installment of the Basel Accords (“Basel III”) also impose limitations on the Bank's ability
to pay dividends. In general, these rules limit the Bank's ability to pay dividends unless the Bank's common equity conservation buffer
exceeds the minimum required capital ratio by at least 2.5 percent of risk-weighted assets.
The Federal Reserve has also issued a policy statement on the payment of cash dividends by bank holding companies. In general, the
policy statement expresses the view that although no specific regulations restrict dividend payments by bank holding companies other
than state corporate laws, a bank holding company should not pay cash dividends unless the bank holding company’s earnings for the
past year are sufficient to cover both the cash dividends and a prospective rate of earnings retention that is consistent with the bank holding
company’s capital needs, asset quality, and overall financial condition. A bank holding company's ability to pay dividends may also be
restricted if a subsidiary bank becomes under-capitalized. These various regulatory policies may affect the Company's and the Bank's
ability to pay dividends or otherwise engage in capital distributions.
The Dodd-Frank Act
General. The Dodd-Frank Act was signed into law in July 2010. The Dodd-Frank Act significantly changed the bank regulatory structure
and is affecting the lending, deposit, investment, trading, and operating activities of banks and bank holding companies, including the
Bank and the Company. Some of the provisions of the Dodd-Frank Act that may impact the Company's and the Bank's business and
operations are summarized below. There has been recent discussion of providing some relief from certain provisions of the Dodd-Frank
Act for smaller financial institutions. For example, a bipartisan Senate bill has been introduced in an effort to roll back key provisions
of the Dodd-Frank Act. However, at this time it is too early to predict the likelihood, timing, and scope of any such amendments.
Corporate Governance. The Dodd-Frank Act requires publicly traded companies to provide their shareholders with 1) a non-binding
shareholder vote on executive compensation; 2) a non-binding shareholder vote on the frequency of such vote; 3) disclosure of “golden
parachute” arrangements in connection with specified change in control transactions; and 4) a non-binding shareholder vote on golden
parachute arrangements in connection with these change in control transactions. In August 2015, the SEC adopted a rule mandated by
the Dodd-Frank Act that requires a public company to disclose the ratio of the compensation of its Chief Executive Officer (“CEO”) to
the median compensation of its employees. This rule is intended to provide shareholders with information that they can use to evaluate
a CEO’s compensation.
Prohibition Against Charter Conversions of Financial Institutions. The Dodd-Frank Act generally prohibits a depository institution from
converting from a state to federal charter, or vice versa, while it is the subject to an enforcement action unless the depository institution
seeks prior approval from its primary regulator and complies with specified procedures to ensure compliance with the enforcement action.
Repeal of Demand Deposit Interest Prohibition. The Dodd-Frank Act repeals the federal prohibitions on the payment of interest on
demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts.
10
Consumer Financial Protection Bureau. The Dodd-Frank Act established the Consumer Financial Protection Bureau (the “CFPB”) and
empowered it to exercise broad rulemaking, supervision, and enforcement authority for a wide range of consumer protection laws. Since
the Company's total consolidated assets exceeded $10 billion during the first quarter of 2018, the Company will now be subject to the
direct supervision of the CFPB. The CFPB has issued and continues to issue numerous regulations under which the Company and the
Bank will continue to incur additional expense in connection with its ongoing compliance obligations. Significant recent CFPB
developments that may affect operations and compliance costs include:
• positions taken by the CFPB on fair lending, including applying the disparate impact theory which could make it more difficult
for lenders to charge different rates or to apply different terms to loans to different customers;
• the CFPB's final rule amending Regulation C, which implements the Home Mortgage Disclosure Act, requiring most lenders
to report expanded information in order for the CFPB to more effectively monitor fair lending concerns and other information
shortcomings identified by the CFPB;
• positions taken by the CFPB regarding the Electronic Fund Transfer Act and Regulation E, which require companies to obtain
consumer authorizations before automatically debiting a consumer’s account for pre-authorized electronic funds transfers; and
• focused efforts on enforcing certain compliance obligations the CFPB deems a priority, such as automobile loan servicing, debt
collection, mortgage origination and servicing, remittances, and fair lending, among others.
Stress Testing
As required by the Dodd-Frank Act, the Federal Reserve and the FDIC published final rules regarding company-run stress testing
(“DFAST”). These rules require bank holding companies and banks with average total consolidated assets of $10 billion or more to
conduct an annual company-run stress test of capital, consolidated earnings, and losses under one base and at least two stress scenarios
provided by federal regulators. Regulators may then consider the results of those stress tests in determining and evaluating capital
adequacy, proposed acquisitions, and the safety and soundness of proposed dividends or stock repurchases. The Company exceeded $10
billion in total consolidated assets in the first quarter of 2018. The Company has analyzed these requirements and is developing systems,
action plans, policies, procedures and monitoring protocols to ensure that it complies with these stress testing rules.
Interchange Fees
Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether
the interchange fees that may be charged with respect to certain electronic transactions are "reasonable and proportional" to the costs
incurred by issuers for processing such transactions. Notably, the Federal Reserve's rules set a maximum permissible interchange fee,
among other requirements.
As of December 31, 2017, the Company and the Bank qualified for the small issuer exemption from the Federal Reserve's interchange
fee cap, which applies to any debit card issuer that has total consolidated assets of less than $10 billion as of the end of the previous
calendar year. In the first quarter of 2018, the Company exceeded $10 billion in total consolidated assets and will now be subject to this
interchange fee cap. Effective in 2019, the interchange fee cap is expected to have a $13 - $16 million pre-tax annual impact to the
Company's earnings.
Capital Adequacy
Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal regulatory
agencies, which involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory
guidelines. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting,
and other factors. The capital requirements are intended to ensure that institutions have adequate capital given the risk levels of assets
and off-balance sheet financial instruments and are applied separately to the Company and the Bank.
Federal regulations require insured depository institutions and bank holding companies to meet several minimum capital standards,
including: 1) a common equity Tier 1 capital to risk-based assets ratio of 4.5 percent; 2) a Tier 1 capital to risk-based assets ratio of 6
percent; 3) a total capital to risk-based assets ratio of 8 percent; and 4) a 4 percent Tier 1 capital to total assets leverage ratio. These
minimum capital requirements became effective in January 2015 and were the result of final rules implementing certain regulatory
amendments based on the recommendation of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank
Act ("Final Rules").
The Final Rules also require a new capital conservation buffer designed to absorb losses during periods of economic stress. The Bank
is required to meet this new buffer requirement by 2019 in order to avoid constraints on capital distributions (e.g., dividends, equity
repurchases, and certain bonus compensation for executive officers). The Final Rules change the risk-weights of certain assets for purposes
of the risk-based capital ratios and phase out certain instruments as qualifying capital.
11
The Final Rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on an insured
depository institution if its capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are
designed to complement the capital conservation buffer, insured depository institutions will be required to meet the following increased
capital level requirements to qualify as “well capitalized”: 1) a Tier 1 common equity capital ratio of at least 6.5 percent; 2) a Tier 1
capital ratio of at least 8 percent; 3) a total capital ratio of at least 10 percent; 4) a Tier 1 leverage ratio of at least 5 percent; and 5) not
be subject to any order or written directive requiring a specific capital level. The FDIC’s rules (as amended by the Final Rules) contain
other capital classification categories, such as “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and
“critically undercapitalized,” each of which are based on certain capital ratios. An institution may be downgraded to a category lower
than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition, or if the institution receives an unsatisfactory
examination rating.
The application of the Final Rules may result in lower returns on invested capital, require the raising of additional capital or require
regulatory action if the Bank were unable to comply with such requirements. In addition, management may be required to modify its
business strategy due to the changes to the asset risk-weights for risk-based capital calculations and the requirement to meet the capital
conservation buffers. The imposition of liquidity requirements in connection with these rules could also cause the Bank to increase its
holdings of liquid assets, change its business strategy, and make other changes to the terms of its funding. Management believes that, as
of December 31, 2017, the Company would meet all capital adequacy requirements under these capital rules on a fully phased-in basis
as if all such requirements were currently in effect.
Regulatory Oversight and Examination
Inspections. The Federal Reserve conducts periodic inspections of bank holding companies, such as the Company. In general, the
objectives of the Federal Reserve's inspection program are to ascertain whether the financial strength of a bank holding company is
maintained on an ongoing basis and to determine the effects or consequences of transactions between a bank holding company or its non-
banking subsidiaries and its bank subsidiaries. The inspection type and frequency typically varies depending on asset size, complexity
of the organization, and the bank holding company’s rating at its last inspection.
Examinations. Banks are subject to periodic examinations by their primary regulators. In assessing a bank's condition, bank examinations
have evolved from reliance on transaction testing to a risk-focused approach. These examinations are extensive and cover the entire
breadth of the operations of a 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 agencies, and in some cases they 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 institutions as frequently
as deemed necessary based on the condition of the institution or as a result of certain triggering events. The Company exceeded $10
billion in total consolidated assets in the first quarter of 2018; therefore, the Company will now be subject to the direct supervision of
the CFPB.
Commercial Real Estate Ratios. The federal banking regulators recently issued guidance reminding financial institutions to reexamine
the existing regulations regarding concentrations in commercial real estate lending. The purpose of the guidance is to guide banks in
developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The
banking regulators are directed to examine each bank’s exposure to commercial real estate loans that are dependent on cash flow from
the real estate held as collateral and to focus their supervisory resources on institutions that may have significant commercial real estate
loan concentration risk. The guidance provides that the strength of an institution’s lending and risk management practices with respect
to such concentrations will be taken into account in evaluating capital adequacy and does not specifically limit a bank’s commercial real
estate lending to a specified concentration level.
Corporate Governance and Accounting
The Sarbanes-Oxley Act of 2002 (“SOX Act”) addresses, among other things, corporate governance, auditing and accounting, enhanced
and timely disclosure of corporate information, and penalties for non-compliance. In general, the SOX Act 1) requires chief executive
officers and chief financial officers to certify to the accuracy of periodic reports filed with the SEC; 2) imposes specific and enhanced
corporate disclosure requirements; 3) accelerates the time frame for reporting insider transactions and periodic disclosures by public
companies; 4) 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 5) requires the SEC, based on certain enumerated factors, to regularly and systematically review corporate filings. As a
publicly reporting company, the Company is subject to the requirements of the SOX Act and related rules and regulations issued by the
SEC and NASDAQ.
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Anti-Money Laundering and Anti-Terrorism
The Bank Secrecy Act (“BSA”) requires all financial institutions to establish a risk-based system of internal controls reasonably designed
to prevent money laundering and the financing of terrorism. The BSA also sets forth various recordkeeping and reporting requirements
(such as reporting suspicious activities that might signal criminal activity) and certain due diligence and "know your customer"
documentation requirements.
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
(“Patriot Act”), intended to combat terrorism, was renewed with certain amendments in 2006. In relevant part, the Patriot Act 1) prohibits
banks from providing correspondent accounts directly to foreign shell banks; 2) imposes due diligence requirements on banks opening
or holding accounts for foreign financial institutions or wealthy foreign individuals; 3) requires financial institutions to establish an anti-
money laundering compliance program; and 4) eliminates civil liability for persons who file suspicious activity reports. The Patriot Act
also includes provisions providing the government with power to investigate terrorism, including expanded government access to bank
account records. Regulators are directed to consider a bank holding company’s and a bank’s effectiveness in combating money laundering
when reviewing and ruling on applications under the BHCA and the Bank Merger Act. The Company and the Bank have established
comprehensive compliance programs designed to comply with the requirements of the BSA and Patriot Act.
Financial Services Modernization
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (“GLBA”) brought about significant changes to the laws affecting
banks and bank holding companies. Generally, the GLBA 1) repeals historical restrictions on preventing banks from affiliating with
securities firms; 2) provides a uniform framework for the activities of banks, savings institutions, and their holding companies; 3) broadens
the activities that may be conducted by national banks and banking subsidiaries of bank holding companies; 4) provides an enhanced
framework for protecting the privacy of consumer information and requires notification to consumers of bank privacy policies; and 5)
addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.
The Bank is subject to FDIC regulations implementing the privacy provisions of the GLBA. These regulations require a bank to disclose
its privacy policy, including informing consumers of the bank's information sharing practices and their right to opt out of certain practices.
Deposit Insurance
FDIC Insured Deposits. The Bank's deposits are insured under the Federal Deposit Insurance Act, up to the maximum applicable limits
and are subject to deposit insurance assessments by the FDIC, which are designed to tie what banks pay for deposit insurance to the risks
they pose. The Dodd-Frank Act redefined the assessment base used for calculating deposit insurance assessments by requiring the FDIC
to determine assessments based on assets instead of deposits. Assessments are now based on the average consolidated total assets less
average tangible equity capital of a financial institution. In addition, the Dodd-Frank Act 1) raised the minimum designated reserve ratio
(the FDIC is required to set the reserve ratio each year) of the DIF from 1.15 percent to 1.35 percent; 2) required that the DIF reserve
ratio meet 1.35 percent by 2020; and 3) eliminated the requirement that the FDIC pay dividends to insured depository institutions when
the reserve ratio exceeds certain thresholds. The Dodd-Frank Act made banks with $10 billion or more in total assets, which threshold
the Bank exceeded in the first quarter of 2018, responsible for the increase from 1.15 percent to 1.35 percent. No institution may pay a
dividend if it is in default on its federal deposit insurance assessment. The FDIC may also prohibit any insured institution from engaging
in any activity determined by regulation or order to pose a serious risk to the DIF.
Safety and Soundness. The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines after
a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, order, or any condition imposed by an agreement with the FDIC. Management
is not aware of any existing circumstances that would result in termination of the Bank's deposit insurance.
Insurance of Deposit Accounts. The Dodd-Frank Act permanently increased FDIC deposit insurance from $100,000 to $250,000 per
depositor. The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership
category.
Recent and Proposed Legislation
The economic and political environment of the past several years has led to a number of proposed legislative, governmental, and regulatory
initiatives that may significantly impact the banking industry. Other regulatory initiatives by federal and state agencies may also
significantly impact the Company's and the Bank’s business. The Company and the Bank cannot predict whether these or any other
proposals will be enacted or the ultimate impact of any such initiatives on its operations, competitive situation, financial conditions, or
results of operations. While recent history has demonstrated that new legislation or changes to existing laws or regulations typically
result in a greater compliance burden (and therefore increase the general costs of doing business), the current administration has expressed
an attempt to reduce these regulatory burdens.
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On December 22, 2017, a law commonly known as the Tax Cuts and Jobs Act (“Tax Act”) was signed into law by President Donald
Trump. Among other provisions, the Tax Act reduced the federal corporate tax rate to 21 percent from the existing maximum rate of 35
percent. As a result of the Tax Act, the effective tax rate for the Company is expected to be reduced to a range of 17 to 18 percent. The
Tax Act also limits the ability of financial institutions with assets of $10 billion or more to deduct insurance premiums paid to the FDIC.
While the Company has evaluated the impact of the Tax Act with respect to the tax rate, it is too early to determine other potential impacts
of the Tax Act on the Company.
Effects of Federal 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 to promote
maximum employment, stable prices, and moderate long-term interest rates. Through its open market operations in U.S. government
securities, control of the discount rate applicable to borrowings, establishment of reserve requirements against certain deposits, and control
of the interest rate applicable to excess reserve balances and reverse repurchase agreements, the Federal Reserve influences the availability
and cost of money and credit and, ultimately, a range of economic variables including employment, output, and the prices of goods and
services. The nature and impact of future changes in monetary policies and their impact on the Company and the Bank cannot be predicted
with certainty.
Heightened Requirements for Bank Holding Companies with $10 Billion or More in Assets
Various federal banking laws and regulations impose heightened requirements on certain large banks and bank holding companies. Most
of these rules apply primarily to banks and bank holding companies with at least $50 billion in total consolidated assets, but certain rules
also apply to banks and bank holding companies with at least $10 billion in total consolidated assets. For example, because the Company
exceeded this $10 billion threshold in the first quarter of 2018, it will be required to, among other requirements:
• perform annual stress tests;
• maintain a dedicated risk committee responsible for overseeing enterprise-wide risk management policies;
• calculate its FDIC deposit assessment base using a performance score and a loss-severity score system; and
• be examined for compliance with federal consumer protection laws primarily by the CFPB.
The Company has analyzed these heightened requirements to ensure that it will comply with these rules.
Item 1A. Risk Factors
The following is a discussion of what the Company believes are the most significant risks and uncertainties that may affect the Company’s
business, financial condition and future results.
Economic conditions in the market areas the Bank serves may adversely impact its earnings and could increase the credit risk associated
with its loan portfolio and the value of its investment portfolio.
Substantially all of the Bank’s loans are to businesses and individuals in Montana, Idaho, Utah, Washington, Wyoming, Colorado and
Arizona, and a softening of the economies in these market areas could have a material adverse effect on its business, financial condition,
results of operations and prospects. Any future deterioration in economic conditions in the markets the Bank serves could result in the
following consequences, any of which could have an adverse impact, which could be material, on the Company’s business, financial
condition, results of operations and prospects:
• loan delinquencies may increase;
• problem assets and foreclosures may increase;
• collateral for loans made may decline in value, in turn reducing customers’ borrowing power;
• certain securities within the investment portfolio could become other-than-temporarily impaired, requiring a write-down through
earnings to fair value, thereby reducing equity;
• low cost or non-interest bearing deposits may decrease; and
• demand for loan and other products and services may decrease.
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National and global economic and geopolitical conditions could adversely affect the Company’s future results of operations or market
price of its stock.
The Company’s business is impacted by factors such as economic, political and market conditions, broad trends in industry and finance,
changes in government monetary and fiscal policies, inflation, and financial market volatility, all of which are beyond the Company’s
control. National and global economies are constantly in flux, as evidenced by recent market volatility resulting from, among other things,
a relatively new presidential administration and new tax and economic policies associated therewith (e.g., Tax Act), the uncertain future
relationship of the United Kingdom with the European Union (e.g., Brexit), and the ever-changing landscape of the energy industry.
Future economic conditions cannot be predicted, and any renewed deterioration in the economies of the nation as a whole or in the
Company’s markets could have an adverse effect, which could be material, on its business, financial condition, results of operations and
prospects, and could cause the market price of the Company’s stock to decline.
The Company will be subject to heightened regulatory requirements when the Company exceeds $10 billion in assets.
The Company exceeded its total consolidated assets of $10 billion during the first quarter of 2018. The Dodd-Frank Act and its
implementing regulations impose additional requirements on bank holding companies with $10 billion or more in total assets, including
compliance with specific sections of the Federal Reserve's prudential oversight requirements and annual stress testing requirements. The
Durbin Amendment, which was passed as part of Dodd-Frank, instructed the Federal Reserve to establish rules limiting the amount of
interchange fees that can be charged to merchants for debit card processing. The Federal Reserve's final rules contained several key
pieces, including in relevant part an interchange fee cap, certain fraud prevention adjustments, and, most notably, an exemption from the
interchange fee cap for small issuers. Issuers with less than $10 billion in total assets (as of the end of the previous calendar year) are
exempt from the Federal Reserve's interchange fee cap. As soon as the Company's total assets exceeded $10 billion, the interchange fee
cap of the Durbin Amendment negatively affects the interchange income the Bank receives from electronic payment transactions. The
interchange fee cap becomes effective to the Company commencing in 2019.
In addition, banks with $10 billion or more in total assets are primarily examined by the CFPB with respect to compliance with various
federal consumer financial protection laws and regulations. As a fairly new agency with evolving regulations and practices, it is uncertain
as to how the CFPB's examinations and regulatory authority may impact the Company's business.
A failure in or breach of the Bank’s operational or security systems, or those of the Bank’s third party service providers, including as a
result of cyber attacks, could disrupt business, result in the disclosure or misuse of confidential or proprietary information, damage the
Company’s reputation, increase costs and cause losses.
The Bank’s operations rely heavily on the secure processing, storage and transmission of confidential and other information on its computer
systems and networks. Any failure, interruption or breach in security or operational integrity of these systems could result in failures or
disruptions in the Bank’s online banking system, customer relationship management, general ledger, deposit and loan servicing, financial
reporting and other systems. The security and integrity of the Bank’s systems could be threatened by a variety of interruptions or
information security breaches, including those caused by computer hacking, cyber attacks, electronic fraudulent activity or attempted
theft of financial assets. The Bank cannot assure that any such failures, interruption or security breaches will not occur, or if they do
occur, that they will be adequately addressed. While the Bank has certain protective policies and procedures in place, the nature and
sophistication of the threats continue to evolve. The Bank may be required to expend significant additional resources in the future to
modify and enhance its protective measures.
Additionally, the Bank faces the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that
facilitate its business activities, including exchanges, clearing agents, clearing houses or other financial intermediaries. Such parties
could also be the source of an attack on, or breach of, the Bank’s operational systems.
Any failures, interruptions or security breaches in the Bank’s information systems could damage its reputation, result in a loss of customer
business, result in a violation of privacy or other laws, or expose the Company to civil litigation, regulatory fines or losses not covered
by insurance.
The allowance for loan and lease losses may not be adequate to cover actual loan losses, which could adversely affect earnings.
The Bank maintains an allowance for loan and lease losses (“ALLL” or “allowance”) in an amount that it believes is adequate to provide
for losses in the loan portfolio. While the Bank strives to carefully manage and monitor credit quality and to identify loans that may
become non-performing, at any time there are loans included in the portfolio that will result in losses, but that have not been identified
as non-performing or potential problem loans. With respect to real estate loans and property taken in satisfaction of such loans (“other
real estate owned” or “OREO”), the Bank can be required to recognize significant declines in the value of the underlying real estate
collateral quite suddenly as values are updated through appraisals and evaluations (new or updated) performed in the normal course of
monitoring the credit quality of the loans. There are many factors that can cause the value of real estate to decline, including declines in
the general real estate market, changes in methodology applied by appraisers, and/or using a different appraiser than was used for the
prior appraisal or evaluation. The Bank’s ability to recover on real estate loans by selling or disposing of the underlying real estate
collateral is adversely impacted by declining values, which increases the likelihood the Bank will suffer losses on defaulted loans beyond
the amounts provided for in the ALLL. This, in turn, could require material increases in the Bank’s provision for loan losses and ALLL.
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By closely monitoring credit quality, the Bank attempts to identify deteriorating loans before they become non-performing assets and
adjust the ALLL accordingly. However, because future events are uncertain, and if difficult economic conditions occur, there may be
loans that deteriorate to a non-performing status in an accelerated time frame. As a result, future additions to the ALLL may be necessary
beyond the levels commensurate with any loan growth. Because the loan portfolio contains a number of loans with relatively large
balances, the deterioration of one or a few of these loans may cause a significant increase in non-performing loans, requiring an increase
to the ALLL. Additionally, future significant additions to the ALLL may be required based on changes in the mix of loans comprising
the portfolio, changes in the financial condition of borrowers, which may result from changes in economic conditions, or changes in the
assumptions used in determining the ALLL. Additionally, federal and state banking regulators, as an integral part of their supervisory
function, periodically review the Bank’s loan portfolio and the adequacy of the ALLL. These regulatory authorities may require the Bank
to recognize further loan loss provisions or charge-offs based upon their judgments, which may be different from the Bank’s judgments.
Any increase in the ALLL could have an adverse effect, which could be material, on the Company’s financial condition and results of
operations.
The Bank has a high concentration of loans secured by real estate, so any future deterioration in the real estate markets could require
material increases in the ALLL and adversely affect the Company’s financial condition and results of operations.
The Bank has a high degree of concentration in loans secured by real estate. Any future deterioration in the real estate markets could
adversely impact borrowers’ ability to repay loans secured by real estate and the value of real estate collateral, thereby increasing the
credit risk associated with the loan portfolio. The Bank’s ability to recover on these loans by selling or disposing of the underlying real
estate collateral would be adversely impacted by any decline in real estate values, which increases the likelihood that the Bank will suffer
losses on defaulted loans secured by real estate beyond the amounts provided for in the ALLL. This, in turn, could require material
increases in the ALLL which would adversely affect the Company’s financial condition and results of operations.
Non-performing assets could increase, which could adversely affect the Company’s results of operations and financial condition.
The Bank may experience increases in non-performing assets in the future. Non-performing assets (which include OREO) adversely
affect the Company’s financial condition and results of operations in various ways. The Bank does not record interest income on non-
accrual loans or OREO, thereby adversely affecting its earnings. When the Bank takes collateral in foreclosures and similar proceedings,
it is required to mark the related asset to the then fair value of the collateral, less estimated cost to sell, which may result in a charge-off
of the value of the asset and lead the Bank to increase the provision for loan losses. An increase in the level of non-performing assets
also increases the Bank’s risk profile and may impact the capital levels its regulators believe are appropriate in light of such risks. Further
decreases in the value of these assets, or the underlying collateral, or in these borrowers’ performance or financial condition, whether or
not due to economic and market conditions beyond the Bank’s control, could adversely affect the Company’s business, results of operations
and financial condition, perhaps materially. In addition to the carrying costs to maintain OREO, the resolution of non-performing assets
increases the Bank’s loan administration costs generally, and requires significant commitments of time from management and the
Company’s directors, which reduces the time they have to focus on profitably growing the Company’s business.
The Bank’s loan portfolio mix increases the exposure to credit risks tied to deteriorating conditions.
The loan portfolio contains a high percentage of commercial, commercial real estate, real estate acquisition and development loans in
relation to the total loans and total assets. These types of loans have historically been viewed as having more risk of default than residential
real estate loans or certain other types of loans or investments. In fact, the FDIC has issued pronouncements alerting banks of its concern
about banks with a heavy concentration of commercial real estate loans. These types of loans also typically are larger than residential
real estate loans and other commercial loans. Because the Bank’s loan portfolio contains a significant number of commercial and
commercial real estate loans with relatively large balances, the deterioration of one or more of these loans may cause a significant increase
in non-performing loans. An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the
provision for loan losses, or an increase in charge-offs, which could have a material adverse impact on results of operations and financial
condition.
Competition in the Bank’s market areas may limit future success.
Commercial banking is a highly competitive business and a consolidating industry. The Bank competes with other commercial banks,
credit unions, finance, insurance and other non-depository companies operating in its market areas. The Bank is subject to substantial
competition for loans and deposits from other financial institutions. Some of its competitors are not subject to the same degree of regulation
and restriction as the Bank. Some of the Bank’s competitors have greater financial resources than the Bank. If the Bank is unable to
effectively compete in its market areas, the Bank’s business, results of operations and prospects could be adversely affected.
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Fluctuating interest rates can adversely affect profitability.
The Bank’s profitability is dependent to a large extent upon net interest income, which is the difference (or “spread”) between the interest
earned on loans, investment securities and other interest earning assets and interest paid on deposits, borrowings, and other interest bearing
liabilities. Because of the differences in maturities and repricing characteristics of interest earning assets and interest bearing liabilities,
changes in interest rates do not produce equivalent changes in interest income earned on interest earning assets and interest paid on interest
bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect the Bank’s interest rate spread, and, in turn, profitability.
The Bank seeks to manage its interest rate risk within well established policies and guidelines. Generally, the Bank seeks an asset and
liability structure that insulates net interest income from large deviations attributable to changes in market rates. However, the Bank’s
structures and practices to manage interest rate risk may not be effective in a highly volatile rate environment. In December 2017, the
Federal Reserve increased the federal funds target range by 0.25 percent from 1.25 to 1.50 percent and has indicated further increases
could continue depending on economic conditions.
The Company may not be able to continue to grow organically or through acquisitions.
Historically, the Company has expanded through a combination of organic growth and acquisitions. If market and regulatory conditions
become more challenging, the Company may be unable to grow organically or successfully complete or integrate potential future
acquisitions. The Company has historically used its strong stock currency to complete acquisitions. Downturns in the stock market and
the trading price of the Company’s stock could have an impact on future acquisitions. Furthermore, there can be no assurance that the
Company can successfully complete such transactions, since they are subject to regulatory review and approval.
Growth through future acquisitions could, in some circumstances, adversely affect profitability or other performance measures.
During 2017 and in prior years, the Company has been active in acquisitions and may in the future engage in selected acquisitions of
additional financial institutions. There are risks associated with any such acquisitions that could adversely affect profitability and other
performance measures. These risks include, among other things, incorrectly assessing the asset quality of a financial institution being
acquired, discovering compliance or regulatory issues after the acquisition, encountering greater than anticipated cost and use of
management time associated with integrating acquired businesses into the Company’s operations, and being unable to profitably deploy
funds acquired in an acquisition. The Company may not be able to continue to grow through acquisitions, and if it does, there is a risk
of negative impacts of such acquisitions on the Company’s operating results and financial condition.
Acquisitions may also cause business disruptions that cause the Bank to lose customers or cause customers to remove their accounts from
the Bank and move to competing financial institutions. Further, acquisitions may also disrupt the Bank's ongoing businesses or create
inconsistencies in standards, controls, procedures, and policies that adversely affect relationships with employees, clients, customers,
and depositors. The loss of key employees during acquisitions may also adversely affect the Company's business.
The Company anticipates that it might issue capital stock in connection with future acquisitions. Acquisitions and related issuances of
stock may have a dilutive effect on earnings per share, book value per share, or the percentage ownership of current shareholders. In
acquisitions involving the use of cash as consideration, there will be an impact on the Company's capital position.
The Company’s business is heavily dependent on the services of members of the senior management team.
The Company believes its success to date has been substantially dependent on its executive management team. In addition, the Company’s
unique model relies upon the Presidents of its separate Bank divisions, particularly in light of the Company’s decentralized management
structure in which such Bank divisions have significant local decision-making authority. The unexpected loss of any of these persons
could have an adverse effect on the Company’s business and future growth prospects.
The Company’s future performance will depend on its ability to respond to technological change.
The financial services industry is experiencing rapid technological changes with frequent introductions of new technology-driven products
and services. Effective use of technology increase efficiency and enables financial institutions to better serve customers and to reduce
costs. Many of the Company’s competitors have substantially greater resources to invest in technological improvements than the Company
does. The Company’s future success will depend, to some degree, upon its ability to address the needs of its customers by using technology
to provide products and services that will satisfy customer demands for convenience, as well as create additional efficiencies in the
Company’s operations. The Company may not be able to effectively implement new technology-driven products or services, or be
successful in marketing these products and services. Additionally, the implementation of technological changes and upgrades to maintain
current systems and integrate new ones may cause services interruptions, transaction processing errors and system conversion delays and
may cause the Company to fail to comply with applicable laws. There can be no assurance that the Company will be able to successfully
manage the risks associated with increased dependency on technology.
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A decline in the fair value of the Bank’s investment portfolio could adversely affect earnings and capital.
The fair value of the Bank’s investment securities could decline as a result of factors including changes in market interest rates, tax reform,
credit quality and credit ratings, lack of market liquidity and other economic conditions. An investment security is impaired if the fair
value of the security is less than the carrying value. When a security is impaired, the Bank determines whether the impairment is temporary
or other-than-temporary. If an impairment is determined to be other-than-temporary, an impairment loss is recognized by reducing the
amortized cost only for the credit loss associated with the other-than-temporary loss with a corresponding charge to earnings for a like
amount. Any such impairment charge would have an adverse effect, which could be material, on the Company’s results of operations
and financial condition, including its capital.
The size of the investment portfolio has declined over the past few years and represents 25 percent of total assets at December 31, 2017
and 33 percent of total assets at December 31, 2016. While the Bank believes that the terms of such investments have been kept relatively
short, the Bank is subject to elevated interest rate risk exposure if rates were to increase sharply. Further, investment securities present
a different type of asset quality risk than the loan portfolio. At December 31, 2017, the investment portfolio consisted of 73 percent
available-for-sale and 27 percent held-to-maturity designated investment securities. While the Company believes a relatively conservative
management approach has been applied to the investment portfolio, there is always potential loss exposure under changing economic
conditions.
Interest rate swaps expose the Bank to certain risks, and may not be effective in mitigating exposure to changes in interest rates.
The Bank has entered into interest rate swap agreements in order to manage a portion of the interest rate volatility risk. The Bank anticipates
that it may enter into additional interest rate swaps. These swap agreements involve other risks, such as the risk that the counterparty
may fail to honor its obligations under these arrangements, leaving the Bank vulnerable to interest rate movements. The Bank’s current
interest rate swap agreements include bilateral collateral agreements whereby the net fair value position is collateralized by the party in
a net liability position. The bilateral collateral agreements reduce the Bank’s counterparty risk exposure. There can be no assurance that
these arrangements will be effective in reducing the Bank’s exposure to changes in interest rates.
If goodwill recorded in connection with acquisitions becomes additionally impaired, it could have an adverse impact on earnings and
capital.
Accounting standards require the Company to account for acquisitions using the acquisition method of accounting. Under acquisition
accounting, if the purchase price of an acquired company exceeds the fair value of its net assets, the excess is carried on the acquirer’s
balance sheet as goodwill. In accordance with accounting principles generally accepted in the United States of America (“GAAP”),
goodwill is not amortized but rather is evaluated for impairment on an annual basis or more frequently if events or circumstances indicate
that a potential impairment exists. The Company's goodwill was not considered impaired as of December 31, 2017 and 2016; however,
there can be no assurance that future evaluations of goodwill will not result in findings of impairment and write-downs, which could be
material. While a non-cash item, impairment of goodwill could have a material adverse effect on the Company’s business, financial
condition and results of operations. Furthermore, impairment of goodwill could subject the Company to regulatory limitations, including
the ability to pay dividends on its common stock.
There can be no assurance the Company will be able to continue paying dividends on its common stock at recent levels.
The Company may not be able to continue paying quarterly dividends commensurate with recent levels given that the ability to pay
dividends on the Company’s common stock depends on a variety of factors. The payment of dividends is subject to government regulation
in that regulatory authorities may prohibit banks and bank holding companies from paying dividends that would constitute an unsafe or
unsound banking practice. This is heavily based on the Company’s earnings and capital levels which currently are strong. Current guidance
from the Federal Reserve provides, among other things, that dividends per share should not exceed earnings per share measured over the
previous four fiscal quarters. The Bank is also subject to Montana state law and cannot declare a dividend greater than the previous two
years’ net earnings without providing notice to the state. As a result, future dividends will generally depend on the level of earnings at
the Bank.
The Company and the Bank operate in a highly regulated environment and changes or increases in, or supervisory enforcement of,
banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect the Company.
The Company and the Bank are subject to extensive regulation, supervision and examination by federal and state banking regulators. In
addition, as a publicly-traded company, the Company is subject to regulation by the SEC. Any change in applicable regulations or federal,
state or local legislation or in policies or interpretations or regulatory approaches to compliance and enforcement, income tax laws and
accounting principles could have a substantial impact on the Company and its operations. Changes in laws and regulations may also
increase expenses by imposing additional fees or taxes or restrictions on operations. Additional legislation and regulations that could
significantly affect powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect
on the Company’s financial condition and results of operations. Failure to appropriately comply with any such laws, regulations or
principles could result in sanctions by regulatory agencies or damage to the Company’s reputation, all of which could adversely affect
the Company’s business, financial condition or results of operations.
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Regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or regulations
by financial institutions and bank holding companies in the performance of their supervisory and enforcement duties. Existing and
proposed federal and state laws and regulations restrict, limit and govern all aspects of the Company’s activities and may affect the ability
to expand its business over time, may result in an increase in the Company’s compliance costs, and may affect its ability to attract and
retain qualified executive officers and employees. Recently, these powers have been utilized more frequently due to the challenging
national, regional and local economic conditions. The exercise of regulatory authority may have a negative impact on the Company’s
financial condition and results of operations, including limiting the types of financial services and products the Company may offer or
increasing the ability of non-banks to offer competing financial services and products. Additionally, the Company’s business is affected
significantly by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve.
The Company cannot accurately predict the full effects of recent legislation or the various other governmental, regulatory, monetary and
fiscal initiatives which have been and may be enacted on the financial markets and on the Company. The terms and costs of these activities,
or the failure of these actions to help stabilize the financial markets, asset prices, market liquidity and a continuation or worsening of
current financial market and economic conditions could materially and adversely affect the Company’s business, financial condition,
results of operations, and the trading price of the Company’s common stock
The FDIC has adopted a final rule to increase the federal Deposit Insurance Fund, including additional future premium increases and
special assessments.
