UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended ~~June 30, 2020~~March 31, 2021

☐ 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 of incorporation or organization)

(IRS Employer Identification 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:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	GBCI	NASDAQ Global Select Market

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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

☐

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 number of shares of Registrant’s common stock outstanding on ~~July 17, 2020~~April 20, 2021 was ~~95,409,061.~~95,505,432. No preferred shares are issued or outstanding.

TABLE OF CONTENTS


			Page
Part I. Financial Information
Item 1 – Financial Statements
Unaudited Condensed Consolidated Statements of Financial Condition – ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020			4
Unaudited Condensed Consolidated Statements of Operations – Three ~~and Six~~ Months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~			5
Unaudited Condensed Consolidated Statements of Comprehensive Income – Three ~~and Six~~ Months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~			6
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity – Three ~~and Six~~ Months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~			7
Unaudited Condensed Consolidated Statements of Cash Flows – ~~Six~~Three Months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~			98
Notes to Unaudited Condensed Consolidated Financial Statements			1110
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			4745
Item 3 – Quantitative and Qualitative Disclosure about Market Risk			7976
Item 4 – Controls and Procedures			7976
Part II. Other Information			7976
Item 1 – Legal Proceedings			7976
Item 1A – Risk Factors			7976
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			8076
Item 3 – Defaults upon Senior Securities			8076
Item 4 – Mine Safety Disclosures			8077
Item 5 – Other Information			8077
Item 6 – Exhibits			8178
Signatures			8279

ABBREVIATIONS/ACRONYMS


ACL or allowance – allowance for credit losses
ALCO – Asset Liability Committee
ASC – Accounting Standards Codification^TM
ASU – Accounting Standards Update
ATM – automated teller machine
Bank – Glacier Bank
CARES Act – Coronavirus Aid, Relief, and Economic Security Act
CDE – Certified Development Entity
CDFI Fund – Community Development Financial Institutions Fund
CECL – current expected credit losses
CEO – Chief Executive Officer
CFO – Chief Financial Officer
Company – Glacier Bancorp, Inc.
COVID-19 – coronavirus disease of 2019
DDA – demand deposit account
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 established a new comprehensive regulatory capital framework
FRB – Federal Reserve Bank
Freddie Mac – Federal Home Loan Mortgage Corporation
GAAP – accounting principles generally accepted in the United States of America
GDP – gross domestic product
Ginnie Mae – Government National Mortgage Association
Interest rate locks - residential real estate derivatives for commitments
LIBOR – London Interbank Offered Rate
LIHTC – Low Income Housing Tax Credit
NMTC – New Markets Tax Credit
NOW – negotiable order of withdrawal
NRSRO – Nationally Recognized Statistical Rating Organizations
OCI – other comprehensive income
OREO – other real estate owned
PCD – purchased credit-deteriorated
PPP – Paycheck Protection Program
Repurchase agreements – securities sold under agreements to repurchase
ROU – right-of-use
S&P – Standard and Poor’s
SBA – United States Small Business Administration
SBAZ – State Bank Corp. and its subsidiary, State Bank of Arizona
SEC – United States Securities and Exchange Commission
TBA – to-be-announced
TDR – troubled debt restructuring
VIE – variable interest entity

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	June 30, 2020		December 31, 2019	(Dollars in thousands, except per share data)	March 31, 2021		December 31, 2020
Assets	Assets				Assets
Cash on hand and in banks	Cash on hand and in banks	$	212,681	198,639	Cash on hand and in banks	$	227,745	227,108

Interest bearing cash deposits	Interest bearing cash deposits	334,929		132,322	Interest bearing cash deposits	650,705		406,034
Cash and cash equivalents	Cash and cash equivalents	547,610		330,961	Cash and cash equivalents	878,450		633,142
Debt securities, available-for-sale	Debt securities, available-for-sale	3,533,950		2,575,252	Debt securities, available-for-sale	5,853,315		5,337,814
Debt securities, held-to-maturity	Debt securities, held-to-maturity	203,275		224,611	Debt securities, held-to-maturity	588,751		189,836
Total debt securities	Total debt securities	3,737,225		2,799,863	Total debt securities	6,442,066		5,527,650
Loans held for sale, at fair value	Loans held for sale, at fair value	115,345		69,194	Loans held for sale, at fair value	118,731		166,572
Loans receivable	Loans receivable	11,453,378		9,512,810	Loans receivable	11,269,929		11,122,696
Allowance for credit losses	Allowance for credit losses	(162,509)		(124,490)	Allowance for credit losses	(156,446)		(158,243)
Loans receivable, net	Loans receivable, net	11,290,869		9,388,320	Loans receivable, net	11,113,483		10,964,453
Premises and equipment, net	Premises and equipment, net	326,005		310,309	Premises and equipment, net	322,354		325,335
Other real estate owned	Other real estate owned	4,743		5,142	Other real estate owned	2,965		1,744
Accrued interest receivable	Accrued interest receivable	77,363		56,047	Accrued interest receivable	79,331		75,497
Deferred tax asset		—		2,037

Core deposit intangible, net	Core deposit intangible, net	60,733		63,286	Core deposit intangible, net	53,021		55,509
Goodwill	Goodwill	513,355		456,418	Goodwill	514,013		514,013
Non-marketable equity securities	Non-marketable equity securities	11,592		11,623	Non-marketable equity securities	10,022		10,023
Bank-owned life insurance	Bank-owned life insurance	122,388		109,428	Bank-owned life insurance	122,843		123,763
Other assets	Other assets	99,420		81,371	Other assets	113,273		106,505
Total assets	Total assets	$	16,906,648	13,683,999	Total assets	$	19,770,552	18,504,206
Liabilities	Liabilities				Liabilities
Non-interest bearing deposits	Non-interest bearing deposits	$	5,043,704	3,696,627	Non-interest bearing deposits	$	6,040,440	5,454,539
Interest bearing deposits	Interest bearing deposits	8,337,828		7,079,830	Interest bearing deposits	10,063,884		9,342,990
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	881,227		569,824	Securities sold under agreements to repurchase	996,878		1,004,583
Federal Home Loan Bank advances		37,963		38,611

Other borrowed funds	Other borrowed funds	32,546		28,820	Other borrowed funds	33,452		33,068
Subordinated debentures	Subordinated debentures	139,917		139,914	Subordinated debentures	132,499		139,959
Accrued interest payable	Accrued interest payable	4,211		4,686	Accrued interest payable	2,590		3,305
Deferred tax liability	Deferred tax liability	25,213		—	Deferred tax liability	3,116		23,860
Other liabilities	Other liabilities	200,324		164,954	Other liabilities	202,308		194,861
Total liabilities	Total liabilities	14,702,933		11,723,266	Total liabilities	17,475,167		16,197,165
Commitments and Contingent Liabilities	Commitments and Contingent Liabilities				Commitments and Contingent Liabilities	0		0
Stockholders’ Equity	Stockholders’ Equity				Stockholders’ Equity
Preferred shares, $0.01 par value per share, 1,000,000 shares authorized, none issued or outstanding		—		—
Preferred shares, $0.01 par value per share, 1,000,000 shares authorized, NaN issued or outstanding					Preferred shares, $0.01 par value per share, 1,000,000 shares authorized, NaN issued or outstanding	0		0
Common stock, $0.01 par value per share, 117,187,500 shares authorized	Common stock, $0.01 par value per share, 117,187,500 shares authorized	954		923	Common stock, $0.01 par value per share, 117,187,500 shares authorized	955		954
Paid-in capital	Paid-in capital	1,492,817		1,378,534	Paid-in capital	1,495,438		1,495,053
Retained earnings - substantially restricted	Retained earnings - substantially restricted	580,035		541,050	Retained earnings - substantially restricted	719,072		667,944
Accumulated other comprehensive income	Accumulated other comprehensive income	129,909		40,226	Accumulated other comprehensive income	79,920		143,090
Total stockholders’ equity	Total stockholders’ equity	2,203,715		1,960,733	Total stockholders’ equity	2,295,385		2,307,041
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	16,906,648	13,683,999	Total liabilities and stockholders’ equity	$	19,770,552	18,504,206
Number of common stock shares issued and outstanding	Number of common stock shares issued and outstanding	95,409,061		92,289,750	Number of common stock shares issued and outstanding	95,501,819		95,426,364

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months ended Six Months ended
(Dollars in thousands, except per share data) June 30,
2020 June 30,
2019 June 30,
2020 June 30,
2019
Interest Income
Investment securities $ 25,833 21,892 46,847 43,243
Residential real estate loans 12,098 11,410 23,624 22,189
Commercial loans 106,343 88,043 205,027 171,582
Consumer and other loans 11,130 11,040 22,771 21,487
Total interest income 155,404 132,385 298,269 258,501 ��
Interest Expense
Deposits 4,587 5,624 10,168 10,965
Securities sold under agreements to repurchase 908 886 1,897 1,688
Federal Home Loan Bank advances 268 3,847 614 6,902
Other borrowed funds 172 38 300 76
Subordinated debentures 1,250 1,694 2,702 3,362
Total interest expense 7,185 12,089 15,681 22,993
Net Interest Income 148,219 120,296 282,588 235,508
Credit loss expense 13,552 — 36,296 57
Net interest income after credit loss expense 134,667 120,296 246,292 235,451
Non-Interest Income
Service charges and other fees 11,366 20,025 25,386 38,040
Miscellaneous loan fees and charges 1,682 1,192 2,967 2,159
Gain on sale of loans 25,858 7,762 37,720 13,560
Gain on sale of debt securities 128 134 991 347
Other income 2,190 1,721 7,432 5,202
Total non-interest income 41,224 30,834 74,496 59,308
Non-Interest Expense
Compensation and employee benefits 57,981 51,973 117,641 104,701
Occupancy and equipment 9,357 8,180 18,576 16,617
Advertising and promotions 2,138 2,767 4,625 5,155
Data processing 5,042 4,062 10,324 7,954
Other real estate owned 75 191 187 330
Regulatory assessments and insurance 1,037 1,848 2,127 3,133
Core deposit intangibles amortization 2,613 1,865 5,146 3,559
Other expenses 19,898 15,284 31,443 27,551
Total non-interest expense 98,141 86,170 190,069 169,000
Income Before Income Taxes 77,750 64,960 130,719 125,759
Federal and state income tax expense 14,306 12,568 23,936 24,235
Net Income $ 63,444 52,392 106,783 101,524
Basic earnings per share $ 0.67 0.61 1.13 1.19
Diluted earnings per share $ 0.66 0.61 1.13 1.19
Dividends declared per share $ 0.29 0.27 0.58 0.53
Average outstanding shares - basic 95,405,493 85,826,290 94,346,582 85,191,658
Average outstanding shares - diluted 95,430,403 85,858,286 94,395,930 85,241,238


	Three Months ended
(Dollars in thousands, except per share data)	March 31, 2021		March 31, 2020
Interest Income
Investment securities	$	27,306	21,014
Residential real estate loans	10,146		11,526
Commercial loans	113,541		98,684
Consumer and other loans	10,559		11,641
Total interest income	161,552		142,865
Interest Expense
Deposits	3,014		5,581
Securities sold under agreements to repurchase	689		989
Federal Home Loan Bank advances	0		346
Other borrowed funds	174		128
Subordinated debentures	863		1,452
Total interest expense	4,740		8,496
Net Interest Income	156,812		134,369
Credit loss expense	48		19,185
Net interest income after credit loss expense	156,764		115,184
Non-Interest Income
Service charges and other fees	12,792		14,020
Miscellaneous loan fees and charges	2,778		1,285
Gain on sale of loans	21,624		11,862
Gain on sale of debt securities	284		863
Other income	2,643		5,242
Total non-interest income	40,121		33,272
Non-Interest Expense
Compensation and employee benefits	62,468		59,660
Occupancy and equipment	9,515		9,219
Advertising and promotions	2,371		2,487
Data processing	5,206		5,282
Other real estate owned	12		112
Regulatory assessments and insurance	1,879		1,090

Core deposit intangibles amortization	2,488		2,533
Other expenses	12,646		15,104
Total non-interest expense	96,585		95,487
Income Before Income Taxes	100,300		52,969
Federal and state income tax expense	19,498		9,630
Net Income	$	80,802	43,339
Basic earnings per share	$	0.85	0.46
Diluted earnings per share	$	0.85	0.46
Dividends declared per share	$	0.31	0.29
Average outstanding shares - basic	95,465,801		93,287,670
Average outstanding shares - diluted	95,546,922		93,359,792

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


		Three Months ended				Six Months ended					Three Months ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019	June 30, 2020	June 30, 2019	(Dollars in thousands)	March 31, 2021		March 31, 2020
Net Income	Net Income	$	63,444	52,392	106,783	101,524	Net Income	$	80,802	43,339
Other Comprehensive Income, Net of Tax
Unrealized gains on available-for-sale securities		41,014		29,877	121,569	76,329
Other Comprehensive (Loss) Income, Net of Tax							Other Comprehensive (Loss) Income, Net of Tax
Unrealized (losses) gains on available-for-sale securities							Unrealized (losses) gains on available-for-sale securities	(84,798)		80,555
Reclassification adjustment for gains included in net income	Reclassification adjustment for gains included in net income	(128)		(134)	(990)	(355)	Reclassification adjustment for gains included in net income	(326)		(862)
Net unrealized gains on available-for-sale securities		40,886		29,743	120,579	75,974
Net unrealized (losses) gains on available-for-sale securities							Net unrealized (losses) gains on available-for-sale securities	(85,124)		79,693
Tax effect	Tax effect	(10,360)		(7,537)	(30,555)	(19,252)	Tax effect	21,511		(20,195)
Net of tax amount	Net of tax amount	30,526		22,206	90,024	56,722	Net of tax amount	(63,613)		59,498
Unrealized losses on derivatives used for cash flow hedges		(456)		(3,820)	(456)	(5,654)
Unrealized gains on derivatives used for cash flow hedges							Unrealized gains on derivatives used for cash flow hedges	593		0
Reclassification adjustment for losses included in net income	Reclassification adjustment for losses included in net income	—		278	—	501	Reclassification adjustment for losses included in net income	0		0
Net unrealized losses on derivatives used for cash flow hedges		(456)		(3,542)	(456)	(5,153)
Net unrealized gains on derivatives used for cash flow hedges							Net unrealized gains on derivatives used for cash flow hedges	593		0
Tax effect	Tax effect	115		897	115	1,306	Tax effect	(150)		0
Net of tax amount	Net of tax amount	(341)		(2,645)	(341)	(3,847)	Net of tax amount	443		0
Total other comprehensive income, net of tax		30,185		19,561	89,683	52,875
Total other comprehensive (loss) income, net of tax							Total other comprehensive (loss) income, net of tax	(63,170)		59,498
Total Comprehensive Income	Total Comprehensive Income	$	93,629	71,953	196,466	154,399	Total Comprehensive Income	$	17,632	102,837

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

Three Months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~

(Dollars in thousands, except per share data) Common Stock Paid-in Capital Retained
Earnings
Substantially Restricted Accumulated
Other Compre-
hensive Income
Shares Amount Total
Balance at April 1, 2019 84,588,199 $ 846 1,051,299 474,818 23,887 1,550,850
Net income — — — 52,392 — 52,392
Other comprehensive income — — — — 19,561 19,561
Cash dividends declared ($0.27 per share) — — — (23,437) — (23,437)
Stock issued in connection with acquisitions 2,046,341 20 87,133 — — 87,153
Stock issuances under stock incentive plans 2,854 — — — — —
Stock-based compensation and related taxes — — 857 — — 857
Balance at June 30, 2019 86,637,394 $ 866 1,139,289 503,773 43,448 1,687,376
Balance at April 1, 2020 95,408,274 $ 954 1,491,651 544,315 99,724 2,136,644
Net income — — — 63,444 — 63,444
Other comprehensive income — — — — 30,185 30,185
Cash dividends declared ($0.29 per share) — — — (27,724) — (27,724)
Stock issuances under stock incentive plans 787 — — — — —
Stock-based compensation and related taxes — — 1,166 — — 1,166
Balance at June 30, 2020 95,409,061 $ 954 1,492,817 580,035 129,909 2,203,715


(Dollars in thousands, except per share data)	Common Stock			Paid-in Capital	Retained Earnings Substantially Restricted	Accumulated Other Compre- hensive Income
	Shares	Amount					Total
Balance at January 1, 2020	92,289,750	$	923	1,378,534	541,050	40,226	1,960,733
Net income	—	—		—	43,339	—	43,339
Other comprehensive income	—	—		—	—	59,498	59,498
Cash dividends declared ($0.29 per share)	—	—		—	(27,727)	—	(27,727)
Stock issued in connection with acquisitions	3,007,044	30		112,103	—	—	112,133
Stock issuances under stock incentive plans	111,480	1		(1)	—	—	0
Stock-based compensation and related taxes	—	—		1,015	—	—	1,015
Cumulative-effect of accounting changes	—	—		—	(12,347)	—	(12,347)
Balance at March 31, 2020	95,408,274	$	954	1,491,651	544,315	99,724	2,136,644
Balance at January 1, 2021	95,426,364	$	954	1,495,053	667,944	143,090	2,307,041
Net income	—	—		—	80,802	—	80,802
Other comprehensive loss	—	—		—	—	(63,170)	(63,170)
Cash dividends declared ( $0.31 per share)	—	—		—	(29,674)	—	(29,674)

Stock issuances under stock incentive plans	75,455	1		(1)	—	—	0
Stock-based compensation and related taxes	—	—		386	—	—	386

Balance at March 31, 2021	95,501,819	$	955	1,495,438	719,072	79,920	2,295,385

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES~~

~~IN STOCKHOLDERS’ EQUITY~~

~~Six Months ended June 30, 2020 and 2019~~CASH FLOWS

(Dollars in thousands, except per share data) Common Stock Paid-in Capital Retained
Earnings
Substantially Restricted Accumulated
Other Compre-
hensive (Loss) Income
Shares Amount Total
Balance at January 1, 2019 84,521,692 $ 845 1,051,253 473,183 (9,427) 1,515,854
Net income — — — 101,524 — 101,524
Other comprehensive income — — — — 52,875 52,875
Cash dividends declared ($0.53 per share) — — — (45,476) — (45,476)
Stock issued in connection with acquisitions 2,046,341 20 87,133 — — 87,153
Stock issuances under stock incentive plans 69,361 1 (1) — — —
Stock-based compensation and related taxes — — 904 — — 904
Cumulative-effect of accounting changes — — — (25,458) — (25,458)
Balance at June 30, 2019 86,637,394 $ 866 1,139,289 503,773 43,448 1,687,376
Balance at January 1, 2020 92,289,750 $ 923 1,378,534 541,050 40,226 1,960,733
Net income — — — 106,783 — 106,783
Other comprehensive income — — — — 89,683 89,683
Cash dividends declared ($0.58 per share) — — — (55,451) — (55,451)
Stock issued in connection with acquisitions 3,007,044 30 112,103 — — 112,133
Stock issuances under stock incentive plans 112,267 1 (1) — — —
Stock-based compensation and related taxes — — 2,181 — — 2,181
Cumulative-effect of accounting changes — — — (12,347) — (12,347)
Balance at June 30, 2020 95,409,061 $ 954 1,492,817 580,035 129,909 2,203,715


	Three Months ended
(Dollars in thousands)	March 31, 2021		March 31, 2020
Operating Activities
Net income	$	80,802	43,339
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	48		19,185
Net amortization of debt securities	8,562		3,237
Net accretion of purchase accounting adjustments and deferred loan fees and costs	12,892		324

Origination of loans held for sale	(439,887)		(275,256)
Proceeds from loans held for sale	509,668		268,067
Gain on sale of loans	(21,624)		(11,862)
Gain on sale of debt securities	(284)		(863)

Bank-owned life insurance income, net	(641)		(656)
Stock-based compensation, net of tax benefits	1,491		1,199
Depreciation and amortization of premises and equipment	5,251		4,833
Gain loss on sale and write-downs of other real estate owned, net	0		(196)
Amortization of core deposit intangibles	2,488		2,533

Amortization of investments in variable interest entities	3,158		2,114
Net increase in accrued interest receivable	(3,834)		(10,690)
Net decrease (increase) in other assets	14,036		(9,793)
Net decrease in accrued interest payable	(715)		(99)
Net decrease in other liabilities	(23,666)		(9,654)
Net cash provided by operating activities	147,745		25,762
Investing Activities

Maturities, prepayments and calls of available-for-sale debt securities	290,743		176,926
Purchases of available-for-sale debt securities	(1,302,635)		(811,523)
Maturities, prepayments and calls of held-to-maturity debt securities	4,130		20,250

Principal collected on loans	1,519,493		810,652
Loan originations	(1,683,608)		(942,157)
Net additions to premises and equipment	(1,573)		(940)
Proceeds from sale of other real estate owned	176		1,198
Proceeds from redemption of non-marketable equity securities	0		36,244
Purchases of non-marketable equity securities	0		(51,598)
Proceeds from bank-owned life insurance	1,575		0
Investments in variable interest entities	(7,021)		(2,895)
Net cash received from acquisitions	0		43,713
Net cash used in investing activities	(1,178,720)		(720,130)

See accompanying notes to unaudited condensed consolidated financial statements.