On March 15, 2016, the FDIC adopted a final rule to increase insurance premiums and has imposed special assessments to rebuild and
maintain the DIF, and any additional future premium increases or special assessments could have a material adverse effect on the Company’s
business, financial condition, and results of operations. Additional information regarding this matter is set forth under the heading
“Supervision and Regulation” in “Item 1. Business.”
The Dodd-Frank Act broadened the base for FDIC insurance assessments. In addition, the Dodd-Frank Act established 1.35 percent as
the minimum DIF reserve ratio. The FDIC has determined that the fund reserve ratio should be 2.0 percent (which is beyond what is
required by law) and has adopted a plan under which it will meet the statutory minimum fund reserve ratio of 1.35 percent by the statutory
deadline of September 30, 2020. The Dodd-Frank Act made banks with $10 billion or more in total assets responsible for the increase
from 1.15 percent to 1.35 percent. The increase is effective for banks in the first quarter following four consecutive quarters of total
consolidated assets exceeding $10 billion. Since the Bank exceeded the $10 billion asset threshold in the first quarter of 2018, the increase
in deposit insurance assessments to be paid by the Bank is expected to be effective in the first quarter of 2019.
The impact of Basel III is uncertain.
Basel III sets forth more robust global regulatory standards on capital adequacy, qualifying capital instruments, leverage ratios, market
liquidity risk, and stress testing, which may be stricter than standards currently in place. The phase-in period for Basel III began on
January 1, 2015 and will end on January 1, 2019. The implementation of these new standards could have an adverse impact on the
Company’s financial position and future earnings due to, among other things, the increased Tier 1 capital ratio requirements being
implemented. Additional information regarding Basel III is set forth under the heading “Supervision and Regulation” in “Item 1. Business.”
The Company has various anti-takeover measures that could impede a takeover.
The Company’s articles of incorporation include certain provisions that could make it more difficult to acquire the Company by means
of a tender offer, a proxy contest, merger or otherwise. These provisions include a requirement that any “Business Combination” (as
defined in the articles of incorporation) be approved by at least 80 percent of the voting power of the then outstanding shares, unless it
is either approved by the Company’s Board or certain price and procedural requirements are satisfied. In addition, the authorization of
preferred stock, which is intended primarily as a financing tool and not as a defensive measure against takeovers, may potentially be used
by management to make more difficult uninvited attempts to acquire control of the Company. These provisions may have the effect of
lengthening the time required to acquire control of the Company through a tender offer, proxy contest or otherwise, and may deter any
potentially unfriendly offers or other efforts to obtain control of the Company. This could deprive the Company’s shareholders of
opportunities to realize a premium for their common stock in the Company, even in circumstances where such action is favored by a
majority of the Company’s shareholders.
The Company's business is subject to the risks of earthquakes, floods, fires, and other natural catastrophes.
With Bank branches located in Montana, Idaho, Utah, Washington, Wyoming, Colorado and Arizona, the Company's business could be
affected by a major natural catastrophe, such as a fire, flood, earthquake, or other natural disaster. The occurrence of any of these natural
disasters may result in a prolonged interruption of the Company's business, which could have a material adverse effect on the Company's
financial condition and operations.
19
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
The following schedule provides information on the Company’s 145 properties as of December 31, 2017:
(Dollars in thousands)
PropertiesLeased PropertiesOwned Net BookValue
Montana 7 52 $82,614
Idaho 7 21 27,981
Utah 1 3 2,147
Washington 3 10 5,959
Wyoming 1 15 16,567
Colorado 2 18 15,574
Arizona 3 2 5,231
24 121 $156,073
The Company believes that all of its facilities are well maintained, generally adequate and suitable for the current operations of its business,
as well as fully utilized. In the normal course of business, new locations and facility upgrades occur as needed.
For additional information regarding the Company’s premises and equipment and lease obligations, see Note 4 to the Consolidated
Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
Item 3. Legal Proceedings
The Company is involved in various claims, legal actions and complaints which arise in the ordinary course of business. In the Company’s
opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that
unfavorable disposition would not have a material adverse effect on the financial condition or results of operations of the Company.
Item 4. Mine Safety Disclosures
Not Applicable
20
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
The Company’s stock trades on the NASDAQ Global Select Market under the symbol: GBCI. As of December 31, 2017, there were
approximately 1,691 shareholders of record for the Company’s common stock. The market range of high and low sales prices for the
Company’s common stock for the periods indicated are shown below:
2017 2016
High Low High Low
First quarter $38.17 31.70 26.50 21.90
Second quarter 37.41 31.56 27.84 24.18
Third quarter 38.18 31.38 30.12 25.09
Fourth quarter 41.23 35.50 37.87 27.31
The following table summarizes the Company’s dividends declared during the periods indicated:
Years ended
December 31,2017 December 31,2016
First quarter $0.21 0.20
Second quarter 0.21 0.20
Third quarter 0.21 0.20
Fourth quarter 0.21 0.20
Special 0.30 0.30
Total $1.14 1.10
Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and
regulatory considerations. Information regarding the regulation considerations is set forth under the heading “Supervision and Regulation”
in “Item 1. Business.”
Issuer Stock Purchases
The Company made no stock repurchases during 2017.
21
Stock Performance Graphs
The following graphs compare the yearly cumulative total return of the Company’s common stock over both a five-year and ten-year
measurement period with the yearly cumulative total return on the stocks included in 1) the Russell 2000 Index; and 2) the SNL Bank
Index comprised of banks and bank holding companies with total assets between $5 billion and $10 billion. Each of the cumulative total
returns is computed assuming the reinvestment of dividends at the frequency with which dividends were paid during the applicable years.
22
Item 6. Selected Financial Data
Non-GAAP Financial Measures
In addition to the results presented in accordance with GAAP, this Annual Report on Form 10-K contains certain non-GAAP financial
measures. The Company believes that providing these non-GAAP financial measures provides investors with information useful in
understanding the Company’s financial performance, performance trends, and financial position. While the Company uses these non-
GAAP measures in its analysis of the Company’s performance, this information should not be considered an alternative to measurements
required by GAAP. The following table provides a reconciliation of certain GAAP financial measures to non-GAAP financial measures.
Year ended December 31, 2017
(Dollars in thousands, except per share data)GAAP
Tax Act
Adjustment Non-GAAP
Federal and state income tax expense $64,625 (19,699)44,926
Net income $116,377 19,699 136,076
Basic earnings per share $1.50 0.25 1.75
Diluted earnings per share $1.50 0.25 1.75
Return on average assets 1.20%0.21 %1.41%
Return on average equity 9.80%1.66 %11.46%
Dividend payout ratio 76.00%(10.86)%65.14%
Effective tax rate 35.70%(10.88)%24.82%
The reconciling item between the GAAP and non-GAAP financial measures was the current year one-time net tax expense of $19.7
million. The one-time net tax expense was driven by the Tax Act and the change in the current year federal marginal rate of 35 percent
to 21 percent for future years, which resulted in this revaluation of its deferred tax assets and deferred tax liabilities (“net deferred tax
asset”). The Company believes the financial results are more comparable excluding the impact of the revaluation of the net deferred tax
asset.
Basic earnings per share is calculated by dividing net income by average outstanding shares and diluted earnings per share is calculated
by dividing net income by diluted average outstanding shares. The one-time net tax expense of $19.7 million was included in determining
income for both the GAAP basic earnings per share and the GAAP diluted earnings per share. Conversely, the one-time net tax expense
of $19.7 million was excluded in determining income for both the non-GAAP basic earnings per share and the non-GAAP diluted earnings
per share. Average outstanding shares of 77,537,664 was used in the GAAP and non-GAAP basic earnings per share for the year ended
December 31, 2017. Diluted average outstanding shares of 77,607,605 was used in the GAAP and non-GAAP diluted earnings per share
for the year ended December 31, 2017.
The return on average assets ratio is calculated by dividing net income by average assets and the return on average equity ratio is calculated
by dividing net income by average equity. The one-time net tax expense of $19.7 million was included in determining income for both
the GAAP return on average assets and the GAAP return on average equity. Conversely, the one-time net tax expense of $19.7 million
was excluded in determining income for both the non-GAAP return on average assets and the non-GAAP return on average equity.
Average assets of $9.678 billion was used in the GAAP and non-GAAP return on average assets ratios for the year ended December 31,
2017. Average equity of $1.188 billion was used in the GAAP and non-GAAP return on average equity ratios for the year ended December
31, 2017.
The dividend payout ratio is calculated by dividing dividends declared per share by basic earnings per share. The non-GAAP dividend
payout ratio uses the non-GAAP basic earnings per share for calculating the ratio.
The effective tax rate is calculated by dividing federal and state income tax expense by income before income taxes. The non-GAAP
effective tax rate uses the non-GAAP federal and state income tax expense of $44.9 million for calculating the rate.
23
Selected Financial Data
The following financial data of the Company is derived from the Company’s historical audited financial statements and related notes.
The information set forth below should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” contained elsewhere in this Annual Report on
Form 10-K.
December 31,Compounded AnnualGrowth Rate
(Dollars in thousands, except per share data)2017 2016 2015 2014 2013 1-Year 5-Year
Selected Statements of FinancialCondition Information
Total assets $9,706,349 $9,450,600 $9,089,232 $8,306,507 $7,884,350 2.7 %4.2 %
Investment securities 2,426,556 3,101,151 3,312,832 2,908,425 3,222,829 (21.8)%(5.5)%
Loans receivable, net 6,448,256 5,554,891 4,948,984 4,358,342 3,932,487 16.1 %10.4 %
Allowance for loan and lease losses (129,568)(129,572)(129,697)(129,753)(130,351)—%(0.1)%
Goodwill and intangibles 191,995 159,400 155,193 140,606 139,218 20.4 %6.6 %
Deposits 7,579,747 7,372,279 6,945,008 6,345,212 5,579,967 2.8 %6.3 %
Federal Home Loan Bank advances 353,995 251,749 394,131 296,944 840,182 40.6 %(15.9)%
Securities sold under agreements torepurchase and other borrowed funds 370,797 478,090 430,016 404,418 321,781 (22.4)%2.9 %
Stockholders’ equity 1,199,057 1,116,869 1,076,650 1,028,047 963,250 7.4 %4.5 %
Equity per share 15.37 14.59 14.15 13.70 12.95 5.3 %3.5 %
Equity as a percentage of total assets 12.35%11.82%11.85%12.38%12.22%4.5 %0.2 %
Years ended December 31,Compounded AnnualGrowth Rate
(Dollars in thousands, except per share data)2017 2016 2015 2014 2013 1-Year 5-Year
Summary Statements of Operations
Interest income $375,022 $344,153 $319,681 $299,919 $263,576 9.0%7.3%
Interest expense 29,864 29,631 29,275 26,966 28,758 0.8%0.8%
Net interest income 345,158 314,522 290,406 272,953 234,818 18.9%8.0%
Provision for loan losses 10,824 2,333 2,284 1,912 6,887 364.0%9.5%
Non-interest income 112,239 107,318 98,761 90,302 93,047 4.6%3.8%
Non-interest expense 265,571 258,714 236,757 212,679 195,317 2.7%6.3%
Income before income taxes 181,002 160,793 150,126 148,664 125,661 20.6%7.6%
Federal and state income tax expense 1 44,926 39,662 33,999 35,909 30,017 13.3%8.4%
Net income 1 $136,076 $121,131 $116,127 $112,755 $95,644 17.2%7.3%
Basic earnings per share 1 $1.75 $1.59 $1.54 $1.51 $1.31 10.1%6.0%
Diluted earnings per share 1 $1.75 $1.59 $1.54 $1.51 $1.31 10.1%6.0%
Dividends declared per share 2 $1.14 $1.10 $1.05 $0.98 $0.60 3.6%13.7%
24
At or for the Years ended December 31,
(Dollars in thousands)2017 2016 2015 2014 2013
Selected Ratios and Other Data
Return on average assets 1 1.41%1.32%1.36%1.42%1.23%
Return on average equity 1 11.46%10.79%10.84%11.11%10.22%
Dividend payout ratio 1,2 65.14%69.18%68.18%64.90%45.80%
Average equity to average asset ratio 12.27%12.27%12.52%12.81%11.99%
Total capital (to risk-weighted assets)15.64%16.38%17.17%18.93%18.97%
Tier 1 capital (to risk-weighted assets)14.39%15.12%15.91%17.67%17.70%
Common Equity Tier 1 (torisk-weighted assets)12.81%13.42%14.06%N/A N/A
Tier 1 capital (to average assets)11.90%11.90%12.01%12.45%12.11%
Net interest margin on average earningassets (tax-equivalent)4.12%4.02%4.00%3.98%3.48%
Efficiency ratio 3 53.94%55.88%55.40%54.31%54.51%
Allowance for loan and lease losses as apercent of loans 1.97%2.28%2.55%2.89%3.21%
Allowance for loan and lease losses as apercent of nonperforming loans 255%257%244%209%158%
Non-performing assets as a percentage ofsubsidiary assets 0.68%0.76%0.88%1.08%1.39%
Non-performing assets $65,179 71,385 80,079 89,900 109,420
Loans originated and acquired $3,629,493 3,474,000 3,000,830 2,404,299 2,477,804
Number of full time equivalent employees 2,278 2,222 2,149 1,943 1,837
Number of locations 145 142 144 129 118
______________________________
1 Excludes a one-time revaluation of the deferred tax assets and deferred tax liabilities as a result of the Tax Act for the year ended December 31, 2017.
For additional information on the revaluation, see the “Non-GAAP Financial Measures” section.
2 Includes a special dividend declared of $0.30 per share for 2017, 2016, 2015 and 2014.3 Non-interest expense before OREO expenses, core deposit intangibles amortization, goodwill impairment charges, and non-recurring expense items
as a percentage of tax-equivalent net interest income and non-interest income, excluding gains or losses on sale of investments, OREO income, and
non-recurring income items.
25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition
than can be obtained from reading the Consolidated Financial Statements alone. The discussion should be read in conjunction with the
Consolidated Financial Statements and the notes thereto included in “Item 8. Financial Statements and Supplementary Data.”
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements include, but are not limited to, statements about the Company’s plans, objectives,
expectations and intentions that are not historical facts, and other statements identified by words such as “expects,” “anticipates,” “intends,”
“plans,” “believes,” “should,” “projects,” “seeks,” “estimates”, or the negative version of those words or other comparable words or
phrases of a future or forward-looking nature. These forward-looking statements are based on current beliefs and expectations of
management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which
are beyond the Company’s control. In addition, these forward-looking statements are subject to assumptions with respect to future
business strategies and decisions that are subject to change. The following factors, among others, could cause actual results to differ
materially from the anticipated results (express or implied) or other expectations in the forward-looking statements, including those set
forth in this Annual Report on Form 10-K, or the documents incorporated by reference:
• the risks associated with lending and potential adverse changes of the credit quality of loans in the Company’s portfolio;
• changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal
Reserve System or the Federal Reserve Board, which could adversely affect the Company’s net interest income and profitability;
• changes in the cost and scope of insurance from the FDIC and other third parties;
• legislative or regulatory changes, including increased banking and consumer protection regulation that adversely affect the
Company’s business, both generally and as a result of the Company exceeding $10 billion in total consolidated assets;
• ability to complete pending or prospective future acquisitions, limit certain sources of revenue, or increase cost of operations;
• costs or difficulties related to the completion and integration of acquisitions;
• the goodwill the Company has recorded in connection with acquisitions could become impaired, which may have an adverse
impact on earnings and capital;
• reduced demand for banking products and services;
• the reputation of banks and the financial services industry could deteriorate, which could adversely affect the Company's ability
to obtain (and maintain) customers;
• competition among financial institutions in the Company's markets may increase significantly;
• the risks presented by continued public stock market volatility, which could adversely affect the market price of the Company’s
common stock and the ability to raise additional capital or grow the Company through acquisitions;
• the projected business and profitability of an expansion or the opening of a new branch could be lower than expected;
• consolidation in the financial services industry in the Company’s markets resulting in the creation of larger financial institutions
who may have greater resources could change the competitive landscape;
• dependence on the CEO, the senior management team and the Presidents of Glacier Bank divisions;
• material failure, potential interruption or breach in security of the Company’s systems and technological changes which could
expose us to new risks (e.g., cybersecurity), fraud or system failures;
• natural disasters, including fires, floods, earthquakes, and other unexpected events;
• the Company’s success in managing risks involved in the foregoing; and
• the effects of any reputational damage to the Company resulting from any of the foregoing.
Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed
in “Item 1A. Risk Factors.” Please take into account that forward-looking statements speak only as of the date of this Annual Report on
Form 10-K (or documents incorporated by reference, if applicable). Given the described uncertainties and risks, the Company cannot
guarantee its future performance or results of operations and you should not place undue reliance on these forward-looking statements.
The Company does not undertake any obligation to publicly correct, revise, or update any forward-looking statement if it later becomes
aware that actual results are likely to differ materially from those expressed in such forward-looking statement, except as required under
federal securities laws.
26
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2017 COMPARED TO DECEMBER 31, 2016
Highlights and Overview
During the second quarter of 2017, the Company completed the acquisition of Foothills, a community bank based in Yuma, Arizona.
Foothills became the Company’s fourteenth bank division and its first entrance into the Arizona market. During the fourth quarter of
2017, the Company also successfully completed the data processing system conversion for this acquisition. During the second quarter
of 2017, the Company announced the signing of a definitive agreement to acquire Collegiate, a community bank based in Buena Vista,
Colorado and the transaction was completed on January 31, 2018. Collegiate provides banking services to individuals and businesses in
the Mountain and Front Range communities of Colorado with five banking offices located in Aurora, Buena Vista, Denver and Salida.
The branches of Collegiate will operate as a new bank division of the Company. As of December 31, 2017, Collegiate had total assets
of $533 million, gross loans of $346 million and total deposits of $464 million. During the fourth quarter of 2017, the Company announced
the signing of a definitive agreement to acquire FSB, a community bank based in Bozeman, Montana. FSB provides banking services
to individuals and businesses throughout Montana with eleven banking offices located in Bozeman, Belgrade, Big Sky, Choteau, Fairfield,
Fort Benton, Three Forks, Vaughn and West Yellowstone. Upon closing of the transaction, which is anticipated to take place in February
2018, FSB will become a new bank division headquartered in Bozeman. Big Sky Western Bank, the Bank’s existing Bozeman-based
division will combine with the new FSB division. The agriculture-focused northern branches of FSB, located in the area known as the
Golden Triangle, will combine with the Bank’s First Bank of Montana division. As of December 31, 2017, FSB had total assets of $1.028
billion, gross loans of $640 million and total deposits of $891 million. See Notes 22 and 23 in the Consolidated Financial Statements in
“Item 8. Financial Statements and Supplementary Data” for additional information regarding these acquisitions.
During the current year, the Company successfully executed its strategy to stay below $10 billion in total assets as of year end to delay
the impact of the Durbin Amendment for one additional year. The Company accomplished this strategy in part by redeploying investment
cash flow and selectively selling securities into the higher yielding loan portfolio. The Durbin Amendment, which was passed as part of
the Dodd-Frank Act, establishes limits on the amount of interchange fees that can be charged to merchants for debit card processing and
will reduce the Company’s service charge fee income in the future. Due to the closing of the Collegiate acquisition in January 2018, the
Company crossed the $10 billion asset threshold. The Company has been preparing for this event and believes it is well positioned to
comply with DFAST requirements.
The Tax Act resulted in a decrease in the federal marginal tax rate from 35 percent to 21 percent beginning in 2018. As a result of the
Tax Act, the Company incurred a one-time tax expense adjustment of $19.7 million during 2017 due to the Company’s revaluation of its
net deferred tax assets. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to the years in which
the temporary differences are expected to be recognized. The effect on the deferred tax assets and liabilities from a change in tax rates
is recognized in net income in the period that includes the enactment date, which occurred on December 22, 2017 with the enactment of
the Tax Act.
The Company experienced a strong year for organic loan growth, which increased $601 million, or 11 percent, with the primary increases
in the commercial loan portfolio. As part of the strategy to stay below $10 billion, the Company redeployed cash flows from investment
securities into the loan portfolio. Additionally, the Company utilized a third party vendor to transfer $433 million of deposits off-balance
sheet as of December 31, 2017. These deposits can be brought back onto the Company’s balance sheet at the Company’s discretion.
Including the deposit accounts transferred, organic deposit growth increased $478 million, or 7 percent, during the current year. Tangible
stockholders’ equity increased $50 million, or $0.40 per share, as a result of earnings retention, increase in other comprehensive income
(“OCI”), and Company stock issued in connection with the current year acquisition, all of which offset the increases in goodwill and
intangibles from the acquisition. The Company increased its total dividends declared from $1.10 per share during 2016 to $1.14 per
share in 2017.
The Company continued to reduce its non-performing assets and ended the year at $65.2 million which was a decrease of $6.2 million
or, 9 percent, from the prior year end. The allowance as a percentage of total loans as of December, 31, 2017 was 1.97 percent, a decrease
of 31 basis points (“bps”), or 13.5 percent, from 2.28 percent at December 31, 2016. Loan portfolio growth, composition, average loan
size, credit quality considerations, and other environmental factors will continue to determine the ALLL.
27
Net income for the year was $116 million, a decrease of $4.8 million, or 4 percent, over the 2016 net income of $121 million. Diluted
earnings per share for the year was $1.50, a decrease of $0.09, or 6 percent, from 2016 diluted earnings per share of $1.59. Such decreases
were due to the one-time tax expense of $19.7 million from the revaluation of the net deferred tax assets. Excluding the $19.7 million
impact from the Tax Act, the Company had record earnings of $136 million for 2017, an increase of $14.9 million, or 12 percent, over
prior year’s net income of $121 million and diluted earnings per share of $1.75, an increase of $0.16, or 10 percent, from the prior year
diluted earnings per share of $1.59. The improvement in net income for 2017 over 2016 was principally due to an increase in interest
income from the commercial loan portfolio and the Bank divisions’ discipline in controlling operating expenses. For additional information
on the revaluation of net deferred tax assets, see the “Non-GAAP Financial Measures” section in “Item 6. Selected Financial Data.”
Looking forward, the Company’s future performance will depend on many factors including economic conditions in the markets the
Company serves, interest rate changes, increasing competition for deposits and loans, loan quality and growth, the impact and successful
integration of acquisitions, and regulatory burden.
Financial Highlights
At or for the Years ended
(Dollars in thousands, except per share data)
December 31,2017 December 31,2016
Operating results
Net income 1 $136,076 121,131
Basic earnings per share 1 $1.75 1.59
Diluted earnings per share 1 $1.75 1.59
Dividends declared per share $1.14 1.10
Market value per share
Closing $39.39 36.23
High $41.23 37.87
Low $31.38 21.90
Selected ratios and other data
Number of common stock shares outstanding 78,006,956 76,525,402
Average outstanding shares - basic 77,537,664 76,278,463
Average outstanding shares - diluted 77,607,605 76,341,836
Return on average assets (annualized) 1 1.41%1.32%
Return on average equity (annualized) 1 11.46%10.79%
Efficiency ratio 53.94%55.88%
Dividend payout ratio 1 65.14%69.18%
Loan to deposit ratio 87.29%78.10%
Number of full time equivalent employees 2,278 2,222
Number of locations 145 142
Number of ATMs 200 200
______________________________
1 Excludes a one-time revaluation of the deferred tax assets and deferred tax liabilities as a result of the Tax Act for the year ended December 31, 2017.
For additional information on the revaluation, see the “Non-GAAP Financial Measures” section in “Item 6. Selected Financial Data.”
28
Recent Acquisitions
On April 30, 2017, the Company completed the acquisition of Foothills, which resulted in goodwill of $30.6 million. On August 31,
2016, the Company completed the acquisition of TSB, which resulted in goodwill of $6.4 million. The Company’s results of operations
and financial condition include the acquisitions of Foothills and TSB from the acquisition dates. For additional information regarding
acquisitions, see Note 22 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
The following table provides information on the fair value of selected classifications of assets and liabilities acquired:
Foothills TSB
(Dollars in thousands)April 30,2017 August 31,2016
Total assets $385,839 76,165
Investment securities 25,420 —
Loans receivable 292,529 51,875
Non-interest bearing deposits 97,527 13,005
Interest bearing deposits 199,233 45,359
Federal Home Loan Bank advances 22,800 3,260
Financial Condition Analysis
Assets
The following table summarizes the Company’s assets as of the dates indicated:
(Dollars in thousands)
December 31,2017 December 31,2016 $ Change % Change
Cash and cash equivalents $200,004 $152,541 $47,463 31 %
Investment securities, available-for-sale 1,778,243 2,425,477 (647,234)(27)%
Investment securities, held-to-maturity 648,313 675,674 (27,361)(4)%
Total investment securities 2,426,556 3,101,151 (674,595)(22)%
Loans receivable
Residential real estate 720,728 674,347 46,381 7 %
Commercial real estate 3,577,139 2,990,141 586,998 20 %
Other commercial 1,579,353 1,342,250 237,103 18 %
Home equity 457,918 434,774 23,144 5 %
Other consumer 242,686 242,951 (265)—%
Loans receivable 6,577,824 5,684,463 893,361 16 %
Allowance for loan and lease losses (129,568)(129,572)4 —%
Loans receivable, net 6,448,256 5,554,891 893,365 16 %
Other assets 631,533 642,017 (10,484)(2)%
Total assets $9,706,349 $9,450,600 $255,749 3 %
Total investment securities of $2.427 billion at December 31, 2017 decreased $675 million, or 22 percent, from the prior year fourth
quarter. The decrease in the investment portfolio resulted from the Company continuing to redeploy the securities portfolio cash flow
into the Company’s higher yielding loan portfolio. Investment securities represented 25 percent of total assets at December 31, 2017
compared to 33 percent of total assets at December 31, 2016.
Excluding the Foothills acquisition, the loan portfolio increased $601 million, or 11 percent, since the prior year end and primarily came
from growth in commercial real estate and other commercial loans of $357 million and $209 million, respectively.
29
Liabilities
The following table summarizes the liability balances as of the dates indicated, and the amount of change from December 31, 2016:
(Dollars in thousands)
December 31,2017 December 31,2016 $ Change % Change
Deposits
Non-interest bearing deposits $2,311,902 $2,041,852 $270,050 13 %
NOW and DDA accounts 1,695,246 1,588,550 106,696 7 %
Savings accounts 1,082,604 996,061 86,543 9 %
Money market deposit accounts 1,512,693 1,464,415 48,278 3 %
Certificate accounts 817,259 948,714 (131,455)(14)%
Core deposits, total 7,419,704 7,039,592 380,112 5 %
Wholesale deposits 160,043 332,687 (172,644)(52)%
Deposits, total 7,579,747 7,372,279 207,468 3 %
Securities sold under agreements to repurchase 362,573 473,650 (111,077)(23)%
Federal Home Loan Bank advances 353,995 251,749 102,246 41 %
Other borrowed funds 8,224 4,440 3,784 85 %
Subordinated debentures 126,135 125,991 144 —%
Other liabilities 76,618 105,622 (29,004)(27)%
Total liabilities $8,507,292 $8,333,731 $173,561 2 %
The Company reduced the amount of on-balance sheet deposits during the year as part of its strategy to stay below $10 billion in total
assets. Core deposits decreased $380 million, or 5 percent, from the prior year end. The Company utilized a third party vendor to transfer
$433 million of deposits off-balance sheet as of December 31, 2017. Including the deposit accounts transferred, organic core deposits
increased $478 million, or 7 percent, from December 31, 2016. At December 31, 2017, wholesale deposits were $160 million, a decrease
of $173 million, or 52 percent, over the prior year end.
Securities sold under agreements to repurchase (“repurchase agreements”) of $363 million at December 31, 2017 decreased $111 million,
or 23 percent, from the prior year end. Federal Home Loan Bank (“FHLB”) advances of $354 million at December 31, 2017 increased
$102 million over the prior year end. The increase was the result of strategically managing the deposit accounts to stay below $10 billion
and utilizing FHLB advances to manage the daily liquidity needs for loan growth.
Stockholders’ Equity
The following table summarizes the stockholders’ equity balances as of the dates indicated and the amount of change from December 31,
2016:
(Dollars in thousands, except per share data)
December 31,2017 December 31,2016 $ Change % Change
Common equity $1,201,036 $1,124,251 $76,785 7 %
Accumulated other comprehensive loss (1,979)(7,382)5,403 (73)%
Total stockholders’ equity 1,199,057 1,116,869 82,188 7 %
Goodwill and core deposit intangible, net (191,995)(159,400)(32,595)20 %
Tangible stockholders’ equity $1,007,062 $957,469 $49,593 5 %
Stockholders’ equity to total assets 12.35%11.82%4 %
Tangible stockholders’ equity to total tangible assets 10.58%10.31%3 %
Book value per common share $15.37 $14.59 $0.78 5 %
Tangible book value per common share $12.91 $12.51 $0.40 3 %
Tangible stockholders’ equity increased $49.6 million, or 5 percent, from a year ago, the result of earnings retention and $46.7 million
of Company stock issued in connection with the Foothills acquisition; such increases more than offset the increase in goodwill and core
deposit intangibles. Tangible book value per common share at year end increased $0.40 per share from a year ago.
30
Results of Operations
Income Summary
The following table summarizes revenue for the periods indicated, including the amount and percentage changes from December 31,
2016:
Years ended
$ Change % Change(Dollars in thousands)
December 31,2017 December 31,2016
Net interest income
Interest income $375,022 $344,153 $30,869 9 %
Interest expense 29,864 29,631 233 1 %
Total net interest income 345,158 314,522 30,636 10 %
Non-interest income
Service charges and other fees 67,717 62,405 5,312 9 %
Miscellaneous loan fees and charges 4,360 4,613 (253)(5)%
Gain on sale of loans 30,439 33,606 (3,167)(9)%
Loss on sale of investments (660)(1,463)803 (55)%
Other income 10,383 8,157 2,226 27 %
Total non-interest income 112,239 107,318 4,921 5 %
$457,397 $421,840 $35,557 8 %
Net interest margin (tax-equivalent)4.12%4.02%
Net Interest Income
Interest income for the current year increased $30.9 million, or 9 percent, from the prior year and was attributable to a $38.4 million
increase in income from commercial loans which more than offset the decrease of $8.4 million in interest income on investments.
Interest expense of $29.9 million for the current year increased $233 thousand over the prior year. Interest expense on deposits decreased
$1.6 million, or 9 percent, and was due to the decrease in wholesale deposits. Interest expense on repurchase agreements, FHLB advances,
and subordinated debt increased $1.8 million, or 16 percent, over the prior year and was primarily driven by the increase in interest rates.
The total funding cost (including non-interest bearing deposits) for 2017 was 36 basis points compared to 37 basis points for 2016.
The net interest margin as a percentage of earning assets, on a tax-equivalent basis, for 2017 was 4.12 percent, a 10 basis point increase
from the net interest margin of 4.02 percent for 2016. The increase in the margin was primarily attributable to a shift in earning assets
to higher yielding loans. Additionally, there was an increase in yields on earning assets combined with a continued increase in low cost
deposits during the current year.
Non-interest Income
Non-interest income of $112.2 million for 2017 increased $4.9 million, or 5 percent, over last year. Service charges and other fees of
$67.7 million for 2017 increased $5.3 million, or 9 percent, from the prior year as a result of an increased number of deposit accounts.
The gain on sale of loans of $30.4 million for 2017 decreased $3.2 million, or 9 percent, from prior year which was due to a lower volume
of refinanced and purchased mortgages. Other income of $10.4 million for 2017 increased $2.2 million, or 27 percent, over last year and
was the result of an increase on gain on sale of OREO.
31
Non-interest Expense
The following table summarizes non-interest expense for the periods indicated, including the amount and percentage changes from
December 31, 2016:
Years ended
$ Change % Change(Dollars in thousands)
December 31,2017 December 31,2016
Compensation and employee benefits $160,506 $151,697 $8,809 6 %
Occupancy and equipment 26,631 25,979 652 3 %
Advertising and promotions 8,405 8,433 (28)—%
Data processing 14,150 14,390 (240)(2)%
Other real estate owned 1,909 2,895 (986)(34)%
Regulatory assessments and insurance 4,431 4,780 (349)(7)%
Core deposit intangible amortization 2,494 2,970 (476)(16)%
Other expenses 47,045 47,570 (525)(1)%
Total non-interest expense $265,571 $258,714 $6,857 3 %
During 2016, the Company consolidated its Bank divisions’ individual core database systems into a single core database and re-issued
debit cards with chip technology (the Core Consolidation Project or “CCP”). Expenses related to CCP were $4.3 million during 2016.
Excluding CCP expenses, non-interest expense for the current year increased $11.2 million, or 4 percent, over the prior year. Compensation
and employee benefits for 2017 increased $8.8 million, or 6 percent, from the same period last year due to salary increases and the
increased number of employees from the acquired banks. Occupancy and equipment expense increased $652 thousand, or 3 percent from
the prior year as a result of increased costs from acquisitions. Data processing expense decreased $240 thousand, or 2 percent, from the
prior year as a result of decreased costs associated with CCP. Current year other expenses of $47.0 million decreased $525 thousand, or
1 percent, from the prior year and was principally driven by decreased costs associated with CCP.
Efficiency Ratio
The efficiency ratio of 53.94 percent for 2017 decreased 194 basis points from the prior year efficiency ratio of 55.88 percent which
resulted from the increase in net interest income largely due to higher interest income on commercial loans.
Provision for Loan Losses
The following table summarizes the provision for loan losses, net charge-offs and other select ratios for the previous eight quarters:
(Dollars in thousands)
Provisionfor LoanLosses
NetCharge-Offs (Recoveries)
ALLLas a Percentof Loans
AccruingLoans 30-89Days Past Dueas a Percent ofLoans
Non-PerformingAssets toTotal Sub-sidiary Assets
Fourth quarter 2017 $2,886 $2,894 1.97%0.57%0.68%
Third quarter 2017 3,327 3,628 1.99%0.45%0.67%
Second quarter 2017 3,013 2,362 2.05%0.49%0.70%
First quarter 2017 1,598 1,944 2.20%0.67%0.75%
Fourth quarter 2016 1,139 4,101 2.28%0.45%0.76%
Third quarter 2016 626 478 2.37%0.49%0.84%
Second quarter 2016 —(2,315)2.46%0.44%0.82%
First quarter 2016 568 194 2.50%0.46%0.88%
The provision for loan losses was $10.8 million for 2017, an increase of $8.5 million from the same period in the prior year. Net charge-
offs during 2017 were $10.8 million compared to $2.5 million during 2016. Loan portfolio growth, composition, average loan size, credit
quality considerations, and other environmental factors will continue to determine the level of the loan loss provision.
32
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2016 COMPARED TO DECEMBER 31, 2015
Income Summary
The following table summarizes revenue for the periods indicated, including the amount and percentage changes from December 31,
2015:
Years ended
$ Change % Change(Dollars in thousands)
December 31,2016 December 31,2015
Net interest income
Interest income $344,153 $319,681 $24,472 8 %
Interest expense 29,631 29,275 356 1 %
Total net interest income 314,522 290,406 24,116 8 %
Non-interest income
Service charges and other fees 62,405 59,286 3,119 5 %
Miscellaneous loan fees and charges 4,613 4,276 337 8 %
Gain on sale of loans 33,606 26,389 7,217 27 %
(Loss) gain on sale of investments (1,463)19 (1,482)(7,800)%
Other income 8,157 8,791 (634)(7)%
Total non-interest income 107,318 98,761 8,557 9 %
$421,840 $389,167 $32,673 8 %
Net interest margin (tax-equivalent)4.02%4.00%
Net Interest Income
Net interest income for 2016 was $315 million, an increase of $24.1 million, or 8 percent, over the prior year. Interest income for the
2016 increased $24.5 million, or 8 percent, from the prior year and was principally due to a $24.0 million increase in income from
commercial loans. Additional increases included a $1.3 million in interest income from residential loans.
Interest expense of $29.6 million for 2016 increased $356 thousand, or 1 percent, over the prior year. Deposit interest expense for 2016
increased $2.3 million, or 14 percent, from the prior year and was driven by an increase in wholesale deposits and the additional interest
expense for an interest rate swap with a notional amount of $100 million that began accruing in December 2015. FHLB interest expense
decreased $2.6 million, or 30 percent, as the need for wholesale funding has decreased with strong deposit growth. The total funding
cost (including non-interest bearing deposits) for 2016 was 37 basis points compared to 40 basis points for 2015.
The net interest margin as a percentage of earning assets, on a tax-equivalent basis, for 2016 was 4.02 percent, a 2 basis point increase
from the net interest margin of 4.00 percent for 2015. The increase in the margin was primarily attributable to a shift in earning assets
to higher yielding loans combined with a continued increase in low cost deposits.
Non-interest Income
Non-interest income of $107.3 million for 2016 increased $8.6 million, or 9 percent, over the prior year. Service charges and other fees
of $62.4 million for 2016 increased $3.1 million, or 5 percent, from the prior year as a result of an increased number of deposit accounts,
both from organic growth and from recent acquisitions. The gain of $33.6 million on the sale of loans for 2016 increased $7.2 million,
or 27 percent, from 2015 which was attributable to the stronger housing market and the low interest rate environment. Included in other
income was operating revenue of $127 thousand from OREO and gains of $918 thousand from the sales of OREO, which totaled $1.0
million for 2016 compared to $1.1 million for the prior year.
33
Non-interest Expense
The following table summarizes non-interest expense for the periods indicated, including the amount and percentage changes from
December 31, 2015:
Years ended
$ Change % Change(Dollars in thousands)
December 31,2016 December 31,2015
Compensation and employee benefits $151,697 $134,382 $17,315 13 %
Occupancy and equipment 25,979 25,483 496 2 %
Advertising and promotions 8,433 8,661 (228)(3)%
Data processing 14,390 11,244 3,146 28 %
Other real estate owned 2,895 3,693 (798)(22)%
Regulatory assessments and insurance 4,780 5,283 (503)(10)%
Core deposit intangible amortization 2,970 2,964 6 —%
Other expenses 47,570 45,047 2,523 6 %
Total non-interest expense $258,714 $236,757 $21,957 9 %
Non-interest expense of $259 million for 2016 increased $22.0 million, or 9 percent, over the prior year. Included in non-interest expense
was $4.3 million of CCP related expenses. Compensation and employee benefits for 2016 increased $17.3 million, or 13 percent, from
the prior year due to the increased number of employees including from the acquired banks and annual salary increases. Occupancy and
equipment expense of $26.0 million for 2016 increased $474 thousand, or 2 percent, over the prior year. Outsourced data processing
expense increased $3.3 million, or 29 percent, from the prior year primarily the result of additional costs from CCP. OREO expense of
$2.9 million for 2016 decreased $798 thousand, or 22 percent, from the the prior year. OREO expense for 2016 included $761 thousand
of operating expenses, $1.8 million of fair value write-downs, and $314 thousand of loss from the sales of OREO. Other expenses of
$47.2 million for 2016 increased $2.4 million, or 5 percent, from the prior year and was driven by increases from costs associated with
CCP.
Efficiency Ratio
The efficiency ratio was 55.88 percent for 2016 compared to 55.40 percent for 2015. Although there were increases in both net interest
income and non-interest income, such increases were outpaced by the increases in CCP expenses and compensation expenses which
contributed to the higher efficiency ratio in 2016.
Provision for Loan Losses
The provision for loan losses was $2.3 million for 2016, an increase of $49 thousand, or 2 percent, from the prior year. Net charge-offs
during 2016 was $2.5 million which was relatively flat compared to the net charge-offs of $2.3 million for 2015, although the quarterly
net charge-offs continue to experience a fair amount of volatility.
34
ADDITIONAL MANAGEMENT’S DISCUSSION AND ANALYSIS
Investment Activity
Investment securities classified as available-for-sale are carried at estimated fair value and investment securities classified as held-to-
maturity are carried at amortized cost. Unrealized gains or losses, net of tax, on available-for-sale securities are reflected as an adjustment
to OCI. The Company’s investment securities are summarized below:
December 31, 2017 December 31, 2016 December 31, 2015 December 31, 2014 December 31, 2013
(Dollars in thousands)
CarryingAmount Percent CarryingAmount Percent CarryingAmount Percent CarryingAmount Percent CarryingAmount Percent
Available-for-sale
U.S. government andfederal agency $31,127 1%$39,407 1%$47,451 1%$44 —%$——%
U.S. governmentsponsored enterprises 19,091 1%19,570 1%93,167 3%21,945 1%10,628 —%
State and localgovernments 629,501 26%786,373 25%885,019 27%997,969 34%1,385,078 43%
Corporate bonds 216,762 9%471,951 15%384,163 12%314,854 11%442,501 14%
Residential mortgage-backed securities 779,283 32%1,007,515 33%1,198,549 36%1,049,575 36%1,383,560 43%
Commercial mortgage-backed securities 102,479 4%100,661 3%2,411 —%3,041 —%1,062 —%
Total available-for-sale 1,778,243 73%2,425,477 78%2,610,760 79%2,387,428 82%3,222,829 100%
Held-to-maturity
State and localgovernments 648,313 27%675,674 22%702,072 21%520,997 18%——%
Total held-to-maturity 648,313 27%675,674 22%702,072 21%520,997 18%——%
Total investmentsecurities $2,426,556 100%$3,101,151 100%$3,312,832 100%$2,908,425 100%$3,222,829 100%
The Company’s investment portfolio is primarily comprised of state and local government securities and mortgage-backed securities.
State and local government securities are largely exempt from federal income tax and the Company’s maximum federal statutory rate of
35 percent is used in calculating the tax-equivalent yields on the tax-exempt securities. As a result of the Tax Act, the federal statutory
rate decreased from 35 percent to 21 percent beginning in 2018. Net deferred tax assets associated with available-for-sale investment
securities were remeasured using enacted tax rates expected to apply to the years in which the temporary differences are expected to be
recognized. The effect on net deferred tax assets from the change in tax rates was recognized in net income during the current year, given
that the enactment of the Tax Act occurred on December 22, 2017. Mortgage-backed securities are primarily short, weighted-average
life U.S. agency guaranteed residential mortgage pass-through securities. To a lesser extent, mortgage-backed securities also consist of
short, weighted-average life U.S. agency guaranteed residential collateralized mortgage obligations and U.S. agency guaranteed
commercial mortgage-backed securities. Combined, the mortgage-backed securities provide the Company with ongoing liquidity as
scheduled and pre-paid principal is received on the securities.
State and local government securities carry different risks that are not as prevalent in other security types. The Company evaluates the
investment grade quality of its securities in accordance with regulatory guidance. Investment grade securities are those where the issuer
has an adequate capacity to meet the financial commitments under the security for the projected life of the investment. An issuer has an
adequate capacity to meet financial commitments if the risk of default by the obligor is low and the full and timely payment of principal
and interest are expected. In assessing credit risk, the Company may use credit ratings from Nationally Recognized Statistical Rating
Organizations (“NRSRO” entities such as Standard and Poor’s [“S&P”] and Moody’s) as support for the evaluation; however, they are
not solely relied upon. There have been no significant differences in the Company’s internal evaluation of the creditworthiness of any
issuer when compared with the ratings assigned by the NRSROs.
35
The following table stratifies the state and local government securities by the associated NRSRO ratings. The highest issued rating was
used to categorize the securities in the table for those securities where the NRSRO ratings were not at the same level.
December 31, 2017 December 31, 2016
(Dollars in thousands)
AmortizedCost FairValue AmortizedCost FairValue
S&P: AAA / Moody’s: Aaa $310,040 311,759 345,527 346,301
S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3 767,306 783,795 879,271 894,652
S&P: A+, A, A- / Moody’s: A1, A2, A3 167,230 175,539 209,217 216,589
S&P: BBB+, BBB, BBB- / Moody’s: Baa1, Baa2, Baa3 2,271 2,372 2,270 2,352
Not rated by either entity 14,985 15,262 13,934 14,694
Below investment grade 847 860 850 874
Total $1,262,679 1,289,587 1,451,069 1,475,462
State and local government securities largely consist of both taxable and tax-exempt general obligation and revenue bonds. The following
table stratifies the state and local government securities by the associated security type.
December 31, 2017 December 31, 2016
(Dollars in thousands)
AmortizedCost FairValue AmortizedCost FairValue
General obligation - unlimited $717,610 735,218 805,779 819,990
General obligation - limited 195,278 203,643 221,099 228,218
Revenue 322,394 323,183 389,506 391,615
Certificate of participation 19,366 19,922 23,590 24,603
Other 8,031 7,621 11,095 11,036
Total $1,262,679 1,289,587 1,451,069 1,475,462
The following table outlines the five states in which the Company owns the highest concentrations of state and local government securities.
December 31, 2017 December 31, 2016
(Dollars in thousands)
AmortizedCost FairValue AmortizedCost FairValue
Washington $184,491 189,932 188,778 193,035
Texas 170,786 175,217 193,652 196,641
Michigan 157,240 163,332 173,400 177,305
Montana 92,733 97,234 94,168 97,259
California 69,944 69,554 93,441 94,275
All other states 587,485 594,318 707,630 716,947
Total $1,262,679 1,289,587 1,451,069 1,475,462
36
The following table presents the carrying amount and weighted-average yield of available-for-sale and held-to-maturity investment
securities by contractual maturity at December 31, 2017. Weighted-average yields are based upon the amortized cost of securities and
are calculated using the interest method which takes into consideration premium amortization, discount accretion and mortgage-backed
securities’ prepayment provisions. Weighted-average yields on tax-exempt investment securities exclude the federal income tax benefit.
One Yearor Less
After Onethrough FiveYears After Fivethrough Ten Years AfterTen Years Mortgage-BackedSecurities Total
(Dollars in thousands)Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Available-for-sale
U.S. government and federalagency $——%$2,227 1.76%$15,053 1.53%$13,847 1.14%$——%$31,127 1.37%
U.S. government sponsoredenterprises ——%19,091 1.96%——%——%——%19,091 1.96%
State and local governments 25,489 1.99%34,962 2.38%221,265 3.69%347,785 4.09%——%629,501 3.77%
Corporate bonds 44,161 2.24%172,601 2.27%——%——%——%216,762 2.26%
Residential mortgage-backedsecurities ——%——%——%——%779,283 2.07%779,283 2.07%
Commercial mortgage-backedsecurities ——%——%——%——%102,479 2.07%102,479 2.07%
Total available-for-sale 69,650 2.15%228,881 2.26%236,318 3.55%361,632 3.97%881,762 2.07%1,778,243 2.67%
Held-to-maturity
State and local governments ——%2,108 2.21%86,741 3.02%559,464 4.12%——%648,313 3.97%
Total held-to-maturity ——%2,108 2.21%86,741 3.02%559,464 4.12%——%648,313 3.97%
Total investment securities $69,650 2.15%$230,989 2.26%$323,059 3.41%$921,096 4.07%$881,762 2.07%$2,426,556 3.02%
Interest income from investment securities consisted of the following:
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Taxable interest $38,433 40,366 40,200
Tax-exempt interest 43,535 50,026 50,886
Total interest income $81,968 90,392 91,086
For additional information on investment securities, see Notes 1 and 2 to the Consolidated Financial Statements in “Item 8. Financial
Statements and Supplementary Data.”
Other-Than-Temporary Impairment on Securities Analysis
Non-marketable equity securities. Non-marketable equity securities largely consist of capital stock issued by the FHLB of Des Moines
and are evaluated for impairment whenever events or circumstances suggest the carrying value may not be recoverable. Based on the
Company’s evaluation of its investments in non-marketable equity securities as of December 31, 2017, the Company determined that
none of such securities had other-than-temporary impairment.
Debt securities. In evaluating debt securities for other-than-temporary impairment losses, management assesses whether the Company
intends to sell the security or if it is more-likely-than-not that the Company will be required to sell the debt security. In so doing,
management considers contractual constraints, liquidity, capital, asset/liability management and securities portfolio objectives. For debt
securities with limited or inactive markets, the impact of macroeconomic conditions in the U.S. upon fair value estimates includes higher
risk-adjusted discount rates and changes in credit ratings provided by NRSRO. In June 2017, S&P issued a credit opinion confirming
its AA+ rating of U.S. government long-term debt, and the outlook remains stable. In October 2017, Moody's issued a credit opinion
confirming its Aaa rating of U.S. government long-term debt and the outlook remains stable. In April 2017, Fitch issued a credit opinion
confirming its AAA rating of U.S. government long-term debt and the outlook remains stable. S&P, Moody's and Fitch have similar
credit ratings and outlooks with respect to certain long-term debt instruments issued by Federal National Mortgage Association (“Fannie
Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and other U.S. government agencies linked to the long-term U.S.
debt.
37
The following table separates investment securities with an unrealized loss position at December 31, 2017 into two categories: investments
purchased prior to 2017 and those purchased during 2017. Of those investments purchased prior to 2017, the fair market value and
unrealized gain or loss at December 31, 2016 is also presented.
December 31, 2017 December 31, 2016
(Dollars in thousands)Fair Value UnrealizedLoss
UnrealizedLoss as aPercent ofFair Value Fair Value Unrealized(Loss) Gain
Unrealized(Loss) Gain as aPercent ofFair Value
Temporarily impaired securitiespurchased prior to 2017
U.S. government and federal agency $14,387 $(143)(1)%$18,402 $(133)(1)%
U.S. government sponsored enterprises 18,351 (104)(1)%18,397 6 —%
State and local governments 303,205 (13,341)(4)%307,559 (11,340)(4)%
Corporate bonds 128,670 (483)—%131,099 (485)—%
Residential mortgage-backed securities 616,972 (7,833)(1)%784,546 (9,070)(1)%
Commercial mortgage-backed securities 92,252 (1,735)(2)%102,472 (1,915)(2)%
Total $1,173,837 $(23,639)(2)%$1,362,475 $(22,937)(2)%
Temporarily impaired securitiespurchased during 2017
State and local governments $5,795 $(396)(7)%
Residential mortgage-backed securities 9,924 (97)(1)%
Commercial mortgage-backed securities 8,366 (135)(2)%
Total $24,085 $(628)(3)%
Temporarily impaired securities
U.S. government and federal agency $14,387 $(143)(1)%
U.S. government sponsored enterprises 18,351 (104)(1)%
State and local governments 309,000 (13,737)(4)%
Corporate bonds 128,670 (483)—%
Residential mortgage-backed securities 626,896 (7,930)(1)%
Commercial mortgage-backed securities 100,618 (1,870)(2)%
Total $1,197,922 $(24,267)(2)%
With respect to severity, the following table provides the number of debt securities and amount of unrealized loss in the various ranges
of unrealized loss as a percent of book value at December 31, 2017:
(Dollars in thousands)
Number ofDebtSecurities UnrealizedLoss
Greater than 10.0%9 $(1,999)
5.1% to 10.0%75 (9,153)
0.1% to 5.0%445 (13,115)
Total 529 $(24,267)
With respect to the valuation history of the impaired debt securities, the Company identified 302 securities which have been continuously
impaired for the twelve months ending December 31, 2017. The valuation history of such securities in the prior year(s) was also reviewed
to determine the number of months in the prior year(s) in which the identified securities were in an unrealized loss position.
38
The following table provides details of the 302 debt securities which have been continuously impaired for the twelve months ended
December 31, 2017, including the most notable loss for any one bond in each category.
(Dollars in thousands)
Number ofDebtSecurities
UnrealizedLoss for12 MonthsOr More
MostNotableLoss
U.S. government and federal agency 16 $(138)$(28)
U.S. government sponsored enterprises 1 (48)(48)
State and local governments 188 (12,862)(1,438)
Corporate bonds 8 (219)(54)
Residential mortgage-backed securities 73 (4,880)(462)
Commercial mortgage-backed securities 16 (1,401)(230)
Total 302 $(19,548)
Based on the Company's analysis of its impaired debt securities as of December 31, 2017, the Company determined that none of such
securities had other-than-temporary impairment and the unrealized losses were primarily the result of interest rate changes and market
spreads subsequent to acquisition. A substantial portion of the debt securities with unrealized losses at December 31, 2017 were issued
by Fannie Mae, Freddie Mac, Government National Mortgage Association (“Ginnie Mae”) and other agencies of the U.S. government
or have credit ratings issued by one or more of the NRSRO entities in the four highest credit rating categories. All of the Company's
impaired debt securities at December 31, 2017 have been determined by the Company to be investment grade.
Lending Activity
The Company focuses its lending activities primarily on the following types of loans: 1) first-mortgage, conventional loans secured by
residential properties, particularly single-family; 2) commercial lending, including agriculture and public entities; and 3) installment
lending for consumer purposes (e.g., home equity, automobile, etc.). Supplemental information regarding the Company’s loan portfolio
and credit quality based on regulatory classification is provided in the section captioned “Loans by Regulatory Classification” included
in “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The regulatory classification
of loans is based primarily on the type of collateral for the loans. Loan information included in “Part I. Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” is based on the Company’s loan segments and classes, which are based
on the purpose of the loan, unless otherwise noted as a regulatory classification. The following table summarizes the Company’s loan
portfolio as of the dates indicated:
December 31, 2017 December 31, 2016 December 31, 2015 December 31, 2014 December 31, 2013
(Dollars in thousands)Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
Residential real estateloans $720,728 11 %$674,347 12 %$688,912 14 %$611,463 14 %$577,589 15 %
Commercial loans
Real estate 3,577,139 55 %2,990,141 54 %2,633,953 53 %2,337,548 54 %2,049,247 52 %
Other commercial 1,579,353 25 %1,342,250 24 %1,099,564 22 %925,900 21 %852,036 22 %
Total 5,156,492 80 %4,332,391 78 %3,733,517 75 %3,263,448 75 %2,901,283 74 %
Consumer and other loans
Home equity 457,918 7 %434,774 8 %420,901 9 %394,670 9 %366,465 9 %
Other consumer 242,686 4 %242,951 4 %235,351 5 %218,514 5 %217,501 5 %
Total 700,604 11 %677,725 12 %656,252 14 %613,184 14 %583,966 14 %
Loans receivable 6,577,824 102 %5,684,463 102 %5,078,681 103 %4,488,095 103 %4,062,838 103 %
ALLL (129,568)(2)%(129,572)(2)%(129,697)(3)%(129,753)(3)%(130,351)(3)%
Loans receivable, net $6,448,256 100 %$5,554,891 100 %$4,948,984 100 %$4,358,342 100 %$3,932,487 100 %
39
The stated maturities or first repricing term (if applicable) for the loan portfolio at December 31, 2017 was as follows:
(Dollars in thousands)
ResidentialReal Estate Commercial Consumerand Other Total
Variable rate maturing or repricing
In one year or less $255,733 1,296,661 335,641 1,888,035
After one year through five years 156,282 1,713,739 130,032 2,000,053
Thereafter 4,682 292,190 4,529 301,401
Fixed rate maturing
In one year or less 169,674 546,275 111,210 827,159
After one year through five years 127,273 779,841 116,155 1,023,269
Thereafter 7,084 527,786 3,037 537,907
Total $720,728 5,156,492 700,604 6,577,824
Residential Real Estate Lending
The Company’s lending activities consist of the origination of both construction and permanent loans on residential real estate. The
Company actively solicits residential real estate loan applications from real estate brokers, contractors, existing customers, customer
referrals, and on-line applications. 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. Policies allow for higher loan-to-values with appropriate
risk mitigation such as documented compensating factors, credit enhancement, etc. For loans held for sale, the Company complies with
the investor’s loan-to-value guidelines. 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 percent of the appraised value or 75 percent of the cost.
Unimproved Land and Land Development Loans
Although the Company has originated very few unimproved land and land development loans since the economic downturn in 2008, the
Company may originate such loans on properties intended for residential and commercial use where improved real estate market conditions
have occurred. These loans are typically made for a term of 18 months to two years and are 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 projects under development are inspected on a regular basis and advances are made on a percentage-of-completion
basis. The loans are made to borrowers with real estate development experience and appropriate financial strength. Generally, the
Company requires 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. Loans made on unimproved land are generally made for a term of five to ten years with a loan-to-value
not to exceed the lesser of 50 percent of appraised value or 50 percent of cost.
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 specific 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.
Construction Loans
During the construction loan term, all construction loan collateral properties are inspected at least monthly, or more frequently as needed,
until completion. Draws on construction loans are predicated upon the results of the inspection and advanced based upon a percentage-
of-completion basis versus original budget percentages. When construction loans become non-performing and the associated project is
not complete, the Company on a case-by-case basis makes the decision to advance additional funds or to initiate collection/foreclosure
proceedings. Such decision includes obtaining “as-is” and “at completion” appraisals for consideration of potential increases or decreases
in the collateral’s value. The Company also considers the increased costs of monitoring progress to completion, and the related collection/
holding period costs should collateral ownership be transferred to the Company.
40
Commercial Real Estate Loans
Loans are made to purchase, construct and finance commercial real estate properties. These loans are generally made to borrowers who
will own and occupy the property, but may include loans to finance investment or income properties. Commercial real estate loans
generally have a loan-to-value up to the lesser of 75 percent of the appraised value or 75 percent of the cost and require a minimum 1.2
times debt service coverage margin.
Agricultural Lending
Agricultural lending is conducted on a conservative basis and consists of operating credits, term real estate loans for the acquisition or
refinance of agricultural real estate or equipment, and term livestock loans for the acquisition or refinance of livestock. Loan-to-value
on equipment, livestock and agricultural real estate is generally limited to 75 percent.
Home Equity Loans
The Company’s home equity loans of $458 million and $435 million as of December 31, 2017 and 2016, respectively, consist of 1-4
family junior lien mortgages and first and junior lien lines of credit secured by residential real estate. At December 31, 2017, the home
equity loan portfolio consisted of 90 percent variable interest rate and 10 percent fixed interest rate loans. Approximately 54 percent of
the home equity loans were in a first lien status with the remaining 46 percent in junior lien status. Approximately 8 percent of the home
equity loans were closed-end amortizing loans and 92 percent were open-end, revolving home equity lines of credit. At December 31,
2016, the home equity loan portfolio consisted of 85 percent variable interest rate and 15 percent fixed interest rate loans. Approximately
54 percent of the home equity loans were in a first lien status with the remaining 46 percent in junior lien status. Approximately 12
percent of the home equity loans were closed-end amortizing loans and 88 percent were open-end, revolving home equity lines of credit.
Home equity lines of credit are generally originated with maturity terms of 15 years. At origination, borrowers can choose a variable
interest rate that changes quarterly, or after the first 3, 5 or 10 years from the origination date. The draw period for home equity lines of
credit usually exists from origination to maturity. During the draw period, the Company has home equity lines of credit where the
borrowers pay interest only and home equity lines of credit where borrowers pay principal and interest.
Consumer Lending
The majority of consumer loans are secured by real estate, automobiles, or other assets. The Company intends 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 Company also originates second mortgage and home equity loans, especially
to existing customers in instances where the first and second mortgage loans are less than 80 percent of the current appraised value of
the property.
States and Political Subdivisions Lending
The Company lends directly to state and local political subdivisions. The loans are typically secured by the full faith and credit of the
municipality or a specific revenue stream such as water or sewer fees. In general, state and local political subdivision loans carry a low
risk of default and offer other complimentary business opportunities such as deposits and cash management. The loans are generally
long-term in nature and interest on many of these loans is considered tax-exempt for federal income tax purposes.
Credit Risk Management
The Company is committed to a conservative management of the credit risk within the loan portfolio, 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 portfolio, semi-annual review of loans by industry, and periodic
stress testing of the loans secured by real estate. Federal and state regulatory safety and soundness examinations are conducted annually.
41
The Company’s loan policy and credit administration practices establish standards and limits for all extensions of credit that are secured
by interests in or liens on real estate, or made for the purpose of financing the construction of real property or other improvements.
Ongoing monitoring and review of the loan portfolio is based on current information, including: the borrowers’ and guarantors’
creditworthiness, value of the real estate and other collateral, the project’s performance against projections, and monthly inspections by
Company employees or external parties until the real estate project is complete.
Monitoring of the junior lien and home equity lines of credit portfolios includes evaluating payment delinquency, collateral values,
bankruptcy notices and foreclosure filings. Additionally, the Company places junior lien mortgages and junior lien home equity lines of
credit on non-accrual status when there is evidence that the associated senior lien is 90 days past due or is in the process of foreclosure,
regardless of the junior lien delinquency status.
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 division has an Officer Loan Committee consisting of senior lenders and members of senior management. Each of the Bank
divisions’ Officer Loan Committees has loan approval authority between $500,000 and $2,000,000. Each of the Bank divisions’ advisory
boards has loan approval authority up to $4,000,000. Loans, or a combination of loans, including new and renewed, exceeding these
limits and up to $20,000,000 are subject to approval by the Company’s Executive Loan Committee consisting of the Bank divisions’
senior loan officers and the Company’s Chief Credit Administrator. Loans, or a combination of loans, including new and renewed, greater
than $20,000,000 are subject to approval by the Bank’s Board of Directors. Under banking laws, loans to one borrower and related
entities are limited to a prescribed percentage of the unimpaired capital and surplus of the Bank.
Interest Reserves
Interest reserves are used to periodically advance loan funds to pay interest charges on the outstanding balance of the related loan. As
with any extension of credit, the decision to establish a loan-funded interest reserve upon origination of construction loans, including
residential construction and land, lot and other construction loans, is based on prudent underwriting, including the feasibility of the project,
expected cash flow, creditworthiness of the borrower and guarantors, and the protection provided by the real estate and other underlying
collateral. Interest reserves provide an effective means for addressing the cash flow characteristics of construction loans. In response to
the downturn in the housing market and potential impact upon construction lending, the Company discourages the creation or continued
use of interest reserves.
Interest reserves are advanced provided the related construction loan is performing as expected. Loans with interest reserves may be
extended, renewed or restructured only when the related loan continues to perform as expected and meets the prudent underwriting
standards identified above. Such renewals, extension or restructuring are not permitted in order to keep the related loan current.
In monitoring the performance and credit quality of a construction loan, the Company assesses the adequacy of any remaining interest
reserve, and whether the use of an interest reserve remains appropriate in the presence of emerging weakness and associated risks in the
construction loan.
The ongoing accrual and recognition of uncollected interest as income continues only when facts and circumstances continue to reasonably
support the contractual payment of principal or interest. Loans are typically designated as non-accrual when the collection of the contractual
principal or interest is unlikely and has remained unpaid for ninety days or more. For such loans, the accrual of interest and its capitalization
into the loan balance will be discontinued.
The Company had $36.4 million and $58.7 million of loans with remaining interest reserves of $921 thousand and $1.1 million as of
December 31, 2017 and 2016, respectively. The Company did not extend, renew or restructure any loans with interest reserves during
2017 or 2016. As of December 31, 2017, the Company had no construction loans with interest reserves that are currently non-performing
or which are potential problem loans.
42
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, Rural Development, Federal Housing Administration and Department of Veterans
Affairs 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 interest rates. In connection with conventional loan sales, the Company typically sells the majority
of mortgage loans originated with servicing released. The Company has also been very active in generating commercial Small Business
Administration loans, and other commercial loans, with a portion of those loans sold to investors. 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 investment
securities collateralized with subprime mortgages. The Company does not actively purchase loans from other financial institutions, and
substantially all of the Company’s loans receivable are with customers in the Company’s geographic market areas.
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 0.5 percent to 1.5 percent on commercial loans. Consumer
loans generally require a fixed fee amount. The Company also receives other fees and charges relating to existing loans, which include
charges and fees collected in connection with loan modifications.
Appraisal and Evaluation Process
The Company’s loan policy and credit administration practices have adopted and implemented the applicable legal and regulatory
requirements, which establishes criteria for obtaining appraisals or evaluations (new or updated), including transactions that are otherwise
exempt from the appraisal requirements.
Each of the Bank divisions monitor conditions, including supply and demand factors, in the real estate markets served so they can react
quickly to changing market conditions to mitigate potential losses from specific credit exposures within the loan portfolio. Evidence of
the following real estate market conditions and trends is obtained from lending personnel and third party sources:
• demographic indicators, including employment and population trends;
• foreclosures, vacancy, construction and absorption rates;
• property sales prices, rental rates, and lease terms;
• current tax assessments;
• economic indicators, including trends within the lending areas; and
• valuation trends, including discount and capitalization rates.
Third party information sources include federal, state, and local governments and agencies thereof, private sector economic data vendors,
real estate brokers, licensed agents, sales, rental and foreclosure data tracking services.
The time between ordering an appraisal or evaluation and receipt from third party vendors is typically two to six weeks for residential
property depending on geographic market and four to six weeks for non-residential property. For real estate properties that are of highly
specialized or limited use, significantly complex or large, additional time beyond the typical times may be required for new appraisals
or evaluations (new or updated).
As part of the Company’s credit administration and portfolio monitoring practices, the Company’s regular internal and external credit
examinations review a significant number of individual loan files. Appraisals and evaluations (new or updated) are reviewed to determine
whether the timeliness, methods, assumptions, and findings are reasonable and in compliance with the Company’s loan policy and credit
administration practices. Such reviews include the adequacy of the steps taken by the Company to ensure that the individuals who perform
appraisals and evaluations (new or updated) are appropriately qualified and are not subject to conflicts of interest. If there are any
deficiencies noted in the reviews, they are reported to Bank management and prompt corrective action is taken.
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Non-performing Assets
The following table summarizes information regarding non-performing assets at the dates indicated:
At or for the Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015 December 31,2014 December 31,2013
Other real estate owned $14,269 20,954 26,815 27,804 26,860
Accruing loans 90 days or more past due
Residential real estate 2,366 266 —35 429
Commercial 3,582 428 2,051 105 160
Consumer and other 129 405 80 74 15
Total 6,077 1,099 2,131 214 604
Non-accrual loans
Residential real estate 4,924 4,528 8,073 6,798 10,702
Commercial 35,629 39,033 36,510 48,138 61,577
Consumer and other 4,280 5,771 6,550 6,946 9,677
Total 44,833 49,332 51,133 61,882 81,956
Total non-performing assets $65,179 71,385 80,079 89,900 109,420
Non-performing assets as a percentage ofsubsidiary assets 0.68%0.76%0.88%1.08%1.39%
ALLL as a percentage of non-performing loans 255%257%244%209%158%
Accruing loans 30-89 days past due $37,687 25,617 19,413 25,904 32,116
Accruing troubled debt restructurings $38,491 52,077 63,590 69,129 81,110
Non-accrual troubled debt restructurings $23,709 21,693 27,057 33,714 42,461
U.S. government guarantees included innon-performing assets $2,513 1,746 2,312 3,649 5,412
Interest income 1 $2,162 2,364 2,471 3,005 4,122
______________________________
1 Amounts represent estimated interest income that would have been recognized on loans accounted for on a non-accrual basis as of the end of each
period had such loans performed pursuant to contractual terms.
Non-performing assets at December 31, 2017 were $65.2 million, a decrease of $6.2 million, or 9 percent, from a year ago. Non-
performing assets as a percentage of subsidiary assets at December 31, 2017 was 0.68 percent which was a decrease of 8 basis points
from the prior year end of 0.76 percent. Early stage delinquencies (accruing loans 30-89 days past due) of $37.7 million at December
31, 2017 increased $12.1 million from the prior year end.
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 or evaluations (new or updated), the Company believes the value of the underlying real estate
collateral is adequate to minimize significant charge-offs or losses to the Company. The Company evaluates the level of its non-performing
loans, the values of the underlying real estate and other collateral, and related trends in internal and external environmental factors and
net charge-offs in determining the adequacy of the ALLL. Through pro-active credit administration, the Company works closely with
its borrowers to seek favorable resolution to the extent possible, thereby attempting to minimize net charge-offs or losses to the Company.
44
In prior years, construction loans, a regulatory classification, accounted for a significant portion of the Company’s non-accrual loans. As
a result of the gradual economic recovery and the Company’s diligent focus on this category of non-performing loans, construction loans
only accounted for 24 percent of the Company’s non-accrual loans as of December 31, 2017. With very limited exceptions, the Company
does not disburse additional funds on non-performing loans. Instead, the Company has proceeded to collection and foreclosure actions
in order to reduce the Company’s exposure to loss on such loans.
For additional information on accounting policies relating to non-performing assets and impaired loans, see Note 1 to the Consolidated
Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
Impaired Loans
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 and therefore, the
Company has serious doubts as to the ability of such borrowers to fulfill the contractual obligation. Impaired loans include non-performing
loans (i.e., non-accrual loans and accruing loans ninety days or more past due) and accruing loans under ninety days past due where it is
probable payments will not be received according to the loan agreement (e.g., troubled debt restructuring). Impaired loans were $120
million and $130 million as of December 31, 2017 and December 31, 2016, respectively. The ALLL includes specific valuation allowances
of $5.2 million and $6.9 million of impaired loans as of December 31, 2017 and December 31, 2016, respectively.
Restructured Loans
A restructured loan is considered a troubled debt restructuring (“TDR”) 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. Each restructured debt is separately negotiated
with the borrower and includes terms and conditions that reflect the borrower’s prospective ability to service the debt as modified. The
Company discourages the use of the multiple loan strategy when restructuring loans regardless of whether or not the loans are designated
as TDRs. The Company’s TDR loans of $62.2 million and $73.8 million as of December 31, 2017 and December 31, 2016, respectively,
are considered impaired loans.
Other Real Estate Owned
The book value of loans prior to the acquisition of collateral and transfer of the loans into OREO during 2017 was $6.0 million. The fair
value of the loan collateral acquired in foreclosure during 2017 was $4.5 million. The following table sets forth the changes in OREO
for the periods indicated:
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015 December 31,2014 December 31,2013
Balance at beginning of period $20,954 26,815 27,804 26,860 45,115
Acquisitions 96 882 974 3,928 1,203
Additions 4,466 5,198 7,989 11,493 15,266
Capital improvements —149 1,710 1,661 79
Write-downs (604)(1,821)(1,575)(691)(3,639)
Sales (10,643)(10,269)(10,087)(15,447)(31,164)
Balance at end of period $14,269 20,954 26,815 27,804 26,860
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 the Company’s loan
portfolio. Accordingly, the ALLL is maintained within a range of estimated losses. The determination of the ALLL, including the provision
for loan losses and net charge-offs, 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 portfolio, economic
conditions nationally and in the local markets in which the Company operates, trends and changes in collateral values, delinquencies,
non-performing assets, net charge-offs and credit-related policies and personnel. Although the Company continues to actively monitor
economic trends, soft economic conditions combined with potential declines in the values of real estate that collateralize most of the
Company’s loan portfolio may adversely affect the credit risk and potential for loss to the Company.
The ALLL evaluation is well documented and approved by the Company’s Board. In addition, the policy and procedures for determining
the balance of the ALLL are reviewed annually by the Company’s Board, the internal audit department, independent credit reviewers and
state and federal bank regulatory agencies.
45
At the end of each quarter, the Company analyzes its loan portfolio and maintains an ALLL at a level that is appropriate and determined
in accordance with GAAP. The allowance consists of a specific valuation allowance component and a general valuation allowance
component. The specific valuation allowance component relates to loans that are determined to be impaired. A specific valuation allowance
is established when the fair value of a collateral-dependent loan or the present value of the loan’s expected future cash flows (discounted
at the loan’s effective interest rate) is lower than the carrying value of the impaired loan. The general valuation allowance component
relates to probable credit losses inherent in the balance of the loan portfolio based on historical loss experience, adjusted for changes in
trends and conditions of qualitative or environmental factors.
The Bank divisions’ credit administration reviews their respective loan portfolios to determine which loans are impaired and estimates
the specific valuation allowance. The impaired loans and related specific valuation allowance are then provided to the Company’s credit
administration for further review and approval. The Company’s credit administration also determines the estimated general valuation
allowance and reviews and approves the overall ALLL. The credit administration of the Company exercises significant judgment when
evaluating the effect of applicable qualitative or environmental factors on the Company’s historical loss experience for loans not identified
as impaired. Quantification of the impact upon the Company’s ALLL is inherently subjective as data for any factor may not be directly
applicable, consistently relevant, or reasonably available for management to determine the precise impact of a factor on the collectability
of the Company’s loans collectively evaluated for impairment as of each evaluation date. The Company’s credit administration documents
its conclusions and rationale for changes that occur in each applicable factor’s weight (i.e., measurement) and ensures that such changes
are directionally consistent based on the underlying current trends and conditions for the factor. To have directional consistency, the
provision for loan losses and credit quality should generally move in the same direction.