~~GLACIER BANCORP, INC.~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

Six Months ended
(Dollars in thousands) June 30,
2020 June 30,
2019
Operating Activities
Net income $ 106,783 101,524
Adjustments to reconcile net income to net cash provided by operating activities:
Credit loss expense 36,296 57
Net amortization of debt securities 6,831 8,707
Net amortization (accretion) of purchase accounting adjustments
and deferred loan fees and costs 33,329 (2,187)
Amortization of debt modification costs — 825
Origination of loans held for sale (847,288) (353,921)
Proceeds from loans held for sale 849,626 346,144
Gain on sale of loans (37,720) (13,560)
Gain on sale of debt securities (991) (347)
Bank-owned life insurance income, net (1,356) (1,021)
Stock-based compensation, net of tax benefits 1,994 1,850
Depreciation and amortization of premises and equipment 9,907 9,011
Gain on sale and write-downs of other real estate owned, net (169) (334)
Amortization of core deposit intangibles 5,146 3,559
Amortization of investments in variable interest entities 4,973 3,885
Net increase in accrued interest receivable (19,529) (3,213)
Net increase in other assets (15,048) (6,520)
Net (decrease) increase in accrued interest payable (602) 749
Net increase (decrease) in other liabilities 4,992 (9,518)
Net cash provided by operating activities 137,174 85,690
Investing Activities
Sales of available-for-sale debt securities — 415,093
Maturities, prepayments and calls of available-for-sale debt securities 341,724 247,854
Purchases of available-for-sale debt securities (1,042,423) (457,915)
Maturities, prepayments and calls of held-to-maturity debt securities 20,250 32,575
Principal collected on loans 1,835,968 1,364,270
Loan originations (3,371,733) (1,675,181)
Net additions to premises and equipment (4,861) (11,882)
Proceeds from sale of other real estate owned 1,523 2,440
Proceeds from redemption of non-marketable equity securities 75,049 76,948
Purchases of non-marketable equity securities (71,398) (71,198)
Investments in variable interest entities (7,321) (6,451)
Net cash received from acquisitions 43,713 11,307
Net cash used in investing activities (2,179,509) (72,140)

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six Months ended
(Dollars in thousands) June 30,
2020 June 30,
2019
Financing Activities
Net increase in deposits $ 2,001,950 86,429
Net increase in securities sold under agreements to repurchase 304,154 97,091
Net decrease in short-term Federal Home Loan Bank advances (30,000) (120,000)
Proceeds from long-term Federal Home Loan Bank advances 30,000 —
Repayments of long-term Federal Home Loan Bank advances (631) (987)
Net increase in other borrowed funds 43 54
Cash dividends paid (46,324) (47,560)
Tax withholding payments for stock-based compensation (1,003) (1,158)
Proceeds from stock option exercises 795 —
Net cash provided by financing activities 2,258,984 13,869
Net increase in cash, cash equivalents and restricted cash 216,649 27,419
Cash, cash equivalents and restricted cash at beginning of period 330,961 203,790
Cash, cash equivalents and restricted cash at end of period $ 547,610 231,209
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 16,282 22,244
Cash paid during the period for income taxes 8,550 21,680
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Sale and refinancing of other real estate owned $ 215 7
Transfer of loans to other real estate owned 791 1,914
Right-of-use assets obtained in exchange for operating lease liabilities 5,253 3,862
Dividends declared during the period but not paid 27,785 23,482
Acquisitions
Fair value of common stock shares issued 112,133 87,153
Cash consideration 13,721 4
Fair value of assets acquired 744,109 379,155
Liabilities assumed 618,255 291,998


	Three Months ended
(Dollars in thousands)	March 31, 2021		March 31, 2020
Financing Activities
Net increase in deposits	$	1,306,824	178,132
Net (decrease) increase in securities sold under agreements to repurchase	(7,705)		3,263
Net increase in short-term Federal Home Loan Bank advances	0		475,000

Repayments of long-term Federal Home Loan Bank advances	0		(547)
Net decrease in other borrowed funds	(7,116)		(5)
Cash dividends paid	(14,530)		(18,652)
Tax withholding payments for stock-based compensation	(1,351)		(977)
Proceeds from stock option exercises	161		634
Net cash provided by financing activities	1,276,283		636,848
Net increase (decrease) in cash, cash equivalents and restricted cash	245,308		(57,520)
Cash, cash equivalents and restricted cash at beginning of period	633,142		330,961
Cash, cash equivalents and restricted cash at end of period	$	878,450	273,441
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	5,455	8,595
Cash paid during the period for income taxes	2		0
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Transfer of debt securities from available-for-sale to held-to-maturity	$	403,767	0
Sale and refinancing of other real estate owned	$	0	215
Transfer of loans to other real estate owned	1,397		465
Right-of-use assets obtained in exchange for operating lease liabilities	345		2,241
Dividends declared during the period but not paid	29,674		27,727
Acquisitions
Fair value of common stock shares issued	0		112,133
Cash consideration	0		13,721

Fair value of assets acquired	0		744,109
Liabilities assumed	0		618,255

See accompanying notes to unaudited condensed consolidated financial statements.

109

GLACIER BANCORP, INC.

NOTES TO UNAUDITED CONDENSED 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, Arizona and Nevada 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.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal recurring nature. These interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements and they should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Operating results for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 are not necessarily indicative of the results anticipated for the year ending December 31, ~~2020.~~2021. The condensed consolidated statement of financial condition of the Company as of December 31, ~~2019~~2020 has been derived from the audited consolidated statements of the Company as of that date.

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.

Material estimates that are particularly susceptible to significant change include: 1) the determination of the allowance for credit losses (“ACL” or “allowance”) on loans; 2) the valuation of debt 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 ACL on loans and real estate valuation estimates, management obtains independent appraisals (new or updated) for significant items. Estimates relating to the ~~valuation of debt securities~~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, which consists of 16 bank divisions and a corporate division. The corporate division includes the Bank’s investment portfolio, wholesale borrowings and other centralized functions. 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. The trust subsidiaries are not included in the Company’s consolidated financial statements. The Company's investments in the trust subsidiaries are included in other assets on the Company's statements of financial condition.

~~On February 29,~~

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. During 2020, the ~~Company completed~~Fed temporarily reduced the ~~acquisition of~~ ~~State Bank Corp., the bank holding company for~~ ~~State Bank of Arizona, a community bank based in Lake Havasu City, Arizona (collectively,~~ ~~“SBAZ”~~).reserve requirement due to COVID-19. The ~~business combination~~required reserve balance at March 31, 2021 was accounted for using the acquisition method, with the results of operations included in the Company’s consolidated financial statements as of the acquisition date. For additional information relating to mergers and acquisitions, see Note 13.$0.

Debt Securities

On January 1, 2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses, which significantly changed the allowance for credit loss accounting policies for debt securities. The following debt securities and allowance for credit loss accounting policies are presented under Accounting Standards Codification™ (“ASC”) Topic ~~326, whereas prior periods are presented as described in the Company’s 2019 Annual Report on Form 10-K.~~326.

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 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 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 debt 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 debt securities classified as trading securities. When the Company acquires another entity, it designates all debt securities as available-for-sale at acquisition date and records the debt securities at fair value.

The Company reviews and analyzes the various risks that may be present within the investment portfolio on an ongoing basis, including market risk, credit risk and liquidity 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 debt 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. The credit rating of a security is considered the primary credit quality indicator for debt securities. Liquidity risk refers to the risk that a security will not have an active and efficient market in which the security can be sold.

A debt security is investment grade if the issuer has 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 debt 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.

The Company has acquired debt securities through acquisitions and if the securities have more than insignificant credit deterioration since origination, they are designated as purchased credit-deteriorated (“PCD”) securities. An ACL is determined using the same methodology as with other debt securities. The sum of a PCD security’s ~~purchase price~~fair value and associated ACL becomes ~~the~~its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the debt security is a noncredit discount or premium, which is amortized into interest income over the life of the security. Subsequent changes to the ~~allowance~~ACL are recorded through provision for credit ~~loss expense.~~losses.

For additional information relating to debt securities, see Note 2.

1211

Allowance for Credit Losses - Available-for-Sale Debt Securities

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more-likely-than-not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through other expense. For the available-for-sale securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In such assessment, the Company considers the extent to which fair value is less than amortized cost, if there are any changes to the investment grade of the security by a rating agency, and if there any adverse conditions that impact the security. If this assessment indicates a credit loss exists, the present value of the cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a potential credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any estimated credit losses that have not been recorded through an ACL are recognized in OCI.

The Company has elected to exclude accrued interest from the estimate of credit losses for available-for-sale debt securities. As part of its non-accrual policy, the Company charges-off uncollectable interest at the time it is determined to be uncollectable.

Allowance for Credit Losses - Held-to-Maturity Debt Securities

For estimating the allowance for held-to-maturity (“HTM”) debt securities that share similar risk characteristics with other securities, such securities are pooled based on major security type. For pools of such securities with similar risk characteristics, the historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the securities on those historical credit losses. Expected credit losses on securities in the held-to-maturity portfolio that do not share similar risk characteristics with any of the pools of debt securities are individually measured based on net realizable value, or the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the securities.

The Company has elected to exclude accrued interest from the estimate of credit losses for held-to-maturity debt securities. As part of its non-accrual policy, the Company charges off uncollectable interest at the time it is determined to be uncollectable.

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 are recorded at fair value and typically sold with servicing rights released. Changes in fair value are recognized in non-interest income. Fair value elections are made at the time of origination based on the Company’s fair value election policy.

Loans Receivable

On January 1, 2020, the Company adopted FASB ASU 2016-13, Financial Instruments - Credit Losses, which significantly changed the loan and allowance for credit loss accounting policies. The following loan and allowance for credit loss accounting policies are presented under ASC Topic 326, whereas prior periods are presented in accordance with the incurred loss model as disclosed in the Company’s 2019 Annual Report on Form 10-K.

The Company’s loan segments or classes are based on the purpose of the loan and consist of residential real estate, commercial real estate, other commercial, home equity, and other consumer loans. 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. Interest income is accrued on the unpaid principal balance. 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 or straight-line methods. The interest method is utilized for loans with scheduled payment terms and the objective is to calculate periodic interest income at a constant effective yield. The straight-line method is utilized for revolving lines of credit or loans with no scheduled payment terms. When a loan is paid off prior to maturity, the remaining unamortized fees and costs on originated loans and unamortized premiums or discounts on acquired loans are immediately recognized into interest income.

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 non-accrual, interest accruals are resumed on such loans only when ~~the loan is~~they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.

The Company has acquired loans through acquisitions, some of which have experienced more than insignificant credit deterioration since origination. The Company considers all acquired non-accrual loans to be PCD loans. In addition, the Company considers loans accruing ninety days or more past due with estimated credit losses or substandard loans with estimated credit losses to be PCD loans. An ACL is determined using the same methodology as other loans held for investment. The ACL determined on a collective basis is allocated to individual loans. The sum of a loan’s ~~purchase price~~fair value and ACL becomes the initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the ACL are recorded through provision for credit ~~loss expense.~~losses.

For additional information relating to loans, see Note 3.

Allowance for Credit Losses - Loans Receivable

The allowance for credit losses for loans receivable represents management’s estimate of credit losses over the expected contractual life of the loan portfolio. The estimate is determined based on the amortized cost of the loan portfolio including the loan balance adjusted for charge-offs, recoveries, deferred fees and costs, and loan discount and premiums. Recoveries are included only to the extent that such amounts were previously charged-off. The Company has elected to exclude accrued interest from the estimate of credit losses for loans. Determining the adequacy of the allowance is complex and requires a high degree of judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance in those future periods.

The allowance is increased for estimated credit losses which isare recorded as expense. The portion of loans and overdraft balances determined by management to be ~~uncollectible~~uncollectable are charged-off as a reduction to the allowance and recoveries of amounts previously charged-off increase the allowance. 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 other real estate owned (“OREO”) until such time as it is sold.

The expected credit loss estimate process involves procedures to consider the unique characteristics of each of ~~its~~the Company’s loan portfolio segments, which consist of residential real estate, commercial real estate, other commercial, home equity, and other consumer loans. When computing the allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, credit and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. The Company has determined a 4 consecutive quarter forecasting period is a reasonable and supportable period. Expected credit loss for periods beyond reasonable and supportable forecast periods are determined based on a reversion method which reverts back to historical loss estimate over a 4 consecutive quarter period on a straight-line basis.

Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and the process for estimating the expected credit losses. The following paragraphs describe the risk characteristics relevant to each portfolio segment.

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 residential property securing the loans and affect the borrowers' personal incomes. Mitigating risk factors for this loan segment 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 ~~segment~~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 segment are a large number of borrowers, geographic dispersion of market areas and the loans are originated for terms that range from 10 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 allowance is impacted by loan volumes, delinquency status, credit ratings, historical loss experiences, estimated prepayment speeds, weighted average lives and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance has 2 basic components: 1) individual loans that do not share similar risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and 2) the expected credit losses for pools of loans that share similar risk characteristics.

Loans that do not Share Similar Risk Characteristics with Other Loans. For a loan that does not share similar risk characteristics with other loans, expected credit loss is measured based on the net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, the expected credit loss is equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan fees and costs), except when the loan is collateral-dependent, that is, when foreclosure is probable or the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral. The Company has determined that non-accrual loans do not share similar risk characteristics with other loans and these loans are individually evaluated for estimated allowance for credit losses. The Company, through its credit monitoring process, may also identify other loans that do no share similar risk characteristics and individually evaluate such loans. The starting point for determining the fair value of collateral is to obtain external appraisals or evaluations (new or updated) ~~which are generally obtained annually.~~. 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 Company’s credit department reviews appraisals, giving consideration to the highest and best use of the collateral. 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. Adjustments may be made to the fair value of the collateral after review and acceptance of the collateral appraisal or evaluation (new or updated).

Loans that Share Similar Risk Characteristics with other Loans. For estimating the allowance for loans that share similar risk characteristics with other loans, such loans are segregated into loan segments. Loans are designated into loan segments based on loans pooled by product types and similar risk characteristics or areas of risk concentration. In determining the ACL, the Company derives an estimated credit loss assumption from a model that categorizes loan pools based on loan type which is further segregated by the credit quality indicators. This model calculates an expected loss percentage for each loan segment by considering the non-discounted simple annual average historical loss rate of each loan segment (calculated through an “open pool” method), multiplying the loss rate by the amortized loan balance and incorporating that segment’s internally generated prepayment speed assumption and contractually scheduled remaining principal pay downs on a loan level basis. The annual historical loss rates are adjusted over a reasonable economic forecast period by a multiplier that is calculated based upon current national economic forecasts as a proportion of each segment’s historical average loss levels. The Company will then revert from the economic forecast period back to the historical average loss rate in a straight-line basis. After the reversion period, the loans will be assumed to experience their historical loss rate for the remainder of their contractual lives. The model applies the

expected loss rate over the projected cash flows at ~~the~~ the individual loan level and then aggregates the losses by loan segment in determining their quantitative allowance. The Company will also include qualitative adjustments to adjust the pACL on loan segments~~ortfolio over the remaining lives of the loans~~ to the extent the current or future market conditions are believed to vary substantially from historical conditions in regards to:

•lending policies and procedures;

•international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio, including the condition of various markets;

•the nature and volume of the loan portfolio including the terms of the loans;

•the experience, ability, and depth of the lending management and other relevant staff;

•the volume and severity of past due and adversely classified or graded loans and the volume of non-accrual loans;

•the quality of our loan review system;

•the value of underlying collateral for collateralized loans;

•the existence and effect of any concentrations of credit, and changes in the level of concentrations; and

•the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.

The Company regularly reviews loans in the portfolio to assess credit quality indicators and to determine the appropriate loan classification and grading in accordance with applicable bank regulations. The primary credit quality indicator for residential, home equity and other consumer loans is the days past due status, which consists of the following categories: 1) performing loans; 2) 30 to 89 days past due loans; and 3) non-accrual and ninety days or more past due loans. The primary credit quality indicator for commercial real estate and commercial loans is the Company’s internal risk rating system, which includes the following categories: 1) pass loans; 2) special mention loans; 3) substandard loans; and 4) doubtful or loss loans. Such credit quality indicators are regularly monitored and incorporated into the Company’s allowance estimate. The following paragraphs further define the internal risk ratings for commercial real estate and commercial loans.

Pass Loans. These ratings represent loans that are of acceptable, good or excellent quality with very limited to no risk. Loans that do not have one of the following ratings are considered pass loans.

Special Mention Loans. These ratings represent loans that are ~~assigned~~designated as special mention per the regulatory definition. Special mention loans are currently protected but are potentially weak. The credit risk may be relatively minor yet constitute an undue and unwarranted risk in light of the circumstances surrounding a specific loan. The rating may be used to identify credit with potential weaknesses that if not corrected may weaken the loan to the point of inadequately protecting the ~~bank’s~~Bank’s credit position. Examples include a lack of supervision, inadequate loan agreement, condition, or control of collateral, incomplete, or improper documentation, deviations from lending policy, and adverse trends in operations or economic conditions.

Substandard Loans. This rating represents loans that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. A loan so classified must have a well-defined weakness that jeopardizes the liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregated amount of substandard loans, does not have to exist in an individual loan classified substandard.

Doubtful/Loss Loans. A loan classified as doubtful has the characteristics that make collection in full, on the basis of currently existing facts, conditions, and values, highly improbable. The possibility of loss is extremely high, but because of pending factors, which may work to the advantage and strengthening of the loan, its classification as loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. Loans are classified as loss when they are deemed to be not collectible and of such little value that continuance as an active asset of the Bank is not warranted. Loans classified as loss must be charged-off. Assignment of this classification does not mean that an asset has absolutely no recovery or salvage value, but that it is not practical or desirable to defer writing off a basically worthless asset, even though partial recovery may be attained in the future.

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. 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. 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 borrowers who have the willingness and capacity for debt repayment. In determining whether non-restructured or performing loans issued to a single or related party group of borrowers should continue to accrue interest when the borrower has other loans that are non-performing 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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law which includes many provisions that impact the Company and its customers. The banking regulatory agencies have encouraged banks to work with borrowers who have been impacted by the coronavirus disease of 2019 (“COVID-19”) and the CARES Act, along with related regulatory guidance, allows banks to not designate certain modifications as TDRs that otherwise may have been classified as TDRs. In general, in order to qualify for such treatment, the modifications need to be short-term and made on a good faith basis in response to the COVID-19 pandemic to borrowers who were previously deemed current ~~prior to~~as outlined in the ~~modification.~~regulatory guidance. The Company has made such modifications ~~which generally include interest only or full deferrals up~~ to ~~six months.~~assist borrowers impacted by the COVID-19 pandemic.

The allowance for credit losses on a TDR is measured using the same method as all other loans held for investment. For a TDR that is individually reviewed and not collateral-dependent, the value of the concession can only be measured using the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the ACL is determined by discounting the expected future cash flows at the original interest of the loan.

Allowance for Credit Losses - Off-Balance Sheet Credit Exposures

The Company maintains a separate allowance for off-balance sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the Company’s statements of financial condition. The Company estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures and applying the loss factors used in the allowance for credit loss methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan ~~type.~~segment. No credit loss estimate is reported for off-balance sheet credit exposures that are unconditionally cancellable by the Bank or for unfunded amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

Provision for Credit Losses

The Company recognizes provision for credit losses on the allowance for off-balance sheet credit exposures (e.g., unfunded loan commitments) together with provision for credit losses on the loan portfolio in the income statement line item provision for credit losses. Provision for credit losses on the loan portfolio were $489,000 and $22,744,000 for the three months ended March 31, 2021 and 2020, respectively. Provision for off-balance sheet credit exposures were ($441,000) and ($3,559,000) for the three months ended March 31, 2021 and 2020, respectively. There was no provision for credit losses on debt securities for the three months ended March 31, 2021, and 2020 respectively.

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 to 40 years and the estimated useful life for furniture, fixtures, and equipment is 3 to 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. A lessee lease is classified as an operating lease unless it meets certain criteria (e.g., lease contains option to purchase that Company is reasonably certain to exercise), in which case it is classified as a finance lease. ~~Effective January 1, 2019, operating~~Operating leases are included in net premises and equipment and other liabilities on the Company’s statements of financial condition and lease expense for lease payments is recognized on a straight-line basis over the lease term. Finance leases are included in net premises and equipment and other borrowed funds on the Company’s statements of financial condition. Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. An ROU asset represents the right to use the underlying asset for the lease term and also includes any direct costs and payments made prior to lease commencement and excludes lease incentives. When an implicit rate is not available, an incremental borrowing rate based on the information available at commencement date is used in determining the present value of the lease payments. A lease term may include an option to extend or terminate the lease when it is reasonably certain the option will be exercised. The Company accounts for lease and nonlease components (e.g., common-area maintenance) together as a single combined lease component for all asset classes. Short-term leases of 12 months or less are excluded from accounting guidance; as a result, the lease payments are recognized on a straight-line basis over the lease term and the leases are not reflected on the Company’s statements of financial condition. Renewal and termination options are considered when determining short-term leases. Leases are accounted for on an individual lease level.

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.

The Company also leases certain premises and equipment to third parties. A lessor lease is classified as an operating lease unless it meets certain criteria that would classify it as either a sales-type lease or a direct financing 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 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.

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, 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 2020 and 2019 annual goodwill impairment testing and proceed directly to the goodwill impairment assessment. The goodwill impairment process requires the Company to make assumptions and judgments regarding fair value. The Company calculates an implied fair value and if the implied fair value is less than the carrying value, an impairment loss is recognized for the difference. For additional information relating to goodwill, see Note 5.

Loan Servicing Rights

For residential real estate loans that are sold with servicing retained, servicing rights are initially recorded at fair value in other assets and gain on sale of loans. Fair value is based on market prices for comparable mortgage servicing contracts. The servicing asset is subsequently measured using the amortization method which requires the servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Loan servicing rights are evaluated for impairment based upon the fair value of the servicing rights compared to the carrying value. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the carrying value. If the Company later determines that all or a portion of the impairment no longer exists, a reduction in the valuation allowance may be recorded. Changes in the valuation allowance are recorded in other income. The fair value of the servicing assets are subject to significant fluctuations as a result of changes in estimated actual prepayment speeds and default rates and losses.

Servicing fee income is recognized in other income for fees earned for servicing loans. The fees are based on contractual percentage of the outstanding principal; or a fixed amount per loan and is recorded when earned. The amortization of loans servicing fees is netted against loan servicing fee income. For additional information relating to loan servicing rights, see Note 6.

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 fair value, FHLB stock is carried at cost and evaluated for impairment. 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.

The Company also has an insignificant amount of marketable equity securities that are included in other assets on the Company’s statements of financial condition. Marketable equity securities with readily determinable fair values are measured at fair value and changes in fair value are recognized in other income. Marketable equity securities without readily

determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.

Other Borrowings

Borrowings of the Company’s consolidated variable interest entities and finance lease arrangements are included in other borrowings. For additional information relating to VIE’s, see Note 7.

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. 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

The Company is exposed to certain risks relating to its ongoing operations. The primary risk managed by using derivative instruments is interest risk. Interest rate caps and interest rate swaps have been entered into to manage interest rate risk associated with variable rate borrowings and were designated as cash flow hedges. The Company does not enter into derivative instruments for trading or speculative purposes.

These cash flow hedges were recognized as assets or liabilities on the Company’s statements of financial condition and were measured at fair value. Cash flows resulting from the interest rate derivative financial instruments that were accounted for as hedges of assets and liabilities were 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 the interest rate caps, see Note 9.

Revenue Recognition

The Company recognizes revenue when services or products are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled. The Company’s principal source of revenue is interest income from debt securities and loans. Revenue from contracts with customers within the scope of ASC Topic 606 was ~~$26,239,000~~$13,695,000 and ~~$38,943,000~~$14,458,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, and largely consisted of revenue from service charges and other fees from deposits (e.g., overdraft fees, ATM fees, debit card fees). Due to the short-term nature of the Company’s contracts with customers, an insignificant amount of receivables related to such revenue was recorded at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 and there were no0 impairment losses recognized. Policies specific to revenue from contracts with customers include the following:

Service Charges. Revenue from service charges consists of service charges and fees on deposit accounts under depository agreements with customers to provide access to deposited funds and, when applicable, pay interest on deposits. Service charges on deposit accounts may be transactional or non-transactional in nature. Transactional service charges occur in the form of a service or penalty and are charged upon the occurrence of an event (e.g., overdraft fees, ATM fees, wire transfer fees). Transactional service charges are recognized as services are delivered to and consumed by the customer, or as penalty fees are charged. Non-transactional service charges are charges that are based on a broader service, such as account maintenance fees and dormancy fees, and are recognized on a monthly basis.

Debit Card Fees. Revenue from debit card fees includes interchange fee income from debit cards processed through card association networks. Interchange fees represent a portion of a transaction amount that the Company and other involved parties retain to compensate themselves for giving the cardholder immediate access to funds. Interchange rates are generally set by the card association networks and are based on purchase volumes and other factors. The Company records interchange fees as services are provided.

Recently Issued Accounting Guidance ~~Adopted in 2020~~

The ASC is the 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~~Company has not adopted any ASU’s in the current year that may have had a material effect on the Company’s financial position or results of operations. Furthermore, there are no newly issued but not yet effective ASUs that could have a material effect on the Company’s financial position or results of operations.

~~ASU 2017-04 - Intangibles - Goodwill and Other.~~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 were effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2019. 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. 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, at adoption there was no impact from these amendments to the Company’s financial position and results of operations. In addition, the current accounting policies and processes were not changed, except for the elimination of the Step 2 analysis. For additional information regarding goodwill impairment testing, see Note 5.

~~ASU 2016-13 - Financial Instruments -~~ ~~Credit Losses.~~ In June 2016, FASB amended ASC Topic 326 to replace the incurred loss model with a methodology that reflects current expected credit losses (“CECL”) 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 were effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2019. The Company adopted the amendments on January 1, 2020 using the modified retrospective approach. The financial statement results and accounting policies beginning January 1, 2020 are presented under ASC Topic 326, whereas prior periods continue to be reported in accordance with previously applicable GAAP. The Company recorded a net reduction of $12,347,000 in retained earnings due to the adoption of the amendments. The transition adjustment included an increase in the ACL on loans of $3,720,000, an increase in the ACL on off-balance sheet credit exposures of $12,817,000, and a corresponding increase in deferred tax assets of $4,190,000. The Company developed internal implementation controls over the development of the ACL model and resulting financial statement disclosures. The Company has adjusted its processes and procedures to calculate the ACL, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the prior accounting practice that utilized the incurred loss model. The Company also developed new procedures for determining an ACL related to held-to-maturity debt securities and the accounting policies and procedures for other-than-temporary impairment on available-for-sale debt securities were replaced with an allowance approach. The Company engaged a third-party vendor solution to evaluate the new methodology, including model validation, adjusting assumptions utilized, and to review the accuracy of the financial statement disclosures. For additional information on the allowances for credit losses, see Notes 2 and 3.

Note 2. Debt Securities

The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of the Company’s debt securities:


		June 30, 2020										March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
Available-for-sale	Available-for-sale						Available-for-sale
U.S. government and federal agency	U.S. government and federal agency	$	42,016	391	(172)	42,235	U.S. government and federal agency	$	36,122	231	(490)	35,863
U.S. government sponsored enterprises	U.S. government sponsored enterprises	10,788		75	—	10,863	U.S. government sponsored enterprises	5,231		22	0	5,253
State and local governments	State and local governments	1,198,293		79,406	(147)	1,277,552	State and local governments	914,572		64,593	(513)	978,652
Corporate bonds	Corporate bonds	374,193		14,389	(207)	388,375	Corporate bonds	278,914		9,952	(85)	288,781
Residential mortgage-backed securities	Residential mortgage-backed securities	835,036		22,648	(43)	857,641	Residential mortgage-backed securities	3,369,683		16,420	(22,476)	3,363,627
Commercial mortgage-backed securities	Commercial mortgage-backed securities	899,167		58,117	—	957,284	Commercial mortgage-backed securities	1,145,668		39,958	(4,487)	1,181,139
Total available-for-sale	Total available-for-sale	$	3,359,493	175,026	(569)	3,533,950	Total available-for-sale	$	5,750,190	131,176	(28,051)	5,853,315
Held-to-maturity	Held-to-maturity						Held-to-maturity
State and local governments	State and local governments	$	203,275	12,608	—	215,883	State and local governments	$	588,751	10,937	(728)	598,960
Total held-to-maturity	Total held-to-maturity	$	203,275	12,608	—	215,883	Total held-to-maturity	$	588,751	10,937	(728)	598,960


		December 31, 2019										December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
Available-for-sale	Available-for-sale						Available-for-sale
U.S. government and federal agency	U.S. government and federal agency	$	20,061	48	(65)	20,044	U.S. government and federal agency	$	38,568	287	(267)	38,588
U.S. government sponsored enterprises	U.S. government sponsored enterprises	42,724		953	—	43,677	U.S. government sponsored enterprises	9,747		34	0	9,781
State and local governments	State and local governments	679,784		22,694	(80)	702,398	State and local governments	1,321,763		94,974	(54)	1,416,683
Corporate bonds	Corporate bonds	155,665		1,938	(1)	157,602	Corporate bonds	336,867		12,239	(8)	349,098
Residential mortgage-backed securities	Residential mortgage-backed securities	731,766		7,507	(549)	738,724	Residential mortgage-backed securities	2,261,463		27,631	(4)	2,289,090
Commercial mortgage-backed securities	Commercial mortgage-backed securities	891,374		22,825	(1,392)	912,807	Commercial mortgage-backed securities	1,177,458		57,575	(459)	1,234,574
Total available-for-sale	Total available-for-sale	$	2,521,374	55,965	(2,087)	2,575,252	Total available-for-sale	$	5,145,866	192,740	(792)	5,337,814
Held-to-maturity	Held-to-maturity						Held-to-maturity
State and local governments	State and local governments	$	224,611	9,785	—	234,396	State and local governments	$	189,836	13,380	0	203,216
Total held-to-maturity	Total held-to-maturity	$	224,611	9,785	—	234,396	Total held-to-maturity	$	189,836	13,380	0	203,216

Maturity Analysis

The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by contractual maturity at ~~June 30, 2020.~~March 31, 2021. Actual maturities may differ from expected or contractual maturities since some issuers have the right to prepay obligations with or without prepayment penalties.


		June 30, 2020										March 31, 2021
		Available-for-Sale				Held-to-Maturity					Available-for-Sale		Held-to-Maturity
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value	(Dollars in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value
Due within one year	Due within one year	$	144,070	145,977	—	—	Due within one year	$	91,067	92,128	482	486
Due after one year through five years	Due after one year through five years	269,452		281,526	17,132	18,339	Due after one year through five years	237,676		248,388	23,431	24,883
Due after five years through ten years	Due after five years through ten years	261,463		275,179	71,471	76,970	Due after five years through ten years	247,854		257,032	66,883	71,375
Due after ten years	Due after ten years	950,305		1,016,343	114,672	120,574	Due after ten years	658,242		711,001	497,955	502,216
		1,625,290		1,719,025	203,275	215,883		1,234,839		1,308,549	588,751	598,960
Mortgage-backed securities ¹	Mortgage-backed securities ¹	1,734,203		1,814,925	—	—	Mortgage-backed securities 1	4,515,351		4,544,766	0	0
Total	Total	$	3,359,493	3,533,950	203,275	215,883	Total	$	5,750,190	5,853,315	588,751	598,960

¹ Mortgage-backed securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.

Sales and Calls of Debt Securities

Proceeds from sales and calls of debt securities and the associated gains and losses that have been included in earnings are listed below:


		Three Months ended				Six Months ended			Three Months ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019	June 30, 2020	June 30, 2019	(Dollars in thousands)	March 31, 2021	March 31, 2020
Available-for-sale	Available-for-sale						Available-for-sale
Proceeds from sales and calls of debt securities	Proceeds from sales and calls of debt securities	$	37,711	172,323	114,784	476,371	Proceeds from sales and calls of debt securities	54,336	77,073
Gross realized gains ¹	Gross realized gains ¹	142		1,347	1,104	4,284	Gross realized gains 1	369	962
Gross realized losses ¹	Gross realized losses ¹	(14)		(1,213)	(114)	(3,929)	Gross realized losses 1	(43)	(100)
Held-to-maturity	Held-to-maturity						Held-to-maturity
Proceeds from calls of debt securities	Proceeds from calls of debt securities	—		2,630	20,250	32,575	Proceeds from calls of debt securities	4,130	20,250
Gross realized gains ¹	Gross realized gains ¹	—		—	1	2	Gross realized gains 1	0	1
Gross realized losses ¹	Gross realized losses ¹	—		—	—	(10)	Gross realized losses 1	(42)	0

¹ The gain or loss on the sale or call of each debt security is determined by the specific identification method.

Allowance for Credit Losses - Available-For-Sale Debt Securities

In assessing whether a credit loss existed on available-for-sale debt securities with unrealized losses, the Company compared the present value of cash flows expected to be collected from the debt securities with the amortized cost basis of the debt securities. In addition, the following factors were evaluated individually and collectively in determining the existence of expected credit losses:

•credit ratings from Nationally Recognized Statistical Rating Organizations (“NRSRO” entities such as Standard and Poor’s [“S&P”] and Moody’s);

•~~severity of~~extent to which the ~~impaired securities;~~fair value is less than cost;

•adverse conditions, if any, specifically related to the impaired securities, including the industry and geographic area;

•the overall deal and payment structure of the debt securities, including the investor entity’s position within the structure, underlying obligors, financial condition and near-term prospects of the issuer, including specific events which may affect the issuer’s operations or future earnings, and credit support or enhancements; and

•failure of the issuer and underlying obligors, if any, to make scheduled payments of interest and principal.

The following table summarizes available-for-sale debt securities that were in an unrealized loss position for which an ACL has not been recorded, based on the length of time the individual securities have been in an unrealized loss position. The number of available-for-sale debt securities in an unrealized position is also disclosed.


		June 30, 2020																													March 31, 2021
		Number of Securities	Less than 12 Months							12 Months or More							Total								Number of Securities		Less than 12 Months				12 Months or More		Total
(Dollars in thousands)	(Dollars in thousands)				Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		(Dollars in thousands)	Number of Securities			Fair Value			Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale	Available-for-sale														Available-for-sale
U.S. government and federal agency	U.S. government and federal agency	9	$	4,999		(163)		738		(9)		5,737		(172)	U.S. government and federal agency	24					$	17,857		(343)		2,361		(147)		20,218		(490)

State and local governments	State and local governments	31	21,080			(147)		—		—		21,080		(147)	State and local governments	57			36,748				(480)		816		(33)		37,564		(513)
Corporate bonds	Corporate bonds	9	20,148			(207)		—		—		20,148		(207)	Corporate bonds	1			3,915				(85)		0		0		3,915		(85)
Residential mortgage-backed securities	Residential mortgage-backed securities	15	17,637			(43)		27		—		17,664		(43)	Residential mortgage-backed securities	80			2,158,485				(22,475)		27		(1)		2,158,512		(22,476)

Commercial mortgage-backed securities															Commercial mortgage-backed securities	13			237,514				(4,487)		0		0		237,514		(4,487)
Total available-for-sale	Total available-for-sale	64	$	63,864		(560)		765		(9)		64,629		(569)	Total available-for-sale	175			$	2,454,519			(27,870)		3,204		(181)		2,457,723		(28,051)

Held-to-maturity															Held-to-maturity
State and local governments															State and local governments	65			$	217,131			(728)		0		0		217,131		(728)
Total held-to-maturity															Total held-to-maturity	65			$	217,131			(728)		0		0		217,131		(728)


		December 31, 2019																													December 31, 2020
		Number of Securities	Less than 12 Months							12 Months or More							Total								Number of Securities		Less than 12 Months				12 Months or More		Total
(Dollars in thousands)	(Dollars in thousands)				Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		(Dollars in thousands)	Number of Securities			Fair Value			Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale	Available-for-sale														Available-for-sale
U.S. government and federal agency	U.S. government and federal agency	20	$	464		—		9,902		(65)		10,366		(65)	U.S. government and federal agency	18					$	13,814		(258)		726		(9)		14,540		(267)

State and local governments	State and local governments	12	19,044			(80)		—		—		19,044		(80)	State and local governments	6			3,121				(54)		0		0		3,121		(54)
Corporate bonds	Corporate bonds	2	7,378			(1)		—		—		7,378		(1)	Corporate bonds	3			5,500				(8)		0		0		5,500		(8)
Residential mortgage-backed securities	Residential mortgage-backed securities	35	85,562			(234)		29,038		(315)		114,600		(549)	Residential mortgage-backed securities	14			2,354				(4)		27		0		2,381		(4)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	19	177,051			(1,293)		7,697		(99)		184,748		(1,392)	Commercial mortgage-backed securities	5			120,741				(459)		0		0		120,741		(459)
Total available-for-sale	Total available-for-sale	88	$	289,499		(1,608)		46,637		(479)		336,136		(2,087)	Total available-for-sale	46			$	145,530			(783)		753		(9)		146,283		(792)

With respect to severity, the majority of available-for-sale debt securities with unrealized loss positions at ~~June 30, 2020~~March 31, 2021 have unrealized losses as a percentage of book value of less than 5 percent. A substantial portion of such securities were issued by Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“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 4 highest credit rating categories. All of the Company’s available-for-sale debt securities with unrealized loss positions at ~~June 30, 2020~~March 31, 2021 have been determined to be investment grade.

~~As of June 30, 2020, the~~The Company did ~~not~~0t have any past due available-for-sale debt securities ~~past due.~~as of March 31, 2021 and December 31, 2020, respectively. Accrued interest receivable on available-for-sale debt securities totaled ~~$18,970,000~~$22,398,000 and 20,215,000 at ~~June 30,~~March 31, 2021, and December 31, 2020, respectively, and was excluded from the estimate of credit losses.

During the period ended June 30, 2020, the Company acquired available-for-sale debt securities from the secondary market and through the SBAZ acquisition. Such securities were evaluated and it was determined there were 0 PCD securities, so 0 allowance for credit losses was recorded.