The Company’s model includes fourteen bank divisions with separate management teams providing substantial local oversight to the
lending and credit management function. The Company’s 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 operates further mitigates the risk of credit loss. While this process is intended to limit credit exposure, there can be no assurance
that further problem credits will not arise and additional loan losses incurred, particularly in this slowly improving, but fragile economic
recovery and 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 of identifying impaired loans 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.
No assurance can be given that the Company will not, in any particular period, sustain losses that are significant relative to the ALLL
amount, or that subsequent evaluations of the loan portfolio 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 “Item 1A. Risk Factors.”
The following table summarizes the allocation of the ALLL as of the dates indicated:
December 31, 2017 December 31, 2016 December 31, 2015 December 31, 2014 December 31, 2013
(Dollars inthousands)ALLL
Percent of Loans inCategory ALLL
Percentof Loans inCategory ALLL
Percentof Loans inCategory ALLL
Percentof Loans inCategory ALLL
Percentof Loans inCategory
Residentialreal estate $10,798 11%$12,436 12%$14,427 13%$14,680 13%$14,067 14%
Commercialreal estate 68,515 54%65,773 52%67,877 52%67,799 52%70,332 51%
Othercommercial 39,303 24%37,823 24%32,525 22%30,891 21%28,630 21%
Home equity 6,204 7%7,572 8%8,998 8%9,963 9%9,299 9%
Otherconsumer 4,748 4%5,968 4%5,870 5%6,420 5%8,023 5%
Total $129,568 100%$129,572 100%$129,697 100%$129,753 100%$130,351 100%
46
The following table summarizes the ALLL experience for the periods indicated:
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015 December 31,2014 December 31,2013
Balance at beginning of period $129,572 129,697 129,753 130,351 130,854
Provision for loan losses 10,824 2,333 2,284 1,912 6,887
Charge-offs
Residential real estate (199)(464)(985)(431)(793)
Commercial loans (9,044)(4,860)(4,242)(4,860)(8,407)
Consumer and other loans (10,088)(6,172)(1,775)(2,312)(4,443)
Total charge-offs (19,331)(11,496)(7,002)(7,603)(13,643)
Recoveries
Residential real estate 82 207 92 328 299
Commercial loans 3,569 5,576 3,620 3,757 4,803
Consumer and other loans 4,852 3,255 950 1,008 1,151
Total recoveries 8,503 9,038 4,662 5,093 6,253
Charge-offs, net of recoveries (10,828)(2,458)(2,340)(2,510)(7,390)
Balance at end of period $129,568 129,572 129,697 129,753 130,351
ALLL as a percentage of total loans 1.97%2.28%2.55%2.89%3.21%
Net charge-offs as a percentage of averageloans 0.17%0.05%0.05%0.06%0.20%
The ALLL as a percent of total loans outstanding at December 31, 2017 was 1.97 percent, a decrease of 31 basis points from 2.28 percent
at December 31, 2016, which was driven by loan growth, stabilizing credit quality, and no allowance carried over from the Foothills
acquisition as a result of the acquired loans recorded at fair value.
The Company’s ALLL of $130 million is considered adequate to absorb losses from any class of its loan portfolio. For the periods ended
December 31, 2017 and 2016, the Company believes the ALLL is commensurate with the risk in the Company’s loan portfolio and is
directionally consistent with the change in the quality of the Company’s loan portfolio.
When applied to the Company’s historical loss experience, the qualitative or environmental factors result in the provision for loan losses
being recorded in the period in which the loss has probably occurred. When the loss is confirmed at a later date, a charge-off is recorded.
During 2017, charge-offs, net of recoveries, exceeded the provision for loan losses by $4 thousand. During the same period in 2016,
charge-offs, net of recoveries, exceeded the provision for loan losses by $125 thousand.
The Company provides commercial services to individuals, small to medium-sized businesses, community organizations and public
entities from 145 locations, including 136 branches, across Montana, Idaho, Utah, Washington, Wyoming, Colorado and Arizona. The
states in which the Company operates have diverse economies and markets that are tied to commodities (crops, livestock, minerals, oil
and natural gas), tourism, real estate and land development and an assortment of industries, both manufacturing and service-related. Thus,
the changes in the global, national, and local economies are not uniform across the Company’s geographic locations.
47
Overall, there continues to be improvements in the economic environment and housing markets throughout the Company’s footprint.
Home prices continue to increase in all of the states within the Company’s footprint. Washington and Arizona are experiencing the
strongest pricing pressures, while Wyoming continues to lag behind the national trend. Five of the Company’s states are ranked in the
top 10 nationally for house price appreciation. Home ownership in the United States has increased slightly to 63.9 percent as of the third
quarter of 2017 after bottoming out at 62.9 percent in the second quarter of 2016. The long-term average for the United States
homeownership rate is at 65.3 percent. Quarterly personal income growth remains in positive territory for each of the Company’s states,
while Wyoming is the only state in the Company’s footprint that doesn’t exceed the national average. The Federal Reserve Bank of
Philadelphia’s composite state coincident indices projects steady growth throughout the Company’s footprint, with Arizona being one of
only three states in the country with expected growth greater than 4.5 percent. The United States economy grew at or above 3 percent
for a second straight quarter. All of the states in the Company’s footprint have unemployment rates at or below 5 percent, which reflects
the Federal Reserve’s definition of full employment. There has been a slight uptick in crude oil and base metal prices, while natural gas
prices remain steady. Certain agriculture commodities within the Company’s footprint remain volatile. The tourism industry and related
lodging activity continues to be a source of strength for locations where the Company’s markets include national parks and similar
recreational areas. However, Canadian tourism in Washington, Idaho and Montana continues to be negatively impacted by the weak
Canadian dollar. Largely due to the recently enacted Tax Act, small business confidence ended the year at high levels; however, it remains
to be seen how much of an impact the Tax Act will have on the Company’s economic environment. In general, the Company sees positive
signs in the various economic indices; however, given the significant recession experienced during 2008 and 2009, the Company is
cautiously optimistic about the subsequent recovery of the housing industry. The Company will continue to actively monitor the economy’s
impact on its lending portfolio.
In evaluating the need for a specific or general valuation allowance for impaired and unimpaired loans, respectively, within the Company’s
construction loan portfolio (i.e., regulatory classification), including residential construction and land, lot and other construction loans,
the credit risk related to such loans was considered in the ongoing monitoring of such loans, including assessments based on current
information, including appraisals or evaluations (new or updated) of the underlying collateral, expected cash flows and the timing thereof,
as well as the estimated cost to sell when such costs are expected to reduce the cash flows available to repay or otherwise satisfy the
construction loan. Construction loans were 13 percent and 12 percent of the Company’s total loan portfolio and accounted for 24 percent
and 20 percent of the Company’s non-accrual loans at December 31, 2017 and December 31, 2016, respectively. Collateral securing
construction loans includes residential buildings (e.g., single/multi-family and condominiums), commercial buildings, and associated
land (e.g., multi-acre parcels and individual lots, with and without shorelines).
The Company’s ALLL consisted of the following components as of the dates indicated:
(Dollars in thousands)
December 31,2017 December 31,2016
Specific valuation allowance $5,223 6,881
General valuation allowance 124,345 122,691
Total ALLL $129,568 129,572
During 2017, the ALLL decreased by $4 thousand, the net result of a $1.7 million decrease in the specific valuation allowance and a $1.7
million increase in the general valuation allowance. The specific valuation allowance decreased as the result of a $4.4 million decrease
in loans individually evaluated for impairment with a specific impairment. The increase in the general valuation allowance since the
prior year end was a result of changes in qualitative or environmental factors and an increase of $605 million in loans collectively evaluated
for impairment, excluding the current year acquisition. At acquisition date, the assets and liabilities of the acquired banks are recorded
at their estimated fair values which results in no ALLL carried over on loans from acquired banks.
For additional information regarding the ALLL, its relation to the provision for loan losses and risk related to asset quality, see Note 3
to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
48
Loans by Regulatory Classification
Supplemental information regarding identification of the Company’s loan portfolio and credit quality based on regulatory classification
is provided in the following tables. The regulatory classification of loans is based primarily on the type of collateral for the loans. There
may be differences when compared to loan tables and loan amounts appearing elsewhere which reflect the Company’s internal loan
segments and classes which are based on the purpose of the loan.
The following table summarizes the Company’s loan portfolio by regulatory classification:
(Dollars in thousands)
December 31,2017 December 31,2016 $ Change % Change
Custom and owner occupied construction $109,555 $86,233 $23,322 27 %
Pre-sold and spec construction 72,160 66,184 5,976 9 %
Total residential construction 181,715 152,417 29,298 19 %
Land development 82,398 75,078 7,320 10 %
Consumer land or lots 102,289 97,449 4,840 5 %
Unimproved land 65,753 69,157 (3,404)(5)%
Developed lots for operative builders 14,592 13,254 1,338 10 %
Commercial lots 23,770 30,523 (6,753)(22)%
Other construction 391,835 257,769 134,066 52 %
Total land, lot, and other construction 680,637 543,230 137,407 25 %
Owner occupied 1,132,833 977,932 154,901 16 %
Non-owner occupied 1,186,066 929,729 256,337 28 %
Total commercial real estate 2,318,899 1,907,661 411,238 22 %
Commercial and industrial 751,221 686,870 64,351 9 %
Agriculture 450,616 407,208 43,408 11 %
1st lien 877,335 877,893 (558)—%
Junior lien 51,155 58,564 (7,409)(13)%
Total 1-4 family 928,490 936,457 (7,967)(1)%
Multifamily residential 189,342 184,068 5,274 3 %
Home equity lines of credit 440,105 402,614 37,491 9 %
Other consumer 148,247 155,193 (6,946)(4)%
Total consumer 588,352 557,807 30,545 5 %
States and political subdivisions 383,252 255,420 127,832 50 %
Other 144,133 126,252 17,881 14 %
Total loans receivable, including loans held for sale 6,616,657 5,757,390 859,267 15 %
Less loans held for sale 1 (38,833)(72,927)34,094 (47)%
Total loans receivable $6,577,824 $5,684,463 $893,361 16 %
______________________________
1 Loans held for sale are primarily 1st lien 1-4 family loans.
49
The following table summarizes the Company’s non-performing assets by regulatory classification:
Non-performing Assets,by Loan Type
Non-AccruingLoans
AccruingLoans 90 Daysor More Past Due
OtherReal EstateOwned
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2017 December 31,2017 December 31,2017
Custom and owner occupied construction $48 ———48
Pre-sold and spec construction 38 226 38 ——
Total residential construction 86 226 38 —48
Land development 7,888 9,864 806 —7,082
Consumer land or lots 1,861 2,137 1,065 —796
Unimproved land 10,866 11,905 8,760 —2,106
Developed lots for operative builders 116 175 ——116
Commercial lots 1,312 1,466 260 —1,052
Other construction 151 ———151
Total land, lot and other construction 22,194 25,547 10,891 —11,303
Owner occupied 13,848 18,749 11,778 698 1,372
Non-owner occupied 4,584 3,426 3,711 312 561
Total commercial real estate 18,432 22,175 15,489 1,010 1,933
Commercial and industrial 5,294 5,184 4,700 533 61
Agriculture 3,931 1,615 3,931 ——
1st lien 9,261 9,186 6,452 2,605 204
Junior lien 567 1,167 518 —49
Total 1-4 family 9,828 10,353 6,970 2,605 253
Multifamily residential —400 ———
Home equity lines of credit 3,292 5,494 2,652 —640
Other consumer 322 391 162 129 31
Total consumer 3,614 5,885 2,814 129 671
States and political subdivisions 1,800 ——1,800 —
Total $65,179 71,385 44,833 6,077 14,269
50
The following table summarizes the Company’s accruing loans 30-89 days past due by regulatory classification:
Accruing 30-89 Days DelinquentLoans, by Loan Type
(Dollars in thousands)
December 31,2017 December 31,2016 $ Change % Change
Custom and owner occupied construction $300 $1,836 $(1,536)(84)%
Pre-sold and spec construction 102 —102 n/m
Total residential construction 402 1,836 (1,434)(78)%
Land development —154 (154)(100)%
Consumer land or lots 353 638 (285)(45)%
Unimproved land 662 1,442 (780)(54)%
Developed lots for operative builders 7 —7 n/m
Commercial lots 108 —108 n/m
Total land, lot and other construction 1,130 2,234 (1,104)(49)%
Owner occupied 4,726 2,307 2,419 105 %
Non-owner occupied 2,399 1,689 710 42 %
Total commercial real estate 7,125 3,996 3,129 78 %
Commercial and industrial 6,472 3,032 3,440 113 %
Agriculture 3,205 1,133 2,072 183 %
1st lien 10,865 7,777 3,088 40 %
Junior lien 4,348 1,016 3,332 328 %
Total 1-4 family 15,213 8,793 6,420 73 %
Multifamily residential —10 (10)(100)%
Home equity lines of credit 1,962 1,537 425 28 %
Other consumer 2,109 1,180 929 79 %
Total consumer 4,071 2,717 1,354 50 %
States and political subdivisions —1,800 (1,800)(100)%
Other 69 66 3 5 %
Total $37,687 $25,617 $12,070 47 %
______________________________
n/m - not measurable
51
The following table summarizes the Company’s charge-offs and recoveries by regulatory classification:
Net Charge-Offs (Recoveries),Years ended, By Loan Type Charge-Offs Recoveries
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2017 December 31,2017
Custom and owner occupied construction $—(1)62 62
Pre-sold and spec construction (23)786 —23
Total residential construction (23)785 62 85
Land development (143)(2,661)—143
Consumer land or lots 222 (688)411 189
Unimproved land (304)(184)—304
Developed lots for operative builders (107)(27)—107
Commercial lots (6)27 —6
Other construction 389 —389 —
Total land, lot and other construction 51 (3,533)800 749
Owner occupied 3,908 1,196 4,556 648
Non-owner occupied 368 44 382 14
Total commercial real estate 4,276 1,240 4,938 662
Commercial and industrial 883 (370)1,597 714
Agriculture 9 50 37 28
1st lien (23)487 356 379
Junior lien 719 60 815 96
Total 1-4 family 696 547 1,171 475
Multifamily residential (230)229 —230
Home equity lines of credit 272 611 463 191
Other consumer 505 257 735 230
Total consumer 777 868 1,198 421
Other 4,389 2,642 9,528 5,139
Total $10,828 2,458 19,331 8,503
52
Sources of Funds
The Company’s deposits have traditionally been the principal source of funds for use in lending and other business purposes. The
Company also obtains funds from repayment of loans and investment securities, repurchase agreements, wholesale deposits, advances
from FHLB and other borrowings. 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. Borrowings
also may be used on a long-term basis to support expanded activities, match maturities of longer-term assets or manage interest rate risk.
Deposits
The Company has several 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 non-interest bearing deposit accounts and interest bearing deposit accounts
such as NOW, DDA, savings, money market deposits, fixed rate certificates of deposit with maturities ranging from three months to five
years, negotiated-rate jumbo certificates, and individual retirement accounts. These deposits are obtained primarily from individual and
business residents in the Bank’s geographic market areas. Wholesale deposits are obtained through various programs and include brokered
deposits classified as NOW, DDA, money market deposit and certificate accounts. The Company utilized a third party vendor to transfer
$433 million of deposits off-balance sheet as of December 31, 2017. Such deposits can be brought back onto the Company’s balance
sheet at the Company’s discretion. The Company’s deposits are summarized below:
December 31, 2017 December 31, 2016 December 31, 2015 December 31, 2014 December 31, 2013
(Dollars in thousands)Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
Non-interest bearingdeposits $2,311,902 31%$2,041,852 28%$1,918,310 28%$1,632,403 26%$1,374,419 25%
NOW and DDA accounts 1,695,246 22%1,588,550 22%1,516,026 22%1,328,130 21%1,113,878 20%
Savings accounts 1,082,604 14%996,061 13%838,274 12%693,714 11%600,998 11%
Money market depositaccounts 1,512,693 20%1,464,415 20%1,382,028 20%1,274,525 20%1,168,918 21%
Certificate accounts 817,259 11%948,714 13%1,060,650 15%1,167,228 18%1,116,622 20%
Wholesale deposits 160,043 2%332,687 4%229,720 3%249,212 4%205,132 3%
Total interest bearingdeposits 5,267,845 69%5,330,427 72%5,026,698 72%4,712,809 74%4,205,548 75%
Total deposits $7,579,747 100%$7,372,279 100%$6,945,008 100%$6,345,212 100%$5,579,967 100%
The following table summarizes the amounts outstanding at December 31, 2017 for deposits of $100,000 and greater, according to the
time remaining to maturity. Included in demand deposits are brokered deposits of $160 million.
(Dollars in thousands)
Certificatesof Deposit DemandDeposits Total
Within three months $99,485 4,366,626 4,466,111
Three months to six months 94,986 —94,986
Seven months to twelve months 112,761 —112,761
Over twelve months 137,159 —137,159
Total $444,391 4,366,626 4,811,017
For additional information on deposits, see Note 7 to the Consolidated Financial Statements in “Item 8. Financial Statements and
Supplementary Data.”
53
Securities Sold Under Agreements to Repurchase, Federal Home Loan Bank Advances and Other Borrowings
The Company borrows money through repurchase agreements. This process involves the selling of one or more of the securities in the
Company’s investment portfolio and simultaneously entering into an agreement to repurchase the same securities at an agreed upon later
date, typically overnight. A rate of interest is paid for the agreed period of time. Through a policy adopted by the Bank’s Board of
Directors, the Bank enters into repurchase agreements with local municipalities, and certain customers, and has adopted procedures
designed to ensure proper transfer of title and safekeeping of the underlying securities. In addition to retail repurchase agreements, the
Company periodically enters into wholesale repurchase agreements as additional funding sources. The Company has not entered into
reverse repurchase agreements.
The Bank is a member of the FHLB of Des Moines, which is one of eleven banks that comprise the FHLB system. The Bank is required
to maintain a certain level of activity-based stock in order to borrow or to engage in other transactions with the FHLB of Des Moines.
Additionally, the Bank is subject to a membership capital stock requirement that is based upon an annual calibration tied to the total assets
of the Bank. The borrowings are collateralized by eligible categories of loans and investment securities (principally, securities which
are obligations of, or guaranteed by, the U.S. government 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 rates and range of maturities.
The Bank’s maximum amount of FHLB advances is limited to the lesser of a fixed percentage of the Bank’s total assets or the discounted
value of eligible collateral. FHLB advances fluctuate to meet seasonal and other withdrawals of deposits and to expand lending or
investment opportunities of the Company. During the year ended December 31, 2017, the Company modified the majority of its long-
term FHLB advances, including prepaying higher cost advances, to strategically manage its asset size.
Additionally, the Company has other sources of secured and unsecured borrowing lines from various sources that may be used from time
to time.
For additional information concerning the Company’s borrowings, see Note 8 to the Consolidated Financial Statements in “Item 8.
Financial Statements and Supplementary Data.”
Short-term borrowings
A critical component of the Company’s liquidity and capital resources is access to short-term borrowings to fund its operations. Short-
term borrowings are accompanied by increased risks managed by the Bank’s Asset Liability Committee (“ALCO”) such as rate increases
or unfavorable change in terms which would make it more costly to obtain future short-term borrowings. The Company’s short-term
borrowing sources include FHLB advances, federal funds purchased and retail and wholesale repurchase agreements. The Company
also has access to the short-term discount window borrowing programs (i.e., primary credit) of the Federal Reserve Bank (“FRB”). FHLB
advances and certain other short-term borrowings may be renewed as long-term borrowings to decrease certain risks such as liquidity or
interest rate risk; however, the reduction in risks are weighed against the increased cost of funds and other risks.
The following table provides information relating to significant short-term borrowings, which consists of borrowings that mature within
one year of period end:
At or for the Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Repurchase agreements
Amount outstanding at end of period $362,573 473,650 423,414
Weighted interest rate on outstanding amount 0.53%0.34%0.31%
Maximum outstanding at any month end $497,187 473,650 441,041
Average balance $413,873 384,066 376,983
Weighted-average interest rate 0.45%0.31%0.27%
54
Subordinated Debentures
In addition to funds obtained in the ordinary course of business, the Company formed or acquired financing subsidiaries for the purpose
of issuing trust preferred securities that entitle the investor to receive cumulative cash distributions thereon. The subordinated debentures
outstanding as of December 31, 2017 were $126 million, including fair value adjustments from prior acquisitions. For additional
information regarding the subordinated debentures, see Note 9 to the Consolidated Financial Statements in “Item 8. Financial Statements
and Supplementary Data.”
Contractual Obligations and Off-Balance Sheet Arrangements
In the normal course of business, there may be various outstanding commitments to obtain funding and to extend credit, such as letters
of credit and un-advanced loan commitments, which are not reflected in the accompanying condensed consolidated financial statements.
The Company does not anticipate any material losses as a result of these transactions.
Off-balance sheet arrangements also include any obligation related to a variable interest held in an unconsolidated entity. The Company
does not anticipate any material losses as a result of these transactions. For additional information regarding the Company’s interests in
unconsolidated VIEs, see Note 6 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
The following table represents the Company’s contractual obligations as of December 31, 2017:
Payments Due by Period
(Dollars in thousands)Total
Indeter-minateMaturity 1 2018 2019 2020 2021 2022 Thereafter
Deposits $7,579,747 6,762,488 557,693 120,657 65,284 45,409 27,974 242
Repurchase agreements 362,573 —362,573 —————
FHLB advances 353,995 —200,869 887 1,651 148,721 945 922
Other borrowed funds 7,964 ——————7,964
Subordinated debentures 126,135 ——————126,135
Capital lease obligations 287 —92 92 92 11 ——
Operating leaseobligations 15,261 —2,633 2,502 2,039 1,593 953 5,541
Total $8,445,962 6,762,488 1,123,860 124,138 69,066 195,734 29,872 140,804
______________________________
1 Represents non-interest bearing deposits and NOW, DDA, savings, and money market accounts.
55
Liquidity Risk
Liquidity risk is the possibility that the Company will not be able to fund present and future obligations as they come due because of an
inability to liquidate assets or obtain adequate funding at a reasonable cost. The objective of liquidity management is to maintain cash
flows adequate to meet current and future needs for credit demand, deposit withdrawals, maturing liabilities and corporate operating
expenses. Effective liquidity management entails three elements:
1. assessing on an ongoing basis, the current and expected future needs for funds, and ensuring that sufficient funds or access to
funds exist to meet those needs at the appropriate time;
2. providing for an adequate cushion of liquidity to meet unanticipated cash flow needs that may arise from potential adverse
circumstances ranging from high probability/low severity events to low probability/high severity; and
3. balancing the benefits between providing for adequate liquidity to mitigate potential adverse events and the cost of that liquidity.
The Company has a wide range of versatility in managing the liquidity and asset/liability mix. The Bank’s ALCO meets regularly to
assess liquidity risk, among other matters. The Company monitors liquidity and contingency funding alternatives through management
reports of liquid assets (e.g., investment securities), both unencumbered and pledged, as well as borrowing capacity, both secured and
unsecured, including off-balance sheet funding sources. The Company evaluates its potential funding needs across alternative scenarios
and maintains contingency funding plans consistent with the Company’s access to diversified sources of contingent funding.
The following table identifies certain liquidity sources and capacity available to the Company as of the dates indicated:
(Dollars in thousands)
December 31,2017 December 31,2016
FHLB advances
Borrowing capacity $1,807,787 1,558,527
Amount utilized (360,185)(251,749)
Amount available $1,447,602 1,306,778
FRB discount window
Borrowing capacity $1,054,103 1,226,683
Amount utilized ——
Amount available $1,054,103 1,226,683
Unsecured lines of credit available $230,000 255,000
Unencumbered investment securities
U.S. government and federal agency $29,097 39,407
U.S. government sponsored enterprises 3,358 12,086
State and local governments 769,786 814,942
Corporate bonds 5,982 19,573
Residential mortgage-backed securities 115,527 258,260
Commercial mortgage-backed securities 54,998 78,144
Total unencumbered securities $978,748 1,222,412
56
Capital Resources
Maintaining capital strength continues to be a long-term objective of the Company. Abundant capital is necessary to sustain growth,
provide protection against unanticipated declines in asset values, and to safeguard the funds of depositors. Capital is also a source of
funds for loan demand and enables the Company to effectively manage its assets and liabilities. The Company has the capacity to issue
117,187,500 shares of common stock of which 78,006,956 have been issued as of December 31, 2017. The Company also has the capacity
to issue 1,000,000 shares of preferred stock of which none have been issued as of December 31, 2017. Conversely, the Company may
decide to utilize a portion of its strong capital position, as it has done in the past, to repurchase shares of its outstanding common stock,
depending on market price and other relevant considerations.
The Federal Reserve has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding
company. The federal banking agencies implemented the Final Rules to establish a new comprehensive regulatory capital framework
with a phase-in period beginning on January 1, 2015 and ending on January 1, 2019. The Final Rules implemented certain regulatory
amendments based on the recommendation of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank
Act and substantially amended the regulatory risk-based capital rules applicable to the Company. The Final Rules require the Company
to hold a conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer for 2017 is
1.25%. As of December 31, 2017, management believes the Company and Bank meet all capital adequacy requirements to which they
are subject and there are no conditions or events subsequent to this date that management believes have changed the Company’s or Bank’s
risk-based capital category.
The following table illustrates the Bank’s regulatory ratios and the Federal Reserve’s current capital adequacy guidelines as of
December 31, 2017. The Federal Reserve’s fully phased-in guidelines applicable in 2019 are also summarized.
Total Capital(To Risk-WeightedAssets)
Tier 1 Capital(To Risk-WeightedAssets)
CommonEquity Tier 1(To Risk-WeightedAssets)
LeverageRatio/Tier 1 Capital(To AverageAssets)
Glacier Bank regulatory ratios 15.04%13.79%13.79%11.47%
Minimum capital requirements 8.00%6.00%4.50%4.00%
Well capitalized requirements 10.00%8.00%6.50%5.00%
Minimum capital requirements, including fully-phased incapital conservation buffer (2019)10.50%8.50%7.00%N/A
For additional information regarding regulatory capital, see Note 11 to the Consolidated Financial Statements in “Item 8. Financial
Statements and Supplementary Data.”
57
Federal and State Income Taxes
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.
Under Montana, Idaho, Utah, Colorado and Arizona law, financial institutions are subject to a corporation income tax, which incorporates
or is substantially similar to applicable provisions of the Internal Revenue Code. The corporation income tax is imposed on federal
taxable income, subject to certain adjustments. State taxes are incurred at the rate of 6.75 percent in Montana, 7.4 percent in Idaho, 5
percent in Utah, 4.63 percent in Colorado and 4.9 percent in Arizona. Washington and Wyoming do not impose a corporate income tax.
Income tax expense for the years ended December 31, 2017 and 2016 was $64.6 million and $39.7 million, respectively, with such
increase resulting from the $19.7 million revaluation of the Company’s net deferred tax asset. Deferred tax assets and liabilities were
measured using enacted tax rates expected to apply to the years in which the temporary differences are expected to be recognized. The
effect on deferred tax assets and liabilities from the change in tax rates was recognized in net income during the current year, given that
the enactment of the Tax Act occurred on December 22, 2017, causing a current year effective tax rate of 35.7 percent. The current year
federal marginal rate was 35 percent and will decrease to 21 percent in 2018. Excluding the impact of the Tax Act, the effective federal
and state income tax rate for the Company was 24.8 percent in 2017 and is expected to decrease to a range of 17 to 18 percent during
2018 as a result of the Tax Act. The current and prior year’s low effective tax rates, excluding the impact of the Tax Act, of 24.8 percent
and 24.7 percent, respectively, are due to income from tax-exempt investment securities, municipal loans and leases and benefits from
federal income tax credits. The income from tax-exempt investment securities, loans and leases was $56.0 million and $58.1 million for
the years ended December 31, 2017 and 2016, respectively. The benefits from federal income tax credits were $5.6 million and $3.3
million for the years ended December 31, 2017 and 2016, respectively. For additional information on the revaluation of the net deferred
tax asset and the effective tax rate, see the “Non-GAAP Financial Measures” section in “Item 6. Selected Financial Data.”
The Company has equity investments in Certified Development Entities (“CDE”) which have received allocations of New Markets Tax
Credits (“NMTC”). Administered by the Community Development Financial Institutions Fund (“CDFI 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. The Company also has
equity investments in Low-Income Housing Tax Credits (“LIHTC”) which are indirect federal subsidies used to finance the development
of affordable rental housing for low-income households. The federal income tax credits are claimed over a ten-year credit allowance
period. The Company has investments of $21.2 million in Qualified Zone Academy and Qualified School Construction bonds whereby
the Company receives quarterly federal income tax credits in lieu of taxable interest income. The federal income tax credits on these
investment securities are subject to federal and state income tax.
Following is a list of expected federal income tax credits to be received in the years indicated.
(Dollars in thousands)
NewMarketsTax Credits
Low-IncomeHousingTax Credits
InvestmentSecuritiesTax Credits Total
2018 $2,874 4,808 908 8,590
2019 2,974 5,070 850 8,894
2020 3,296 4,855 791 8,942
2021 3,296 4,038 737 8,071
2022 2,528 4,010 673 7,211
Thereafter 1,930 18,618 2,149 22,697
$16,898 41,399 6,108 64,405
For additional information on income taxes, see Note 15 to the Consolidated Financial Statements in “Item 8. Financial Statements and
Supplementary Data”.
Average Balance Sheet
The following schedule provides 1) the total dollar amount of interest and dividend income of the Company for earning assets and the
average yields; 2) the total dollar amount of interest expense on interest bearing liabilities and the average rates; 3) net interest and
dividend income and interest rate spread; and 4) net interest margin (tax-equivalent).
58
Years ended
December 31, 2017 December 31, 2016 December 31, 2015
(Dollars in thousands)
AverageBalance Interest &Dividends
AverageYield/Rate AverageBalance Interest &Dividends
AverageYield/Rate AverageBalance Interest &Dividends
AverageYield/Rate
Assets
Residential real estate loans $744,523 $33,114 4.45%$741,876 $33,410 4.50%$687,013 $32,153 4.68%
Commercial loans 1 4,792,720 233,744 4.88%3,993,363 193,147 4.84%3,459,470 167,587 4.84%
Consumer and other loans 684,129 32,584 4.76%668,990 31,402 4.69%631,512 31,476 4.98%
Total loans 2 6,221,372 299,442 4.81%5,404,229 257,959 4.77%4,777,995 231,216 4.84%
Tax-exempt investment securities 3 1,160,182 66,077 5.70%1,325,810 75,907 5.73%1,328,908 77,199 5.81%
Taxable investment securities 4 1,722,264 39,727 2.31%1,874,240 41,775 2.23%1,918,283 41,648 2.17%
Total earning assets 9,103,818 405,246 4.45%8,604,279 375,641 4.37%8,025,186 350,063 4.36%
Goodwill and intangibles 180,014 155,981 143,293
Non-earning assets 394,363 392,353 389,126
Total assets $9,678,195 $9,152,613 $8,557,605
Liabilities
Non-interest bearing deposits $2,175,750 $——%$1,934,543 $——%$1,756,888 $——%
NOW and DDA accounts 1,656,865 1,402 0.08%1,498,928 1,062 0.07%1,371,340 1,074 0.08%
Savings accounts 1,055,688 624 0.06%920,058 464 0.05%758,776 360 0.05%
Money market deposit accounts 1,547,659 2,407 0.16%1,420,700 2,183 0.15%1,340,967 2,066 0.15%
Certificate accounts 888,887 5,114 0.58%1,013,046 5,998 0.59%1,131,210 6,891 0.61%
Wholesale deposits 5 275,804 7,246 2.63%335,616 8,695 2.59%206,889 5,747 2.78%
FHLB advances 258,528 6,748 2.57%294,952 6,221 2.07%319,565 8,841 2.73%
Repurchase agreements andother borrowed funds 547,307 6,323 1.16%515,254 5,008 0.97%509,431 4,296 0.84%
Total interest bearingliabilities 8,406,488 29,864 0.36%7,933,097 29,631 0.37%7,395,066 29,275 0.40%
Other liabilities 83,991 96,392 91,360
Total liabilities 8,490,479 8,029,489 7,486,426
Stockholders’ Equity
Common stock 775 763 755
Paid-in capital 781,267 740,792 720,827
Retained earnings 406,200 371,925 336,998
Accumulated othercomprehensive income (526)9,644 12,599
Total stockholders’ equity 1,187,716 1,123,124 1,071,179
Total liabilities andstockholders’ equity $9,678,195 $9,152,613 $8,557,605
Net interest income(tax-equivalent)$375,382 $346,010 $320,788
Net interest spread(tax-equivalent)4.09%4.00%3.96%
Net interest margin(tax-equivalent)4.12%4.02%4.00%
______________________________
1 Includes tax effect of $6.4 million, $4.2 million and $2.6 million on tax-exempt municipal loan and lease income for the years ended December 31,
2017, 2016 and 2015, respectively.
2 Total loans are gross of the allowance for loan and lease losses, net of unearned income and include loans held for sale. Non-accrual loans were included
in the average volume for the entire period.
3 Includes tax effect of $22.5 million, $25.9 million and $26.3 million on tax-exempt investment securities income for the years ended December 31,
2017, 2016 and 2015, respectively.4 Includes tax effect of $1.3 million, $1.4 million and $1.4 million on federal income tax credits for the years ended December 31, 2017, 2016 and 2015,
respectively.
5 Wholesale deposits include brokered deposits classified as NOW, DDA, money market deposit and certificate accounts.
59
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 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.
Year ended December 31,Year ended December 31,
2017 vs. 2016 2016 vs. 2015
Increase (Decrease) Due to:Increase (Decrease) Due to:
(Dollars in thousands)Volume Rate Net Volume Rate Net
Interest income
Residential real estate loans $119 (415)(296)2,568 (1,311)1,257
Commercial loans (tax-equivalent)38,029 2,568 40,597 26,393 (833)25,560
Consumer and other loans 623 559 1,182 1,960 (2,034)(74)
Investment securities (tax-equivalent)(11,680)(198)(11,878)(1,725)560 (1,165)
Total interest income 27,091 2,514 29,605 29,196 (3,618)25,578
Interest expense
NOW and DDA accounts 109 231 340 103 (115)(12)
Savings accounts 67 93 160 78 26 104
Money market deposit accounts 189 35 224 129 (12)117
Certificate accounts (750)(134)(884)(703)(190)(893)
Wholesale deposits (1,569)120 (1,449)3,602 (654)2,948
FHLB advances (783)1,310 527 (658)(1,962)(2,620)
Repurchase agreements and otherborrowed funds 297 1,018 1,315 61 651 712
Total interest expense (2,440)2,673 233 2,612 (2,256)356
Net interest income (tax-equivalent)$29,531 (159)29,372 26,584 (1,362)25,222
Net interest income (tax-equivalent) increased $29.4 million for the year ended December 31, 2017 compared to the same period in 2016.
The interest income for 2017 increased over the same period last year primarily from continued increased growth of the Company’s
commercial loan portfolio along with increased yields on such loans. The decrease in interest income on the investment securities portfolio
was the result of continuing to redeploy cash flow from investment securities into the loan portfolio. Total interest expense remained
stable compared to the prior year with volatility in certain categories including wholesale deposits, FHLB advances and other borrowed
funds. The decrease in wholesale deposits resulted from the Company taking the opportunity to pay off some of those higher cost funding
sources. The increase in rates on FHLB advances resulted from the Company changing a portion of its LIBOR-based borrowings from
wholesale deposits to FHLB advances for its cash flow hedge. The increase in rates on other borrowed funds resulted from the increased
rates on the Company’s variable rate subordinated debentures.
Net interest income (tax-equivalent) increased $25.2 million during 2016 compared to 2015. The increase in interest income primarily
resulted from increased growth of the Company’s commercial loan portfolio. Total interest expense for 2016 remained relatively flat
compared to the prior year, although, there was an increase in expenses related to wholesale deposits which was offset by a decrease in
expense from FHLB advances. The increase in the amount of wholesale deposits and related expense was driven by a delayed start
interest rate swap (i.e., 3.5 years) with a notional amount of $100 million that started interest accruals in November 2015. The Company
utilized wholesale deposits as the cash flow hedge which resulted in an increase amount of wholesale deposits and associated interest
expense. The decrease in rates on FHLB advances was driven by long-term advances maturing and being replaced by short-term lower
cost FHLB advances.