Based on an analysis of its available-for-sale debt securities with unrealized losses as of ~~June 30, 2020,~~March 31, 2021, the Company determined the decline in value was unrelated to credit ~~loss~~losses and was primarily the result of changes in interest rates and market spreads subsequent to acquisition. The fair value of the debt securities is expected to recover as payments are received and the debt securities approach maturity. In addition, as of ~~June 30, 2020,~~March 31, 2021, management determined it did not intend to sell available-for-sale debt securities with unrealized losses, and there was no expected requirement to sell such securities before recovery of their amortized cost. As a result, 0 ACL was recorded on available-for-sale debt securities at ~~June 30, 2020.~~March 31, 2021. As part of this determination, the Company considered contractual obligations, regulatory constraints, liquidity, capital, asset/liability management and securities portfolio objectives and whether or not any of the Company’s investment securities were managed by third-party investment funds.

Allowance for Credit Losses - Held-To-Maturity Debt Securities

The Company measured expected credit losses on held-to-maturity debt securities on a collective basis by major security type and NRSRO credit ratings, which is the Company’s primary credit quality indicator for state and local government securities. The estimate of expected credit losses considered historical credit loss information that was adjusted for current conditions as well as reasonable and supportable forecasts. The following table summarizes the amortized cost of held-to-maturity debt securities aggregated by NRSRO credit rating:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		December 31, 2019	(Dollars in thousands)	March 31, 2021		December 31, 2020
Held-to-maturity	Held-to-maturity				Held-to-maturity
S&P: AAA / Moody’s: Aaa	S&P: AAA / Moody’s: Aaa	$	47,360	65,217	S&P: AAA / Moody’s: Aaa	$	91,831	39,022
S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	128,281		130,316	S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	471,159		123,664
S&P: A+, A, A- / Moody’s: A1, A2, A3	S&P: A+, A, A- / Moody’s: A1, A2, A3	27,252		28,689	S&P: A+, A, A- / Moody’s: A1, A2, A3	25,761		27,150

Not rated by either entity		382		389

Total held-to-maturity	Total held-to-maturity	$	203,275	224,611	Total held-to-maturity	$	588,751	189,836

The Company’s held-to-maturity debt securities portfolio is primarily comprised of general obligation and revenue bonds with NRSRO ratings in the 4 highest credit rating categories. All of the Company’s held-to-maturity debt securities at ~~June 30, 2020~~March 31, 2021 have been determined to be investment grade.

As of ~~June 30,~~March 31, 2021 and December 31, 2020, the Company did ~~not~~0t have any held-to-maturity debt securities past due. Accrued interest receivable on held-to-maturity debt securities totaled ~~$1,956,000~~$5,929,000 and $1,728,000 at ~~June 30,~~March 31, 2021 and December 31, 2020, respectively, and ~~was~~were excluded from the estimate of credit losses.

Based on the Company’s evaluation, an insignificant amount of credit losses is expected on the held-to-maturity debt securities portfolio; therefore, 0 ACL was recorded at ~~June 30,~~March 31, 2021 or December 31, 2020.

Note 3. Loans Receivable, Net

On January 1, 2020, the Company adopted FASB ASU 2016-13, Financial Instruments - Credit Losses, which significantly changed the loan and allowance for credit loss accounting disclosures. The following loan and allowance for credit loss accounting disclosures are presented in accordance with ASC Topic ~~326, whereas prior periods are presented in accordance with the incurred loss model as disclosed in the Company’s 2019 Annual Report on Form 10-K.~~326.

The following table presents loans receivable for each portfolio segment of loans:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		December 31, 2019	(Dollars in thousands)	March 31, 2021		December 31, 2020
Residential real estate	Residential real estate	$	903,198	926,388	Residential real estate	$	745,097	802,508
Commercial real estate	Commercial real estate	6,047,692		5,579,307	Commercial real estate	6,474,701		6,315,895
Other commercial	Other commercial	3,547,249		2,094,254	Other commercial	3,100,584		3,054,817
Home equity	Home equity	654,392		617,201	Home equity	625,369		636,405
Other consumer	Other consumer	300,847		295,660	Other consumer	324,178		313,071
Loans receivable	Loans receivable	11,453,378		9,512,810	Loans receivable	11,269,929		11,122,696
Allowance for credit losses	Allowance for credit losses	(162,509)		(124,490)	Allowance for credit losses	(156,446)		(158,243)
Loans receivable, net	Loans receivable, net	$	11,290,869	9,388,320	Loans receivable, net	$	11,113,483	10,964,453
Net deferred origination (fees) costs included in loans receivable	Net deferred origination (fees) costs included in loans receivable	$	(41,811)	(6,964)	Net deferred origination (fees) costs included in loans receivable	$	(37,946)	(26,709)
Net purchase accounting (discounts) premiums included in loans receivable	Net purchase accounting (discounts) premiums included in loans receivable	$	(18,954)	(21,574)	Net purchase accounting (discounts) premiums included in loans receivable	$	(15,122)	(17,091)
Accrued interest receivable on loans	Accrued interest receivable on loans	$	56,415	40,962	Accrued interest receivable on loans	$	50,989	53,538

Substantially all of the Company’s loans receivable are with borrowers in the Company’s geographic market areas. Although the Company has a diversified loan portfolio, a substantial portion of borrowers’ ability to service their obligations is dependent upon the economic performance in the Company’s market areas.

The Company had no significant purchases or sales of portfolio loans or reclassification of loans held for investment to loans held for sale during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

Allowance for Credit Losses - Loans Receivable

The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on loans. The following tables summarize the activity in the ACL:


		Three Months ended June 30, 2020														Three Months ended March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Balance at beginning of period	Balance at beginning of period	$	150,190	9,315	70,848	56,409	7,934	5,684	Balance at beginning of period	$	158,243	9,604	86,999	49,133	8,182	4,325

Credit loss expense (reversal)		13,552		662	18,309	(6,974)	2,174	(619)
Provision for credit losses									Provision for credit losses	489		(582)	7,463	(7,265)	(89)	962
Charge-offs	Charge-offs	(2,668)		(1)	(150)	(1,088)	(193)	(1,236)	Charge-offs	(4,246)		(38)	0	(2,762)	(45)	(1,401)
Recoveries	Recoveries	1,435		10	97	491	47	790	Recoveries	1,960		34	789	279	20	838
Balance at end of period	Balance at end of period	$	162,509	9,986	89,104	48,838	9,962	4,619	Balance at end of period	$	156,446	9,018	95,251	39,385	8,068	4,724


		Three Months ended June 30, 2019														Three Months ended March 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Balance at beginning of period	Balance at beginning of period	$	129,786	10,711	72,328	36,849	5,880	4,018	Balance at beginning of period	$	124,490	10,111	69,496	36,129	4,937	3,817
Credit loss expense (reversal)		—		(105)	(196)	(829)	(73)	1,203
Impact of adopting CECL									Impact of adopting CECL	3,720		3,584	10,533	(13,759)	3,400	(38)
Acquisitions									Acquisitions	49		0	49	0	0	0
Provision for credit losses									Provision for credit losses	22,744		(4,369)	(9,433)	34,133	(508)	2,921
Charge-offs	Charge-offs	(2,859)		(49)	(126)	(358)	(20)	(2,306)	Charge-offs	(2,567)		(20)	(30)	(785)	(1)	(1,731)
Recoveries	Recoveries	2,127		138	441	597	14	937	Recoveries	1,754		9	470	454	106	715
Balance at end of period	Balance at end of period	$	129,054	10,695	72,447	36,259	5,801	3,852	Balance at end of period	$	150,190	9,315	71,085	56,172	7,934	5,684

Six Months ended June 30, 2020
(Dollars in thousands) Total Residential Real Estate Commercial Real Estate Other Commercial Home Equity Other Consumer
Balance at beginning of period $ 124,490 10,111 69,496 36,129 4,937 3,817
Impact of adopting CECL 3,720 3,584 10,533 (13,759) 3,400 (38)
Acquisitions 49 — 49 — — —
Credit loss expense (reversal) 36,296 (3,707) 8,876 27,159 1,666 2,302
Charge-offs (5,235) (21) (180) (1,873) (194) (2,967)
Recoveries 3,189 19 330 1,182 153 1,505
Balance at end of period $ 162,509 9,986 89,104 48,838 9,962 4,619

Six Months ended June 30, 2019
(Dollars in thousands) Total Residential Real Estate Commercial Real Estate Other Commercial Home Equity Other Consumer
Balance at beginning of period $ 131,239 10,631 72,448 38,160 5,811 4,189
Credit loss expense (reversal) 57 173 (344) (1,744) (9) 1,981
Charge-offs (6,200) (341) (409) (1,198) (28) (4,224)
Recoveries 3,958 232 752 1,041 27 1,906
Balance at end of period $ 129,054 10,695 72,447 36,259 5,801 3,852

As a result of the adoption of the CECL accounting standard, the Company adjusted the January 1, 2020 ACL balances within each loan segment to reflect the changes from the incurred loss model to the current expected credit loss model which resulted in increases and decreases in each loan segment based on, among other factors, quantitative and qualitative assumptions and the economic forecast to estimate the credit loss expense over the expected life of the loans. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, the ACL decreased primarily as a result of ~~the COVID-19 pandemic, there was a significant increase~~an improvement in the overall ACL and increases and decreases within certain loan segments. In addition, the acquisition of SBAZ resulted in a $4,794,000 increase in the ACL due to the credit loss expense recorded subsequent to the acquisition date. The COVID-19 pandemic significantly adjustedquantitative factors including the economic forecast used in the ACL model including a significant increase in national and regional unemployment rates and a significant decrease in the gross domestic product (“GDP”). The changes in the economic forecast necessitated a change in weighting of the historical loss factors and the combined result was a significant increase in losses expected in the other commercial segment while other loan segments remained stable or experienced decreases in expected credit losses.forecasts.

~~There were no significant changes in~~The sizeable charge-offs ~~during the six months ended June 30, 2020 compared to the same period in the prior year. Nonetheless, the most notable change was~~ in the other consumer loan segment ~~which was primarily~~is driven by deposit overdraft charge-offs which typically experience high charge-off rates and the amounts were comparable to historical trends. The other segments experience routine charge-offs and recoveries, with occasional large credit relationships charge-offs and recoveries that cause fluctuations from prior periods. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, there have been no significant changes to the types of collateral securing collateral-dependent loans.

During the six month period ended June 30, 2020, the Company acquired loans through the SBAZ acquisition. Such loans were evaluated at acquisition date and it was determined there were PCD loans totaling $3,401,000 with an ACL of $49,000. There was also a discount associated with such loans of $13,000, which was attributable to changes in interest rates and other factors such as liquidity as of acquisition date.

Aging Analysis

The following tables present an aging analysis of the ~~amortized cost basis of~~recorded investment in loans:


		June 30, 2020														March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Accruing loans 30-59 days past due	Accruing loans 30-59 days past due	$	11,607	—	2,737	4,904	2,437	1,529	Accruing loans 30-59 days past due	$	41,744	5,201	5,737	28,277	1,412	1,117
Accruing loans 60-89 days past due	Accruing loans 60-89 days past due	13,618		231	8,117	3,905	1,192	173	Accruing loans 60-89 days past due	2,872		426	1,476	510	276	184
Accruing loans 90 days or more past due	Accruing loans 90 days or more past due	6,071		206	3,110	2,519	98	138	Accruing loans 90 days or more past due	3,733		188	2,319	961	26	239
Non-accrual loans with no ACL	Non-accrual loans with no ACL	30,578		3,774	17,767	5,676	2,971	390	Non-accrual loans with no ACL	28,654		3,006	13,484	8,400	2,756	1,008
Non-accrual loans with ACL	Non-accrual loans with ACL	4,579		469	1,915	2,037	115	43	Non-accrual loans with ACL	1,233		270	451	423	49	40
Total past due and non-accrual loans	Total past due and non-accrual loans	66,453		4,680	33,646	19,041	6,813	2,273	Total past due and non-accrual loans	78,236		9,091	23,467	38,571	4,519	2,588
Current loans receivable	Current loans receivable	11,386,925		898,518	6,014,046	3,528,208	647,579	298,574	Current loans receivable	11,191,693		736,006	6,451,234	3,062,013	620,850	321,590
Total loans receivable	Total loans receivable	$	11,453,378	903,198	6,047,692	3,547,249	654,392	300,847	Total loans receivable	$	11,269,929	745,097	6,474,701	3,100,584	625,369	324,178

December 31, 2019
(Dollars in thousands) Total Residential
Real Estate Commercial
Real Estate Other
Commercial Home
Equity Other
Consumer
Accruing loans 30-59 days past due $ 15,944 3,403 4,946 4,685 1,040 1,870
Accruing loans 60-89 days past due 7,248 749 2,317 1,190 1,902 1,090
Accruing loans 90 days or more past due 1,412 753 64 143 — 452
Non-accrual loans 30,883 4,715 15,650 6,592 3,266 660
Total past due and non-accrual loans 55,487 9,620 22,977 12,610 6,208 4,072
Current loans receivable 9,457,323 916,768 5,556,330 2,081,644 610,993 291,588
Total loans receivable $ 9,512,810 926,388 5,579,307 2,094,254 617,201 295,660


	December 31, 2020
(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Accruing loans 30-59 days past due	$	17,123	6,058	3,854	4,039	2,130	1,042
Accruing loans 60-89 days past due	5,598		584	2,299	809	756	1,150
Accruing loans 90 days or more past due	1,725		934	231	293	135	132
Non-accrual loans with no ACL	29,532		3,129	14,030	9,231	2,664	478
Non-accrual loans with ACL	2,432		274	1,787	278	49	44
Total past due and non-accrual loans	56,410		10,979	22,201	14,650	5,734	2,846
Current loans receivable	11,066,286		791,529	6,293,694	3,040,167	630,671	310,225
Total loans receivable	$	11,122,696	802,508	6,315,895	3,054,817	636,405	313,071

The Company had ~~$517,000~~$73,000 of interest reversed on non-accrual loans during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The prior year modifications that were made under the CARES Act, along with related regulatory guidance, are included in current loan receivables.

Collateral-Dependent Loans

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The collateral on the loans is a significant portion of what secures the collateral-dependent loans and significant changes to the fair value of the collateral can impact the ACL. During 2021, there were no significant change to collateral which secures the collateral-dependent loans, whether due to general deterioration or other reasons. The following table presents the amortized cost basis of collateral-dependent loans by collateral type:


		June 30, 2020														March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Business assets	Business assets	$	4,631	—	109	4,522	—	—	Business assets	$	26,583	0	33	26,419	0	131
Residential real estate	Residential real estate	4,937		1,942	891	117	1,932	55	Residential real estate	7,358		3,216	894	191	2,612	445
Other real estate	Other real estate	14,310		32	13,415	825	22	16	Other real estate	26,041		654	23,799	1,049	193	346
Other	Other	163		—	—	28	—	135	Other	26,033		0	0	25,597	0	436
Total	Total	$	24,041	1,974	14,415	5,492	1,954	206	Total	$	86,015	3,870	24,726	53,256	2,805	1,358


	December 31, 2020
(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Business assets	$	4,325	0	37	4,288	0	0
Residential real estate	7,148		3,338	1,043	198	2,513	56
Other real estate	16,127		64	14,738	1,086	200	39
Other	36,855		0	0	36,469	0	386
Total	$	64,455	3,402	15,818	42,041	2,713	481

Restructured Loans

A restructured loan is considered a 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 following tables present ~~the loans modified as~~ TDRs that occurred during the periods presented and the TDRs that occurred within the previous twelve months that subsequently ~~defaulted:~~defaulted during the periods presented:


		Three Months ended June 30, 2020														Three Months ended March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
TDRs that occurred during the period	TDRs that occurred during the period								TDRs that occurred during the period
Number of loans	Number of loans	8		1	3	3	1	—	Number of loans	7		1	4	1	0	1
Pre-modification recorded balance	Pre-modification recorded balance	$	1,672	210	1,263	160	39	—	Pre-modification recorded balance	$	1,753	210	1,374	38	0	131
Post-modification recorded balance	Post-modification recorded balance	$	1,672	210	1,263	160	39	—	Post-modification recorded balance	$	1,753	210	1,374	38	0	131
TDRs that subsequently defaulted	TDRs that subsequently defaulted								TDRs that subsequently defaulted
Number of loans	Number of loans	—		—	—	—	—	—	Number of loans	0		0	0	0	0	0
Recorded balance	Recorded balance	$	—	—	—	—	—	—	Recorded balance	$	0	0	0	0	0	0

Three Months ended June 30, 2019
(Dollars in thousands) Total Residential
Real Estate Commercial
Real Estate Other
Commercial Home
Equity Other
Consumer
TDRs that occurred during the period
Number of loans 4 1 — — — 3
Pre-modification recorded balance $ 388 117 — — — 271
Post-modification recorded balance $ 374 123 — — — 251
TDRs that subsequently defaulted
Number of loans 1 — — — — 1
Recorded balance $ 305 — — — — 305

Six Months ended June 30, 2020
(Dollars in thousands) Total Residential
Real Estate Commercial
Real Estate Other
Commercial Home
Equity Other
Consumer
TDRs that occurred during the period
Number of loans 13 1 6 5 1 —
Pre-modification recorded balance $ 8,940 210 8,120 571 39 —
Post-modification recorded balance $ 8,940 210 8,120 571 39 —
TDRs that subsequently defaulted
Number of loans 1 — 1 — — —
Recorded balance $ 106 — 106 — — —


		Six Months ended June 30, 2019														Three Months ended March 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer	(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
TDRs that occurred during the period	TDRs that occurred during the period								TDRs that occurred during the period
Number of loans	Number of loans	8		1	1	2	1	3	Number of loans	5		0	3	2	0	0
Pre-modification recorded balance	Pre-modification recorded balance	$	2,093	117	1,035	567	103	271	Pre-modification recorded balance	$	7,268	0	6,857	411	0	0
Post-modification recorded balance	Post-modification recorded balance	$	2,079	123	1,035	567	103	251	Post-modification recorded balance	$	7,268	0	6,857	411	0	0
TDRs that subsequently defaulted	TDRs that subsequently defaulted								TDRs that subsequently defaulted
Number of loans	Number of loans	1		—	—	—	—	1	Number of loans	0		0	0	0	0	0
Recorded balance	Recorded balance	$	305	—	—	—	—	305	Recorded balance	$	0	0	0	0	0	0

The modifications for the loans designated as TDRs during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ 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 loans designated as TDRs during the period provided in the preceding tables, the Company had TDRs with pre-modification loan balances of ~~$904,000~~$1,474,000 and ~~$2,528,000~~$568,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, for which OREO was received in full or partial satisfaction of the loans. The majority of such TDRs were in other commercial for the three months ended March 31, 2021 and commercial real estate for the ~~six~~three months ended ~~June 30, 2020 and 2019.~~March 31, 2020. At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had ~~$1,001,000~~$505,000 and ~~$1,744,000,~~$548,000, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process. At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had ~~$1,896,000~~$930,000 and ~~$1,504,000,~~$273,000, respectively, of OREO secured by residential real estate properties.

The Company also modified loans under the CARES Act, along with related regulatory guidance, that were not classified as TDRs. In addition, the state of Montana created the Montana Loan Deferment Program for only Montana-based business that utilized Cares Act funds to provide interest payments upfront on behalf of participating borrowers. The Montana Loan Deferment Program provided modifications for customers under the CARES Act that were not classified as TDRs.

2827

Credit Quality Indicators

The Company categorizes commercial real estate and other commercial loans into risk categories based on relevant information about the ability of borrowers to service their obligations. The following tables present the amortized cost in commercial real estate and other commercial loans based on the Company’s internal risk rating. The date of a modification, renewal or extension of a loan is considered for the year of origination if the terms of the loan are as favorable to the Company as the terms are for a comparable loan to other borrowers with similar credit risk.


		June 30, 2020												March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Total		Pass	Special Mention	Substandard	Doubtful/ Loss	(Dollars in thousands)	Total		Pass	Special Mention	Substandard	Doubtful/ Loss
Commercial real estate loans	Commercial real estate loans							Commercial real estate loans
Term loans by origination year	Term loans by origination year							Term loans by origination year
2020 (year-to-date)		$	659,384	656,332	—	3,052	—
2021 (year-to-date)								2021 (year-to-date)	$	521,791	521,791	0	0	0
2020								2020	1,419,202		1,413,986	0	5,216	0
2019	2019	1,185,582		1,176,792	—	8,790	—	2019	1,011,331		1,000,493	0	10,838	—
2018	2018	1,037,111		1,003,201	—	33,910	—	2018	851,608		810,910	0	40,698	0
2017	2017	809,549		786,960	—	22,589	—	2017	672,239		645,700	0	26,539	0
2016		553,420		534,881	—	18,539	—
Prior	Prior	1,654,405		1,622,710	66	31,256	373	Prior	1,879,439		1,825,762	0	53,593	84
Revolving loans	Revolving loans	148,241		146,605	—	1,636	—	Revolving loans	119,091		116,298	0	2,792	1

Total	Total	$	6,047,692	5,927,481	66	119,772	373	Total	$	6,474,701	6,334,940	0	139,676	85
Other commercial loans
Other commercial loans 1								Other commercial loans 1
Term loans by origination year	Term loans by origination year							Term loans by origination year
2020 (year-to-date)		$	1,646,307	1,641,537	—	4,770	—
2021 (year-to-date)								2021 (year-to-date)	$	538,043	538,039	0	4	0
2020								2020	974,231		947,941	0	26,289	1
2019	2019	359,481		353,800	—	5,679	2	2019	281,749		271,082	0	10,664	3
2018	2018	311,638		305,819	—	5,818	1	2018	223,210		217,040	0	6,169	1
2017	2017	312,198		306,956	—	4,747	495	2017	241,634		239,229	0	2,402	3
2016		201,794		199,013	—	2,582	199
Prior	Prior	253,062		243,393	2,767	5,738	1,164	Prior	378,212		361,319	0	16,342	551
Revolving loans	Revolving loans	462,769		450,404	849	10,541	975	Revolving loans	463,505		436,725	0	26,762	18

Total	Total	$	3,547,249	3,500,922	3,616	39,875	2,836	Total	$	3,100,584	3,011,375	0	88,632	577

___________________________

1 Includes PPP loans.


	December 31, 2020
(Dollars in thousands)	Total		Pass	Special Mention	Substandard	Doubtful/ Loss
Commercial real estate loans
Term loans by origination year
2020	$	1,496,094	1,490,947	0	5,147	0
2019	1,077,461		1,069,503	0	7,958	0
2018	914,506		874,673	0	39,833	0
2017	723,448		696,371	0	27,077	0
2016	496,275		481,392	0	14,883	0
Prior	1,488,281		1,450,596	0	37,574	111
Revolving loans	119,830		116,548	0	3,282	0

Total	$	6,315,895	6,180,030	0	135,754	111
Other commercial loans 1
Term loans by origination year
2020	$	1,366,664	1,341,316	19,564	5,784	0
2019	304,430		284,981	12,582	6,864	3
2018	241,222		234,988	0	6,233	1
2017	269,857		264,651	0	5,114	92
2016	179,225		177,164	0	2,056	5
Prior	218,306		206,431	0	11,329	546
Revolving loans	475,113		467,929	54	7,112	18

Total	$	3,054,817	2,977,460	32,200	44,492	665

1 Includes PPP loans.

For residential real estate, home equity and other consumer loan segments, the Company evaluates credit quality primarily on the aging status of the loan. The following tables present the amortized cost in residential real estate, home equity and other consumer loans based on payment performance:


		June 30, 2020										March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Total		Performing	30-89 Days Past Due	Non-Accrual and 90 Days or More Past Due	(Dollars in thousands)	Total		Performing	30-89 Days Past Due	Non-Accrual and 90 Days or More Past Due
Residential real estate loans	Residential real estate loans						Residential real estate loans
Term loans by origination year	Term loans by origination year						Term loans by origination year
2020 (year-to-date)		$	81,889	81,789	100	—
2021 (year-to-date)							2021 (year-to-date)	$	37,080	36,673	407	0
2020							2020	220,196		219,651	545	0
2019	2019	256,534		256,352	—	182	2019	133,625		133,269	356	0
2018	2018	156,524		156,280	—	244	2018	83,079		82,095	750	234
2017	2017	107,758		107,652	—	106	2017	65,036		64,227	809	0
2016		73,516		72,483	—	1,033
Prior	Prior	224,321		221,306	131	2,884	Prior	203,795		197,805	2,760	3,230
Revolving loans	Revolving loans	2,656		2,656	—	—	Revolving loans	2,286		2,286	0	0

Total	Total	$	903,198	898,518	231	4,449	Total	$	745,097	736,006	5,627	3,464
Home equity loans	Home equity loans						Home equity loans
Term loans by origination year	Term loans by origination year						Term loans by origination year
2020 (year-to-date)		$	—	—	—	—
2021 (year-to-date)							2021 (year-to-date)	$	18	18	0	0
2020							2020	71		71	0	0
2019	2019	2,039		2,001	—	38	2019	672		637	0	35
2018	2018	2,202		2,202	—	—	2018	1,162		1,162	0	0
2017	2017	2,015		2,015	—	—	2017	1,015		989	0	26
2016		1,571		1,571	—	—
Prior	Prior	18,947		17,864	381	702	Prior	12,868		11,890	520	458
Revolving loans	Revolving loans	627,618		621,926	3,248	2,444	Revolving loans	609,563		606,083	1,168	2,312

Total	Total	$	654,392	647,579	3,629	3,184	Total	$	625,369	620,850	1,688	2,831
Other consumer loans	Other consumer loans						Other consumer loans
Term loans by origination year	Term loans by origination year						Term loans by origination year
2020 (year-to-date)		$	62,392	62,371	21	—
2021 (year-to-date)							2021 (year-to-date)	$	48,670	48,652	0	18
2020							2020	114,926		114,701	173	52
2019	2019	89,495		89,300	154	41	2019	57,385		56,947	145	293
2018	2018	59,295		59,099	140	56	2018	36,830		36,469	168	193
2017	2017	26,418		25,848	511	59	2017	13,154		13,093	10	51
2016		14,793		14,713	3	77
Prior	Prior	26,035		24,864	839	332	Prior	25,409		24,347	784	278
Revolving loans	Revolving loans	22,419		22,379	34	6	Revolving loans	27,804		27,381	21	402

Total	Total	$	300,847	298,574	1,702	571	Total	$	324,178	321,590	1,301	1,287

~~Additional Disclosures~~

~~The implementation of FASB ASU 2016-13,~~ ~~Financial Instruments - Credit Losses~~ significantly changed disclosures related to loans and, as a result, certain disclosures are no longer required. The following tables represent disclosures for the prior period that are no longer required as of January 1, 2020, but are included in this Form 10-Q since the Company is required to disclose comparative information.


	December 31, 2020
(Dollars in thousands)	Total		Performing	30-89 Days Past Due	Non-Accrual and 90 Days or More Past Due
Residential real estate loans
Term loans by origination year
2020	$	208,679	207,432	1,247	0
2019	181,924		179,915	2,009	0
2018	100,273		99,135	556	582
2017	76,394		75,527	867	0
2016	53,819		52,905	87	827
Prior	179,085		174,281	1,876	2,928
Revolving loans	2,334		2,334	0	0

Total	$	802,508	791,529	6,642	4,337
Home equity loans
Term loans by origination year
2020	$	89	89	0	0
2019	807		771	0	36
2018	1,782		1,782	0	0
2017	1,452		1,426	26	0
2016	1,016		1,016	0	0
Prior	14,025		13,042	463	520
Revolving loans	617,234		612,545	2,397	2,292

Total	$	636,405	630,671	2,886	2,848
Other consumer loans
Term loans by origination year
2020	$	131,302	131,098	158	46
2019	66,327		65,921	170	236
2018	42,827		42,557	212	58
2017	16,287		16,202	38	47
2016	10,519		10,409	48	62
Prior	18,692		17,334	1,155	203
Revolving loans	27,117		26,704	411	2

Total	$	313,071	310,225	2,192	654

~~The following table disclosed the recorded investment in loans and the balance in the allowance separated by loans individually evaluated and collectively evaluated for impairment:~~

December 31, 2019
(Dollars in thousands) Total Residential
Real Estate Commercial
Real Estate Other
Commercial Home
Equity Other
Consumer
Loans receivable
Individually evaluated for impairment $ 94,504 7,804 58,609 21,475 3,745 2,871
Collectively evaluated for impairment 9,418,306 918,584 5,520,698 2,072,779 613,456 292,789
Total loans receivable $ 9,512,810 926,388 5,579,307 2,094,254 617,201 295,660
Allowance for loan and lease losses
Individually evaluated for impairment $ 95 — 73 10 — 12
Collectively evaluated for impairment 124,395 10,111 69,423 36,119 4,937 3,805
Total allowance for loan and lease losses $ 124,490 10,111 69,496 36,129 4,937 3,817

~~The following table disclosed information related to impaired loans:~~

At or for the Year ended December 31, 2019
(Dollars in thousands) Total Residential
Real Estate Commercial
Real Estate Other
Commercial Home
Equity Other
Consumer
Loans with a specific valuation allowance
Recorded balance $ 5,388 — 5,343 10 — 35
Unpaid principal balance 5,388 — 5,343 10 — 35
Specific valuation allowance 95 — 73 10 — 12
Average balance 10,378 409 6,341 3,490 24 114
Loans without a specific valuation allowance
Recorded balance 89,116 7,804 53,266 21,465 3,745 2,836
Unpaid principal balance 99,355 9,220 57,735 24,758 4,494 3,148
Average balance 93,338 9,879 59,107 18,079 3,486 2,787
Total
Recorded balance $ 94,504 7,804 58,609 21,475 3,745 2,871
Unpaid principal balance 104,743 9,220 63,078 24,768 4,494 3,183
Specific valuation allowance 95 — 73 10 — 12
Average balance 103,716 10,288 65,448 21,569 3,510 2,901

~~Interest income recognized on impaired loans for the year ended December 31, 2019 was not significant.~~

Note 4. Leases

The Company leases certain land, premises and equipment from third parties. ~~Effective January 1, 2019,~~ ROU assets for operating and finance leases are included in net premises and equipment and lease liabilities are included in other liabilities and other borrowed funds, respectively, on the Company’s statements of financial condition. The following table summarizes the Company’s leases:


		June 30, 2020							December 31, 2019								March 31, 2021				December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Finance Leases			Operating Leases		Finance Leases		Operating Leases		(Dollars in thousands)	Finance Leases			Operating Leases		Finance Leases		Operating Leases
ROU assets	ROU assets	$	5,618				6,537				ROU assets	$	5,999				5,999
Accumulated depreciation	Accumulated depreciation	(153)					(917)				Accumulated depreciation	(334)					(273)
Net ROU assets	Net ROU assets	$	5,465		45,131		5,620		41,453		Net ROU assets	$	5,665		46,298		5,726		46,820
Lease liabilities	Lease liabilities	$	5,559		47,807		5,671		43,904		Lease liabilities	$	5,864		49,250		5,891		49,675
Weighted-average remaining lease term	Weighted-average remaining lease term	24 years			18 years		24 years		19 years		Weighted-average remaining lease term	24 years			17 years		24 years		17 years
Weighted-average discount rate	Weighted-average discount rate	2.9		%	3.6	%	3.0	%	3.7	%	Weighted-average discount rate	2.6		%	3.4	%	2.6	%	3.4	%

Maturities of lease liabilities consist of the following:


		June 30, 2020						March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Finance Leases		Operating Leases	(Dollars in thousands)	Finance Leases		Operating Leases
Maturing within one year	Maturing within one year	$	251	4,388	Maturing within one year	$	261	4,808
Maturing one year through two years	Maturing one year through two years	258		4,272	Maturing one year through two years	268		4,424
Maturing two years through three years	Maturing two years through three years	264		3,808	Maturing two years through three years	274		3,955
Maturing three years through four years	Maturing three years through four years	270		3,507	Maturing three years through four years	281		3,978
Maturing four years through five years	Maturing four years through five years	277		3,453	Maturing four years through five years	287		3,898
Thereafter	Thereafter	6,658		47,744	Thereafter	6,663		46,484
Total lease payments	Total lease payments	7,978		67,172	Total lease payments	8,034		67,547
Present value of lease payments	Present value of lease payments				Present value of lease payments
Short-term	Short-term	92		2,755	Short-term	112		3,211
Long-term	Long-term	5,467		45,052	Long-term	5,752		46,039
Total present value of lease payments	Total present value of lease payments	5,559		47,807	Total present value of lease payments	5,864		49,250
Difference between lease payments and present value of lease payments	Difference between lease payments and present value of lease payments	$	2,419	19,365	Difference between lease payments and present value of lease payments	$	2,170	18,297

The components of lease expense consist of the following:


		Three Months ended				Six Months ended					Three Months ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019	June 30, 2020	June 30, 2019	(Dollars in thousands)	March 31, 2021		March 31, 2020
Finance lease cost	Finance lease cost						Finance lease cost
Amortization of ROU assets	Amortization of ROU assets	$	58	16	115	32	Amortization of ROU assets	$	61	57
Interest on lease liabilities	Interest on lease liabilities	40		2	81	4	Interest on lease liabilities	37		41
Operating lease cost	Operating lease cost	1,191		997	2,299	1,910	Operating lease cost	1,279		1,108
Short-term lease cost	Short-term lease cost	88		119	178	228	Short-term lease cost	86		90
Variable lease cost	Variable lease cost	328		222	713	421	Variable lease cost	261		385
Sublease income	Sublease income	(1)		(1)	(3)	(3)	Sublease income	(11)		(2)
Total lease expense	Total lease expense	$	1,704	1,355	3,383	2,592	Total lease expense	$	1,713	1,679

Supplemental cash flow information related to leases is as follows:

Three Months ended
June 30, 2020 June 30, 2019
(Dollars in thousands) Finance
Leases Operating
Leases Finance
Leases Operating
Leases
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows $ 40 673 2 497
Financing cash flows 21 N/A 21 N/A

Six Months ended

Three Months ended

June 30, 2020

June 30, 2019

March 31, 2021

March 31, 2020

(Dollars in thousands)

Finance
Leases

Operating
Leases

Finance
Leases

Operating
Leases

(Dollars in thousands)

Finance
Leases

Operating
Leases

Finance
Leases

Operating
Leases

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows

1,288

976

Operating cash flows

780

615

Financing cash flows

N/A

Financing cash flows

N/A

The Company also leases office space to third parties through operating leases. Rent income from these leases for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ was not significant.

Note 5. Goodwill

The following schedule discloses the changes in the carrying value of goodwill:


		Three Months ended				Six Months ended					Three Months ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019	June 30, 2020	June 30, 2019	(Dollars in thousands)	March 31, 2021		March 31, 2020
Net carrying value at beginning of period	Net carrying value at beginning of period	$	513,355	289,586	456,418	289,586	Net carrying value at beginning of period	$	514,013	456,418
Acquisitions and adjustments	Acquisitions and adjustments	—		41,301	56,937	41,301	Acquisitions and adjustments	0		56,937

Net carrying value at end of period	Net carrying value at end of period	$	513,355	330,887	513,355	330,887	Net carrying value at end of period	$	514,013	513,355

The Company performed its annual goodwill impairment test during the third quarter of ~~2019~~2020 and determined the fair value of the aggregated reporting units exceeded the carrying value, such that the Company’s goodwill was not considered impaired. During the current quarter, the Company considered the impact of the COVID-19 pandemic and the economic conditions and the Company’s stock price remained significantly above tangible book value, so it was determined that such conditions would not likely reduce the fair value of a reporting unit below its carrying value. As a result, the Company did not perform interim testing at June 30, 2020. 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 ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

~~For additional information on goodwill related to acquisitions, see Note 13.~~

Note 6. Loan Servicing

Mortgage loans that are serviced for others are not reported as assets. The following schedules disclose the change in the carrying value of mortgage servicing rights, principal balances of loans serviced and the fair value of mortgage servicing rights:


(Dollars in thousands)	March 31, 2021		December 31, 2020
Carrying value at beginning of period	$	8,976	1,618

Additions	1,357		8,298
Amortization	(397)		(940)
Carrying value at end of period	$	9,936	8,976
Principal balances of loans serviced for others	$	1,377,187	1,269,080
Fair value of servicing rights	$	14,263	12,087

Note 7. 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 seven years 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 Bank is also the sole member of certain tax credit funds that make direct investments in qualified affordable housing projects (e.g., Low-Income Housing Tax Credit [“LIHTC”] partnerships). As such, the Company is the primary beneficiary of these tax credit funds and their assets, liabilities, and results of operations are included in the Company’s consolidated financial statements.

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)	(Dollars in thousands)	June 30, 2020		December 31, 2019	(Dollars in thousands)	March 31, 2021		December 31, 2020
Assets	Assets				Assets
Loans receivable	Loans receivable	$	90,183	84,390	Loans receivable	$	108,717	90,183
Accrued interest receivable	Accrued interest receivable	254		63	Accrued interest receivable	546		410
Other assets	Other assets	55,537		54,692	Other assets	40,262		40,282
Total assets	Total assets	$	145,974	139,145	Total assets	$	149,525	130,875
Liabilities	Liabilities				Liabilities
Other borrowed funds	Other borrowed funds	$	26,988	23,149	Other borrowed funds	$	27,588	27,176
Accrued interest payable	Accrued interest payable	98		36	Accrued interest payable	131		53
Other liabilities	Other liabilities	42		123	Other liabilities	51		171
Total liabilities	Total liabilities	$	27,128	23,308	Total liabilities	$	27,770	27,400

Unconsolidated Variable Interest Entities

The Company has equity investments in LIHTC partnerships, both directly and through tax credit funds, with carrying values of ~~$45,012,000~~$45,299,000 and ~~$41,521,000~~$45,953,000 as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 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 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 years. 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. There were no0 impairment losses on the Company’s LIHTC investments during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020. Future unfunded contingent equity commitments related to the Company’s LIHTC investments at ~~June 30, 2020~~March 31, 2021 are as follows:


(Dollars in thousands)	(Dollars in thousands)	Amount		(Dollars in thousands)	Amount
Years ending December 31,	Years ending December 31,			Years ending December 31,
2020		$	7,767
2021	2021	13,154		2021	$	16,846
2022	2022	8,930		2022	21,428
2023	2023	1,777		2023	5,884
2024	2024	398		2024	450
2025				2025	199
Thereafter	Thereafter	687		Thereafter	683
Total	Total	$	32,713	Total	$	45,490

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.


		Three Months ended				Six Months ended					Three Months ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019	June 30, 2020	June 30, 2019	(Dollars in thousands)	March 31, 2021		March 31, 2020
Amortization expense	Amortization expense	$	1,988	1,478	3,830	2,895	Amortization expense	$	2,326	1,842
Tax credits and other tax benefits recognized	Tax credits and other tax benefits recognized	2,678		2,009	5,163	3,967	Tax credits and other tax benefits recognized	3,095		2,485

The Company also owns the following trust subsidiaries, each of which issued trust preferred ~~securities:~~securities as 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, First Company Statutory Trust 2003, FNB (UT) Statutory Trust I and FNB (UT) Statutory Trust II. 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.

Note 7.8. Securities Sold Under Agreements to Repurchase

The following table summarizes the carrying value of the Company’s securities sold under agreements to repurchase (“repurchase agreements”) by remaining contractual maturity of the agreements and category of collateral:


		Overnight and Continuous						Overnight and Continuous
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		December 31, 2019	(Dollars in thousands)	March 31, 2021		December 31, 2020

State and local governments	State and local governments	$	670,210	—	State and local governments	$	418,077		787,016
Corporate bonds	Corporate bonds	211,017		—	Corporate bonds	175,522			217,567
Residential mortgage-backed securities	Residential mortgage-backed securities	—		312,015	Residential mortgage-backed securities	391,505			0
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—		257,809	Commercial mortgage-backed securities	11,774			0
Total	Total	$	881,227	569,824	Total	$	996,878		1,004,583

The repurchase agreements are secured by debt securities with carrying values of ~~$976,567,000~~$1,154,580,000 and ~~$711,210,000~~$1,151,264,000 at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 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.