60
Effect of inflation and changing prices
GAAP often requires the measurement of financial position and operating results in terms of historical dollars, without consideration for
change in relative purchasing power over time due to inflation. Virtually all assets of the Company are monetary in nature; therefore,
interest rates generally have a more significant impact on a company’s performance than does the effect of inflation.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with GAAP often requires management to use significant judgments
as well as subjective and/or complex measurements in making estimates and assumptions that affect the reported amounts of assets,
liabilities, income and expenses. The Company considers its accounting policies for the ALLL, goodwill and fair value measurements
to be critical accounting policies. The application of these policies has a significant impact on the Company’s consolidated financial
statements and financial results could differ significantly if different judgments or estimates were to be applied.
Allowance for Loan and Lease Losses
For information regarding the ALLL, its relation to the provision for loan losses and risk related to asset quality, see the section captioned
“Allowance for Loan and Lease Losses” included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and Notes 1 and 3 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
Goodwill
For information on goodwill, see Notes 1 and 5 to the Consolidated Financial Statements in “Item 8. Financial Statements and
Supplementary Data.”
Fair Value Measurements
For information on fair value measurements, see Note 20 to the Consolidated Financial Statements in “Item 8. Financial Statements and
Supplementary Data.”
Impact of Recently Issued Accounting Standards
Authoritative accounting guidance that may have had a material impact on the Company that became effective during 2017 or 2016
includes amendments to:
• Financial Accounting Standards Board (“FASB”) Accounting Standards CodificationTM (“ASC”) Topic 220, Income Statement
- Reporting Comprehensive Income;
• FASB ASC Topic 718, Compensation - Stock Compensation;
• FASB ASC Topic 250, Accounting Changes and Error Corrections;
• FASB ASC Topic 805, Business Combinations; and
• FASB ASC Topic 810, Consolidation
• SEC Staff Accounting Bulletin (“SAB”) Topic 11.M, Disclosure of the Impact that Recently Issued Accounting Standards Will
Have on the Financial Statements of the Registrant when Adopted in a Future Period
Authoritative accounting guidance that may possibly have a material impact on the Company that is pending adoption at December 31,
2017 includes amendments to:
• FASB ASC Topic 815, Derivatives and Hedging;
• FASB ASC Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs;
• FASB ASC Topic 350, Simplifying the Test for Goodwill;
• FASB ASC Topic 326, Financial Instruments - Credit Losses;
• FASB ASC Topic 842, Leases;
• FASB ASC Topic 825, Financial Instruments; and
• FASB ASC Topic 606, Revenue from Contracts with Customers
For additional information on the topics and the impact on the Company see Note 1 to the Consolidated Financial Statements in “Item
8. Financial Statements and Supplementary Data.”
61
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The disclosures set forth in this item are qualified by the section captioned “Forward-Looking Statements” included in “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Market risk is the risk of loss in a financial
instrument arising from adverse changes in market rates/prices such as interest rates, foreign currency exchange rates, commodity prices,
and equity prices. The Company’s primary market risk exposure is interest rate risk.
Interest Rate Risk
Interest rate risk is the potential for loss of future earnings resulting from adverse changes in the level of interest rates. Interest rate risk
results from many factors and could have a significant impact on the Company’s net interest income, which is the Company’s primary
source of net income. Net interest income is affected by changes in interest rates, the relationship between rates on interest bearing assets
and liabilities, the impact of the interest fluctuations on asset prepayments and the mix of interest bearing assets and liabilities.
Although interest rate risk is inherent in the banking industry, banks are expected to have sound risk management practices in place to
measure, monitor and control interest rate exposures. The objective of interest rate risk management is to contain the risks associated
with interest rate fluctuations. The process involves identification and management of the sensitivity of net interest income to changing
interest rates.
The ongoing monitoring and management of this risk is an important component of the Company’s asset/liability management process
which is governed by policies established by the Company’s Board that are reviewed and approved annually. The Board delegates
responsibility for carrying out the asset/liability management policies to the Bank’s ALCO. In this capacity, the ALCO develops guidelines
and strategies impacting the Company’s asset/liability management related activities based upon estimated market risk sensitivity, policy
limits and overall market interest rate levels and trends. The Company’s goal of its asset and liability management practices is to maintain
or increase the level of net interest income within an acceptable level of interest rate risk.
In addition to the risk management practices previously described, the Company has entered into forecasted interest rate swap derivative
financial instruments to hedge various interest rate exposures. For more information on the Company’s interest rate swaps, see Note 10
to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
Net interest income simulation
The Company uses a detailed and dynamic simulation model to quantify the estimated exposure of net interest income (“NII”) to sustained
interest rate changes. While ALCO routinely monitors simulated NII sensitivity over rolling two-year and five-year horizons, it also
utilizes additional tools to monitor potential longer-term interest rate risk (e.g., economic value of equity). The simulation model captures
the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on
the Company’s statements of financial condition. This sensitivity analysis is compared to ALCO policy limits which specify a maximum
tolerance level for NII exposure over a one year and two year horizon, assuming no balance sheet growth. The ALCO policy rate scenarios
include upward and downward shifts in interest rates for 100 bps, 200 bps, 300 bps, and 400 bps scenarios with instantaneous and parallel
changes in current market yield curves. The ALCO policy also includes 200 bps and 400 bps rate scenarios with gradual parallel shifts
in interest rates over 12-month and 24-month periods, respectively. Given the historically low rate environment, a downward shift in
interest rates of only 100 bps is modeled. Other non-parallel rate movement scenarios are also modeled to determine the potential impact
on net interest income. The additional scenarios are adjusted as the economic environment changes and provide ALCO additional interest
rate risk monitoring tools to evaluate current market conditions.
62
The following is indicative of the Company’s overall NII sensitivity analysis as of December 31, 2017 as compared to the ALCO policy
limits approved by the Company’s Board. The Company’s interest sensitivity remained within policy limits at December 31, 2017.
One Year Two Years
Rate Scenarios PolicyLimits EstimatedSensitivity PolicyLimits EstimatedSensitivity
-100 bps Rate shock (10.0)%(3.9)%(15.0)%(6.2)%
+100 bps Rate shock (10.0)%(0.3)%(15.0)%2.2 %
+200 bps Rate shock (10.0)%0.1 %(15.0)%4.5 %
+200 bps Rate ramp (10.0)%(0.3)%(15.0)%2.3 %
+300 bps Rate shock (20.0)%0.6 %(20.0)%7.0 %
+400 bps Rate shock (20.0)%(0.1)%(20.0)%8.4 %
+400 bps Rate ramp (10.0)%1.1 %(20.0)%2.5 %
The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating
results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels
including, but not limited to, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and
deposits and reinvestment/replacement of asset and liability cash flows. While assumptions are developed based upon current economic
and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how
customer preferences or competitor influences might change. Also, as market conditions vary from those assumed in the sensitivity
analysis, actual results will also differ due to prepayment/refinancing levels likely deviating from those assumed, the varying impact of
interest rate caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate
loans, depositor early withdrawals and product preference changes, and other internal and external variables. Furthermore, the sensitivity
analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates.
Economic value of equity
In addition to the NII analyses, the Company calculates the economic value of equity (“EVE”) which focuses on longer term interest rate
risk. The EVE process models the cash flow of financial instruments to maturity and then discounts those cashflows based on prevailing
interest rates in order to develop a baseline EVE. The interest rates used in the model are then shocked for an immediate increase and
decrease in interest rates. The results for the shocked model are compared to the baseline results to determine the percentage change in
EVE under the various scenarios. The resulting percentage change in the EVE is an indication of the longer term re-pricing risk and
option risks embedded in the balance sheet. The measure is not designed to estimate the Company’s capital levels, such as tangible,
regulatory, or market capitalization.
The following reflects the Company’s EVE maximum sensitivity policy limits and EVE analysis as of December 31, 2017:
Rate Scenarios PolicyLimits PostShock Ratio
-100 bps Rate shock (10.0)%(5.1)%
+100 bps Rate shock (10.0)%(0.9)%
+200 bps Rate shock (20.0)%(3.6)%
+300 bps Rate shock (30.0)%(6.2)%
+400 bps Rate shock (40.0)%(9.2)%
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Stockholders, Board of Directors and Audit Committee
Glacier Bancorp, Inc.
Kalispell, Montana
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Glacier Bancorp, Inc. (the
Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive
income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended
December 31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the
consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2017, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control – Integrated Framework: (2013), issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 22,
2018, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2005.
Denver, Colorado
February 22, 2018
63
Report of Independent Registered Public Accounting Firm
To the Stockholders, Board of Directors and Audit Committee
Glacier Bancorp, Inc.
Kalispell, Montana
Opinion on the Internal Control over Financial Reporting
We have audited Glacier Bancorp, Inc.’s (the Company) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control – Integrated Framework: (2013),
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated
Framework: (2013), issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the consolidated financial statements of Glacier Bancorp, Inc. and our
report dated February 22, 2018, expressed an unqualified opinion thereon.
Basis for Opinion
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 Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
64
Glacier Bancorp, Inc.
Kalispell, Montana
Definitions and Limitations of Internal Control over Financial Reporting
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 financial statements for
external purposes 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 generally accepted accounting principles,
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 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.
Denver, Colorado
February 22, 2018
65
66
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
December 31,2017 December 31,2016
Assets
Cash on hand and in banks $139,948 135,268
Interest bearing cash deposits 60,056 17,273
Cash and cash equivalents 200,004 152,541
Investment securities, available-for-sale 1,778,243 2,425,477
Investment securities, held-to-maturity 648,313 675,674
Total investment securities 2,426,556 3,101,151
Loans held for sale 38,833 72,927
Loans receivable 6,577,824 5,684,463
Allowance for loan and lease losses (129,568)(129,572)
Loans receivable, net 6,448,256 5,554,891
Premises and equipment, net 177,348 176,198
Other real estate owned 14,269 20,954
Accrued interest receivable 44,462 45,832
Deferred tax asset 38,344 67,121
Core deposit intangible, net 14,184 12,347
Goodwill 177,811 147,053
Non-marketable equity securities 29,884 25,550
Other assets 96,398 74,035
Total assets $9,706,349 9,450,600
Liabilities
Non-interest bearing deposits $2,311,902 2,041,852
Interest bearing deposits 5,267,845 5,330,427
Securities sold under agreements to repurchase 362,573 473,650
Federal Home Loan Bank advances 353,995 251,749
Other borrowed funds 8,224 4,440
Subordinated debentures 126,135 125,991
Accrued interest payable 3,450 3,584
Other liabilities 73,168 102,038
Total liabilities 8,507,292 8,333,731
Stockholders’ Equity
Preferred shares, $0.01 par value per share, 1,000,000 shares authorized,none issued or outstanding ——
Common stock, $0.01 par value per share, 117,187,500 shares authorized 780 765
Paid-in capital 797,997 749,107
Retained earnings - substantially restricted 402,259 374,379
Accumulated other comprehensive loss (1,979)(7,382)
Total stockholders’ equity 1,199,057 1,116,869
Total liabilities and stockholders’ equity $9,706,349 9,450,600
Number of common stock shares issued and outstanding 78,006,956 76,525,402
See accompanying notes to consolidated financial statements.
67
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended
(Dollars in thousands, except per share data)
December 31,2017 December 31,2016 December 31,2015
Interest Income
Investment securities $81,968 90,392 91,086
Residential real estate loans 33,114 33,410 32,153
Commercial loans 227,356 188,949 164,966
Consumer and other loans 32,584 31,402 31,476
Total interest income 375,022 344,153 319,681
Interest Expense
Deposits 16,793 18,402 16,138
Securities sold under agreements to repurchase 1,858 1,207 1,021
Federal Home Loan Bank advances 6,748 6,221 8,841
Other borrowed funds 79 67 81
Subordinated debentures 4,386 3,734 3,194
Total interest expense 29,864 29,631 29,275
Net Interest Income 345,158 314,522 290,406
Provision for loan losses 10,824 2,333 2,284
Net interest income after provision for loan losses 334,334 312,189 288,122
Non-Interest Income
Service charges and other fees 67,717 62,405 59,286
Miscellaneous loan fees and charges 4,360 4,613 4,276
Gain on sale of loans 30,439 33,606 26,389
(Loss) gain on sale of investments (660)(1,463)19
Other income 10,383 8,157 8,791
Total non-interest income 112,239 107,318 98,761
Non-Interest Expense
Compensation and employee benefits 160,506 151,697 134,382
Occupancy and equipment 26,631 25,979 25,483
Advertising and promotions 8,405 8,433 8,661
Data processing 14,150 14,390 11,244
Other real estate owned 1,909 2,895 3,693
Regulatory assessments and insurance 4,431 4,780 5,283
Core deposit intangible amortization 2,494 2,970 2,964
Other expenses 47,045 47,570 45,047
Total non-interest expense 265,571 258,714 236,757
Income Before Income Taxes 181,002 160,793 150,126
Federal and state income tax expense 64,625 39,662 33,999
Net Income $116,377 121,131 116,127
Basic earnings per share $1.50 1.59 1.54
Diluted earnings per share $1.50 1.59 1.54
Dividends declared per share $1.14 1.10 1.05
Average outstanding shares - basic 77,537,664 76,278,463 75,542,455
Average outstanding shares - diluted 77,607,605 76,341,836 75,595,581
See accompanying notes to consolidated financial statements.
68
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Net Income $116,377 121,131 116,127
Other Comprehensive Income (Loss), Net of Tax
Unrealized gains (losses) on available-for-sale securities 3,428 (21,407)(22,845)
Reclassification adjustment for losses (gains) included in net income 636 1,335 (69)
Net unrealized gains (losses) on available-for-sale securities 4,064 (20,072)(22,914)
Tax effect (1,563)7,776 8,904
Net of tax amount 2,501 (12,296)(14,010)
Unrealized gains (losses) on derivatives used for cash flow hedges 444 (1,643)(7,857)
Reclassification adjustment for losses included in net income 4,892 6,417 5,025
Net unrealized gains (losses) on derivatives used forcash flow hedges 5,336 4,774 (2,832)
Tax effect (2,083)(1,849)1,087
Net of tax amount 3,253 2,925 (1,745)
Total other comprehensive income (loss), net of tax 5,754 (9,371)(15,755)
Total Comprehensive Income $122,131 111,760 100,372
See accompanying notes to consolidated financial statements.
69
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years ended December 31, 2017, 2016 and 2015
(Dollars in thousands, except per share data)
Common Stock Paid-inCapital
RetainedEarningsSubstantially Restricted
AccumulatedOther Comp-rehensive Income (Loss)
Shares Amount Total
Balance at December 31, 2014 75,026,092 $750 708,356 301,197 17,744 1,028,047
Net income ———116,127 —116,127
Other comprehensive loss ————(15,755)(15,755)
Cash dividends declared ($1.05 per share)———(79,792)—(79,792)
Stock issued in connection with acquisitions 997,850 10 25,929 ——25,939
Stock issuances under stock incentive plans 62,346 1 16 ——17
Stock-based compensation and related taxes ——2,067 ——2,067
Balance at December 31, 2015 76,086,288 $761 736,368 337,532 1,989 1,076,650
Net income ———121,131 —121,131
Other comprehensive loss ————(9,371)(9,371)
Cash dividends declared ($1.10 per share)———(84,284)—(84,284)
Stock issued in connection with acquisitions 349,545 3 10,462 ——10,465
Stock issuances under stock incentive plans 89,569 1 (1)———
Stock-based compensation and related taxes ——2,278 ——2,278
Balance at December 31, 2016 76,525,402 $765 749,107 374,379 (7,382)1,116,869
Net income ———116,377 —116,377
Other comprehensive income ———351 5,403 5,754
Cash dividends declared ($1.14 per share)———(88,848)—(88,848)
Stock issued in connection with acquisitions 1,381,661 14 46,659 ——46,673
Stock issuances under stock incentive plans 99,893 1 (1)———
Stock-based compensation and related taxes ——2,232 ——2,232
Balance at December 31, 2017 78,006,956 $780 797,997 402,259 (1,979)1,199,057
See accompanying notes to consolidated financial statements.
70
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Operating Activities
Net income $116,377 121,131 116,127
Adjustments to reconcile net income to net cash providedby operating activities:
Provision for loan losses 10,824 2,333 2,284
Net amortization of investment securities premiums and discounts 20,026 26,210 26,709
Net (accretion) amortization of purchase accounting adjustments (5,131)(2,252)1,264
Amortization of debt modification costs 471 ——
Loans held for sale originated or acquired (889,212)(1,098,864)(888,676)
Proceeds from sales of loans held for sale 984,506 1,155,186 925,353
Gain on sale of loans (30,439)(33,606)(26,389)
Loss (gain) on sale of investments 660 1,463 (19)
Bank-owned life insurance income, net (1,395)(1,142)(1,137)
Stock-based compensation, net of tax benefits 2,952 1,844 1,695
Depreciation of premises and equipment 14,758 15,294 14,365
(Gain) loss on sale of other real estate owned and write-downs, net (1,641)1,217 938
Deferred tax expense (benefit)25,887 (82)(4,080)
Amortization of core deposit intangibles 2,494 2,970 2,964
Amortization of investments in variable interest entities 4,692 2,578 3,297
Net decrease (increase) in accrued interest receivable 2,466 (1,144)(2,377)
Net decrease in other assets 1,139 6,621 2,701
Net (decrease) increase in accrued interest payable (135)60 (828)
Net (decrease) increase in other liabilities (4,558)(6,730)2,580
Net cash provided by operating activities 254,741 193,087 176,771
Investing Activities
Sales of available-for-sale securities 247,748 62,817 136,777
Maturities, prepayments and calls of available-for-sale securities 446,695 662,003 663,828
Purchases of available-for-sale securities (36,239)(585,064)(961,224)
Maturities, prepayments and calls of held-to-maturity securities 25,187 25,405 20,997
Purchases of held-to-maturity securities —(1,222)(203,554)
Principal collected on loans 2,099,292 1,781,534 1,736,198
Loans originated or acquired (2,740,281)(2,375,136)(2,112,154)
Net additions to premises and equipment (10,128)(8,306)(18,224)
Proceeds from sale of other real estate owned 12,335 10,145 10,278
Proceeds from sale of non-marketable equity securities 68,610 73,611 38,607
Purchases of non-marketable equity securities (71,396)(67,594)(10,837)
Proceeds from bank-owned life insurance 437 437 1,143
Investments in variable interest entities (14,514)(6,644)(4,576)
Net cash (paid) received in acquisitions (4,091)6,701 21,427
Net cash provided by (used in) investing activities 23,655 (421,313)(681,314)
See accompanying notes to consolidated financial statements.
71
GLACIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Financing Activities
Net (decrease) increase in deposits $(89,397)368,006 215,895
Net (decrease) increase in securities sold under agreements to repurchase (111,077)50,236 24,951
Net increase (decrease) in short-term Federal Home Loan Bank advances 137,200 (100,000)140,000
Proceeds from long-term Federal Home Loan Bank advances 150,000 —49,816
Repayments of long-term Federal Home Loan Bank advances (208,192)(45,567)(94,621)
Net increase (decrease) in other borrowed funds 3,784 (521)(709)
Cash dividends paid (111,720)(84,040)(79,456)
Tax withholding payments for stock-based compensation (1,531)(600)(489)
Net cash (used in) provided by financing activities (230,933)187,514 255,387
Net increase (decrease) in cash and cash equivalents 47,463 (40,712)(249,156)
Cash and cash equivalents at beginning of period 152,541 193,253 442,409
Cash and cash equivalents at end of period $200,004 152,541 193,253
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $30,000 29,576 30,103
Cash paid during the period for income taxes 40,219 36,225 39,622
Supplemental Disclosure of Non-Cash Investing Activities
Sale and refinancing of other real estate owned $553 728 446
Transfer of loans to other real estate owned 4,466 5,198 7,989
Dividends declared but not paid 265 23,137 22,893
Acquisitions
Fair value of common stock shares issued 46,673 10,465 25,939
Cash consideration for outstanding shares 17,342 3,475 28,364
Fair value of assets acquired 355,230 69,750 434,963
Liabilities assumed 321,824 62,225 391,592
See accompanying notes to consolidated financial statements.
72
GLACIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
General
Glacier Bancorp, Inc. (“Company”) is a Montana corporation headquartered in Kalispell, Montana. The Company provides a full range
of banking services to individuals and businesses in Montana, Idaho, Utah, Washington, Wyoming, Colorado and Arizona through its
wholly-owned bank subsidiary, Glacier Bank (“Bank”). The Company offers a wide range of banking products and services, including:
1) retail banking; 2) business banking; 3) real estate, commercial, agriculture and consumer loans; and 4) mortgage origination services.
The Company serves individuals, small to medium-sized businesses, community organizations and public entities.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) 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 income and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change include: 1) the determination of the allowance for loan and lease
losses (“ALLL” or “allowance”); 2) the valuation of investment securities; 3) the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans; and 4) the evaluation of goodwill impairment. For the determination of the ALLL and real estate
valuation estimates, management obtains independent appraisals (new or updated) for significant items. Estimates relating to investment
valuations are obtained from independent third parties. Estimates relating to the evaluation of goodwill for impairment are determined
based on internal calculations using significant independent party inputs.
Principles of Consolidation
The consolidated financial statements of the Company include the parent holding company and the Bank. The Bank consists of fourteen
bank divisions, a treasury division, an information technology division and a centralized mortgage division. The treasury division includes
the Bank’s investment portfolio and wholesale borrowings, the information technology division includes the Bank’s internal data
processing, and the centralized mortgage division includes mortgage loan servicing and secondary market sales. The Bank divisions
operate under separate names, management teams and advisory directors. The Company considers the Bank to be its sole operating
segment as the Bank 1) engages in similar bank business activity from which it earns revenues and incurs expenses; 2) the operating
results of the Bank are regularly reviewed by the Chief Executive Officer (“CEO”) (i.e., the chief operating decision maker) who makes
decisions about resources to be allocated to the Bank; and 3) financial information is available for the Bank. All significant inter-company
transactions have been eliminated in consolidation.
The Bank has subsidiary interests in variable interest entities (“VIE”) for which the Bank has both the power to direct the VIE’s significant
activities and the obligation to absorb losses or right to receive benefits of the VIE that could potentially be significant to the VIE. These
subsidiary interests are included in the Company’s consolidated financial statements. The Bank also has subsidiary interests in VIEs for
which the Bank does not have a controlling financial interest and is not the primary beneficiary. These subsidiary interests are not included
in the Company’s consolidated financial statements.
The parent holding company owns non-bank subsidiaries that have issued trust preferred securities as Tier 1 capital instruments. The
trust subsidiaries are not included in the Company’s consolidated financial statements. The Company's investments in the trust subsidiaries
are included in non-marketable equity securities on the Company's statements of financial condition.
In April 2017, the Company completed its acquisition of TFB Bancorp, Inc. and its wholly-owned subsidiary, The Foothills Bank, a
community bank based in Yuma, Arizona (collectively, “Foothills”). In August 2016, the Company completed its acquisition of Treasure
State Bank (“TSB”), a community bank based in Missoula, Montana. In October 2015, the Company completed its acquisition of Cañon
Bank Corporation and its wholly-owned subsidiary, Cañon National Bank, a community bank based in Cañon City, Colorado (collectively,
“Cañon”). In February 2015, the Company completed its acquisition of Montana Community Banks, Inc. and its wholly-owned subsidiary,
Community Bank, Inc., a community bank based in Ronan, Montana (collectively, “CB”). The transactions were accounted for using
the acquisition method, and their results of operations have been included in the Company’s consolidated financial statements as of the
acquisition dates. For additional information relating to recent mergers and acquisitions, see Note 22.
In January 2018, the Company acquired the outstanding common stock of Columbine Capital Corp., and its wholly-owned subsidiary,
Collegiate Peaks Bank, a community bank based in Buena Vista, Colorado (collectively, “Collegiate”). As of December 31, 2017,
Collegiate had total assets of $532,958,000, gross loans of $345,687,000 and total deposits of $463,970,000. For additional information
relating to this subsequent event, see Note 23.
73
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
In October 2017, the Company announced the signing of a definitive agreement to acquire Inter-Mountain Bancorp, Inc. and its wholly-
owned subsidiary, First Security Bank, a community bank based in Bozeman, Montana (collectively, “FSB”). FSB provides banking
services to individuals and businesses throughout Montana with banking offices located in Bozeman, Belgrade, Big Sky, Choteau,
Fairfield, Fort Benton, Three Forks, Vaughn and West Yellowstone. As of December 31, 2017, FSB had total assets of $1,027,685,000,
gross loans of $639,880,000 and total deposits of $891,390,000. Upon closing of the transaction, which is anticipated to take place in
February 2018, FSB will become a new bank division headquartered in Bozeman. Big Sky Western Bank, the Bank’s existing Bozeman-
based division will combine with the new FSB division. The agriculture-focused northern branches of FSB, located in the area known
as the Golden Triangle, will combine with the Bank’s First Bank of Montana division.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash held as demand deposits at various banks and the Federal Reserve Bank (“FRB”),
interest bearing deposits, federal funds sold, and liquid investments with original maturities of three months or less. The Bank is required
to maintain an average reserve balance with either the FRB or in the form of cash on hand. The required reserve balance at December 31,
2017 was $10,916,000.
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
carried 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 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, as a separate component of other comprehensive income (“OCI”). Premiums and discounts on investment securities are
amortized or accreted into income using a method that approximates the interest method. The objective of the interest method is to
calculate periodic interest income at a constant effective yield. The Company does not have any investment securities classified as trading
securities.
The Company reviews and analyzes the various risks that may be present within the investment portfolio on an ongoing basis, including
market risk and credit risk. Market risk is the risk to an entity’s financial condition resulting from adverse changes in the value of its
holdings arising from movements in interest rates, foreign exchange rates, equity prices or commodity prices. The Company assesses
the market risk of individual securities as well as the investment portfolio as a whole. Credit risk, broadly defined, is the risk that an
issuer or counterparty will fail to perform on an obligation. A security is investment grade if the issuer has an adequate capacity to meet
its commitment over the expected life of the investment, i.e., the risk of default is low and full and timely repayment of interest and
principal is expected. To determine investment grade status for securities, the Company conducts due diligence of the creditworthiness
of the issuer or counterparty prior to acquisition and ongoing thereafter consistent with the risk characteristics of the security and the
overall risk of the investment portfolio. Credit quality due diligence takes into account the extent to which a security is guaranteed by
the U.S. government and other agencies of the U.S. government. The depth of the due diligence is based on the complexity of the structure,
the size of the security, and takes into account material positions and specific groups of securities or stratifications for analysis and review
of similar risk positions. The due diligence includes consideration of payment performance, collateral adequacy, internal analyses, third
party research and analytics, external credit ratings and default statistics.
For additional information relating to investment securities, see Note 2.
Temporary versus Other-Than-Temporary Impairment
The Company assesses individual securities in its investment 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 a like amount.
In evaluating impaired securities for other-than-temporary impairment losses, management considers 1) the severity and duration of the
impairment; 2) the credit ratings of the security; and 3) 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.
74
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
In evaluating debt securities for other-than-temporary impairment losses, management assesses whether the Company intends to sell the
security or if it is more-likely-than-not that the Company will be required to sell the debt security. In so doing, management considers
contractual constraints, liquidity, capital, asset/liability management and securities portfolio objectives. If impairment is determined to
be other-than-temporary and the Company does not intend to sell a debt security, and it is more-likely-than-not the Company will not be
required to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment
of a debt security in earnings and the remaining portion (noncredit portion) in OCI, net of tax. For held-to-maturity debt securities, the
amount of an other-than-temporary impairment recorded in OCI for the noncredit portion of a previous other-than-temporary impairment
is amortized prospectively, as an increase to the carrying amount of the security, over the remaining life of the security on the basis of
the timing of future estimated cash flows of the security.
If impairment is determined to be other-than-temporary and the Company intends to sell a debt security or it is more-likely-than-not the
Company will be required to sell the security before recovery of its cost basis, it recognizes the entire amount of the other-than-temporary
impairment in earnings.
For debt securities with other-than-temporary impairment, the previous amortized cost basis less the other-than-temporary impairment
recognized in earnings shall be the new amortized cost basis of the security. In subsequent periods, the Company accretes into interest
income the difference between the new amortized cost basis and cash flows expected to be collected prospectively over the life of the
debt security.
Loans Held for Sale
Loans held for sale generally consist of long-term, fixed rate, conforming, single-family residential real estate loans intended to be sold
on the secondary market. Loans held for sale may be carried at the lower of cost or estimated fair value in the aggregate basis, or at fair
value where the Company has elected the fair value option. When an election is made to carry the loans held for sale at fair value, the
fair value includes the servicing value of the loans and any change in fair value is recognized in non-interest income. Fair value elections
are made at the time of origination or purchase based on the Company’s fair value election policy. Beginning in 2017, the Company
elected fair value accounting for all of its loans held for sale.
Loans Receivable
Loans that are intended to be held-to-maturity are reported at the unpaid principal balance less net charge-offs and adjusted for deferred
fees and costs on originated loans and unamortized premiums or discounts on acquired loans. Fees and costs on originated loans and
premiums or discounts on acquired loans are deferred and subsequently amortized or accreted as a yield adjustment over the expected
life of the loan utilizing the interest method. The objective of the interest method is to calculate periodic interest income at a constant
effective yield. When a loan is paid off prior to maturity, the remaining fees and costs on originated loans and premiums or discounts
on acquired loans are immediately recognized into interest income.
The Company’s loan segments, which are based on the purpose of the loan, include residential real estate, commercial, and consumer
loans. The Company’s loan classes, a further disaggregation of segments, include residential real estate loans (residential real estate
segment), commercial real estate and other commercial loans (commercial segment), and home equity and other consumer loans (consumer
segment).
Loans that are thirty days or more past due based on payments received and applied to the loan are considered delinquent. 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. When a
loan is placed on non-accrual status, interest previously accrued but not collected is reversed against current period interest income.
Subsequent payments on non-accrual loans are applied to the outstanding principal balance if doubt remains as to the ultimate collectability
of the loan. Interest accruals are not resumed on partially charged-off impaired loans. For other loans on nonaccrual, 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.
75
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
The Company considers impaired loans to be the primary credit quality indicator for monitoring the credit quality of the loan portfolio.
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 and, therefore, the
Company has serious doubts as to the ability of such borrowers to fulfill the contractual obligation. Impaired loans include non-performing
loans (i.e., non-accrual loans and accruing loans ninety days or more past due) and accruing loans under ninety days past due where it is
probable payments will not be received according to the loan agreement (e.g., troubled debt restructuring). Interest income on accruing
impaired loans is recognized using the interest method. The Company measures impairment on a loan-by-loan basis in the same manner
for each class within the loan portfolio. An insignificant delay or shortfall in the amounts of payments would not cause a loan or lease
to be considered impaired. The Company determines the significance of payment delays and shortfalls on a case-by-case basis, taking
into consideration all of the facts and circumstances surrounding the loan and the borrower, including the length and reasons for the delay,
the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest due.
A restructured loan is considered a troubled debt restructuring (“TDR”) 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 periodically enters into
restructure agreements with borrowers whereby the loans were previously identified as TDRs. When such circumstances occur, the
Company carefully evaluates the facts of the subsequent restructure to determine the appropriate accounting and under certain
circumstances it may be acceptable not to account for the subsequently restructured loan as a TDR. When assessing whether a concession
has been granted by the Company, any prior forgiveness on a cumulative basis is considered a continuing concession. A TDR loan is
considered an impaired loan and a specific valuation allowance is established when the fair value of the collateral-dependent loan or
present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate based on the original contractual
rate) is lower than the carrying value of the impaired loan. The Company has made the following types of loan modifications, some of
which were considered a TDR:
• reduction of the stated interest rate for the remaining term of the debt;
• extension of the maturity date(s) at a stated rate of interest lower than the current market rate for newly originated debt having
similar risk characteristics; and
• reduction of the face amount of the debt as stated in the debt agreements.
The Company recognizes that while borrowers may experience deterioration in their financial condition, many continue to be creditworthy
customers who have the willingness and capacity for debt repayment. In determining whether non-restructured or unimpaired loans
issued to a single or related party group of borrowers should continue to accrue interest when the borrower has other loans that are
impaired or are TDRs, the Company on a quarterly or more frequent basis performs an updated and comprehensive assessment of the
willingness and capacity of the borrowers to timely and ultimately repay their total debt obligations, including contingent obligations.
Such analysis takes into account current financial information about the borrowers and financially responsible guarantors, if any, including
for example:
• analysis of global, i.e., aggregate debt service for total debt obligations;
• assessment of the value and security protection of collateral pledged using current market conditions and alternative market
assumptions across a variety of potential future situations; and
• loan structures and related covenants.
For additional information relating to loans, see Note 3.
Allowance for Loan and Lease Losses
Based upon management’s analysis of the Company’s loan portfolio, the balance of the ALLL is an estimate of probable credit losses
known and inherent within the Bank’s loan portfolio as of the date of the consolidated financial statements. The ALLL is analyzed at
the loan class level and is maintained within a range of estimated 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 determination of the ALLL and the related provision
for loan losses is a critical accounting estimate that involves management’s judgments about known relevant internal and external
environmental factors that affect loan losses. The balance of the ALLL is highly dependent upon management’s evaluations of borrowers’
current and prospective performance, appraisals and other variables affecting the quality of the loan portfolio. Individually significant
loans and major lending areas are reviewed periodically to determine potential problems at an early date. Changes in management’s
estimates and assumptions are reasonably possible and may have a material impact upon the Company’s consolidated financial statements,
results of operations or capital.
76
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Risk characteristics considered in the ALLL analysis applicable to each loan class within the Company's loan portfolio are as follows:
Residential Real Estate. Residential real estate loans are secured by owner-occupied 1-4 family residences. Repayment of these loans
is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans is impacted by economic
conditions within the Company’s market areas that affect the value of the property securing the loans and affect the borrowers' personal
incomes. Mitigating risk factors for this loan class include a large number of borrowers, geographic dispersion of market areas and the
loans are originated for relatively smaller amounts.
Commercial Real Estate. Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is
generally dependent on the successful operation of the property securing the loan and/or the business conducted on the property securing
the loan. Credit risk in these loans is impacted by the creditworthiness of a borrower, valuation of the property securing the loan and
conditions within the local economies in the Company’s diverse, geographic market areas.
Commercial. Commercial loans consist of loans to commercial customers for use in financing working capital needs, equipment purchases
and business expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation.
Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability
from business operations across the Company’s diverse, geographic market areas.
Home Equity. Home equity loans consist of junior lien mortgages and first and junior lien lines of credit (revolving open-end and
amortizing closed-end) secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the
personal income and credit rating of the borrowers. Credit risk in these loans is impacted by economic conditions within the Company’s
market areas that affect the value of the residential property securing the loans and affect the borrowers' personal incomes. Mitigating
risk factors for this loan class are a large number of borrowers, geographic dispersion of market areas and the loans are originated for
terms that range from 10 years to 15 years.
Other Consumer. The other consumer loan portfolio consists of various short-term loans such as automobile loans and loans for other
personal purposes. Repayment of these loans is primarily dependent on the personal income of the borrowers. Credit risk is driven by
consumer economic factors (such as unemployment and general economic conditions in the Company’s diverse, geographic market area)
and the creditworthiness of a borrower.
The ALLL consists of a specific valuation allowance component and a general valuation allowance component. The specific component
relates to loans that are determined to be impaired and individually evaluated for impairment. The Company measures impairment on a
loan-by-loan basis based on the present value of expected future 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 impairment based on
expected future cash flows, the Company considers all information available as of a measurement date, including past events, current
conditions, potential prepayments, and estimated cost to sell when such costs are expected to reduce the cash flows available to repay or
otherwise satisfy the loan. For alternative ranges of cash flows, the likelihood of the possible outcomes is considered in determining the
best estimate of expected future cash flows. The effective interest rate for a loan restructured in a TDR is based on the original contractual
rate. For collateral-dependent loans and real estate loans for which foreclosure or a deed-in-lieu of foreclosure is probable, impairment
is measured by the fair value of the collateral, less estimated cost to sell. The fair value of the collateral is determined primarily based
upon appraisal or evaluation of the underlying real property value.