Note 8.9. Derivatives and Hedging Activities

Cash Flow Hedges

The Company is exposed to certain ~~risks~~risk relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. Interest rate caps ~~and interest rate swaps~~ have been entered into to manage interest rate risk associated with forecasted variable rate borrowings.

Interest Rate Cap ~~Derivatives.~~Derivatives. In March 2020, the Company purchased interest rate caps designated as cash flow hedges with notional amounts totaling $130,500,000 on its variable rate subordinated ~~debentur~~esdebentures and were determined to be fully effective during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The interest rate caps require receipt of variable amounts from the counterparty when interest rates rise above the strike price in the contracts. The strike prices in the five year term contracts range from 1.5 percent to 2 percent 3 month LIBOR. At ~~June 30,~~March 31, 2021 and December 31, 2020, the interest rate caps had a fair value of ~~$300,000~~$752,000 and $201,000, respectively, and were reported as other assets on the Company’s statements of financial condition. Changes in fair value were recorded in OCI. ~~Interest expense~~Amortization recorded on the interest rate caps totaled ~~$123,000~~$42,000 and $0 for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, respectively, and was reported as a component of interest expense on subordinated debentures.

~~Interest Rate Swap Derivatives.~~ In September 2019, the Company implemented a balance sheet strategy to increase its net interest income and net interest margin. The strategy included early termination of the Company’s pay-fixed interest rate swaps with notional amounts totaling $260,000,000. A $9,997,000 loss was recognized on the early termination of the pay-fixed interest rate swaps and was reported in loss on termination of hedging activities on the Company’s statements of operations. The Company recognized interest rate swaps as other 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 allowed 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. Changes in fair value were recorded in OCI. The Company designated wholesale deposits and Federal Home Loan Bank (“FHLB”) advances for the cash flow hedge and these hedged items were determined to be fully effective during all periods. Interest expense recorded on the interest rate swaps totaled $0 and $3,973,000 for the six months ended June 30, 2020 and 2019, respectively, and was reported as a component of interest expense on deposits and FHLB advances.

The effect of cash flow hedge accounting on OCI for the periods ending ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ was as follows:


		Three Months ended				Six Months ended			Three Months ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019	June 30, 2020	June 30, 2019	(Dollars in thousands)	March 31, 2021	March 31, 2020
Amount of loss recognized in OCI	Amount of loss recognized in OCI	$	(456)	(3,820)	(456)	(5,654)	Amount of loss recognized in OCI	593	0
Amount of loss reclassified from OCI to net income	Amount of loss reclassified from OCI to net income	—		(278)	—	(501)	Amount of loss reclassified from OCI to net income	0	0

Residential Real Estate Derivatives

~~At June 30, 2020, the~~The Company ~~had~~enters into residential real estate derivatives for commitments (“interest rate locks”) to fund certain residential real estate loans to be sold into the secondary market. At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, loan commitments with interest rate lock commitments totaled ~~$261,403,000~~$242,409,000 and ~~$84,803,000, respectively,~~$229,862,000, respectively. At March 31, 2021 and December 31, 2020, the fair value of the related derivatives on the interest rate lock commitments was $6,097,000 and $8,605,000, respectively, and was included in other assets with corresponding changes recorded in gain on sale of loans. The Company enters into free-standing derivatives to mitigate interest rate risk for most residential real estate loans to be sold. These derivatives include forward commitments to sell to-be-announced (“TBA”) securities which are used to economically hedge the interest rate risk associated with such loans and unfunded commitments. At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, TBA commitments were ~~$207,500,000 and $82,000,000, respectively, and~~$206,000,000. At March 31, 2021 the fair value of the related derivatives on the TBA securities was $4,212,000 and was included in other assets with corresponding changes recorded in gain on sale of loans.. At December 31, 2020, the fair value of the related derivatives on the TBA securities was $2,056,000, and was included in other liabilities with corresponding changes recorded in gain on sale of loans. The Company ~~doesn’t~~does not enter into a commitment to sell these loans to an investor until the loan is funded and is ready to be delivered to the investor. Due to the forward sales commitments being short-term in nature, the corresponding derivatives are not significant. For all other residential real estate loans to be sold, the Company enters into “best efforts” forward sales commitments for the future delivery of loans to third party investors 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. Forward sales commitments on a “best efforts” basis are not designated in hedge relationships until the loan is funded.

Note 9.10. Other Expenses

Other expenses consists of the following:


		Three Months ended				Six Months ended					Three Months ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019	June 30, 2020	June 30, 2019	(Dollars in thousands)	March 31, 2021		March 31, 2020
Mergers and acquisition expenses		$	3,728	1,831	6,519	2,045
Consulting and outside services	Consulting and outside services	2,319		2,010	4,554	3,777	Consulting and outside services	$	2,171	2,235
Loan expenses							Loan expenses	1,624		864
VIE amortization and other expenses							VIE amortization and other expenses	1,531		841
Telephone	Telephone	1,313		1,210	2,551	2,385	Telephone	1,375		1,238
Debit card expenses	Debit card expenses	1,197		1,435	2,290	3,304	Debit card expenses	1,322		1,093
Postage							Postage	961		795
Business development	Business development	923		1,123	1,971	2,013	Business development	822		1,048
VIE amortization and other expenses		1,045		906	1,886	1,451
Printing and supplies	Printing and supplies	924		786	1,827	1,511	Printing and supplies	790		903
Loan expenses ¹		4,502		943	1,807	1,802
Accounting and audit fees							Accounting and audit fees	455		448
Employee expenses	Employee expenses	644		1,405	1,687	2,401	Employee expenses	431		1,043
Postage		833		823	1,628	1,656
Accounting and audit fees		550		472	998	925
Checking and operating expenses	Checking and operating expenses	551		630	908	992	Checking and operating expenses	156		357
Legal fees	Legal fees	386		281	819	588	Legal fees	156		433
ATM expenses		28		519	128	1,013
Mergers and acquisition expenses							Mergers and acquisition expenses	104		2,791
Other	Other	955		910	1,870	1,688	Other	748		1,015
Total other expenses	Total other expenses	$	19,898	15,284	31,443	27,551	Total other expenses	$	12,646	15,104

¹ ~~Loan expenses include credit loss expense for off-balance sheet credit exposures.~~.

Note ~~10.~~11. 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)	(Dollars in thousands)	(Losses) Gains on Available-For-Sale Debt Securities		Losses on Derivatives Used for Cash Flow Hedges	Total	(Dollars in thousands)	Gains (Losses) on Available-For-Sale Debt Securities		(Losses) Gains on Derivatives Used for Cash Flow Hedges	Total
Balance at January 1, 2019		$	(6,613)	(2,814)	(9,427)
Balance at January 1, 2020						Balance at January 1, 2020	$	40,226	0	40,226
Other comprehensive income before reclassifications						Other comprehensive income before reclassifications	60,142		0	60,142
Reclassification adjustments for gains included in net income						Reclassification adjustments for gains included in net income	(644)		0	(644)
Net current period other comprehensive income						Net current period other comprehensive income	59,498		0	59,498
Balance at March 31, 2020						Balance at March 31, 2020	$	99,724	0	99,724
Balance at January 1, 2021						Balance at January 1, 2021	$	143,443	(353)	143,090
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	56,988		(4,222)	52,766	Other comprehensive income (loss) before reclassifications	(63,370)		443	(62,927)
Reclassification adjustments for (gains) losses included in net income		(266)		375	109
Reclassification adjustments for gains included in net income						Reclassification adjustments for gains included in net income	(243)		0	(243)
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	56,722		(3,847)	52,875	Net current period other comprehensive income (loss)	(63,613)		443	(63,170)
Balance at June 30, 2019		$	50,109	(6,661)	43,448
Balance at January 1, 2020		$	40,226	—	40,226
Other comprehensive income (loss) before reclassifications		90,763		(341)	90,422
Reclassification adjustments for gains included in net income (loss)		(739)		—	(739)
Net current period other comprehensive income (loss)		90,024		(341)	89,683
Balance at June 30, 2020		$	130,250	(341)	129,909
Balance at March 31, 2021						Balance at March 31, 2021	$	79,830	90	79,920

Note ~~11.~~12. 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 units were vested and stock options were exercised, using the treasury stock method.

Basic and diluted earnings per share has been computed based on the following:


		Three Months ended				Six Months ended					Three Months ended
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	June 30, 2020		June 30, 2019	June 30, 2020	June 30, 2019	(Dollars in thousands, except per share data)	March 31, 2021		March 31, 2020
Net income available to common stockholders, basic and diluted	Net income available to common stockholders, basic and diluted	$	63,444	52,392	106,783	101,524	Net income available to common stockholders, basic and diluted	$	80,802	43,339
Average outstanding shares - basic	Average outstanding shares - basic	95,405,493		85,826,290	94,346,582	85,191,658	Average outstanding shares - basic	95,465,801		93,287,670
Add: dilutive restricted stock units and stock options	Add: dilutive restricted stock units and stock options	24,910		31,996	49,348	49,580	Add: dilutive restricted stock units and stock options	81,121		72,122
Average outstanding shares - diluted	Average outstanding shares - diluted	95,430,403		85,858,286	94,395,930	85,241,238	Average outstanding shares - diluted	95,546,922		93,359,792
Basic earnings per share	Basic earnings per share	$	0.67	0.61	1.13	1.19	Basic earnings per share	$	0.85	0.46
Diluted earnings per share	Diluted earnings per share	$	0.66	0.61	1.13	1.19	Diluted earnings per share	$	0.85	0.46
Restricted stock units and stock options excluded from the diluted average outstanding share calculation ¹	Restricted stock units and stock options excluded from the diluted average outstanding share calculation ¹	143,938		—	121,533	—	Restricted stock units and stock options excluded from the diluted average outstanding share calculation 1	0		102,094

¹ Anti-dilution occurs when the unrecognized compensation cost per share of a restricted stock ~~unit~~units or the exercise price of a stock option exceeds the market price of the Company’s stock.

Note ~~12.~~13. 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 no0 transfers between fair value hierarchy levels during the ~~six~~three month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020.

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 ~~June 30, 2020.~~March 31, 2021.

Debt securities, available-for-sale. The fair value for available-for-sale debt 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 debt 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 debt 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, at fair value. 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~~losses of ~~$3,236,000~~$4,729,000 and net gains of ~~$593,000~~$1,432,000 for the ~~six~~three month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, from the changes in fair value of 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.

Loan interest rate lock commitments. Fair value estimates for loan interest rate lock commitments were based upon the estimated sales price, origination fees, direct costs, interest rate changes, etc. and were obtained from an independent third party. The components of the valuation were observable or could be corroborated by observable market data and, therefore, were classified within Level 2 of the valuation hierarchy.

Forward commitments to sell TBA securities. Forward commitments to sell TBA securities are used to economically hedge the interest rate risk associated with certain loan commitments. The fair value estimates for the TBA commitments were based upon the estimated sale of the TBA hedge obtained from an independent third party. The components of the valuation were observable or could be corroborated by observable market data and, therefore, were classified within Level 2 of the valuation hierarchy.

Interest rate cap derivative financial instruments. Fair value estimates for interest rate cap derivative financial instruments were based upon the discounted cash flows of known payments plus the option value of each caplet which incorporates market rate forecasts and implied market volatilities. The components of the valuation were observable or could be corroborated by observable market data and, therefore, were classified within Level 2 of the valuation hierarchy. The Company also obtained and compared the reasonableness of the pricing from independent third party valuations.

The following tables disclose the fair value measurement of assets and liabilities measured at fair value on a recurring basis:


				Fair Value Measurements At the End of the Reporting Period Using								Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	(Dollars in thousands)	Fair Value June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	(Dollars in thousands)	Fair Value March 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Debt securities, available-for-sale	Debt securities, available-for-sale						Debt securities, available-for-sale
U.S. government and federal agency	U.S. government and federal agency	$	42,235	—	42,235	—	U.S. government and federal agency	$	35,863	0	35,863	0
U.S. government sponsored enterprises	U.S. government sponsored enterprises	10,863		—	10,863	—	U.S. government sponsored enterprises	5,253		0	5,253	0
State and local governments	State and local governments	1,277,552		—	1,277,552	—	State and local governments	978,652		0	978,652	0
Corporate bonds	Corporate bonds	388,375		—	388,375	—	Corporate bonds	288,781		0	288,781	0
Residential mortgage-backed securities	Residential mortgage-backed securities	857,641		—	857,641	—	Residential mortgage-backed securities	3,363,627		0	3,363,627	0
Commercial mortgage-backed securities	Commercial mortgage-backed securities	957,284		—	957,284	—	Commercial mortgage-backed securities	1,181,139		0	1,181,139	0
Loans held for sale, at fair value	Loans held for sale, at fair value	115,345		—	115,345	—	Loans held for sale, at fair value	118,731		0	118,731	0
Interest rate caps	Interest rate caps	300		—	300	—	Interest rate caps	752		0	752	0
Interest rate locks							Interest rate locks	6,097		0	6,097	0
TBA hedge							TBA hedge	4,212		0	4,212	0
Total assets measured at fair value on a recurring basis	Total assets measured at fair value on a recurring basis	$	3,649,595	—	3,649,595	—	Total assets measured at fair value on a recurring basis	$	5,983,107	0	5,983,107	0


				Fair Value Measurements At the End of the Reporting Period Using								Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	(Dollars in thousands)	Fair Value December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	(Dollars in thousands)	Fair Value December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Debt securities, available-for-sale	Debt securities, available-for-sale						Debt securities, available-for-sale
U.S. government and federal agency	U.S. government and federal agency	$	20,044	—	20,044	—	U.S. government and federal agency	$	38,588	0	38,588	0
U.S. government sponsored enterprises	U.S. government sponsored enterprises	43,677		—	43,677	—	U.S. government sponsored enterprises	9,781		0	9,781	0
State and local governments	State and local governments	702,398		—	702,398	—	State and local governments	1,416,683		0	1,416,683	0
Corporate bonds	Corporate bonds	157,602		—	157,602	—	Corporate bonds	349,098		0	349,098	0
Residential mortgage-backed securities	Residential mortgage-backed securities	738,724		—	738,724	—	Residential mortgage-backed securities	2,289,090		0	2,289,090	0
Commercial mortgage-backed securities	Commercial mortgage-backed securities	912,807		—	912,807	—	Commercial mortgage-backed securities	1,234,574		0	1,234,574	0
Loans held for sale, at fair value	Loans held for sale, at fair value	69,194		—	69,194	—	Loans held for sale, at fair value	166,572		0	166,572	0

Interest rate caps							Interest rate caps	201		0	201	0
Interest rate locks							Interest rate locks	8,605		0	8,605	0
Total assets measured at fair value on a recurring basis	Total assets measured at fair value on a recurring basis	$	2,644,446	—	2,644,446	—	Total assets measured at fair value on a recurring basis	$	5,513,192	0	5,513,192	0

TBA hedge							TBA hedge	$	2,056	0	2,056	0
Total liabilities measured at fair value on a recurring basis							Total liabilities measured at fair value on a recurring basis	$	2,056	0	2,056	0

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 ~~June 30, 2020.~~March 31, 2021.

Other real estate owned. OREO is initially recorded at fair value less estimated cost to sell, establishing a new cost basis. OREO is subsequently accounted for at lower of cost or 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 loans, net of ACL. Fair value estimates of collateral-dependent loans that are individually reviewed are based on the fair value of the collateral, less estimated cost to sell. Collateral-dependent individually reviewed 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.

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 Measurements At the End of the Reporting Period Using								Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	(Dollars in thousands)	Fair Value June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	(Dollars in thousands)	Fair Value March 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Other real estate owned		$	150	—	—	150
Collateral-dependent loans, net of ACL		2,272		—	—	2,272

Collateral-dependent impaired loans, net of ACL							Collateral-dependent impaired loans, net of ACL	19,732		0	0	19,732

Total assets measured at fair value on a non-recurring basis	Total assets measured at fair value on a non-recurring basis	$	2,422	—	—	2,422	Total assets measured at fair value on a non-recurring basis	$	19,732	0	0	19,732


			Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Fair Value December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Other real estate owned	$	564	0	0	564
Collateral-dependent impaired loans, net of ACL	26,749		0	0	26,749
Total assets measured at fair value on a non-recurring basis	$	27,313	0	0	27,313

Non-recurring Measurements Using Significant Unobservable Inputs (Level 3)

Fair Value Measurements
At the End of the Reporting Period Using
(Dollars in thousands) Fair Value December 31, 2019 Quoted Prices
in Active Markets
for Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Other real estate owned $ 1,983 — — 1,983
Collateral-dependent loans, net of ACL 23 — — 23
Total assets measured at fair value
on a non-recurring basis
$ 2,006 — — 2,006

~~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
June 30,
2020

March 31, 2021

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in thousands)

Valuation Technique

Unobservable Input

Range

(Weighted-Average) ¹

~~Other real estate owned~~

Collateral-dependent

impaired loans, net of ACL

~~150~~1,725

Cost approach

Selling costs

10.0% - 10.0% (10.0%)

18,007

Sales comparison approach

Selling costs

10.0% - 5.0% (5.1%)

Adjustment to comparables

10.0% ~~(10.0%~~- 5.0% (6.3%)

19,732

Fair Value December 31, 2020

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in thousands)

Valuation Technique

Unobservable Input

Range

(Weighted-Average) 1

Other real estate owned

564

Sales comparison approach

Selling costs

8.0% - 10.0% (9.0%)

Collateral-dependent

loans, net of ACL

~~976~~144

Cost approach

Selling costs

10.0% - 10.0% (10.0%)

~~1,296~~

25,309

~~Combined~~Sales comparison approach

Selling ~~costs~~Costs

10.0% - 10.0% ~~(10.0%~~(0.1%)

Adjustment to comparables

0.0% - 100.0% (11.1%)

~~2,272~~

~~Fair Value December 31, 2019~~

~~Quantitative Information about Level 3 Fair Value Measurements~~

~~(Dollars in thousands)~~1,296

~~Valuation Technique~~

~~Unobservable Input~~

~~Range~~

~~(Weighted-Average)~~ ¹

~~Other real estate owned~~

~~1,983~~

~~Sales comparison~~Combined approach

Selling costs

~~6.0%~~10.0% - 10.0% ~~(7.3%~~(10.0%)

~~Adjustment to comparables~~Discount rate

~~0.0%~~8.0% - ~~11.1% (4.5%~~8.0% (8.0%)

~~Collateral-dependent~~

~~loans, net of ACL~~

~~Cost approach~~

~~Selling costs~~

~~10.0% - 10.0% (10.0%)~~

~~Sales comparison approach~~

~~Adjustment to comparables~~

~~0.0% - 0.0% (0.0%)~~

2326,749

¹The range for selling cost inputs represents reductions to the fair value of the assets.

Fair Value of Financial Instruments

The following tables present the carrying amounts, estimated fair values and the level within the fair value hierarchy of the Company’s financial instruments not carried at fair value. Receivables and payables due in one year or less, equity securities without readily determinable fair values and deposits with no defined or contractual maturities are excluded. There have been no significant changes in the valuation techniques during the period ended March 31, 2021.

Fair Value Measurements
At the End of the Reporting Period Using
(Dollars in thousands) Carrying Amount
June 30,
2020 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Financial assets
Cash and cash equivalents $ 547,610 547,610 — —
Debt securities, held-to-maturity 203,275 — 215,883 —
Loans receivable, net of ACL 11,290,869 — — 11,444,388
Total financial assets $ 12,041,754 547,610 215,883 11,444,388
Financial liabilities
Term deposits $ 1,063,821 — 1,069,748 —
FHLB advances 37,963 — 38,219 —
Repurchase agreements and
other borrowed funds
913,773 — 913,773 —
Subordinated debentures 139,917 — 100,750 —
Total financial liabilities $ 2,155,474 — 2,122,490 —

Cash and cash equivalents

Fair Value Measurements
At the End of the Reporting Period Using
(Dollars in thousands) Carrying Amount December 31, 2019 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Financial assets
Cash and cash equivalents $ 330,961 330,961 — —
Debt securities, held-to-maturity 224,611 — 234,396 —
Loans receivable, net of ACL 9,388,320 — — 9,438,121
Total financial assets $ 9,943,892 330,961 234,396 9,438,121
Financial liabilities
Term deposits $ 1,011,798 — 1,017,505 —
FHLB advances 38,611 — 38,787 —
Repurchase agreements and
other borrowed funds
598,644 — 598,644 —
Subordinated debentures 139,914 — 124,094 —
Total financial liabilities $ 1,788,967 — 1,779,030 —

: fair value is estimated at book value.

Debt securities, held-to-maturity: fair value for held-to-maturity debt securities is estimated in the same manner as available-for sale debt securities, which is described above.

Loans receivable, net of ACL: The loans were fair valued on an individual basis, with consideration given to the loans' underlying characteristics, including account types, remaining terms and balance, interest rates, past delinquencies, current market rates, etc. The model utilizes a discounted cash flow approach to estimate the fair value of the loans using various assumptions such as prepayment speeds, projected default probabilities, losses given defaults, etc. The discounted cash flow approach models the credit losses directly in the projected cash flows. The model applies various assumptions regarding credit, interest, and prepayment risks for the loans based on loan types, payment types and fixed or variable classifications.

Term 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 based on current rates offered by the Company’s regional competitors.

~~Note 13. Mergers and Acquisitions~~

On February 29, 2020, the Company acquired 100 percent of the outstanding common stock of State Bank Corp. and its wholly-owned subsidiary, State Bank of Arizona, a community bank based in Lake Havasu City, Arizona. SBAZ has been merged into The Foothills Bank division of Glacier Bank. SBAZ provides banking services to individuals and businesses in Arizona with locations in Bullhead City, Cottonwood, Kingman, Lake Havasu City, Phoenix, Prescott Valley and Prescott. The preliminary value of the SBAZ acquisition was $125,854,000 and resulted in the Company issuing 3,007,044 shares of its common stock and paying $13,721,000 in cash in exchange for all of SBAZ’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 February 29, 2020 acquisition date. The excess of the preliminary 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 SBAZ. 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 SBAZ were recorded on the Company’s consolidated statements of financial condition at their preliminary estimated fair values as of the acquisition date and the results of operations have been included in the Company’s consolidated statements of operations since that date. The following table discloses the preliminary fair value estimates of the consideration transferred, the total identifiable net assets acquired and the resulting goodwill arising from the SBAZ acquisition. The Company is continuing to obtain information to determine the fair values of assets acquired and liabilities assumed.

~~(Dollars in thousands)~~

SBAZ
February 29,
2020

~~Fair value of consideration transferred~~

~~Fair value of Company shares issued~~

~~112,133~~

~~Cash consideration~~

~~13,721~~

~~Total fair value of consideration transferred~~

~~125,854~~

~~Recognized amounts of identifiable assets acquired and liabilities assumed~~

~~Identifiable assets acquired~~

~~Cash and cash equivalents~~

~~57,434~~

~~Debt securities~~

~~142,174~~

~~Loans receivable, net of ACL~~

~~451,653~~

~~Core deposit intangible~~ ¹

~~2,593~~

~~Accrued income and other assets~~

~~33,318~~

~~Total identifiable assets acquired~~

~~687,172~~

~~Liabilities assumed~~

~~Deposits~~

~~603,289~~

~~Borrowings~~

~~10,904~~

~~Accrued expenses and other liabilities~~

~~4,062~~

~~Total liabilities assumed~~

~~618,255~~

~~Total identifiable net assets~~

~~68,917~~

~~Goodwill recognized~~

~~56,937~~

¹ ~~The core deposit intangible for the acquisition was determined to have an estimated life of 10 years~~.

4543

Repurchase agreements and other borrowed funds: fair value of term repurchase agreements and other term borrowings is estimated based on current repurchase rates and borrowing rates currently available to the Company for repurchases and borrowings with similar terms and maturities. The ~~preliminary~~estimated fair ~~values of the SBAZ assets acquired include loans with preliminary fair values of $451,702,000. The gross principal~~value for overnight repurchase agreements and ~~contractual interest due under the SBAZ contracts was $452,510,000. The Company evaluated the loans at the acquisition date and determined there were PCD loans of $3,401,000 with an ACL of $49,000.~~other borrowings is book value.

~~The Company incurred $3,819,000~~Subordinated debentures: fair value of ~~expenses in connection with~~ the ~~SBAZ acquisition during~~subordinated debt is estimated by discounting the six months ended June 30, 2020. Mergers and acquisition expenses are included in other expense in the Company's consolidated statements of operations and consist of third-party costs and employee severance expenses.estimated future cash flows using current estimated market rates obtained from an independent third party.

~~Total income consisting~~Off-balance sheet financial instruments: unused lines of ~~net interest income~~credit and ~~non-interest income~~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 ~~acquired operations~~agreements and the counterparties’ credit standing. The fair value of ~~SBAZ was approximately $10,944,000~~unused lines of credit and ~~net loss was approximately $47,000 from February 29, 2020 to June 30, 2020. The~~letters of credit is not material; therefore, such commitments are not included in the following ~~unaudited pro forma summary presents consolidated information of the Company as if the SBAZ acquisition had occurred on January 1, 2019:~~tables.

Three Months ended Six Months ended
(Dollars in thousands) June 30,
2020 June 30,
2019 June 30,
2020 June 30,
2019
Net interest income and non-interest income $ 189,443 158,580 362,336 309,645
Net income 63,444 54,645 105,672 105,601


			Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Carrying Amount March 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial assets
Cash and cash equivalents	$	878,450	878,450	0	0
Debt securities, held-to-maturity	588,751		0	598,960	0
Loans receivable, net of ACL	11,113,483		0	0	11,388,533
Total financial assets	$	12,580,684	878,450	598,960	11,388,533
Financial liabilities
Term deposits	$	965,986	0	970,127	0

Repurchase agreements and other borrowed funds	1,030,330		0	1,030,330	0
Subordinated debentures	132,499		0	126,452	0
Total financial liabilities	$	2,128,815	0	2,126,909	0


			Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Carrying Amount December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial assets
Cash and cash equivalents	$	633,142	633,142	0	0
Debt securities, held-to-maturity	189,836		0	203,216	0
Loans receivable, net of ACL	10,964,453		0	0	11,233,002
Total financial assets	$	11,787,431	633,142	203,216	11,233,002
Financial liabilities
Term deposits	$	978,779	0	983,491	0

Repurchase agreements and other borrowed funds	1,037,651		0	1,037,651	0
Subordinated debentures	139,959		0	123,944	0
Total financial liabilities	$	2,156,389	0	2,145,086	0

4644

Item 2. 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 Glacier Bancorp, Inc.’s (“Company”) 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 “Part I. Item 1. Financial Statements.”

FORWARD-LOOKING STATEMENTS

This Form 10-Q 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 management’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 words of similar meaning. 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. In addition to the factors set forth in the sections titled “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as applicable, in this report and the Company’s ~~2019~~2020 Annual Report on Form 10-K, the following factors, among others, could cause actual results to differ materially from the anticipated results:

•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 Federal Deposit Insurance Corporation (“FDIC”) and other third parties;

•legislative or regulatory changes, such as the ~~recently adopted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) addressing~~those signaled by the ~~economic effects of the coronavirus disease of 2019 (“COVID-19”),~~Biden Administration, as well as 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;

•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 Chief Executive Officer (“CEO”), the senior management team and the Presidents of Glacier Bank (“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.

Forward-looking statements speak only as of the date of this Form 10-Q. The Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

4745

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Highlights


		At or for the Three Months ended													At or for the Six Months ended						At or for the Three Months ended
(Dollars in thousands, except per share and market data)	(Dollars in thousands, except per share and market data)	Jun 30, 2020			Mar 31, 2020		Jun 30, 2019		Jun 30, 2020		Jun 30, 2019		(Dollars in thousands, except per share and market data)	Mar 31, 2021			Dec 31, 2020		Mar 31, 2020
Operating results	Operating results												Operating results
Net income	Net income	$	63,444		43,339		52,392		106,783		101,524		Net income	$	80,802		81,860		43,339
Basic earnings per share	Basic earnings per share	$	0.67		0.46		0.61		1.13		1.19		Basic earnings per share	$	0.85		0.86		0.46
Diluted earnings per share	Diluted earnings per share	$	0.66		0.46		0.61		1.13		1.19		Diluted earnings per share	$	0.85		0.86		0.46
Dividends declared per share		$	0.29		0.29		0.27		0.58		0.53
Dividends declared per share 1													Dividends declared per share 1	$	0.31		0.45		0.29
Market value per share	Market value per share												Market value per share
Closing	Closing	$	35.29		34.01		40.55		35.29		40.55		Closing	$	57.08		46.01		34.01
High	High	$	46.54		46.10		43.44		46.54		45.47		High	$	67.35		47.05		46.10
Low	Low	$	30.30		26.66		38.65		26.66		37.58		Low	$	44.55		31.29		26.66
Selected ratios and other data	Selected ratios and other data												Selected ratios and other data
Number of common stock shares outstanding	Number of common stock shares outstanding	95,409,061			95,408,274		86,637,394		95,409,061		86,637,394		Number of common stock shares outstanding	95,501,819			95,426,364		95,408,274
Average outstanding shares - basic	Average outstanding shares - basic	95,405,493			93,287,670		85,826,290		94,346,582		85,191,658		Average outstanding shares - basic	95,465,801			95,418,958		93,287,670
Average outstanding shares - diluted	Average outstanding shares - diluted	95,430,403			93,359,792		85,858,286		94,395,930		85,241,238		Average outstanding shares - diluted	95,546,922			95,492,258		93,359,792
Return on average assets (annualized)	Return on average assets (annualized)	1.57		%	1.25	%	1.69	%	1.42	%	1.68	%	Return on average assets (annualized)	1.73		%	1.78	%	1.25	%
Return on average equity (annualized)	Return on average equity (annualized)	11.68		%	8.52	%	12.82	%	10.15	%	12.91	%	Return on average equity (annualized)	14.12		%	14.27	%	8.52	%
Efficiency ratio	Efficiency ratio	49.29		%	52.55	%	54.50	%	50.81	%	54.93	%	Efficiency ratio	46.75		%	50.34	%	52.55	%
Dividend payout ratio	Dividend payout ratio	43.28		%	63.04	%	44.26	%	51.33	%	44.54	%	Dividend payout ratio	36.47		%	52.33	%	63.04	%
Loan to deposit ratio	Loan to deposit ratio	86.45		%	88.10	%	90.27	%	86.45	%	90.27	%	Loan to deposit ratio	70.72		%	76.29	%	88.10	%
Number of full time equivalent employees	Number of full time equivalent employees	2,954			2,955		2,703		2,954		2,703		Number of full time equivalent employees	2,994			2,970		2,955
Number of locations	Number of locations	192			192		175		192		175		Number of locations	193			193		192
Number of ATMs	Number of ATMs	251			247		228		251		228		Number of ATMs	250			250		247

1 Includes a special dividend declared of $0.15 per share for the three months ended December 31, 2020.

The Company reported net income of ~~$63.4~~$80.8 million for the current quarter, an increase of ~~$11.1~~$37.5 million, or 2186 percent, from the ~~$52.4~~$43.3 million of net income for the prior year ~~second~~first quarter. Diluted earnings per share for the current quarter was ~~$0.66~~$0.85 per share, an increase of 885 percent from the prior year ~~second~~first quarter diluted earnings per share of ~~$0.61. Included in the current quarter was $3.7 million of acquisition-related expenses.~~$0.46.

Net income for the six months ended June 30, 2020 was $106.8 million, an increase of $5.3 million, or 5 percent, from the $101.5 million net income from the first six months of the prior year. Diluted earnings per share for the first half of the current year was $1.13 per share, a decrease of 5 percent, from the diluted earnings per share of $1.19 for the same period last year.

The Company continues to navigate through the COVID-19 pandemic to ensure the safety of its employees and customers along with monitoring credit quality and protecting shareholder value. The Company’s pandemic team remains flexible in responding to the changing conditions in all the markets that it serves.

In order to meet the needs of customers impacted by the pandemic, the Company has contacted customers to assess their needs and provide funding, flexible repayment options or modifications as necessary. During the current quarter, the Company modified 3,054 loans in the amount of $1.515 billion primarily with short-term payment deferrals under six months.

In addition, the Company originated U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans for businesses in its communities. The Company funded 15,291 PPP loans in the amount of $1.427 billion during the current quarter. These loans provided an additional $7.3 million of interest income (including net deferred fees and costs) during the current quarter and $8.4 million of deferred compensation costs for a total increase in income of $15.7 million ($11.7 million net of tax).

The Company's net income results for the first six months were significantly impacted by the adoption of the current expected credit losses (“CECL”) accounting standard. The Company chose to adopt the standard on January 1, 2020, rather than delay the adoption as allowed by the CARES Act, since the Company was operationally prepared and already internally reporting under CECL. As a result, the following items impacted the first half of 2020:

•~~a $12.3 million reduction in retained earnings upon adoption of the standard;~~

•~~a $37.6 million credit loss expense related to the COVID-19 pandemic; and~~

•~~an additional $4.8 million credit loss expense due to the State Bank Corp. acquisition.~~

During the current quarter, S&P Dow Jones Indices selected the Company to transition from the S&P SmallCap 600® to the S&P MidCap 400® effective prior to the opening trading on Monday, June 22, 2020. The S&P MidCap 400® index consists of 400 companies that are chosen with regard to market capitalization, liquidity and industry representation.

~~Recent Acquisition~~

On February 29, 2020, the Company completed the acquisition of State Bank Corp., the parent company of State Bank of Arizona, a community bank based in Lake Havasu City, Arizona (collectively, “SBAZ”). SBAZ provides banking services to individuals and businesses in Arizona with ten banking offices located in Bullhead City, Cottonwood, Kingman, Lake Havasu City, Phoenix, Prescott Valley and Prescott. Upon closing of the transaction, SBAZ merged into the Company's Foothills Bank division, which expanded the Company's footprint in Arizona to cover all major markets in the state and be a leading community bank in Arizona. During the current quarter, the Company also completed the system core conversion for SBAZ. The business combinations were accounted for using the acquisition method, with the results of operations included in the Company’s consolidated financial statements as of the acquisition dates. For additional information relating to recent mergers and acquisitions, see Note 13 to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”

~~The following table discloses the preliminary fair value estimates of selected classifications of assets and liabilities acquired:~~

~~(Dollars in thousands)~~

SBAZ
February 29
2020

~~Total assets~~

~~744,109~~

~~Debt securities~~

~~142,174~~

~~Loans receivable~~

~~451,702~~

~~Non-interest bearing deposits~~

~~141,620~~

~~Interest bearing deposits~~

~~461,669~~

~~Borrowings~~

~~10,904~~

4946

Financial Condition Analysis

Assets

The following table summarizes the Company’s assets as of the dates indicated:


							$ Change from										$ Change from
(Dollars in thousands)	(Dollars in thousands)	Jun 30, 2020		Mar 31, 2020	Dec 31, 2019	Jun 30, 2019	Mar 31, 2020	Dec 31, 2019	Jun 30, 2019	(Dollars in thousands)	Mar 31, 2021		Dec 31, 2020	Mar 31, 2020	Dec 31, 2020	Mar 31, 2020
Cash and cash equivalents	Cash and cash equivalents	$	547,610	273,441	330,961	231,209	274,169	216,649	316,401	Cash and cash equivalents	$	878,450	633,142	273,441	245,308	605,009
Debt securities, available-for-sale	Debt securities, available-for-sale	3,533,950		3,429,890	2,575,252	2,470,634	104,060	958,698	1,063,316	Debt securities, available-for-sale	5,853,315		5,337,814	3,429,890	515,501	2,423,425
Debt securities, held-to-maturity	Debt securities, held-to-maturity	203,275		203,814	224,611	252,097	(539)	(21,336)	(48,822)	Debt securities, held-to-maturity	588,751		189,836	203,814	398,915	384,937
Total debt securities	Total debt securities	3,737,225		3,633,704	2,799,863	2,722,731	103,521	937,362	1,014,494	Total debt securities	6,442,066		5,527,650	3,633,704	914,416	2,808,362
Loans receivable	Loans receivable									Loans receivable
Residential real estate	Residential real estate	903,198		957,830	926,388	920,715	(54,632)	(23,190)	(17,517)	Residential real estate	745,097		802,508	957,830	(57,411)	(212,733)
Commercial real estate	Commercial real estate	6,047,692		5,928,303	5,579,307	4,959,863	119,389	468,385	1,087,829	Commercial real estate	6,474,701		6,315,895	5,928,303	158,806	546,398
Other commercial	Other commercial	3,547,249		2,239,878	2,094,254	2,076,605	1,307,371	1,452,995	1,470,644	Other commercial	3,100,584		3,054,817	2,239,878	45,767	860,706
Home equity	Home equity	654,392		652,942	617,201	596,041	1,450	37,191	58,351	Home equity	625,369		636,405	652,942	(11,036)	(27,573)
Other consumer	Other consumer	300,847		309,253	295,660	288,553	(8,406)	5,187	12,294	Other consumer	324,178		313,071	309,253	11,107	14,925
Loans receivable	Loans receivable	11,453,378		10,088,206	9,512,810	8,841,777	1,365,172	1,940,568	2,611,601	Loans receivable	11,269,929		11,122,696	10,088,206	147,233	1,181,723
Allowance for credit losses	Allowance for credit losses	(162,509)		(150,190)	(124,490)	(129,054)	(12,319)	(38,019)	(33,455)	Allowance for credit losses	(156,446)		(158,243)	(150,190)	1,797	(6,256)
Loans receivable, net	Loans receivable, net	11,290,869		9,938,016	9,388,320	8,712,723	1,352,853	1,902,549	2,578,146	Loans receivable, net	11,113,483		10,964,453	9,938,016	149,030	1,175,467
Other assets	Other assets	1,330,944		1,313,223	1,164,855	1,009,698	17,721	166,089	321,246	Other assets	1,336,553		1,378,961	1,313,223	(42,408)	23,330
Total assets	Total assets	$	16,906,648	15,158,384	13,683,999	12,676,361	1,748,264	3,222,649	4,230,287	Total assets	$	19,770,552	18,504,206	15,158,384	1,266,346	4,612,168

Total debt securities of ~~$3.737~~$6.442 billion at ~~June 30, 2020~~March 31, 2021 increased ~~$104~~$914 million, or 317 percent, during the current quarter and increased ~~$1.014~~$2.808 billion, or 3777 percent, from the prior year ~~second~~first quarter. The Company continues to purchase debt securities with excess liquidity from the increase in core deposits and SBA forgiveness of PPP loans. Debt securities represented 2233 percent of total assets at ~~June 30, 2020~~March 31, 2021 compared to ~~20 percent at December 31, 2019 and 21~~30 percent of total assets at ~~June 30, 2019.~~December 31, 2020 and 24 percent of total assets at March 31, 2020.

~~Excluding $1.427 billion of the PPP loans, the~~The loan portfolio of ~~$11.453~~$11.270 billion ~~decreased $61.6~~at March 31, 2021 increased $147 million, or ~~61 basis points, during~~5 percent annualized, in the current quarter. Excluding the PPP loans, the ~~notable changes~~loan portfolio increased $80.6 million, or 3 percent annualized, during the current quarter included other commercial loans which decreased $119 million, or 5 percent, and commercial real estate which increased $119 million or 2 percent. Excluding the PPP loans, the current year SBAZ acquisition and the prior year acquisition of Heritage Bank of Nevada, the loan portfolio increased $118 million, or 1 percent, since the prior year second quarter with the largest increase in commercial real estate loans w~~hich~~which increased ~~$20~~4$159 million, or 43 percent.

The loan portfolio increased $1.182 billion, or 12 percent, from the prior year first quarter. Excluding the PPP loans, the loan portfolio increased $206 million, or 2 percent, from the prior year first quarter with the largest increase in commercial real estate loans which increased $546 million, or 9 percent.