The general valuation allowance component relates to probable credit losses inherent in the balance of the loan portfolio based on historical
loss experience, adjusted for changes in trends and conditions of qualitative or environmental factors. The historical loss experience is
based on the previous twelve quarters loss experience by loan class adjusted for risk characteristics in the existing loan portfolio. The
same trends and conditions are evaluated for each class within the loan portfolio; however, the risk characteristics are weighted separately
at the individual class level based on the Company’s judgment and experience.
77
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
The changes in trends and conditions evaluated for each class within the loan portfolio include the following:
• changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery
practices not considered elsewhere in estimating credit losses;
• changes in global, national, regional, and local economic and business conditions and developments that affect the collectability
of the portfolio, including the condition of various market segments;
• changes in the nature and volume of the portfolio and in the terms of loans;
• changes in experience, ability, and depth of lending management and other relevant staff;
• changes in the volume and severity of past due and nonaccrual loans;
• changes in the quality of the Company’s loan review system;
• changes in the value of underlying collateral for collateral-dependent loans;
• the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and
• the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit
losses in the Company’s existing portfolio.
The ALLL is increased by provisions for loan losses which are charged to expense. The portions of loan and overdraft balances determined
by management to be uncollectible are charged off as a reduction of the ALLL and recoveries of amounts previously charged off are
credited as an increase to the ALLL. The Company’s charge-off policy is consistent with bank regulatory standards. Consumer loans
generally are charged off when the loan becomes over 120 days delinquent. Real estate acquired as a result of foreclosure or by deed-
in-lieu of foreclosure is classified as OREO until such time as it is sold.
At acquisition date, the assets and liabilities of acquired banks are recorded at their estimated fair values which results in no ALLL carried
over from acquired banks. Subsequent to acquisition, an allowance will be recorded on the acquired loan portfolios for further credit
deterioration, if any.
Premises and Equipment
Premises and equipment are accounted for 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 4.
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 4.
Other Real Estate Owned
Property acquired by foreclosure or deed-in-lieu of foreclosure is initially recorded at fair value, less estimated selling cost, at acquisition
date (i.e., cost of the property). The Company is considered to have received physical possession of residential real estate property
collateralizing a consumer mortgage loan upon the occurrence of either the Company obtaining legal title to the property or the borrower
conveying all interest in the property through a deed-in-lieu or similar agreement. Fair value is determined as the amount that could be
reasonably expected in a current sale between a willing buyer and a willing seller in an orderly transaction between market participants
at the measurement date. Subsequent to the initial acquisition, if the fair value of the asset, less estimated selling cost, is less than the
cost of the property, a loss is recognized in other expense and the asset carrying value is reduced. Gain or loss on disposition of other
real estate owned (“OREO”) is recorded in non-interest income or non-interest expense, respectively. In determining the fair value of
the properties on the date of transfer and any subsequent estimated losses of net realizable value, the fair value of other real estate acquired
by foreclosure or deed-in-lieu of foreclosure is determined primarily based upon appraisal or evaluation of the underlying property value.
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 in other expense to reduce the carrying value of the asset to fair value. At
December 31, 2017 and 2016, no long-lived assets were considered materially impaired.
78
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Business Combinations and Intangible Assets
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.
Adjustment of the allocated purchase price may be related to fair value estimates for which all information has not been obtained of the
acquired entity known or discovered during the allocation period, the period of time required to identify and measure the fair values of
the assets and liabilities acquired in the business combination. The allocation period is generally limited to one year following
consummation of a business combination.
Core deposit intangible represents the intangible value of depositor relationships resulting from deposit liabilities assumed in acquisitions
and is amortized using an accelerated method based on an estimated runoff of the related deposits. The core deposit intangible is evaluated
for impairment and recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable,
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 5.
The Company tests goodwill for impairment at the reporting unit level annually during the third quarter. The Company has identified
that each of the Bank divisions are reporting units (i.e., components of the Glacier Bank operating segment) given that each division has
a separate management team that regularly reviews its respective division financial information; however, the reporting units are aggregated
into a single reporting unit due to the reporting units having similar economic characteristics.
The goodwill of a reporting unit is 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. Examples of events and circumstances that
could trigger the need for interim impairment testing include:
• a significant change in legal factors or in the business climate;
• an adverse action or assessment by a regulator;
• unanticipated competition;
• a loss of key personnel;
• a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise
disposed of; and
• the testing for recoverability of a significant asset group within a reporting unit.
For the goodwill impairment assessment, the Company has the option, prior to the two-step process, to first assess qualitative factors to
determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of
a reporting unit is less than its carrying value. The Company opted to bypass the qualitative assessment for its 2017 and 2016 annual
goodwill impairment testing and proceed directly to the two-step goodwill impairment test. The goodwill impairment two-step process
requires the Company to make assumptions and judgments regarding fair value. In the first step, the Company calculates an implied fair
value based on a control premium analysis. If the implied fair value is less than the carrying value, the second step is completed to
compute the impairment amount, if any, by determining the “implied fair value” of goodwill. This determination requires the allocation
of the estimated fair value of the reporting units to the assets and liabilities of the reporting units. Any remaining unallocated fair value
represents the “implied fair value” of goodwill, which is compared to the corresponding carrying value of goodwill to compute impairment,
if any.
For additional information relating to goodwill, see Note 5.
Non-Marketable Equity Securities
Non-marketable equity securities primarily consist of Federal Home Loan Bank (“FHLB”) stock. FHLB stock is restricted because such
stock may only be sold to FHLB at its par value. Due to restrictive terms, and the lack of a readily determinable market value, FHLB
stock is carried at cost. 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 regional FHLBs is jointly and severally liable for repayment of each other’s debt.
79
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Bank-Owned Life Insurance
The Company maintains bank-owned life insurance policies on certain current and former employees and directors, which are recorded
at their cash surrender values as determined by the insurance carriers. At December 31, 2017 and 2016, the carrying value associated
with these policies is $59,351,000 and $50,451,000, respectively, and is recorded in other assets in the Company’s statements of financial
position. The appreciation in the cash surrender value of the policies is recognized as a component of other non-interest income in the
Company’s statements of operations.
Derivatives and Hedging Activities
For asset and liability management purposes, the Company has entered into interest rate swap agreements to hedge against changes in
forecasted cash flows due to interest rate exposures. The interest rate swaps are recognized as assets or liabilities on the Company’s
statements of financial condition and measured at fair value. Fair value estimates are obtained from third parties and are based on pricing
models. The Company does not enter into interest rate swap agreements for trading or speculative purposes.
The Company takes into account the impact of bilateral collateral and master netting agreements that allows the Company to settle all
interest rate swap agreements held with a single counterparty on a net basis, and to offset the net interest rate swap derivative position
with the related collateral when recognizing interest rate swap derivative assets and liabilities.
Interest rate swaps are contracts in which a series of interest payments are exchanged over a prescribed period. The notional amount
upon which the interest payments are based is not exchanged. The swap agreements are derivative instruments and convert a portion of
the Company’s forecasted variable rate debt to a fixed rate (i.e., cash flow hedge) over the payment term of the interest rate swap. The
effective portion of the gain or loss on the cash flow hedging instruments is initially reported as a component of OCI and subsequently
reclassified into earnings in the same period during which the transaction affects earnings. The ineffective portion of the gain or loss on
derivative instruments, if any, is recognized in earnings. For the years ended December 31, 2017, 2016, and 2015, the Company’s cash
flow hedges were determined to be fully effective.
Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge and are expected
to be, and are, highly effective in substantially reducing interest rate risk arising from the assets and liabilities identified as exposing the
Company to risk. Derivative financial instruments that do not meet specified hedging criteria are recorded at fair value with changes in
fair value recorded in income. The Company’s interest rate swaps are considered highly effective and currently meet the hedge accounting
criteria.
Cash flows resulting from the interest rate derivative financial instruments that are accounted for as hedges of assets and liabilities are
classified in the Company’s cash flow statement in the same category as the cash flows of the items being hedged. For additional
information relating to interest rate swap agreements, see Note 10.
At December 31, 2017, the Company also had residential real estate derivatives for 1) commitments to fund certain residential real estate
loans (interest rate locks) of $67,861,000 to be sold into the secondary market; and 2) forward commitments for the future delivery of
residential real estate loans to third party investors on a best efforts basis. It is the Company’s practice to enter into forward commitments
for the future delivery of residential real estate loans when interest rate lock commitments are entered into in order to economically hedge
the effect of changes in interest rates resulting from its commitments to fund the loans. These derivatives are not designated in hedge
relationships. Such derivatives are short-term in nature and changes in the fair values of these derivatives are not recorded as gains on
sale of loans because the changes were not significant.
Stock-based Compensation
Stock-based compensation awards granted are valued at fair value and compensation cost is recognized on a straight-line basis over the
requisite service period of each award. The impact of forfeitures of stock-based compensation awards on compensation expense is
recognized as forfeitures occur. For additional information relating to stock-based compensation, see Note 12.
Advertising and Promotion
Advertising and promotion costs are recognized in the period incurred.
Income Taxes
The Company’s income tax expense consists of current and deferred income tax expense. Current income tax expense reflects taxes to
be paid or refunded for the current period by applying the provisions of enacted tax law to earnings or losses. Deferred income tax
expense results from changes in deferred assets and liabilities between periods. The Company recognizes interest and penalties related
to income tax matters in income tax expense.
80
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Deferred tax assets and liabilities are recognized for estimated future income 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 income 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 fifty
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 15.
Comprehensive Income
Comprehensive income consists of net income and OCI. OCI includes unrealized gains and losses, net of tax effect, on available-for-
sale securities and derivatives used for cash flow hedges. For additional information relating to OCI, see Note 16.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding
during the period presented. Diluted earnings per share is computed by including the net increase in shares as if dilutive outstanding
stock options were exercised and restricted stock awards were vested, using the treasury stock method. For additional information relating
to earnings per share, see Note 17.
Reclassifications
Certain reclassifications have been made to the 2016 and 2015 financial statements to conform to the 2017 presentation.
Accounting Guidance Adopted in 2017
The Accounting Standards Codification™ (“ASC”) is the Financial Accounting Standards Board’s (“FASB”) officially recognized source
of authoritative 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 the
Company as an SEC registrant. All other accounting literature is non-authoritative. The following paragraphs provide descriptions of
recently adopted accounting standards that may have had a material effect on the Company’s financial position or results of operations.
Comprehensive Income. In February 2018, FASB amended ASC Topic 220 to allow a reclassification from accumulated other
comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the newly enacted Tax Cuts and Jobs Act
(“Tax Act”). The amount of the reclassification consists of the difference between the historical corporate income tax rates and the newly
enacted 21 percent corporate income tax rate. The amendments are effective for all entities for the interim and annual reporting periods
beginning after December 15, 2018 and early adoption is permitted, including interim periods in those years. The Company adopted the
amendments as of December 31, 2017, which resulted in a net reclassification of $351,000 between AOCI and retained earnings. The
Company’s policy is to release material stranded tax effects on a specific identification basis.
Stock Compensation. In March 2016, FASB amended ASC Topic 718 to address certain aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of awards
on the statements of cash flows. The amendments were effective for public business entities for the first interim and annual reporting
periods beginning after December 15, 2016 and the Company adopted the amendments as of January 1, 2017. The amendments require
entities to recognize all income tax effects related to share-based payment awards in the statements of operations when the awards vest
or are settled. Previously, income tax benefits at the settlement of awards were reported as increases (or decreases) to additional paid-in
capital to the extent that those benefits were greater than (or less than) the income tax benefits recognized in earnings during the awards’
vesting periods. Such amounts are to be classified as an operating activity in the statements of cash flows instead of the prior accounting
treatment, which required it to be classified as both an operating and a financing activity. The Company has elected to apply this
classification change on a retrospective basis. Also in connection with the adoption of the Update, the Company has elected to change
its accounting policy to recognize forfeitures as they occur. The requirement to report income tax effects in earnings has been applied
to the settlement of awards on a prospective basis and the impact of applying the guidance reduced reported income tax expense for the
year ended December 31, 2017 by $553,000, or approximately $0.01 per diluted common share. The implementation of the remaining
provisions of the Update did not have a significant impact on the Company’s consolidated financial statements.
81
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Accounting Guidance Pending Adoption at December 31, 2017
The following paragraphs provide descriptions of newly issued but not yet effective accounting standards that could have a material effect
on the Company’s financial position or results of operations.
Derivatives and Hedging. In August 2017, FASB amended ASC Topic 815 to improve the financial reporting of hedging relationships
to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments
made targeted improvements to simplify the application of the hedge accounting guidance. The amendments are effective for public
business entities for the first interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted.
The Company is currently evaluating the full impact of the amendments on its existing interest rate swaps and whether it will early adopt.
The Company does not expect there to be an impact to the Company’s financial position and results of operations, although, there may
be additional financial statement disclosures. The accounting policies and procedures will be modified after the Company has fully
evaluated the standard, although significant changes are not expected. For additional information on derivatives, see Note 10.
Receivables - Nonrefundable Fees and Other Costs. In March 2017, FASB amended ASC Subtopic 310-20 to shorten the amortization
period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the
earliest call date instead of the maturity date. The amendments do not require an accounting change for securities held at a discount;
the discount continues to be amortized to maturity. The amendments are effective for public business entities for the first interim and
annual reporting periods beginning after December 15, 2018. Early adoption is permitted and if adopted in an interim period, any
adjustments should be reflected as of the beginning of the year that includes the interim period. The entity should apply the amendments
on a modified retrospective basis through a cumulative-effective adjustment directly to retained earnings as of the beginning of the period
of adoption. The Company has premiums on debt securities that are currently being amortized to the maturity date, primarily in the state
and local governments category. If the Company were to adopt these amendments as of January 1, 2018, the Company estimates that
$21,219,000 of the premium associated with debt securities would be adjusted to retained earnings. The Company is still determining
when it will adopt these amendments and accounting policies and procedures will be modified upon adoption of the standard.
Goodwill and Other Intangibles. In January 2017, FASB amended ASC Topic 350 to simplify the measurement of goodwill by eliminating
Step 2 from the goodwill impairment test. Instead, under these amendments, an entity should perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment
charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss should not exceed the total
amount of goodwill allocated to that reporting unit. The amendments are effective for public business entities for the first interim and
annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment
tests performed on testing dates after January 1, 2017. The Company has goodwill from prior business combinations and performs an
annual impairment test or more frequently if changes or circumstances occur that would more-likely-than-not reduce the fair value of
the reporting unit below its carrying value. During the third quarter of 2017, the Company performed its impairment assessment and
determined the fair value of the aggregated reporting units exceed the carrying value, such that the Company’s goodwill was not considered
impaired. Although the Company cannot anticipate future goodwill impairment assessments, based on the most recent assessment, it is
unlikely that an impairment amount would need to be calculated and, therefore, the Company does not anticipate a material impact from
these amendments to the Company’s financial position and results of operations. The current accounting policies and processes are not
anticipated to change, except for the elimination of the Step 2 analysis. For additional information regarding goodwill impairment testing,
see Note 5.
Financial Instruments. In June 2016, FASB amended ASC Topic 326 to replace the incurred loss model with a methodology that reflects
expected credit losses over the life of the loan and requires consideration of a broader range of reasonable and supportable information
to calculate credit loss estimates. The amendments are effective for public business entities for the first interim and annual reporting
periods beginning after December 15, 2019. The Company is currently evaluating the impact of these amendments to the Company’s
financial position and results of operations and currently does not know or cannot reasonably quantify the impact of the adoption of the
amendments as a result of the complexity and extensive changes from the amendments. The ALLL is a material estimate of the Company
and given the change from an incurred loss model to a methodology that considers the credit loss over the life of the loan, there is the
potential for an increase in the ALLL at adoption date. The Company is anticipating a significant change in the processes and procedures
to calculate the ALLL, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus
the current accounting practice that utilizes the incurred loss model. The Company will also develop new procedures for determining an
allowance for credit losses relating to held-to-maturity investment securities. In addition, the current accounting policy and procedures
for other-than-temporary impairment on available-for-sale investment securities will be replaced with an allowance approach. The
Company has formed a project team and is actively reviewing the standard for developing and implementing processes and procedures
during the next two years to ensure it is fully compliant with the amendments at adoption date. For additional information on the ALLL,
see Note 3.
82
Note 1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Leases. In February 2016, FASB amended ASC Topic 842 to address several aspects of lease accounting with the significant change
being the recognition of lease assets and lease liabilities for leases previously classified as operating leases. The amendments are effective
for public business entities for the first interim and annual reporting periods beginning after December 15, 2018, and early adoption is
permitted. The Company has several lease agreements for which the amendments will require the Company to recognize a lease liability
to make lease payments and a right-of-use asset which will represent its right to use the underlying asset for the lease term. The Company
is currently reviewing the amendments to ensure it is fully compliant by the adoption date and doesn’t expect to early adopt. As permitted
by the amendments, the Company is anticipating electing an accounting policy to not recognize lease assets and lease liabilities for leases
with a term of twelve months or less. The impact is not expected to have a material effect on the Company’s financial position or results
of operations since the Company does not have a material amount of lease agreements. The Company is currently in the process of
fully evaluating the amendments and will subsequently implement new processes, which are not expected to significantly change, since
the Company already has processes for certain lease agreements that recognize the lease assets and lease liabilities. In addition, the
Company will change its current accounting policies to comply with the amendments with such changes as mentioned above. For
additional information on the Company’s leases, see Note 4.
Financial Instruments. In January 2016, FASB amended ASC Topic 825 to address certain aspects of recognition, measurement,
presentation, and disclosure of financial instruments. The amendments are effective for public business entities for the first interim and
annual reporting periods beginning after December 15, 2017. Early adoption is only permitted under certain circumstances outlined in
the amendments. A reporting entity should apply the amendments by means of a cumulative-effect adjustment to the Company’s statements
of financial condition as of the beginning of the reporting year of adoption. The amendments will impact the Company in a few areas
including requiring equity investments (with certain exclusions) to be measured at fair value with the changes recognized in net income,
requirement to utilize an exit price when measuring the fair value of financial instruments, additional disclosures related to OCI, evaluation
of a valuation allowance on a deferred tax asset related to available-for-sale investment securities in combination with the entity’s other
deferred tax assets, and other disclosure changes. The Company is currently evaluating the impact of these amendments, but does not
expect them to have a material effect on the Company’s equity securities, financial position or results of operations. However, the
amendments will have an impact on certain items that are disclosed at fair value that are not currently utilizing the exit price notion when
measuring fair value. As of December 31, 2017, the Company cannot quantify the change in the fair value of such disclosures since the
Company is currently finalizing the full impact of the Update. The Company has developed processes to comply with the disclosure
requirements of such amendments and accounting policies and procedures will be updated and implemented upon adoption of the standard.
For additional information on fair value of assets and liabilities, see Note 20.
Revenue Recognition. In May 2014, FASB amended ASC Topic 606 to clarify the principles for recognizing revenue and develop a
common revenue standard among industries. The new guidance establishes the following core principle: recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for goods or services. Five steps are provided for a company or organization to follow to achieve such core principle. The
new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive
information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The
entity should apply the amendments using one of two retrospective methods described in the amendment. Accounting Standards Update
No. 2015-14, Revenue from Contracts with Customers (Topic 606) delayed the effective date for public entities to annual reporting periods
beginning after December 15, 2017, including interim reporting periods within that reporting period. Several subsequent amendments
have been issued that provide clarifying guidance and are effective with the adoption of the original Update. The Company has finalized
its assessment of the Update and has identified the revenue line items within the scope of the new guidance. The majority of the Company’s
revenue sources, such as interest income from investment securities and loans, fee income from loans and gain on sale of loans, are not
within the scope of Topic 606. Conversely, the Company has evaluated the revenue sources determined to be in scope of Topic 606,
including service charges and fee income on deposits and gain or loss on sale of OREO. The Company has determined the adoption of
this guidance will not have a significant impact to the Company’s financial position or results of operations; however, beginning January
2018, updated policies and procedures on the sale of OREO will be implemented and additional quantitative and qualitative disclosures
about the Company’s revenue may need to be incorporated into the notes to the financial statements.
83
Note 2. Investment Securities
The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of the Company’s investment
securities:
December 31, 2017
AmortizedCost
Gross Unrealized FairValue(Dollars in thousands)Gains Losses
Available-for-sale
U.S. government and federal agency $31,216 54 (143)31,127
U.S. government sponsored enterprises 19,195 —(104)19,091
State and local governments 614,366 20,299 (5,164)629,501
Corporate bonds 216,443 802 (483)216,762
Residential mortgage-backed securities 785,960 1,253 (7,930)779,283
Commercial mortgage-backed securities 104,324 25 (1,870)102,479
Total available-for-sale 1,771,504 22,433 (15,694)1,778,243
Held-to-maturity
State and local governments 648,313 20,346 (8,573)660,086
Total held-to-maturity 648,313 20,346 (8,573)660,086
Total investment securities $2,419,817 42,779 (24,267)2,438,329
December 31, 2016
AmortizedCost
Gross Unrealized FairValue(Dollars in thousands)Gains Losses
Available-for-sale
U.S. government and federal agency $39,554 15 (162)39,407
U.S. government sponsored enterprises 19,557 55 (42)19,570
State and local governments 775,395 20,941 (9,963)786,373
Corporate bonds 471,569 1,175 (793)471,951
Residential mortgage-backed securities 1,014,518 2,744 (9,747)1,007,515
Commercial mortgage-backed securities 102,209 30 (1,578)100,661
Total available-for-sale 2,422,802 24,960 (22,285)2,425,477
Held-to-maturity
State and local governments 675,674 21,400 (7,985)689,089
Total held-to-maturity 675,674 21,400 (7,985)689,089
Total investment securities $3,098,476 46,360 (30,270)3,114,566
84
Note 2. Investment Securities (continued)
The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity securities by contractual maturity
at December 31, 2017. Actual maturities may differ from expected or contractual maturities since issuers have the right to prepay
obligations with or without prepayment penalties.
December 31, 2017
Available-for-Sale Held-to-Maturity
(Dollars in thousands)Amortized Cost Fair Value Amortized Cost Fair Value
Due within one year $69,596 69,650 ——
Due after one year through five years 228,415 228,881 2,108 2,136
Due after five years through ten years 228,766 236,318 86,741 88,264
Due after ten years 354,443 361,632 559,464 569,686
881,220 896,481 648,313 660,086
Mortgage-backed securities 1 890,284 881,762 ——
Total $1,771,504 1,778,243 648,313 660,086
______________________________
1 Mortgage-backed securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.
Proceeds from sales and calls of investment securities and the associated gains and losses that have been included in earnings are listed
below:
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Available-for-sale
Proceeds from sales and calls of investment securities $280,783 212,140 167,660
Gross realized gains 1 3,369 2,459 1,877
Gross realized losses 1 (4,005)(3,794)(1,808)
Held-to-maturity
Proceeds from calls of investment securities 23,020 25,405 20,997
Gross realized gains 1 204 97 50
Gross realized losses 1 (228)(225)(100)
______________________________
1 The gain or loss on the sale or call of each investment security is determined by the specific identification method.
At December 31, 2017 and 2016, the Company had investment securities with carrying values of $1,447,808,000 and $1,878,739,000,
respectively, pledged as collateral for FHLB advances, FRB discount window borrowings, securities sold under agreements to repurchase
(“repurchase agreements”), interest rate swap agreements and deposits of several local government units.
85
Note 2. Investment Securities (continued)
Investment securities with an unrealized loss position are summarized as follows:
December 31, 2017
Less than 12 Months 12 Months or More Total
(Dollars in thousands)
FairValue UnrealizedLoss FairValue UnrealizedLoss FairValue UnrealizedLoss
Available-for-sale
U.S. government and federal agency $1,208 (5)13,179 (138)14,387 (143)
U.S. government sponsored enterprises 14,926 (56)3,425 (48)18,351 (104)
State and local governments 61,126 (689)121,181 (4,475)182,307 (5,164)
Corporate bonds 99,636 (264)29,034 (219)128,670 (483)
Residential mortgage-backed securities 372,175 (3,050)254,721 (4,880)626,896 (7,930)
Commercial mortgage-backed securities 37,650 (469)62,968 (1,401)100,618 (1,870)
Total available-for-sale $586,721 (4,533)484,508 (11,161)1,071,229 (15,694)
Held-to-maturity
State and local governments $21,207 (186)105,486 (8,387)126,693 (8,573)
Total held-to-maturity $21,207 (186)105,486 (8,387)126,693 (8,573)
December 31, 2016
Less than 12 Months 12 Months or More Total
(Dollars in thousands)
FairValue UnrealizedLoss FairValue UnrealizedLoss FairValue UnrealizedLoss
Available-for-sale
U.S. government and federal agency $6,718 (24)26,239 (138)32,957 (162)
U.S. government sponsored enterprises 6,049 (42)——6,049 (42)
State and local governments 222,700 (4,949)81,783 (5,014)304,483 (9,963)
Corporate bonds 174,821 (774)6,141 (19)180,962 (793)
Residential mortgage-backed securities 688,811 (9,079)29,957 (668)718,768 (9,747)
Commercial mortgage-backed securities 89,298 (1,578)——89,298 (1,578)
Total available-for-sale $1,188,397 (16,446)144,120 (5,839)1,332,517 (22,285)
Held-to-maturity
State and local governments $117,912 (1,712)86,601 (6,273)204,513 (7,985)
Total held-to-maturity $117,912 (1,712)86,601 (6,273)204,513 (7,985)
Based on an analysis of its investment securities with unrealized losses as of December 31, 2017 and 2016, the Company determined
that none of such securities had other-than-temporary impairment and the unrealized losses were primarily the result of interest rate
changes and market spreads subsequent to acquisition. The fair value of the investment securities is expected to recover as payments are
received and the securities approach maturity. At December 31, 2017, management determined that it did not intend to sell investment
securities with unrealized losses, and there was no expected requirement to sell any of its investment securities with unrealized losses
before recovery of their amortized cost.
86
Note 3. Loans Receivable, Net
The Company’s loan portfolio is comprised of three segments: residential real estate, commercial, and consumer and other loans. The
loan segments are further disaggregated into the following classes: residential real estate, commercial real estate, other commercial, home
equity and other consumer loans. The following table presents loans receivable for each portfolio class of loans:
At or for the Years ended
(Dollars in thousands)
December 31,2017 December 31,2016
Residential real estate loans $720,728 674,347
Commercial loans
Real estate 3,577,139 2,990,141
Other commercial 1,579,353 1,342,250
Total 5,156,492 4,332,391
Consumer and other loans
Home equity 457,918 434,774
Other consumer 242,686 242,951
Total 700,604 677,725
Loans receivable 6,577,824 5,684,463
Allowance for loan and lease losses (129,568)(129,572)
Loans receivable, net $6,448,256 5,554,891
Net deferred origination (fees) costs included in loans receivable $(2,643)(1,228)
Net purchase accounting (discounts) premiums included in loans receivable $(16,325)(12,144)
Weighted-average interest rate on loans (tax-equivalent)4.81%4.77%
The following tables summarize the activity in the ALLL by portfolio segment:
Year ended December 31, 2017
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
Balance at beginning of period $129,572 12,436 65,773 37,823 7,572 5,968
Provision for loan losses 10,824 (1,521)7,152 2,545 (1,103)3,751
Charge-offs (19,331)(199)(6,188)(2,856)(489)(9,599)
Recoveries 8,503 82 1,778 1,791 224 4,628
Balance at end of period $129,568 10,798 68,515 39,303 6,204 4,748
Year ended December 31, 2016
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
Balance at beginning of period $129,697 14,427 67,877 32,525 8,998 5,870
Provision for loan losses 2,333 (1,734)(2,686)5,164 (520)2,109
Charge-offs (11,496)(464)(3,082)(1,778)(1,185)(4,987)
Recoveries 9,038 207 3,664 1,912 279 2,976
Balance at end of period $129,572 12,436 65,773 37,823 7,572 5,968
87
Note 3. Loans Receivable, Net (continued)
Year ended December 31, 2015
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
Balance at beginning of period $129,753 14,680 67,799 30,891 9,963 6,420
Provision for loan losses 2,284 640 (696)3,030 (480)(210)
Charge-offs (7,002)(985)(1,920)(2,322)(809)(966)
Recoveries 4,662 92 2,694 926 324 626
Balance at end of period $129,697 14,427 67,877 32,525 8,998 5,870
The following tables disclose the recorded investment in loans and the balance in the ALLL by portfolio segment:
December 31, 2017
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
Loans receivable
Individually evaluated for impairment $119,994 12,399 77,536 23,032 3,755 3,272
Collectively evaluated for impairment 6,457,830 708,329 3,499,603 1,556,321 454,163 239,414
Total loans receivable $6,577,824 720,728 3,577,139 1,579,353 457,918 242,686
ALLL
Individually evaluated for impairment $5,223 246 500 3,851 56 570
Collectively evaluated for impairment 124,345 10,552 68,015 35,452 6,148 4,178
Total ALLL $129,568 10,798 68,515 39,303 6,204 4,748
December 31, 2016
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
Loans receivable
Individually evaluated for impairment $130,263 11,612 85,634 23,950 5,934 3,133
Collectively evaluated for impairment 5,554,200 662,735 2,904,507 1,318,300 428,840 239,818
Total loans receivable $5,684,463 674,347 2,990,141 1,342,250 434,774 242,951
ALLL
Individually evaluated for impairment $6,881 856 922 4,419 296 388
Collectively evaluated for impairment 122,691 11,580 64,851 33,404 7,276 5,580
Total ALLL $129,572 12,436 65,773 37,823 7,572 5,968
Substantially all of the Company’s loans receivable are with customers in the Company’s geographic market areas. Although the Company
has a diversified loan portfolio, a substantial portion of its customers’ ability to honor their obligations is dependent upon the economic
performance in the Company’s market areas. The Company is subject to regulatory limits for the amount of loans to any individual
borrower and the Company is in compliance with this regulation as of December 31, 2017 and 2016. No borrower had outstanding loans
or commitments exceeding 10 percent of the Company’s consolidated stockholders’ equity as of December 31, 2017.
At December 31, 2017, the Company had $4,189,489,000 in variable rate loans and $2,388,335,000 in fixed rate loans. At December 31,
2017, the Company had loans of $3,836,190,000 pledged as collateral for FHLB advances and FRB discount window. There were no
significant purchases or sales of portfolio loans during 2017, 2016 and 2015.
88
Note 3. Loans Receivable, Net (continued)
The Company has entered into transactions with its executive officers and directors and their affiliates. The aggregate amount of loans
outstanding to such related parties at December 31, 2017 and 2016 was $82,350,000 and $58,438,000, respectively. During 2017, new
loans to such related parties were $33,322,000 and repayments were $9,410,000. In management’s opinion, such loans were made in
the ordinary course of business and were made on substantially the same terms as those prevailing at the time for comparable transaction
with other persons.
The following tables disclose information related to impaired loans by portfolio segment:
At or for the Year ended December 31, 2017
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
Loans with a specific valuation allowance
Recorded balance $17,689 2,978 4,545 8,183 186 1,797
Unpaid principal balance 18,400 3,046 4,573 8,378 199 2,204
Specific valuation allowance 5,223 246 500 3,851 56 570
Average balance 18,986 2,928 5,851 8,477 359 1,371
Loans without a specific valuationallowance
Recorded balance 102,305 9,421 72,991 14,849 3,569 1,475
Unpaid principal balance 122,833 10,380 89,839 16,931 4,098 1,585
Average balance 107,945 9,834 76,427 15,129 4,734 1,821
Total
Recorded balance 119,994 12,399 77,536 23,032 3,755 3,272
Unpaid principal balance 141,233 13,426 94,412 25,309 4,297 3,789
Specific valuation allowance 5,223 246 500 3,851 56 570
Average balance 126,931 12,762 82,278 23,606 5,093 3,192
At or for the Year ended December 31, 2016
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
Loans with a specific valuation allowance
Recorded balance $22,128 2,759 9,129 8,814 334 1,092
Unpaid principal balance 22,374 2,825 9,130 8,929 345 1,145
Specific valuation allowance 6,881 856 922 4,419 296 388
Average balance 26,745 4,942 10,441 9,840 257 1,265
Loans without a specific valuationallowance
Recorded balance 108,135 8,853 76,505 15,136 5,600 2,041
Unpaid principal balance 131,059 9,925 94,180 17,724 7,120 2,110
Average balance 108,827 12,858 72,323 15,537 6,004 2,105
Total
Recorded balance 130,263 11,612 85,634 23,950 5,934 3,133
Unpaid principal balance 153,433 12,750 103,310 26,653 7,465 3,255
Specific valuation allowance 6,881 856 922 4,419 296 388
Average balance 135,572 17,800 82,764 25,377 6,261 3,370
Interest income recognized on impaired loans for the years ended December 31, 2017, 2016, and 2015 was not significant.
89
Note 3. Loans Receivable, Net (continued)
The following tables present an aging analysis of the recorded investment in loans by portfolio segment:
December 31, 2017
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
Accruing loans 30-59 days past due $26,375 6,252 12,546 3,634 2,142 1,801
Accruing loans 60-89 days past due 11,312 794 5,367 3,502 987 662
Accruing loans 90 days or more past due 6,077 2,366 609 2,973 —129
Non-accrual loans 44,833 4,924 27,331 8,298 3,338 942
Total past due and non-accrual loans 88,597 14,336 45,853 18,407 6,467 3,534
Current loans receivable 6,489,227 706,392 3,531,286 1,560,946 451,451 239,152
Total loans receivable $6,577,824 720,728 3,577,139 1,579,353 457,918 242,686
December 31, 2016
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
Accruing loans 30-59 days past due $20,599 6,338 5,079 5,388 2,439 1,355
Accruing loans 60-89 days past due 5,018 1,398 754 1,352 844 670
Accruing loans 90 days or more past due 1,099 266 145 283 191 214
Non-accrual loans 49,332 4,528 30,216 8,817 5,240 531
Total past due and non-accrual loans 76,048 12,530 36,194 15,840 8,714 2,770
Current loans receivable 5,608,415 661,817 2,953,947 1,326,410 426,060 240,181
Total loans receivable $5,684,463 674,347 2,990,141 1,342,250 434,774 242,951
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 $2,162,000, $2,364,000, and $2,471,000 for the years ended December 31, 2017, 2016, and 2015, respectively.
The following tables present TDRs that occurred during the periods presented and the TDRs that occurred within the previous twelve
months that subsequently defaulted during the periods presented:
Year ended December 31, 2017
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
TDRs that occurred during the period
Number of loans 32 5 13 11 2 1
Pre-modification recorded balance $41,521 841 31,109 9,403 158 10
Post-modification recorded balance $38,838 841 28,426 9,403 158 10
TDRs that subsequently defaulted
Number of loans 1 ——1 ——
Recorded balance $18 ——18 ——
90
Note 3. Loans Receivable, Net (continued)
Year ended December 31, 2016
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
TDRs that occurred during the period
Number of loans 34 —10 21 3 —
Pre-modification recorded balance $22,907 —8,454 14,183 270 —
Post-modification recorded balance $22,848 —8,415 14,166 267 —
TDRs that subsequently defaulted
Number of loans 1 ——1 ——
Recorded balance $6 ——6 ——
Year ended December 31, 2015
(Dollars in thousands)Total ResidentialReal Estate CommercialReal Estate OtherCommercial HomeEquity OtherConsumer
TDRs that occurred during the period
Number of loans 64 3 25 22 1 13
Pre-modification recorded balance $22,316 2,259 8,877 10,545 137 498
Post-modification recorded balance $23,110 2,203 9,927 10,325 157 498
TDRs that subsequently defaulted
Number of loans 7 1 1 4 —1
Recorded balance $2,556 1,947 78 529 —2
The modifications for the TDRs that occurred during the years ended December 31, 2017, 2016 and 2015 included one or a combination
of the following: an extension of the maturity date, a reduction of the interest rate or a reduction in the principal amount.
In addition to the TDRs that occurred during the period provided in the preceding tables, the Company had TDRs with pre-modification
loan balances of $5,987,000, $5,331,000 and $8,893,000 for the years ended December 31, 2017, 2016 and 2015, respectively, for which
OREO was received in full or partial satisfaction of the loans. The majority of such TDRs were in commercial real estate for the years
ended December 31, 2017 and 2015 and in residential real estate for the year ended December 31, 2016. At December 31, 2017 and
2016, the Company had $743,000 and $1,770,000, respectively, of consumer mortgage loans secured by residential real estate properties
for which formal foreclosure proceedings are in process. At December 31, 2017 and 2016, the Company had $893,000 and $2,699,000,
respectively, of OREO secured by residential real estate properties.
There were $1,960,000 and $4,785,000 of additional unfunded commitments on TDRs outstanding at December 31, 2017 and 2016,
respectively. The amount of charge-offs on TDRs during 2017, 2016 and 2015 was $2,984,000, $557,000 and $1,310,000, respectively.
91
Note 4. Premises and Equipment
Premises and equipment, net of accumulated depreciation, consist of the following:
(Dollars in thousands)
December 31,2017 December 31,2016
Land $31,370 29,648
Office buildings and construction in progress 182,592 173,886
Furniture, fixtures and equipment 83,177 84,559
Leasehold improvements 8,085 7,853
Accumulated depreciation (127,876)(119,748)
Net premises and equipment $177,348 176,198
Depreciation expense for the years ended December 31, 2017, 2016, and 2015 was $14,758,000, $15,294,000, and $14,365,000,
respectively.
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, 2017, 2016, and 2015 was $3,629,000, $3,255,000, and $3,137,000, respectively. Amortization of building
capital lease assets is included in depreciation. The Company has entered into lease transactions with related parties. Rent expense with
such related parties for the years ended December 31, 2017, 2016, and 2015 was $164,000, $153,000, and $150,000, respectively.
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, 2017 are as follows:
(Dollars in thousands)
CapitalLeases OperatingLeases Total
Years ending December 31,
2018 $92 2,633 2,725
2019 92 2,502 2,594
2020 92 2,039 2,131
2021 11 1,593 1,604
2022 —953 953
Thereafter —5,541 5,541
Total minimum lease payments 287 15,261 15,548
Less: Amount representing interest 27
Present value of minimum lease payments 260
Less: Current portion of obligations under capital leases 79
Long-term portion of obligations under capital leases $181
92
Note 5. Other Intangible Assets and Goodwill
The following table sets forth information regarding the Company’s core deposit intangibles:
At or for the Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Gross carrying value $21,649 21,943 38,527
Accumulated amortization (7,465)(9,596)(23,972)
Net carrying value $14,184 12,347 14,555
Aggregate amortization expense $2,494 2,970 2,964
Estimated amortization expense for the years ending December 31,
2018 $2,209
2019 2,100
2020 2,027
2021 1,952
2022 1,871
Core deposit intangibles increased $4,331,000, $762,000 and $6,619,000 during 2017, 2016 and 2015, respectively, due to acquisitions.
For additional information relating to acquisitions, see Note 22.
The following schedule discloses the changes in the carrying value of goodwill:
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Net carrying value at beginning of period $147,053 140,638 129,706
Acquisitions and adjustments 30,758 6,415 10,932
Net carrying value at end of period $177,811 147,053 140,638
The Company’s first step in evaluating goodwill for possible impairment is a control premium analysis. The analysis first calculates the
market capitalization and then adjusts such value for a control premium range which results in an implied fair value. The control premium
range is determined based on historical control premiums for acquisitions that are comparable to the Company and is obtained from an
independent third party. The calculated implied fair value is then compared to the book value to determine whether the Company needs
to proceed to step two of the goodwill impairment assessment. The Company performed its annual goodwill impairment test during the
third quarter of 2017 and determined the fair value of the aggregated reporting units exceeded the carrying value, such that the Company’s
goodwill was not considered impaired. In recognition there were no events or circumstances that occurred during the fourth quarter of
2017 that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value, the Company did not perform
interim testing at December 31, 2017. Changes in the economic environment, operations of the aggregated reporting units, or other
factors could result in the decline in the fair value of the aggregated reporting units which could result in a goodwill impairment in the
future. Accumulated impairment charges were $40,159,000 as of December 31, 2017 and 2016.
93
Note 6. Variable Interest Entities
A VIE is a partnership, limited liability company, trust or other legal entity that meets one of the following criteria: 1) the entity’s equity
investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from
other parties; 2) the holders of the equity investment at risk, as a group, lack the characteristics of a controlling financial interest; and 3)
the voting rights of some holders of the equity investment at risk are disproportionate to their obligation to absorb losses or receive returns,
and substantially all of the activities are conducted on behalf of the holder of equity investment at risk with disproportionately few voting
rights. A VIE must be consolidated by the Company if it is deemed to be the primary beneficiary, which is the party involved with the
VIE that has both: 1) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and 2)
the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE
that could potentially be significant to the VIE.
The Company’s VIEs are regularly monitored to determine if any reconsideration events have occurred that could cause the primary
beneficiary status to change. A previously unconsolidated VIE is consolidated when the Company becomes the primary beneficiary. A
previously consolidated VIE is deconsolidated when the Company ceases to be the primary beneficiary or the entity is no longer a VIE.
Consolidated Variable Interest Entities
The Company has equity investments in Certified Development Entities (“CDE”) which have received allocations of New Markets Tax
Credits (“NMTC”). The NMTC program provides federal tax incentives to investors to make investments in distressed communities and
promotes economic improvements through the development of successful businesses in these communities. The NMTC is available to
investors over a seven-year period and is subject to recapture if certain events occur during such period. The maximum exposure to loss
in the CDEs is the amount of equity invested and 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 in each CDE (NMTC) investment and determined the Company does not individually meet the characteristics of a primary
beneficiary; however, the related-party group does meet the criteria as a group and substantially all of the activities of the CDEs either
involve or are conducted on behalf of the Company. As a result, the Company is the primary beneficiary of the CDEs and their assets,
liabilities, and results of operations are included in the Company’s consolidated financial statements. The primary activities of the CDEs
are recognized in commercial loans interest income and other borrowed funds interest expense on the Company’s statements of operations
and the federal income tax credit allocations from the investments are recognized in the Company’s statements of operations as a component
of income tax expense. Such related cash flows are recognized in loans originated, principal collected on loans and change in other
borrowed funds.
The following table summarizes the carrying amounts of the consolidated VIEs’ assets and liabilities included in the Company’s statements
of financial condition and are adjusted for intercompany eliminations. All assets presented can be used only to settle obligations of the
consolidated VIEs and all liabilities presented consist of liabilities for which creditors and other beneficial interest holders therein have
no recourse to the general credit of the Company.
(Dollars in thousands)
December 31,2017 December 31,2016
Assets
Loans receivable $57,796 36,950
Accrued interest receivable 94 120
Other assets 15,885 10,024
Total assets $73,775 47,094
Liabilities
Other borrowed funds $7,964 4,105
Accrued interest payable 1 2
Other liabilities 98 27
Total liabilities $8,063 4,134
94
Note 6. Variable Interest Entities (continued)
Unconsolidated Variable Interest Entities
The Company has equity investments in Low-Income Housing Tax Credit (“LIHTC”) partnerships with carrying values of $9,169,000
and $7,282,000 as of December 31, 2017 and 2016, respectively. The LIHTCs are indirect federal subsidies to finance low-income
housing and are used in connection with both newly constructed and renovated residential rental buildings. Once a project is placed in
service, it is generally eligible for the tax credit for ten consecutive years. To continue generating the tax credit and to avoid tax credit
recapture, a LIHTC building must satisfy specific low-income housing compliance rules for a full fifteen-year period. The maximum
exposure to loss in the VIEs is the amount of equity invested and 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 in each LIHTC investment and determined that the Company does not have controlling financial interests
in such investments, and is not the primary beneficiary. The Company reports the investments in the unconsolidated LIHTCs as other
assets on the Company’s statements of financial condition. Total unfunded contingent commitments related to the Company’s LIHTC
investments totaled $27,831,000 at December 31, 2017, and the Company expects to fulfill these commitments during 2018. There were
no impairment losses on the Company’s LIHTC investments during the years ended December 31, 2017, 2016, and 2015.
The Company has elected to use the proportional amortization method, and more specifically the practical expedient method, for the
amortization of all eligible LIHTC investments and amortization expense is recognized as a component of income tax expense. The
following table summarizes the amortization expense and the amount of tax credits and other tax benefits recognized for qualified
affordable housing project investments during the periods presented.
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Amortization expense $2,507 1,125 974
Tax credits and other tax benefits recognized 3,827 1,515 1,552
The Company also owns the following trust subsidiaries, each of which issued trust preferred securities as Tier 1 capital instruments:
Glacier Capital Trust II, Glacier Capital Trust III, Glacier Capital Trust IV, Citizens (ID) Statutory Trust I, Bank of the San Juans
Bancorporation Trust I, First Company Statutory Trust 2001, and First Company Statutory Trust 2003. The trust subsidiaries have no
assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the securities held by
third parties. The trust subsidiaries are not included in the Company’s consolidated financial statements because the sole asset of each
trust subsidiary is a receivable from the Company, even though the Company owns all of the voting equity shares of the trust subsidiaries,
has fully guaranteed the obligations of the trust subsidiaries and may have the right to redeem the third party securities under certain
circumstances. The Company reports the trust preferred securities issued to the trust subsidiaries as subordinated debentures on the
Company’s statements of financial condition. For additional information on the Company’s investments in trust subsidiaries, see Note
9.
95
Note 7. Deposits
Time deposits that meet or exceed the Federal Deposit Insurance Corporation Insurance (“FDIC”) limit of $250,000 at December 31,
2017 and 2016 were $193,962,000 and $254,611,000, respectively.
The scheduled maturities of time deposits are as follows:
(Dollars in thousands)Amount
Years ending December 31,
2018 $557,693
2019 120,657
2020 65,284
2021 45,409
2022 27,974
Thereafter 242
$817,259
The Company reclassified $4,402,000 and $3,618,000 of overdraft demand deposits to loans as of December 31, 2017 and 2016,
respectively. The Company has entered into deposit transactions with its executive officers, directors and their affiliates. The aggregate
amount of deposits with such related parties at December 31, 2017 and 2016 was $25,641,000 and $27,977,000, respectively.
Note 8. Borrowings
The Company’s repurchase agreements totaled $362,573,000 and $473,650,000 at December 31, 2017 and 2016, respectively, and are
secured by investment securities with carrying values of $475,601,000 and $472,239,000, respectively. Securities are pledged to customers
at the time of the transaction in an amount at least equal to the outstanding balance and are held in custody accounts by third parties. The
fair value of collateral is continually monitored and additional collateral is provided as deemed appropriate. The following tables
summarize the carrying value of the Company’s repurchase agreements by remaining contractual maturity and category of collateral:
December 31, 2017
Remaining Contractual Maturity of the Agreements
(Dollars in thousands)
Overnight andContinuous Up to 30 Days Total
Residential mortgage-backed securities $360,751 —360,751
Commercial mortgage-backed securities 1,822 —1,822
Total $362,573 —362,573
December 31, 2016
Remaining Contractual Maturity of the Agreements
(Dollars in thousands)
Overnight andContinuous Up to 30 Days Total
Residential mortgage-backed securities $471,706 643 472,349
Commercial mortgage-backed securities 1,301 —1,301
Total $473,007 643 473,650
96
Note 8. Borrowings (continued)
The Company’s FHLB advances bear a fixed rate of interest and are subject to restrictions or penalties in the event of prepayment. The
advances are collateralized by specifically pledged loans and investment securities, FHLB stock owned by the Company, and a blanket
assignment of the unpledged qualifying loans and investments. During the year ended December 31, 2017, the Company modified the
majority of its long-term FHLB advances, including prepaying higher cost advances, to strategically manage its asset size. The scheduled
maturities of FHLB advances consist of the following:
December 31, 2017 December 31, 2016
(Dollars in thousands)Amount WeightedRate Amount WeightedRate
Maturing within one year $200,869 1.64%$41,099 0.84%
Maturing one year through two years 887 2.05%70,983 1.42%
Maturing two years through three years 1,651 3.58%927 2.16%
Maturing three years through four years 148,721 2.69%1,728 3.66%
Maturing four years through five years 945 5.25%135,000 3.08%
Thereafter 922 5.42%2,012 5.33%
Total $353,995 2.11%$251,749 2.27%
The Company’s other borrowings consisted of capital lease obligations and other debt obligations through consolidation of certain VIEs.
At December 31, 2017, the Company had $230,000,000 in unsecured lines of credit which are typically renewed on an annual basis with
various correspondent entities.
Note 9. Subordinated Debentures
Trust preferred securities were issued by the Company’s 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 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 prior 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. All of the Company’s trust preferred securities have reached the redemption date and could be redeemed
at the Company’s option. 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.
For regulatory capital purposes, the FRB has allowed bank holding companies to continue to include trust preferred securities in Tier 1
capital up to a certain limit. Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”)
require the FRB to exclude trust preferred securities from Tier 1 capital, but a permanent grandfather provision applicable to the Company
permits bank holding companies with consolidated assets of less than $15 billion to continue counting existing trust preferred securities
as Tier 1 capital until they mature, even after the Company’s total assets exceed $15 billion. All of the Company’s trust preferred securities
qualified as Tier 1 capital instruments at December 31, 2017. For additional information on regulatory capital, see Note 11.
97
Note 9. Subordinated Debentures (continued)
The terms of the subordinated debentures, arranged by maturity date, are reflected in the table below. The amounts include fair value
adjustments from acquisitions.
December 31, 2017 Variable RateStructure MaturityDate(Dollars in thousands)Balance Rate
First Company Statutory Trust 2001 $3,269 4.680%3 month LIBOR plus 3.30%07/31/2031
First Company Statutory Trust 2003 2,407 4.925%3 month LIBOR plus 3.25%03/26/2033
Glacier Capital Trust II 46,393 4.109%3 month LIBOR plus 2.75%04/07/2034
Citizens (ID) Statutory Trust I 5,155 4.250%3 month LIBOR plus 2.65%06/17/2034
Glacier Capital Trust III 36,083 2.649%3 month LIBOR plus 1.29%04/07/2036
Glacier Capital Trust IV 30,928 3.158%3 month LIBOR plus 1.57%09/15/2036
Bank of the San Juans Bancorporation Trust I 1,900 3.301%3 month LIBOR plus 1.82%03/01/2037
$126,135
Note 10. Derivatives and Hedging Activities
The Company is exposed to certain risk relating to its ongoing business operations. The primary risk managed by using derivative
instruments is interest rate risk. Interest rate swaps are entered into to manage interest rate risk associated with the Company’s forecasted
variable rate borrowings. The Company recognizes interest rate swaps as either assets or liabilities at fair value in the statements of
financial condition, after taking into account the effects of bilateral collateral and master netting agreements. These agreements allow
the Company to settle all interest rate swap agreements held with a single counterparty on a net basis, and to offset net interest rate swap
derivative positions with related collateral, where applicable.
The interest rate swaps on variable rate borrowings were designated as cash flow hedges and were over-the-counter contracts. The
contracts were entered into by the Company with a single counterparty, and the specific terms and conditions were negotiated, including
forecasted notional amounts, interest rates and maturity dates. The Company is exposed to credit-related losses in the event of
nonperformance by the counterparty to the agreements. The Company controls the counterparty credit risk by maintaining bilateral
collateral agreements and through monitoring policy and procedures. The Company only conducts business with primary dealers and
believes that the credit risk inherent in these contracts was not significant.
The Company’s interest rate swap derivative financial instruments as of December 31, 2017 are as follows:
(Dollars in thousands)
ForecastedNotional Amount VariableInterest Rate 1 FixedInterest Rate 1 Payment Term
Interest rate swap $160,000 3 month LIBOR 3.378%Oct. 21, 2014 - Oct. 21, 2021
Interest rate swap 100,000 3 month LIBOR 2.498%Nov. 30, 2015 - Nov. 30, 2022
______________________________
1 The Company pays the fixed interest rate and the counterparty pays the Company the variable interest rate.
The hedging strategy converts the LIBOR-based variable interest rate on borrowings to a fixed interest rate, thereby protecting the
Company from interest rate variability.
98
Note 10. Derivatives and Hedging Activities (continued)
The interest rate swaps with the $160,000,000 and $100,000,000 notional amounts began their payment terms in October 2014 and
November 2015, respectively. The Company designated wholesale deposits and FHLB advances as the cash flow hedge and these hedged
items were determined to be fully effective during current and prior years. As such, no amount of ineffectiveness has been included in
the Company’s statements of operations for the years ended December 31, 2017, 2016 and 2015. Therefore, the aggregate fair value of
the interest rate swaps was recorded in other liabilities with changes recorded in OCI. The Company expects the hedges to remain highly
effective during the remaining terms of the interest rate swaps. Interest expense recorded on the interest rate swaps totaled $8,013,000,
$8,035,000 and $5,695,000 during 2017, 2016 and 2015, respectively, and is reported as a component of interest expense on deposits
and FHLB advances. Unless the interest rate swaps are terminated during the next year, the Company expects $4,228,000 of the unrealized
loss reported in OCI at December 31, 2017 to be reclassified to interest expense during the next twelve months.
The following table presents the pre-tax gains or losses recorded in OCI and the Company’s statements of operations relating to the
interest rate swap derivative financial instruments:
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Interest rate swaps
Amount of gain (loss) recognized in OCI (effective portion)$444 (1,643)(7,857)
Amount of loss reclassified from OCI to interest expense (4,892)(6,417)(5,025)
Amount of loss recognized in other non-interest expense(ineffective portion)———
The following table discloses the offsetting of financial liabilities and interest rate swap derivative liabilities. There were no interest rate
swap derivative assets at the dates presented.
December 31, 2017 December 31, 2016
(Dollars in thousands)
Gross Amountsof RecognizedLiabilities
Gross AmountsOffset in theStatements ofFinancialPosition
Net Amounts ofLiabilitiesPresented in theStatements ofFinancialPosition
Gross Amountsof RecognizedLiabilities
Gross AmountsOffset in theStatements ofFinancialPosition
Net Amounts ofLiabilitiesPresented in theStatements ofFinancialPosition
Interest rate swaps $9,389 —9,389 14,725 —14,725
Pursuant to the interest rate swap agreements, the Company pledged collateral to the counterparty in the form of investment securities
totaling $23,692,000 at December 31, 2017. There was $0 collateral pledged from the counterparty to the Company as of December 31,
2017. There is the possibility that the Company may need to pledge additional collateral in the future if there were declines in the fair
value of the interest rate swap derivative financial instruments versus the collateral pledged.
99
Note 11. Regulatory Capital
The Federal Reserve has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding
company. The federal banking agencies implemented final rules (“Final Rules”) to establish a new comprehensive regulatory capital
framework with a phase-in period beginning on January 1, 2015 and ending on January 1, 2019. The Final Rules implemented certain
regulatory amendments based on the recommendation of the Basel Committee on Banking Supervision and certain requirements of the
Dodd-Frank Act and substantially amended the regulatory risk-based capital rules applicable to the Company. The Final Rules require
the Company to hold a conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer
for 2017 is 1.25 percent. The Company has elected to opt-out of the requirement to include most components of AOCI. As of December 31,
2017, management believes the Company and Bank meet all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide the following classifications: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. If undercapitalized, capital distributions (including payment of a dividend)
are generally restricted, as is paying management fees to its bank holding company. Failure to meet minimum capital requirements set
forth in the table below can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company’s and Bank’s financial condition. The Company’s and Bank’s capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
At December 31, 2017 and 2016, the most recent regulatory notifications categorized the Company and Bank as well capitalized under
the regulatory framework for prompt corrective action. To be well capitalized, the Bank must maintain minimum total capital, Tier 1
capital, Common Tier 1 capital and Tier 1 Leverage ratios as set forth in the table below. There are no conditions or events since
December 31, 2017 that management believes have changed the Company’s or Bank’s risk-based capital category.
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 is also subject to Montana
state law and cannot declare a dividend greater than the previous two years’ net earnings without providing notice to the state.
The following tables illustrate the FRB’s adequacy guidelines and the Company’s and the Bank’s compliance with those guidelines:
December 31, 2017
Actual Required for CapitalAdequacy Purposes
To Be Well CapitalizedUnder Prompt Corrective Action Regulations
(Dollars in thousands)Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk-weighted assets)
Consolidated $1,232,089 15.64%$630,109 8.00%N/A N/A
Glacier Bank 1,182,509 15.04%628,823 8.00%$786,029 10.00%
Tier 1 capital (to risk-weighted assets)
Consolidated 1,133,125 14.39%472,582 6.00%N/A N/A
Glacier Bank 1,083,744 13.79%471,617 6.00%628,823 8.00%
Common Equity Tier 1 (to risk-weighted assets)
Consolidated 1,009,276 12.81%354,437 4.50%N/A N/A
Glacier Bank 1,083,744 13.79%353,713 4.50%510,919 6.50%
Tier 1 capital (to average assets)
Consolidated 1,133,125 11.90%380,770 4.00%N/A N/A
Glacier Bank 1,083,744 11.47%377,809 4.00%472,261 5.00%
100
Note 11. Regulatory Capital (continued)
December 31, 2016
Actual Required for CapitalAdequacy Purposes
To Be Well CapitalizedUnder Prompt CorrectiveAction Regulations
(Dollars in thousands)Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk-weighted assets)
Consolidated $1,179,673 16.38%$576,092 8.00%N/A N/A
Glacier Bank 1,131,949 15.76%574,658 8.00%$718,323 10.00%
Tier 1 capital (to risk-weighted assets)
Consolidated 1,089,142 15.12%432,069 6.00%N/A N/A
Glacier Bank 1,041,640 14.50%430,994 6.00%574,658 8.00%
Common Equity Tier 1 (to risk-weighted assets)
Consolidated 966,701 13.42%324,052 4.50%N/A N/A
Glacier Bank 1,041,640 14.50%323,245 4.50%466,910 6.50%
Tier 1 capital (to average assets)
Consolidated 1,089,142 11.90%365,994 4.00%N/A N/A
Glacier Bank 1,041,640 11.45%363,945 4.00%454,932 5.00%
______________________________
N/A - Not applicable
Note 12. Stock-based Compensation Plan
The Company has two stock-based compensation plans in effect at December 31, 2017. The 2005 Stock Incentive Plan expired in April
2015, but still has non-vested restricted stock awards at December 31, 2017. The 2015 Stock Incentive Plan provides incentives and
awards to select employees and directors of the Company and permits the granting of stock options, share appreciation rights, restricted
shares, restricted share units, unrestricted shares and performance awards. At December 31, 2017, the number of shares available to
award to employees and directors under the 2015 Stock Incentive Plan was 2,249,767.
Restricted Stock Awards
The Company has awarded restricted stock to select employees and directors under the 2005 and 2015 Stock Incentive Plans. Common
stock is issued as vesting restrictions lapse, which may be immediately or according to the terms of a vesting schedule. Restricted stock
awards may not be sold, pledged or otherwise transferred until restrictions have lapsed. Under the 2005 Stock Incentive Plan, the recipient
does not have the right to vote until the restricted stock award has vested but does have the right to receive dividends. Under the 2015
Stock Incentive Plan, the recipient does not have the right to vote or to receive dividends until the restricted stock award has vested. The
fair value of the restricted stock awarded is the closing price of the Company’s common stock on the award date.
Compensation expense related to restricted stock awards for the years ended December 31, 2017, 2016 and 2015 was $3,764,000,
$2,870,000 and $2,470,000, respectively, and the recognized income tax benefit related to this expense was $1,452,000, $1,112,000 and
$957,000. As of December 31, 2017, total unrecognized compensation expense of $3,288,000 related to restricted stock awards is expected
to be recognized over a weighted-average period of 1.8 years.
The fair value of restricted stock awards that vested during the years ended December 31, 2017, 2016 and 2015 was $3,746,000, $2,624,000
and $1,761,000, respectively, and the income tax benefit related to these awards was $1,998,000, $1,053,000 and $795,000, respectively.
Upon vesting of restricted stock awards, the shares are issued from the Company’s authorized stock balance.
101
Note 12. Stock-based Compensation Plan (continued)
The following table summarizes the restricted stock award activity for the year ended December 31, 2017:
RestrictedStock
Weighted-AverageGrant Date Fair Value
Non-vested at December 31, 2016 222,732 $24.46
Granted 104,836 36.59
Vested (141,864)26.41
Forfeited (2,526)29.07
Non-vested at December 31, 2017 183,178 29.84
The average remaining contractual term on non-vested restricted stock awards at December 31, 2017 is 0.8 years. The aggregate intrinsic
value of the non-vested restricted stock awards at December 31, 2017 was $7,215,000.
Note 13. Employee Benefit Plans
The Company provides its qualified employees with a comprehensive benefit program, including health, dental and vision insurance,
life and accident insurance, short- and long-term disability coverage, vacation and sick leave, 401(k) plan, profit sharing plan, stock-
based compensation plan, deferred compensation plans, and supplemental executive retirement plan. The Company has elected to self-
insure certain costs related to employee health, dental and vision benefit programs. Costs resulting from noninsured losses are expensed
as incurred. The Company has purchased insurance that limits its exposure on an individual claim basis for the employee health benefit
programs.
401(k) Plan and Profit Sharing Plan
The Company’s 401(k) plan and profit sharing plan have safe harbor and employer discretionary components. To be considered eligible
for the 401(k) and safe harbor components of the profit sharing plan, an employee must be 21 years of age and employed for three full
months. Employees are eligible to participate in the 401(k) plan the first day of the month once they have met the eligibility requirements.
To be considered eligible for the employer discretionary contribution of the profit sharing plan, an employee must be 21 years of age,
worked one full calendar quarter, worked 501 hours in the plan year and be employed as of the last day of the plan year. Participants are
at all times fully vested in all contributions.
The profit sharing plan contributions consists of a 3 percent non-elective safe harbor contribution fully funded by the Company and an
employer discretionary contribution. The employer discretionary contribution depends on the Company’s profitability. The total profit
sharing plan expense for the years ended December 31, 2017, 2016, and 2015 was $10,100,000, $9,041,000 and $8,017,000 respectively.
The 401(k) plan allows eligible employees under the age of 50 to contribute up to 60 percent, and those 50 and older to contribute up to
100 percent of their eligible annual compensation up to the limit set annually by the Internal Revenue Service (“IRS”). The Company
matches an amount equal to 50 percent of the first 6 percent of an employee’s contribution. The Company’s contribution to the 401(k)
for the years ended December 31, 2017, 2016 and 2015 was $3,224,000, $2,946,000, and $2,629,000, respectively.
Deferred Compensation Plans
The Company has non-funded deferred compensation plans for directors, senior officers and certain nonemployee service providers. The
plans provide for participants’ elective deferral of cash payments of up to 50 percent of a participants’ salary and 100 percent of bonuses
and directors fees. The total amount deferred for the plans was $739,000, $967,000, and $720,000, for the years ending December 31,
2017, 2016, and 2015, respectively. The participant receives an earnings credit at a rate equal to 50 percent of the Company’s return on
average equity. The total earnings for the years ended December 31, 2017, 2016, and 2015 for the plans was $481,000, $431,000 and
$386,000, respectively. In connection with several acquisitions, the Company assumed the obligations of deferred compensation plans
for certain key employees. As of December 31, 2017 and 2016, the liability related to the obligations was $11,275,000 and $11,273,000,
respectively, and was included in other liabilities. The total earnings for the years ended December 31, 2017, 2016, and 2015 for the
acquired plans was insignificant.
102
Note 13. Employee Benefit Plans (continued)
Supplemental Executive Retirement Plan
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 an 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 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, 2017, 2016 and 2015 was $287,000,
$299,000, and $224,000, respectively. The participant receives an earnings credit at a rate equal to 50 percent of the Company’s return
on average equity. The total earnings for the years ended December 31, 2017, 2016, and 2015 for this plan was $105,000, $85,000, and
$69,000, respectively.
Note 14. Other Expenses
Other expenses consists of the following:
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Debit card expenses $7,189 8,462 6,153
Consulting and outside services 5,331 5,683 3,845
Employee expenses 4,160 3,573 2,425
Telephone 3,891 3,828 3,318
VIE amortization and other expenses 3,109 2,702 4,528
Loan expenses 3,080 3,611 2,824
Postage 2,684 2,785 3,716
Printing and supplies 2,661 2,800 3,529
Mergers and acquisition expenses 2,130 1,732 2,459
Business development 1,929 1,847 1,526
Accounting and audit fees 1,848 1,613 1,331
Checking and operating expenses 1,760 2,942 3,553
ATM expenses 1,720 880 1,082
Legal fees 1,106 1,027 866
Other 4,447 4,085 3,892
Total other expenses $47,045 47,570 45,047
103
Note 15. Federal and State Income Taxes
The Tax Act was enacted on December 22, 2017 and resulted in a decrease in the federal marginal tax rate from 35 percent to 21 percent
beginning in 2018. As a result of the Tax Act, the Company incurred a one-time tax expense adjustment of $19,699,000 during 2017 due
to the Company’s revaluation of its net deferred tax assets. This adjustment is reflected in the following tables.
The following table is a summary of consolidated income tax expense:
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Current
Federal $29,555 30,461 28,705
State 9,183 9,283 9,374
Total current income tax expense 38,738 39,744 38,079
Deferred 1
Federal 22,246 (70)(3,451)
State 3,641 (12)(629)
Total deferred income tax expense (benefit)25,887 (82)(4,080)
Total income tax expense $64,625 39,662 33,999
______________________________
1 Includes tax benefit of operating loss carryforwards of $644,000, $571,000 and $391,000 for the years ended December 31, 2017, 2016, and 2015,
respectively.
Combined federal and state income tax expense differs from that computed at the federal statutory corporate tax rate as follows:
Years ended
December 31,2017 December 31,2016 December 31,2015
Federal statutory rate 35.0 %35.0 %35.0 %
State taxes, net of federal income tax benefit 4.6 %3.8 %3.7 %
Tax rate change 10.9 %—%—%
Tax-exempt interest income (10.5)%(12.2)%(12.6)%
Tax credits (3.2)%(2.1)%(3.0)%
Other, net (1.1)%0.2 %(0.5)%
Effective tax rate 35.7 %24.7 %22.6 %
104
Note 15. 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:
(Dollars in thousands)
December 31,2017 December 31,2016
Deferred tax assets
Allowance for loan and lease losses $32,890 50,172
Deferred compensation 5,640 8,320
Other real estate owned 5,126 8,309
Acquisition fair market value adjustments 4,139 4,763
Net operating loss carryforwards 2,841 4,737
Employee benefits 2,615 3,927
Interest rate swap agreements 2,379 5,705
Other 3,673 5,569
Total gross deferred tax assets 59,303 91,502
Deferred tax liabilities
Deferred loan costs (5,854)(8,061)
Intangibles (4,161)(5,477)
Depreciation of premises and equipment (2,863)(3,111)
FHLB stock dividends (2,602)(3,976)
Available-for-sale securities (1,707)(1,036)
Debt modification costs (1,591)—
Other (2,181)(2,720)
Total gross deferred tax liabilities (20,959)(24,381)
Net deferred tax asset $38,344 67,121
The Company has federal net operating loss carryforwards of $10,635,000 expiring between 2030 and 2035. The Company has Colorado
net operating loss carryforwards of $13,987,000 expiring between 2031 and 2032. The net operating loss carryforwards originated from
bank acquisitions. The Company has federal tax credit carryforwards with no expiration dates of $411,000.
The Company and the Bank file consolidated income tax returns in the following jurisdictions: federal, Montana, Idaho, Utah, Colorado
and Arizona. Although the Bank has operations in Wyoming and 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 as of December 31, 2017:
Years ended December 31,
Federal 2013, 2014, 2015 and 2016
Montana 2014, 2015 and 2016
Idaho 2014, 2015 and 2016
Utah 2014, 2015 and 2016
Colorado 2013, 2014, 2015 and 2016
Arizona 2013, 2014, 2015 and 2016
105
Note 15. Federal and State Income Taxes (continued)
The Company had no unrecognized income tax benefits as of December 31, 2017 and 2016. The Company recognizes interest related
to unrecognized income tax benefits in interest expense and penalties are recognized in other expense. Interest expense and penalties
recognized with respect to income tax liabilities for the years ended December 31, 2017, 2016, and 2015 was not significant. The Company
had no accrued liabilities for the payment of interest or penalties at December 31, 2017 and 2016.
The Company has assessed the need for a valuation allowance and determined that a valuation allowance was not necessary at December 31,
2017 and 2016. The Company believes that it is more-likely-than-not that the Company’s deferred tax assets will be realizable 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 income tax credit carryforwards
expiring unused, and no future net operating losses (for tax purposes) are expected.
Note 16. Accumulated Other Comprehensive Income (Loss)
The following table illustrates the activity within accumulated other comprehensive income (loss) by component, net of tax:
(Dollars in thousands)
Gains onAvailable-For-Sale Securities
Losses onDerivativesUsed for CashFlow Hedges Total
Balance at December 31, 2014 $27,945 (10,201)17,744
Other comprehensive loss before reclassifications (13,968)(4,823)(18,791)
Reclassification adjustments for (losses) gains included in net income (42)3,078 3,036
Net current period other comprehensive loss (14,010)(1,745)(15,755)
Balance at December 31, 2015 $13,935 (11,946)1,989
Other comprehensive loss before reclassifications (13,113)(1,006)(14,119)
Reclassification adjustments for gains included in net income 817 3,931 4,748
Net current period other comprehensive (loss) income (12,296)2,925 (9,371)
Balance at December 31, 2016 $1,639 (9,021)(7,382)
Other comprehensive income before reclassifications 2,110 248 2,358
Reclassification adjustments for gains included in net income 391 3,005 3,396
Reclassifications from accumulated other comprehensive income (loss) to retained earnings 1 891 (1,242)(351)
Net current period other comprehensive income 3,392 2,011 5,403
Balance at December 31, 2017 $5,031 (7,010)(1,979)
______________________________
1 Reclassifications were due to the one-time revaluation of the deferred tax assets and deferred tax liabilities as a result of the Tax Act. For additional
information relating to this reclassification, see Note 1.
106
Note 17. Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding
during the period presented. Diluted earnings per share is computed by including the net increase in shares as if dilutive outstanding
restricted stock awards were vested, using the treasury stock method.
Basic and diluted earnings per share has been computed based on the following:
Years ended
(Dollars in thousands, except per share data)
December 31,2017 December 31,2016 December 31,2015
Net income available to common stockholders, basic and diluted $116,377 121,131 116,127
Average outstanding shares - basic 77,537,664 76,278,463 75,542,455
Add: dilutive restricted stock awards 69,941 63,373 53,126
Average outstanding shares - diluted 77,607,605 76,341,836 75,595,581
Basic earnings per share $1.50 1.59 1.54
Diluted earnings per share $1.50 1.59 1.54
There were no restricted stock awards excluded from the diluted average outstanding share calculation for the years ended December 31,
2017, 2016, and 2015. Anti-dilution occurs when the unrecognized compensation cost per share of a restricted stock award exceeds the
market price of the Company’s stock.
Note 18. Parent Holding Company Information (Condensed)
The following condensed financial information was the unconsolidated information for the parent holding company:
Condensed Statements of Financial Condition
(Dollars in thousands)
December 31,
2017
December 31,
2016
Assets
Cash on hand and in banks $9,304 5,906
Interest bearing cash deposits 38,420 57,700
Cash and cash equivalents 47,724 63,606
Investment securities, available-for-sale —36
Other assets 8,871 10,764
Investment in subsidiaries 1,281,392 1,201,667
Total assets $1,337,987 1,276,073
Liabilities and Stockholders’ Equity
Dividends payable $265 23,137
Subordinated debentures 126,135 125,991
Other liabilities 12,530 10,076
Total liabilities 138,930 159,204
Common stock 780 765
Paid-in capital 797,997 749,107
Retained earnings 402,259 374,379
Accumulated other comprehensive loss (1,979)(7,382)
Total stockholders’ equity 1,199,057 1,116,869
Total liabilities and stockholders’ equity $1,337,987 1,276,073
107
Note 18. Parent Holding Company Information (Condensed) (continued)
Condensed Statements of Operations and Comprehensive Income
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Income
Dividends from subsidiaries $119,000 108,350 109,000
Gain on sale of investments 3 ——
Intercompany charges for services 14,299 12,248 10,562
Other income 225 311 196
Total income 133,527 120,909 119,758
Expenses
Compensation and employee benefits 17,864 15,665 13,205
Other operating expenses 10,425 7,701 7,313
Total expenses 28,289 23,366 20,518
Income before income tax benefit and equity inundistributed net income of subsidiaries 105,238 97,543 99,240
Income tax benefit 2,983 4,040 3,105
Income before equity in undistributed net income of subsidiaries 108,221 101,583 102,345
Equity in undistributed net income of subsidiaries 8,156 19,548 13,782
Net Income $116,377 121,131 116,127
Comprehensive Income $122,131 111,760 100,372
Condensed Statements of Cash Flows
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016 December 31,2015
Operating Activities
Net income $116,377 121,131 116,127
Adjustments to reconcile net income to net cashprovided by operating activities:
Subsidiary income in excess of dividends distributed (8,156)(19,548)(13,782)
Amortization of purchase accounting adjustments 143 143 143
Gain on sale of investments (3)——
Stock-based compensation, net of tax benefits 1,460 804 695
Net change in other assets and other liabilities 5,051 (297)118
Net cash provided by operating activities 114,872 102,233 103,301
Investing Activities
Sales of available-for-sale securities 27 ——
Net (increase) decrease of premises and equipment (79)771 (1,405)
Proceeds from sale of non-marketable equity securities 114 55 22
Equity contributions to subsidiaries (17,565)(3,475)(28,457)
Net cash used in by investing activities (17,503)(2,649)(29,840)
Financing Activities
Cash dividends paid (111,720)(84,040)(79,456)
Tax withholding payments for stock-based compensation (1,531)(600)(489)
Net cash used in financing activities (113,251)(84,640)(79,945)
Net (decrease) increase in cash and cash equivalents (15,882)14,944 (6,484)
Cash and cash equivalents at beginning of year 63,606 48,662 55,146
Cash and cash equivalents at end of year $47,724 63,606 48,662
108
Note 19. Unaudited Quarterly Financial Data (Condensed)
Summarized unaudited quarterly financial data is as follows:
Quarters ended 2017
(Dollars in thousands, except per share data)March 31 June 30 September 30 December 31
Interest income $87,628 94,032 96,464 96,898
Interest expense 7,366 7,774 7,652 7,072
Net interest income 80,262 86,258 88,812 89,826
Provision for loan losses 1,598 3,013 3,327 2,886
Net interest income after provision for loan losses 78,664 83,245 85,485 86,940
Non-interest income 25,689 27,656 31,185 27,709
Non-interest expense 63,344 65,309 68,552 68,366
Income before income taxes 41,009 45,592 48,118 46,283
Federal and state income tax expense 9,754 11,905 11,639 31,327
Net income $31,255 33,687 36,479 14,956
Basic earnings per share $0.41 0.43 0.47 0.19
Diluted earnings per share $0.41 0.43 0.47 0.19
Quarters ended 2016
(Dollars in thousands, except per share data)March 31 June 30 September 30 December 31
Interest income $84,381 86,069 85,944 87,759
Interest expense 7,675 7,424 7,318 7,214
Net interest income 76,706 78,645 78,626 80,545
Provision for loan losses 568 —626 1,139
Net interest income after provision for loan losses 76,138 78,645 78,000 79,406
Non-interest income 24,252 26,759 28,293 28,014
Non-interest expense 62,356 64,461 65,180 66,717
Income before income taxes 38,034 40,943 41,113 40,703
Federal and state income tax expense 9,352 10,492 10,156 9,662
Net income $28,682 30,451 30,957 31,041
Basic earnings per share $0.38 0.40 0.40 0.41
Diluted earnings per share $0.38 0.40 0.40 0.41
109
Note 20. Fair Value of Assets and Liabilities
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. There is 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 three levels of inputs that may be used to measure
fair value are as follows:
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
Transfers in and out of Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs) and Level 3 (significant
unobservable inputs) are recognized on the actual transfer date. There were no transfers between fair value hierarchy levels during the
years ended December 31, 2017 and 2016.
Recurring Measurements
The following is a description of the inputs and valuation methodologies used for assets and liabilities measured at fair value on a recurring
basis, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant
changes in the valuation techniques during the period ended December 31, 2017.
Investment securities, available-for-sale: 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, market spreads, prepayments, defaults, recoveries, cumulative loss projections, and cash flows. Such securities are
classified in Level 2 of the valuation hierarchy. Where Level 1 or Level 2 inputs are not available, such securities are classified as Level
3 within the hierarchy.
Fair value determinations of available-for-sale securities are the responsibility of the Company’s corporate accounting and treasury
departments. The Company obtains fair value estimates from independent third party vendors on a monthly basis. The vendors’ pricing
system methodologies, procedures and system controls are reviewed to ensure they are appropriately designed and operating effectively.
The Company reviews the vendors’ inputs for fair value estimates and the recommended assignments of levels within the fair value
hierarchy. The review includes the extent to which markets for investment securities are determined to have limited or no activity, or are
judged to be active markets. The Company reviews the extent to which observable and unobservable inputs are used as well as the
appropriateness of the underlying assumptions about risk that a market participant would use in active markets, with adjustments for
limited or inactive markets. In considering the inputs to the fair value estimates, the Company places less reliance on quotes that are
judged to not reflect orderly transactions, or are non-binding indications. In assessing credit risk, the Company reviews payment
performance, collateral adequacy, third party research and analyses, credit rating histories and issuers’ financial statements. For those
markets determined to be inactive or limited, the valuation techniques used are models for which management has verified that discount
rates are appropriately adjusted to reflect illiquidity and credit risk.
Loans held for sale: loans held for sale measured at fair value, for which an active secondary market and readily available market prices
exist, are initially valued at the transaction price and are subsequently valued by using quoted prices for similar assets, adjusted for specific
attributes of that loan or other observable market data, such as outstanding commitments from third party investors. Loans held for sale
measured at fair value are classified within Level 2. Included in gain on sale of loans were net gains of $994,000, $0 and $0 for the years
ended December 31, 2017, 2016 and 2015, respectively, from the changes in fair value of these loans held for sale measured at fair value.
Electing to measure loans held for sale at fair value reduces certain timing differences and better matches changes in fair value of these
assets with changes in the value of the derivative instruments used to economically hedge them without the burden of complying with
the requirements for hedge accounting.
110
Note 20. Fair Value of Assets and Liabilities (continued)
Interest rate swap derivative financial instruments: fair values for interest rate swap derivative financial instruments are based upon the
estimated amounts to settle the contracts considering current interest rates and are calculated using discounted cash flows that are observable
or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. The inputs
used to determine fair value include the 3 month LIBOR forward curve to estimate variable rate cash inflows and the Fed Funds Effective
Swap Rate to estimate the discount rate. The estimated variable rate cash inflows are compared to the fixed rate outflows and such
difference is discounted to a present value to estimate the fair value of the interest rate swaps. The Company also obtains and compares
the reasonableness of the pricing from an independent third party.
The following tables disclose the fair value measurement of assets and liabilities measured at fair value on a recurring basis:
Fair Value MeasurementsAt the End of the Reporting Period Using
(Dollars in thousands)
Fair ValueDecember 31,2017
Quoted Pricesin Active Marketsfor IdenticalAssets(Level 1)
SignificantOtherObservableInputs(Level 2)
SignificantUnobservableInputs(Level 3)
Investment securities, available-for-sale
U.S. government and federal agency $31,127 —31,127 —
U.S. government sponsored enterprises 19,091 —19,091 —
State and local governments 629,501 —629,501 —
Corporate bonds 216,762 —216,762 —
Residential mortgage-backed securities 779,283 —779,283 —
Commercial mortgage-backed securities 102,479 —102,479 —
Loans held for sale 38,833 —38,833 —
Total assets measured at fair valueon a recurring basis $1,817,076 —1,817,076 —
Interest rate swaps $9,389 —9,389 —
Total liabilities measured at fair valueon a recurring basis $9,389 —9,389 —
111
Note 20. Fair Value of Assets and Liabilities (continued)
Fair Value MeasurementsAt the End of the Reporting Period Using
(Dollars in thousands)
Fair ValueDecember 31,2016
Quoted Pricesin Active Marketsfor IdenticalAssets(Level 1)
SignificantOtherObservableInputs(Level 2)
SignificantUnobservableInputs(Level 3)
Investment securities, available-for-sale
U.S. government and federal agency $39,407 —39,407 —
U.S. government sponsored enterprises 19,570 —19,570 —
State and local governments 786,373 —786,373 —
Corporate bonds 471,951 —471,951 —
Residential mortgage-backed securities 1,007,515 —1,007,515 —
Commercial mortgage-backed securities 100,661 —100,661 —
Total assets measured at fair valueon a recurring basis $2,425,477 —2,425,477 —
Interest rate swaps $14,725 —14,725 —
Total liabilities measured at fair valueon a recurring basis $14,725 —14,725 —
Non-recurring Measurements
The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis,
as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the
valuation techniques during the period ended December 31, 2017.
Other real estate owned: OREO is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost
to sell. Estimated fair value of OREO is based on appraisals or evaluations (new or updated). OREO is classified within Level 3 of the
fair value hierarchy.
Collateral-dependent impaired loans, net of ALLL: loans included in the Company’s loan portfolio for which it is probable that the
Company will not collect all principal and interest due according to contractual terms are considered impaired. Estimated fair value of
collateral-dependent impaired loans is based on the fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired
loans are classified within Level 3 of the fair value hierarchy.
The Company’s credit department reviews appraisals for OREO and collateral-dependent loans, giving consideration to the highest and
best use of the collateral. The appraisal or evaluation (new or updated) is considered the starting point for determining fair value. The
valuation techniques used in preparing appraisals or evaluations (new or updated) include the cost approach, income approach, sales
comparison approach, or a combination of the preceding valuation techniques. The key inputs used to determine the fair value of the
collateral-dependent loans and OREO include selling costs, discounted cash flow rate or capitalization rate, and adjustment to comparables.
Valuations and significant inputs obtained by independent sources are reviewed by the Company for accuracy and reasonableness. The
Company also considers other factors and events in the environment that may affect the fair value. The appraisals or evaluations (new
or updated) are reviewed at least quarterly and more frequently based on current market conditions, including deterioration in a borrower’s
financial condition and when property values may be subject to significant volatility. After review and acceptance of the collateral
appraisal or evaluation (new or updated), adjustments to the impaired loan or OREO may occur. The Company generally obtains appraisals
or evaluations (new or updated) annually.
112
Note 20. Fair Value of Assets and Liabilities (continued)
The following tables disclose the fair value measurement of assets with a recorded change during the period resulting from re-measuring
the assets at fair value on a non-recurring basis:
Fair Value MeasurementsAt the End of the Reporting Period Using
(Dollars in thousands)
Fair ValueDecember 31,2017
Quoted Pricesin Active Marketsfor IdenticalAssets(Level 1)
SignificantOtherObservableInputs(Level 2)
SignificantUnobservableInputs(Level 3)
Other real estate owned $2,296 ——2,296
Collateral-dependent impaired loans, net of ALLL 6,339 ——6,339
Total assets measured at fair valueon a non-recurring basis $8,635 ——8,635
Fair Value MeasurementsAt the End of the Reporting Period Using
(Dollars in thousands)
Fair ValueDecember 31,2016
Quoted Pricesin Active Marketsfor IdenticalAssets(Level 1)
SignificantOtherObservableInputs(Level 2)
SignificantUnobservableInputs(Level 3)
Other real estate owned $7,839 ——7,839
Collateral-dependent impaired loans, net of ALLL 5,664 ——5,664
Total assets measured at fair valueon a non-recurring basis $13,503 ——13,503
Non-recurring Measurements Using Significant Unobservable Inputs (Level 3)
The following tables present additional quantitative information about assets measured at fair value on a non-recurring basis and for
which the Company has utilized Level 3 inputs to determine fair value:
Fair Value Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)
December 31,2017 Valuation Technique Unobservable Input Range (Weighted- Average) 1
Other real estate owned $2,296 Sales comparison approach Selling costs 0.0% - 10.0% (6.0%)
Collateral-dependentimpaired loans, net of ALLL $238 Cost approach Selling costs 10.0% - 20.0% (10.6%)
2,541 Sales comparison approach Selling costs 8.0% - 10.0% (9.4%)
3,560 Combined approach Selling costs 10.0% - 10.0% (10.0%)
$6,339
113
Note 20. Fair Value of Assets and Liabilities (continued)
Fair Value Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)
December 31,2016 Valuation Technique Unobservable Input Range (Weighted- Average) 1
Other real estate owned $7,767 Sales comparison approach Selling costs 6.0% - 10.0% (6.9%)
Adjustment to comparables 0.0% - 10.0% (0.1%)
72 Combined approach Selling costs 10.0% - 10.0% (10.0%)
Adjustment to comparables 10.0% - 10.0% (10.0%)
$7,839
Collateral-dependentimpaired loans, net of ALLL $110 Cost approach Selling costs 6.0% - 20.0% (6.6%)
1,982 Sales comparison approach Selling costs 8.0% - 10.0% (9.6%)
3,572 Combined approach Selling costs 10.0% - 10.0% (10.0%)
Adjustment to comparables 20.0% - 20.0% (20.0%)
$5,664
______________________________
1 The range for selling costs and adjustments to comparables indicate reductions to the fair value.
Fair Value of Financial Instruments
The following is a description of the methods used to estimate the fair value of all other assets and liabilities recognized at amounts other
than fair value.
Cash and cash equivalents: fair value is estimated at book value.
Investment securities, held-to-maturity: fair value for held-to-maturity securities is estimated in the same manner as available-for-sale
securities, which is described above.
Loans held for sale: fair value of loans held for sale for which the fair value election has not been made is estimated at book value.
Loans receivable, net of ALLL: fair value is estimated by discounting the future cash flows using the rates at which similar notes would
be written for the same remaining maturities. The market rates used are based on current rates the Company would impose for similar
loans and reflect a market participant assumption about risks associated with non-performance, illiquidity, and the structure and term of
the loans along with local economic and market conditions. Estimated fair value of impaired loans is based on the fair value of the
collateral, less estimated cost to sell, or the present value of the loan’s expected future cash flows (discounted at the loan’s effective
interest rate). All impaired loans are classified as Level 3 and all other loans are classified as Level 2 within the valuation hierarchy.
Accrued interest receivable: fair value is estimated at book value.
Non-marketable equity securities: fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.
Deposits: fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities.
The market rates used were obtained from an independent third party and reviewed by the Company. The rates were the average of
current rates offered by the Company’s local competitors. The estimated fair value of demand deposits such as NOW, DDA, savings,
and money market deposit accounts is the book value since rates are regularly adjusted to market rates and transactions are executed at
book value daily. Therefore, such deposits are classified in Level 1 of the valuation hierarchy. Certificate accounts and wholesale deposits
are classified as Level 2 within the hierarchy.
Federal Home Loan Bank advances: fair value of non-callable FHLB advances is estimated by discounting the future cash flows using
rates of similar advances with similar maturities. Such rates were obtained from current rates offered by FHLB. The estimated fair value
of callable FHLB advances was obtained from FHLB and the model was reviewed by the Company.
114
Note 20. Fair Value of Assets and Liabilities (continued)
Securities sold under agreements to repurchase 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. The market rates used were averages of currently traded trust preferred securities with similar characteristics to
the Company’s issuances and obtained from an independent third party.
Accrued interest payable: fair value is estimated at book value.
Off-balance sheet financial instruments: unused lines of credit and letters of credit represent the principal categories of off-balance sheet
financial instruments. The fair value of commitments is based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of unused lines of credit and letters
of credit is not material; therefore, such commitments are not included in the following tables.
The following tables present the carrying amounts, estimated fair values and the level within the fair value hierarchy of the Company’s
financial instruments:
Fair Value MeasurementsAt the End of the Reporting Period Using
(Dollars in thousands)
CarryingAmountDecember 31,2017
Quoted Pricesin Active Marketsfor IdenticalAssets(Level 1)
SignificantOtherObservableInputs(Level 2)
SignificantUnobservableInputs(Level 3)
Financial assets
Cash and cash equivalents $200,004 200,004 ——
Investment securities, available-for-sale 1,778,243 —1,778,243 —
Investment securities, held-to-maturity 648,313 —660,086 —
Loans held for sale 38,833 —38,833 —
Loans receivable, net of ALLL 6,448,256 —6,219,515 114,771
Accrued interest receivable 44,462 44,462 ——
Non-marketable equity securities 29,884 —29,884 —
Total financial assets $9,187,995 244,466 8,726,561 114,771
Financial liabilities
Deposits $7,579,747 6,602,445 978,803 —
FHLB advances 353,995 —352,886 —
Repurchase agreements and other borrowed funds 370,797 —370,797 —
Subordinated debentures 126,135 —98,023 —
Accrued interest payable 3,450 3,450 ——
Interest rate swaps 9,389 —9,389 —
Total financial liabilities $8,443,513 6,605,895 1,809,898 —
115
Note 20. Fair Value of Assets and Liabilities (continued)
Fair Value MeasurementsAt the End of the Reporting Period Using
(Dollars in thousands)
CarryingAmountDecember 31,2016
Quoted Pricesin Active Marketsfor IdenticalAssets(Level 1)
SignificantOtherObservableInputs(Level 2)
SignificantUnobservableInputs(Level 3)
Financial assets
Cash and cash equivalents $152,541 152,541 ——
Investment securities, available-for-sale 2,425,477 —2,425,477 —
Investment securities, held-to-maturity 675,674 —689,089 —
Loans held for sale 72,927 72,927 ——
Loans receivable, net of ALLL 5,554,891 —5,380,286 123,382
Accrued interest receivable 45,832 45,832 ——
Non-marketable equity securities 25,550 —25,550 —
Total financial assets $8,952,892 271,300 8,520,402 123,382
Financial liabilities
Deposits $7,372,279 6,090,879 1,283,532 —
FHLB advances 251,749 —257,643 —
Repurchase agreements and other borrowed funds 478,090 —478,090 —
Subordinated debentures 125,991 —85,557 —
Accrued interest payable 3,584 3,584 ——
Interest rate swaps 14,725 —14,725 —
Total financial liabilities $8,246,418 6,094,463 2,119,547 —
Note 21. Contingencies and Commitments
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to extend credit and letters of credit, and involve, to varying degrees,
elements of credit risk. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
The Company had the following outstanding commitments:
(Dollars in thousands)
December 31,2017 December 31,2016
Unused lines of credit $1,565,112 1,325,236
Letters of credit 40,082 26,162
Total outstanding commitments $1,605,194 1,351,398
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 affect on the Company’s consolidated financial position, results of operations or liquidity.
116
Note 22. Mergers and Acquisitions
On April 30, 2017, the Company acquired 100 percent of the outstanding common stock of TFB Bancorp, Inc. and its wholly-owned
subsidiary, The Foothills Bank, a community bank based in Yuma, Arizona. Foothills provides banking services to individuals and
businesses in Arizona, with banking offices located in Yuma, Prescott and Casa Grande, Arizona. The acquisition expands the Company’s
market into the state of Arizona and further diversifies the Company’s loan, customer and deposit base. Foothills merged into the Bank
and operates as a separate Bank division under its existing name and management team. The Foothills acquisition was valued at
$64,015,000 and resulted in the Company issuing 1,381,661 shares of its common stock and $17,342,000 in cash in exchange for all of
Foothills’ outstanding common stock shares. The fair value of the Company shares issued was determined on the basis of the closing
market price of the Company’s common stock on the April 30, 2017 acquisition date. The excess of the fair value of consideration
transferred over total identifiable net assets was recorded as goodwill. The goodwill arising from the acquisition consists largely of the
synergies and economies of scale expected from combining the operations of the Company and Foothills. None of the goodwill is
deductible for income tax purposes as the acquisition was accounted for as a tax-free exchange.
On August 31, 2016, the Company acquired 100 percent of the outstanding common stock of Treasure State Bank, a community bank
based in Missoula, Montana. TSB provides banking services to individuals and businesses in the greater Missoula market. TSB merged
into the Bank and became a part of the First Security Bank of Missoula bank division. The TSB acquisition was valued at $13,940,000
and resulted in the Company issuing 349,545 shares of its common stock and $3,475,000 in cash in exchange for all of TSB’s outstanding
common stock shares. The fair value of the Company shares issued was determined on the basis of the closing market price of the
Company’s common stock on the August 31, 2016 acquisition date. The excess of the fair value of consideration transferred over total
identifiable net assets was recorded as goodwill. The goodwill arising from the acquisition consists largely of the synergies and economies
of scale expected from combining the operations of the Company and TSB. None of the goodwill is deductible for income tax purposes
as the acquisition was accounted for as a tax-free exchange.
The assets and liabilities of Foothills and TSB were recorded on the Company’s consolidated statements of financial condition at their
estimated fair values as of the April 30, 2017 and August 31, 2016 acquisition dates, respectively, and their results of operations have
been included in the Company’s consolidated statements of operations since those dates. The following table discloses the calculation
of the fair value of the consideration transferred, the total identifiable net assets acquired and the resulting goodwill arising from the
Foothills and TSB acquisitions:
Foothills TSB
(Dollars in thousands)April 30,2017 August 31,2016
Fair value of consideration transferred
Fair value of Company shares issued, net of equity issuance costs $46,673 10,465
Cash consideration for outstanding shares 17,342 3,475
Contingent consideration ——
Total fair value of consideration transferred 64,015 13,940
Recognized amounts of identifiable assets acquired and liabilities assumed
Identifiable assets acquired
Cash and cash equivalents 13,251 10,176
Investment securities 25,420 —
Loans receivable 292,529 51,875
Core deposit intangible 1 4,331 762
Accrued income and other assets 19,699 6,937
Total identifiable assets acquired 355,230 69,750
Liabilities assumed
Deposits 296,760 58,364
FHLB advances 22,800 3,260
Accrued expenses and other liabilities 2,264 601
Total liabilities assumed 321,824 62,225
Total identifiable net assets 33,406 7,525
Goodwill recognized $30,609 6,415
______________________________
1 The core deposit intangible for each acquisition was determined to have an estimated life of 10 years.
117
Note 22. Mergers and Acquisitions (continued)
The fair value of the Foothills and TSB assets acquired includes loans with fair values of $292,529,000 and $51,875,000, respectively.
The gross principal and contractual interest due under the Foothills and TSB contracts is $303,527,000 and $54,819,000, respectively.
The Company evaluated the principal and contractual interest due at each of the acquisition dates and determined that insignificant
amounts were not expected to be collectible.
The Company incurred $1,127,000 of third-party acquisition-related costs in connection with the Foothills acquisition during the year
ended December 31, 2017. The Company incurred $456,000 of third-party acquisition-related costs in connection with the TSB acquisition
during the year ended December 31, 2016. The expenses are included in other expense in the Company's consolidated statements of
operations.
Total income consisting of net interest income and non-interest income of the acquired operations of Foothills was approximately
$13,625,000 and net income was approximately $2,626,000 from April 30, 2017 to December 31, 2017. The following unaudited pro
forma summary presents consolidated information of the Company as if the Foothills acquisition had occurred on January 1, 2016:
Years ended
(Dollars in thousands)
December 31,2017 December 31,2016
Net interest income and non-interest income $462,603 436,678
Net income 114,187 124,373
Total income consisting of net interest income and non-interest income of the acquired operations of TSB was approximately $1,800,000
and net income was approximately $897,000 from August 31, 2016 to December 31, 2016. The following unaudited pro forma summary
presents consolidated information of the Company as if the TSB acquisition had occurred on January 1, 2015:
Years ended
(Dollars in thousands)
December 31,2016 December 31,2015
Net interest income and non-interest income $424,242 392,252
Net income 120,929 116,577
Note 23. Subsequent Events
On January 31, 2018, the Company acquired 100 percent of the outstanding common stock of Columbine Capital Corp., and its wholly-
owned subsidiary, Collegiate Peaks Bank, a community bank based in Buena Vista, Colorado. Collegiate provides banking services to
businesses and individuals in the Mountain and Front Range communities of Colorado, with banking offices located in Aurora, Buena
Vista, Denver and Salida. Collegiate will operate as a division of the Bank under the name “Collegiate Peaks Bank, division of Glacier
Bank.” The Collegiate acquisition was valued at $96,083,000 and resulted in the Company issuing common stock and paying cash and
other considerations in exchange for all of Collegiate's outstanding common stock shares. The fair value of the Company shares issued
was determined on the basis of the closing market price of the Company's common stock shares on the January 31, 2018 acquisition date.
The initial accounting for the Collegiate acquisition has not been completed because the fair value of financial assets, financial liabilities
and goodwill have not yet been determined.
As a result of the closing of the Collegiate acquisition, the Company crossed the $10 billion asset threshold and will now be subject to
heightened regulations required by the Dodd-Frank Act. The Company will be required to, among other requirements: 1) perform annual
stress tests; 2) calculate its FDIC deposit assessment base using a performance score and a loss-severity score system; and 3) be examined
for compliance with federal consumer protection laws primarily by the Consumer Financial Protection Bureau (the “CFPB”). The
Company will also be subject to the interchange fee cap imposed by the Durbin Amendment to the Dodd-Frank Act, which is expected
to have a significant financial impact to the Company’s earnings.
118
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes or disagreements with accountants on accounting and financial disclosure.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Company’s management, including the CEO and
Chief Financial Officer (“CFO”), of the effectiveness of the disclosure controls and procedures. Based on that evaluation, the CEO and
CFO have concluded that as of the end of the period covered by this report, the disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed by the Company in reports that are filed or submitted under the Securities
Exchange Act of 1934 are recorded, processed, summarized and timely reported as provided in the SEC’s rules and forms. As a result
of this evaluation, there were no significant changes in the internal control over financial reporting during the year ended December 31,
2017 that have materially affected, or are reasonable likely to materially affect, the internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining effective internal control over financial reporting as it relates to its financial
statements presented in conformity with GAAP. The Company’s internal control system was designed to provide reasonable assurance
to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements
in accordance with GAAP. Internal control over financial reporting includes self monitoring mechanisms and actions are taken to correct
deficiencies as they are identified.
There are inherent limitations in any internal control, no matter how well designed, misstatements due to error or fraud may occur and
not be detected, including the possibility of circumvention or overriding of controls. Accordingly, even an effective internal control
system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions,
the effectiveness of an internal control system may vary over time.
Management assessed its internal control structure over financial reporting as of December 31, 2017. This assessment was based on
criteria for effective internal control over financial reporting described in the “2013 Internal Control – Integrated Framework” issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management asserts that the
Company maintained effective internal control over financial reporting as it relates to its financial statements presented in conformity
with GAAP.
BKD, LLP, the independent registered public accounting firm that audited the financial statements for the year ended December 31, 2017,
has issued an attestation report on the Company’s internal control over financial reporting. Such attestation report expresses an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 and is included in “Item
8. Financial Statements and Supplementary Data.”
Item 9B. Other Information
None
119
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding “Directors and Executive Officers” is set forth under the headings “Election of Directors” and “Management –
Named Executive Officers who are not Directors” of the Company’s 2018 Annual Meeting Proxy Statement (“Proxy Statement”) and is
incorporated herein by reference.
Information regarding “Compliance with Section 16(a) of the Exchange Act” is set forth under the section “Section 16(a) Beneficial
Ownership Reporting Compliance” of the Company’s Proxy Statement and is incorporated herein by reference.
Information regarding the Company’s audit committee is set forth under the heading “Meetings and Committees of the Board of Directors
– Committee Membership” in the Company’s Proxy Statement and is incorporated herein by reference.
Consistent with the requirements of the Sarbanes-Oxley Act, the Company has adopted a code of ethics applicable to its senior financial
officers. The code of ethics can be accessed electronically by visiting the Company’s website at www.glacierbancorp.com and is
incorporated by reference to the Company’s 2016 annual report on Form 10-K.
Item 11. Executive Compensation
Information regarding “Executive Compensation” is set forth under the headings “Compensation of Directors” and “Executive
Compensation” of the Company’s Proxy Statement and is incorporated herein by reference.
Information regarding “Compensation Committee Interlocks and Insider Participation” is set forth under the heading “Compensation of
Directors - Compensation Committee Interlocks and Insider Participation” of the Company’s Proxy Statement and is incorporated herein
by reference.
Information regarding the “Compensation Committee Report” is set forth under the heading “Report of Compensation Committee” of
the Company’s Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information regarding “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” is set forth
under the headings “Voting Securities and Principal Holders Thereof,” “Compensation Discussion and Analysis” and “Compensation of
Directors” of the Company’s Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding “Certain Relationships and Related Transactions, and Director Independence” is set forth under the headings
“Transactions with Management” and “Corporate Governance – Director Independence” of the Company’s Proxy Statement and is
incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information regarding “Principal Accounting Fees and Services” is set forth under the heading “Auditors – Fees Paid to Independent
Registered Public Accounting Firm” of the Company’s Proxy Statement and is incorporated herein by reference.
PART IV
120
Item 15. Exhibits, 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(i)Amended and Restated Articles of Incorporation 1
3(ii)Amended and Restated Bylaws 1
10(a) *Amended and Restated Deferred Compensation Plan effective January 1, 2008 2
10(b) *Amended and Restated Supplemental Executive Retirement Agreement effective January 1, 2008 2
10(c) *2005 Stock Incentive Plan 3
10(d) *2005 Stock Option Award Agreement 3
10(e) *2005 Restricted Shares Award Agreement 3
10(f) *2015 Stock Incentive Plan 4
10(g) *2015 Stock Option Award Agreement 4
10(h) *2015 Restricted Shares Award Agreement 4
10(i) *Employment Agreement effective January 1, 2017 between the Company and Ron J. Copher 5
10(j) *Employment Agreement effective January 1, 2017 between the Company and Don J. Chery 5
10(k) *Employment Agreement dated June 18, 2015 between the Company and Randall M. Chesler 6
10(l) *Nonemployee Service Provider Deferred Compensation Plan 7
14 Code of Ethics 8
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
101 ~The following financial information from Glacier Bancorp, Inc’s Annual Report on Form 10-K for the year ended
December 31, 2017 is formatted in XBRL: 1) the Consolidated Statements of Financial Condition; 2) the
Consolidated Statements of Operations; 3) the Consolidated Statements of Stockholders’ Equity and
Comprehensive Income; 4) the Consolidated Statements of Cash Flows; and 5) the Notes to Consolidated Financial
Statements.
______________________________
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 10(c) and 10(d) included in the Company’s Form 10-K for the year ended December 31, 2008.
3 Incorporated by reference to Exhibits 99.1 through 99.3 of the Company’s S-8 Registration Statement (No. 333-125024).
4 Incorporated by reference to Exhibits 99.1 through 99.3 of the Company’s S-8 Registration Statement (No. 333-204023).
5 Incorporated by reference to Exhibits 10.1 and 10.2 included in the Company’s Form 8-K filed by the Company on January 4, 2017.
6 Incorporated by reference to Exhibit 10.1 included in the Company’s Form 8-K filed by the Company on June 22, 2015.
7 Incorporated by reference to Exhibit 10.1 included in the Company’s Form 8-K filed by the Company on October 31, 2012.
8 Incorporated by reference to Exhibit 14 included in the Company’s Form 10-K for the year ended December 31, 2016.
*Compensatory Plan or Arrangement.
~ Exhibit omitted from the 2017 Annual Report to Shareholders.
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.
Item 16. Form 10-K Summary
None
121
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on February 22, 2018.
GLACIER BANCORP, INC.
By: /s/ Randall M. Chesler
Randall M. Chesler
President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 22, 2018, by the
following persons on behalf of the registrant and in the capacities indicated.
/s/ Randall M. Chesler President, CEO, and Director
Randall M. Chesler (Principal Executive Officer)
/s/ Ron J. Copher Executive Vice President and CFO
Ron J. Copher (Principal Financial Accounting Officer)
Board of Directors
/s/ Dallas I. Herron Chairman
Dallas I. Herron
/s/ Sherry L. Cladouhos Director
Sherry L. Cladouhos
/s/ James M. English Director
James M. English
/s/ Annie M. Goodwin Director
Annie M. Goodwin
/s/ Craig A. Langel Director
Craig A. Langel
/s/ Douglas J. McBride Director
Douglas J. McBride
/s/ John W. Murdoch Director
John W. Murdoch
/s/ Mark J. Semmens Director
Mark J. Semmens
/s/ George R. Sutton Director
George R. Sutton
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DIRECTORS AND OFFICERS
Board of Directors
Dallas I. Herron, Chairman
CEO of CityServiceValcon, LLC
Randall M. Chesler
President/CEO of Glacier Bancorp, Inc.
Sherry L. Cladouhos
Retired CEO of Blue Cross Blue Shield of Montana
James M. English
Attorney/English Law Firm
Annie M. Goodwin, RN
Attorney/Goodwin Law Office LLC/Former Montana
Commissioner of Banking and Financial Institutions
Craig A. Langel, CPA, CVA
President of Langel & Associates, P.C./Owner and
CEO of CLC Restaurants, Inc.
Douglas J. McBride, OD, FAAO
Doctor of Optometry
John W. Murdoch
Retired Chairman of Murdoch’s Ranch &
Home Supply, LLC
Mark J. Semmens
Retired Managing Director of Investment
Banking, D.A. Davidson
George R. Sutton
Attorney/Jones Waldo Holbrook & McDonough, PC/
Former Utah Commissioner of Financial Institutions
Corporate Officers
Randall M. Chesler
President/Chief Executive Officer
Ron J. Copher, CPA
Executive Vice President/Chief Financial Officer/Secretary
Don J. Chery
Executive Vice President/Chief Administrative Officer
Angela L. Dose, CPA
Senior Vice President/Principal Accounting Officer
T.J. Frickle
Senior Vice President/Enterprise Risk Manager
Marcia L. Johnson
Senior Vice President/Chief Operating Officer
Barry L. Johnston
Senior Vice President/Chief Credit Officer
David L. Langston
Senior Vice President/Human Resources Director
Mark D. MacMillan
Senior Vice President/Chief Information Officer
Donald B. McCarthy
Senior Vice President/Controller
Paul W. Peterson
Senior Vice President/Corporate Real Estate Manager
Byron J. Pollan
Senior Vice President/Treasurer
Casey L. Ries
Senior Vice President/Internal Audit Director
Ryan T. Screnar, CPA, CGMA
Senior Vice President/Compliance Director
Cover photo by Blake Passmore
www.climbglacier.com
Beargrass and Angel Wing
Glacier National Park, Montana
2017 ANNUAL REPORT
2017________________
ANNUAL REPORT
City of Bozeman RE: RFP City of Bozeman Sports Parks
121 N Rouse Ave
Bozeman, MT 59715
Via Email Term Sheet April 19, 2018
Thank you for the opportunity to assist with your financing needs. Following is the proposal
estimated terms. If you find the proposal agreeable and would like us to proceed with the
approval process, there is a list of items needed to start processing the loan as described. This
proposal is submitted jointly by First Security Bank and Big Sky Western Bank as a division of
Glacier Bank.
Borrowers: The City of Bozeman and/or the Bozeman Sports Parks Foundation, Inc. or as
otherwise specified.
Facility: Up to $1,700,000 as a 12 month draw down construction loan plus 20 year term
note.
Purpose: Financing the construction of artificial turf fields and other supporting
improvements at the Bozeman Sports Park on the corner of Baxter Lane and
Flanders Mill Road.
Repayment: Monthly interest payments until June 30th, 2020 followed by 19 year fully
amortized period with monthly payments of principal and interest.
Rate: 3.74% fixed rate for the term of the loan. This rate will be locked for 90 days
from the date of this Term Sheet.
Origination Fee: $0.00
Other Costs: Borrower will be responsible for any 3rd party fees if incurred. Each party will be
responsible for their own legal expenses.
Disbursement:Loan proceeds will be disbursed by Bank according to project budget completion
progress in payment of specific invoices. Project cost overruns will be
responsibility of Borrower.
Conditions: Loan approval and final terms and conditions are subject to:
Full underwriting, financial and legal review to be completed and approved by
Bank.
Please let us know if you have any questions or need anything further. We look forward to
moving this forward for you.
Sincerely,
Cory Hollern
Cory Hollern
Commercial Lender
(406) 585-3913 Direct
(406) 585-3800 Main Bank
coryh@ourbank.com
NMLS ID: 1314688
This Term Sheet presents a summary of the terms and conditions of a loan inquiry, and is not a commitment to lend. These terms are confidential and not to be shared with any other bank or financial institution. This Term Sheet is valid for 60 days from the above date and if accepted the loan must close within 90 days from above date.