Liabilities

The following table summarizes the Company’s liabilities as of the dates indicated:


							$ Change from										$ Change from
(Dollars in thousands)	(Dollars in thousands)	Jun 30, 2020		Mar 31, 2020	Dec 31, 2019	Jun 30, 2019	Mar 31, 2020	Dec 31, 2019	Jun 30, 2019	(Dollars in thousands)	Mar 31, 2021		Dec 31, 2020	Mar 31, 2020	Dec 31, 2020	Mar 31, 2020
Deposits	Deposits									Deposits
Non-interest bearing deposits	Non-interest bearing deposits	$	5,043,704	3,875,848	3,696,627	3,265,077	1,167,856	1,347,077	1,778,627	Non-interest bearing deposits	$	6,040,440	5,454,539	3,875,848	585,901	2,164,592
NOW and DDA accounts	NOW and DDA accounts	3,113,863		2,860,563	2,645,404	2,487,806	253,300	468,459	626,057	NOW and DDA accounts	4,035,455		3,698,559	2,860,563	336,896	1,174,892
Savings accounts	Savings accounts	1,756,503		1,578,062	1,485,487	1,412,046	178,441	271,016	344,457	Savings accounts	2,206,592		2,000,174	1,578,062	206,418	628,530
Money market deposit accounts	Money market deposit accounts	2,403,641		2,155,203	1,937,141	1,647,372	248,438	466,500	756,269	Money market deposit accounts	2,817,708		2,627,336	2,155,203	190,372	662,505
Certificate accounts	Certificate accounts	995,536		1,025,237	958,501	897,625	(29,701)	37,035	97,911	Certificate accounts	965,986		978,779	1,025,237	(12,793)	(59,251)
Core deposits, total	Core deposits, total	13,313,247		11,494,913	10,723,160	9,709,926	1,818,334	2,590,087	3,603,321	Core deposits, total	16,066,181		14,759,387	11,494,913	1,306,794	4,571,268
Wholesale deposits	Wholesale deposits	68,285		62,924	53,297	144,949	5,361	14,988	(76,664)	Wholesale deposits	38,143		38,142	62,924	1	(24,781)
Deposits, total	Deposits, total	13,381,532		11,557,837	10,776,457	9,854,875	1,823,695	2,605,075	3,526,657	Deposits, total	16,104,324		14,797,529	11,557,837	1,306,795	4,546,487
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	881,227		580,335	569,824	494,651	300,892	311,403	386,576	Securities sold under agreements to repurchase	996,878		1,004,583	580,335	(7,705)	416,543
Federal Home Loan Bank advances	Federal Home Loan Bank advances	37,963		513,055	38,611	319,996	(475,092)	(648)	(282,033)	Federal Home Loan Bank advances	—		—	513,055	—	(513,055)
Other borrowed funds	Other borrowed funds	32,546		32,499	28,820	14,765	47	3,726	17,781	Other borrowed funds	33,452		33,068	32,499	384	953
Subordinated debentures	Subordinated debentures	139,917		139,916	139,914	139,912	1	3	5	Subordinated debentures	132,499		139,959	139,916	(7,460)	(7,417)
Deferred tax liability	Deferred tax liability	25,213		15,210	—	—	10,003	25,213	25,213	Deferred tax liability	3,116		—	—	3,116	3,116
Other liabilities	Other liabilities	204,535		182,888	169,640	164,786	21,647	34,895	39,749	Other liabilities	204,898		222,026	198,098	(17,128)	6,800
Total liabilities	Total liabilities	$	14,702,933	13,021,740	11,723,266	10,988,985	1,681,193	2,979,667	3,713,948	Total liabilities	$	17,475,167	16,197,165	13,021,740	1,278,002	4,453,427

Core deposits of ~~$13.313~~$16.066 billion as of ~~June 30, 2020~~March 31, 2021 increased ~~$1.818~~$1.307 billion, or 1635 percent annualized, from the prior quarter and increased $4.571 billion, or 40 percent, from the prior year first quarter. Non-interest bearing deposits of $6.040 billion as of March 31, 2021 increased $586 million, or 11 percent, from the prior quarter and ~~was primarily~~increased $2.165 billion, or 56 percent, from the ~~result~~prior year first quarter. The last twelve months unprecedented increase in deposits resulted from a number of factors including the PPP loan proceeds deposited by customers, ~~increased customer savings rate, and~~ federal stimulus ~~deposits. Excluding current~~deposits and ~~prior year acquisitions, core deposits increased $2.278 billion, or 23 percent, from~~ the ~~prior year second quarter, with non-interest bearing deposits increasing $1.341 billion, or 41 percent.~~increase in customer savings. Non-interest bearing deposits were 38 percent of total core deposits at ~~June 30, 2020~~March 31, 2021 compared to 3437 percent of total core deposits at ~~June 30, 2019.~~December 31, 2020 and 34 percent at March 31, 2020.

During the current quarter, the Company paid off $7.5 million of subordinated debt. The current and prior quarter low levels of borrowings, including wholesale deposits and Federal Home Loan Bank (“FHLB”) advances, ~~of $38.0~~ ~~million at~~ ~~June 30, 2020~~ ~~decreased~~ ~~$47~~5 ~~million from the prior quarter and~~ ~~decreased~~ $~~282~~ ~~million from the prior year~~ ~~second~~ ~~quarter. These~~ ~~decreases~~ were~~the result~~ reflective of the significant increase in core deposits ~~that more than~~which funded the ~~loans and debt security~~asset growth. FHLB advances will continue to fluctuate as necessary for ~~balan~~cebalance sheet growth and to supplement liquidity needs of the Company.

~~During March~~ ~~2020, the Company purchased interest rate caps with a notional amount of $131 million (tied to 3 month LIBOR) to limit interest expense on the Company’s trust preferred subordinated debt.~~ The interest rate caps effectively convert the variable interest expense on the debt to a fixed rate of 3.93 percent when 3 month LIBOR exceeds 1.88 percent at anytime during the five-year term of the interest rate caps.

5148

Stockholders’ Equity

The following table summarizes the stockholders’ equity balances as of the dates indicated:


							$ Change from										$ Change from
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	Jun 30, 2020		Mar 31, 2020	Dec 31, 2019	Jun 30, 2019	Mar 31, 2020	Dec 31, 2019	Jun 30, 2019	(Dollars in thousands, except per share data)	Mar 31, 2021		Dec 31, 2020	Mar 31, 2020	Dec 31, 2020	Mar 31, 2020
Common equity	Common equity	$	2,073,806	2,036,920	1,920,507	1,643,928	36,886	153,299	429,878	Common equity	$	2,215,465	2,163,951	2,036,920	51,514	178,545
Accumulated other comprehensive income	Accumulated other comprehensive income	129,909		99,724	40,226	43,448	30,185	89,683	86,461	Accumulated other comprehensive income	79,920		143,090	99,724	(63,170)	(19,804)
Total stockholders’ equity	Total stockholders’ equity	2,203,715		2,136,644	1,960,733	1,687,376	67,071	242,982	516,339	Total stockholders’ equity	2,295,385		2,307,041	2,136,644	(11,656)	158,741
Goodwill and core deposit intangible, net	Goodwill and core deposit intangible, net	(574,088)		(576,701)	(519,704)	(385,533)	2,613	(54,384)	(188,555)	Goodwill and core deposit intangible, net	(567,034)		(569,522)	(576,701)	2,488	9,667
Tangible stockholders’ equity	Tangible stockholders’ equity	$	1,629,627	1,559,943	1,441,029	1,301,843	69,684	188,598	327,784	Tangible stockholders’ equity	$	1,728,351	1,737,519	1,559,943	(9,168)	168,408


Stockholders’ equity to total assets	Stockholders’ equity to total assets	13.03		%	14.10	%	14.33	%	13.31	%				Stockholders’ equity to total assets	11.61		%	12.47	%	14.10	%
Tangible stockholders’ equity to total tangible assets	Tangible stockholders’ equity to total tangible assets	9.98		%	10.70	%	10.95	%	10.59	%				Tangible stockholders’ equity to total tangible assets	9.00		%	9.69	%	10.70	%
Book value per common share	Book value per common share	$	23.10		22.39		21.25		19.48		0.71	1.85	3.62	Book value per common share	$	24.03		24.18		22.39		(0.15)	1.64
Tangible book value per common share	Tangible book value per common share	$	17.08		16.35		15.61		15.03		0.73	1.47	2.05	Tangible book value per common share	$	18.10		18.21		16.35		(0.11)	1.75

Tangible stockholders’ equity of ~~$1.630~~$1.728 billion at ~~June 30, 2020 increased $70~~March 31, 2021 decreased $9.2 million, or ~~4 percent,~~5 basis points, from the prior quarter and was primarily the result of ~~earnings retention and~~a decrease in the unrealized gain on the available-for-sale debt securities during the current quarter which was driven by an increase in other comprehensive income. Tangible stockholders’ equity increased $328 million over the prior year second quarter which was the result of $342 million of Company stock issued for the acquisitions of SBAZ and Heritage Bank of Nevada, an increase in other comprehensive income and earnings retention. These increases more than offset the increase in goodwill and core deposit intangible associated with the acquisitions.interest rates. The current ~~quarter~~year decrease in both the stockholder’s equity to total assets ratio and the tangible stockholders’ equity to total tangible assets ratio was primarily the result of the $1.266 billion increase in total assets driven by the increase of $914 million in debt securities. Tangible stockholders’ equity increased $168 million over the prior year first quarter, which was the result of earnings retention. Excluding the impact from PPP Loans, the tangible stockholders’ equity to total assets was 9.48 percent which was a 1.22 percent decrease from prior year first quarter and was due to adding ~~$1.427~~$2.8 billion in ~~the PPP loans. Both ratios would have increased if the PPP loans were excluded from total assets.~~debt securities. Tangible book value per common share of ~~$17.08~~$18.10 at the current quarter end ~~increased $0.73~~decreased $0.11 per share from the prior quarter and increased ~~$2.05~~$1.75 per share from a year ago. ~~For additional information on the CECL accounting standard, see Note 1 to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”~~

Cash Dividend

On ~~June 24, 2020,~~March 31, 2021, the Company’s Board of Directors declared a quarterly cash dividend of ~~$0.29~~$0.31 per share. The dividend was payable ~~July 16, 2020~~April 22, 2021 to shareholders of record on ~~July 7, 2020.~~April 13, 2021. The dividend was the ~~141st~~144th consecutive dividend. Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations.

5249

Operating Results for Three Months Ended ~~June 30, 2020~~March 31, 2021

Compared to ~~March~~December 31, 2020, and ~~June 30, 2019~~March 31, 2020

Income Summary

The following table summarizes income for the periods indicated:


		Three Months ended									$ Change from									Three Months ended			$ Change from
(Dollars in thousands)	(Dollars in thousands)	Jun 30, 2020			Mar 31, 2020		Jun 30, 2019		Mar 31, 2020	Jun 30, 2019		(Dollars in thousands)	Mar 31, 2021			Dec 31, 2020		Mar 31, 2020			Dec 31, 2020	Mar 31, 2020
Net interest income	Net interest income											Net interest income
Interest income	Interest income	$	155,404		142,865		132,385		12,539	23,019		Interest income	$	161,552		171,308		142,865			(9,756)	18,687
Interest expense	Interest expense	7,185			8,496		12,089		(1,311)	(4,904)		Interest expense	4,740			5,550		8,496			(810)	(3,756)
Total net interest income	Total net interest income	148,219			134,369		120,296		13,850	27,923		Total net interest income	156,812			165,758		134,369			(8,946)	22,443
Non-interest income	Non-interest income											Non-interest income
Service charges and other fees	Service charges and other fees	11,366			14,020		20,025		(2,654)	(8,659)		Service charges and other fees	12,792			13,713		14,020			(921)	(1,228)
Miscellaneous loan fees and charges	Miscellaneous loan fees and charges	1,682			1,285		1,192		397	490		Miscellaneous loan fees and charges	2,778			2,293		1,285			485	1,493
Gain on sale of loans	Gain on sale of loans	25,858			11,862		7,762		13,996	18,096		Gain on sale of loans	21,624			26,214		11,862			(4,590)	9,762
Gain on sale of investments	Gain on sale of investments	128			863		134		(735)	(6)		Gain on sale of investments	284			124		863			160	(579)
Other income	Other income	2,190			5,242		1,721		(3,052)	469		Other income	2,643			2,360		5,242			283	(2,599)
Total non-interest income	Total non-interest income	41,224			33,272		30,834		7,952	10,390		Total non-interest income	40,121			44,704		33,272			(4,583)	6,849
Total income	Total income	$	189,443		167,641		151,130		21,802	38,313		Total income	$	196,933		210,462		167,641			(13,529)	29,292
Net interest margin (tax-equivalent)	Net interest margin (tax-equivalent)	4.12		%	4.36	%	4.33	%				Net interest margin (tax-equivalent)	3.74		%	4.03	%	4.36	%

Net Interest Income

The current quarter net interest income of $~~148~~$157 million ~~increased~~ $~~13.9~~decreased $8.9 million, or 105 percent, over the prior quarter and increased $~~27.9~~$22.4 million, or 2317 percent, from the prior year ~~second~~first quarter. The current quarter interest income of $~~155~~$162 million ~~increased~~ $~~12.5~~decreased $9.8 million, or 6 percent, compared to the prior quarter due to a decrease in income from PPP loans. The current quarter interest income increased $18.7 million, or 13 percent, over the prior year first quarter due to an increase in income from PPP loans and debt securities. The interest income (which included deferred fees and deferred costs) from the PPP loans was $13.5 million in the current quarter and $21.5 million in the prior quarter.

The current quarter interest expense of $4.7 million decreased $810 thousand, or 15 percent, over the prior quarter ~~which was driven~~ ~~by an increase debt security income~~ and ~~an increase in income from the PPP loans.~~ ~~The current quarter interest income increased $23.0~~decreased $3.8 million, or ~~17 percent, over prior year second quarter and was due to an increase in income from commercial loans~~ ~~and an increase in income on debt securities~~.

~~The current quarter interest expense of $7.2 million decreased $1.3 million, or 15~~44 percent, over the prior year first quarter primarily as result of a decrease in deposit rates and borrowing interest rates. ~~Current quarter interest expense decreased $4.9~~ ~~million, or~~ 41 ~~percent, over prior year~~ ~~second~~ ~~quarter which was du~~e ~~to the decrease in higher cost FHLB advances.~~ During the current quarter, the total cost of funding (including non-interest bearing deposits) ~~declined~~ 8of 12 basis points todeclined 21 basis points ~~compared to~~ 29 ~~basis points for~~in the ~~prior~~current quarter ~~primarily as a result of a decrease in rates on both deposits~~ and ~~borrowings. The total cost of funding decreased 24~~17 basis points from the prior year ~~second~~first quarter ~~of 45 basis points and was attributable to~~with both decreases driven by a decrease in rates in deposits and ~~a shift from higher cost borrowings to low cost deposits.~~borrowings.

The Company’s net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the current quarter was 4.123.74 percent compared to 4.364.03 percent in the prior quarter. and 4.36 in the prior year first quarter. The core net interest margin, excluding 34 basis points of discount accretion, 1 basis point offrom non-accrual interest ~~income~~ ~~reversals~~, and 1113 basis points ~~of income~~increase from the PPP loans, was 4.213.56 percent compared to ~~4.3~~03.76 in the prior quarter and ~~4.2~~74.30 percent in the prior year ~~second~~first quarter. ~~The Company experienced a~~ 9 ~~basis points decrease in the core net interest margin during the current quarter from decreased yields on loans that more than offset the~~ ~~increase in yields on debt securities and the~~ ~~decrease in the cost of funding.~~ The core net interest margin decreased6 20 basis points in the current quarter and decreased 74 basis points from the prior year ~~second~~first quarter ~~primarily from~~due to a decrease in earning asset yields. Earning asset yields ~~primarily loan yields, that were more than~~have decreased from the combined impact of the significant increase in the lower yielding debt securities and the decrease in ~~funding costs.~~yields on both loans and debt securities. Debt securities comprised 35.7 percent of the earning assets during the current quarter compared to 31.8 percent in the prior quarter and 23.5 percent in the prior year first quarter.

5350

Non-interest Income

Non-interest income for the current quarter totaled $~~41.2~~$40.1 million which was ~~an increase~~a decrease of $~~8.0~~$4.6 million, or 2410 percent, over the prior quarter and an increase of $~~10.4~~$6.8 million, or 3421 percent, over the same quarter last year. Service charges and other fees ~~of $11.4~~ ~~million for the current quarter~~ decreased $~~2.7~~ ~~million, or~~ 19 ~~percent,~~$921 thousand from the prior quarter and decreased $1.2 million from the prior year first quarter as a result of decreased overdraft ~~activity as customers received federal stimulus funds and had decreased activity during the second quarter of 2020. Service charges and other fees decreased $8.7 million from the prior ye~~ar ~~second~~ ~~quarter due to the~~ ~~decrease in overdraft activity and the~~ decrease in interchange fees as a result of the Durbin Amendment. As of July 1, 2019, the Company became subject to the Durbin Amendment which established limits on the amount of interchange fees that can be charged to merchants for debit card processing.activity. Gain on the sale of loans of $~~25.9~~$21.6 million for the current quarter ~~increased $14.0~~decreased $4.6 million, or 118 percent, compared to the prior quarter, ~~and~~although remained at elevated levels as a result of the current low interest rate environment. Gain on sale of loans increased $~~18.1~~$9.8 million, or ~~233~~82 percent, from the prior year ~~second~~first quarter due to the ~~significant~~ increase in purchase and refinance activity driven by the decrease in interest rates. Other income of $~~2.2~~$2.6 million decreased $~~3.1~~ $2.6 million,, or 5850 percent, from the prior year first quarter ~~primarily~~ as a result of a $2.4 million gain on the sale of a former branch building in the prior ~~quarter.~~year.

~~Non-interest Expense~~

~~The following table summarizes non-interest expense for the periods indicated:~~

Three Months ended $ Change from
(Dollars in thousands) Jun 30,
2020 Mar 31,
2020 Jun 30,
2019 Mar 31,
2020 Jun 30,
2019
Compensation and employee benefits $ 57,981 59,660 51,973 (1,679) 6,008
Occupancy and equipment 9,357 9,219 8,180 138 1,177
Advertising and promotions 2,138 2,487 2,767 (349) (629)
Data processing 5,042 5,282 4,062 (240) 980
Other real estate owned 75 112 191 (37) (116)
Regulatory assessments and insurance 1,037 1,090 1,848 (53) (811)
Core deposit intangibles amortization 2,613 2,533 1,865 80 748
Other expenses 19,898 11,545 15,284 8,353 4,614
Total non-interest expense $ 98,141 91,928 86,170 6,213 11,971

~~Total non-interest expense of $98.1~~ ~~million for the current quarter increased $6.2~~ ~~million, or~~ 7 ~~percent, over the prior quarter and increased $12.0~~ ~~million, or 1~~4 ~~percent, over the prior year~~ ~~second~~ ~~quarter. Compensation and employee benefits~~ ~~decreased~~ ~~by $1.7~~ ~~million, or~~ 3 ~~percent, from the prior quarter~~ ~~and included a decrease of $8.4 million from deferring compensation on originating the PPP loans with offsetting increases in commission expense and increases in compensation~~ ~~expense as result of increased employees from the SBAZ acquisition. Compensation and employee benefits increased $6.~~0 ~~million, or 1~~2 ~~percent, from the prior year~~ ~~second~~ ~~quarter primarily due to an increased number of employees driven by acquisitions~~ ~~and organic growth which more than offset the impact from originating the PPP loans. Occupancy and equipment expense increased $1.2 million, or~~ 14 ~~percent, over the prior year~~ ~~second~~ ~~quarter primarily as a result of increased costs from acquisitions. Data processing expense increased $980~~ ~~thousand, or~~ 24 ~~percent, over the prior~~ ~~year second quarter~~ ~~as a result of the current and prior year acquisitions~~ ~~along with general cost increases. Regulatory assessment and insurance~~ ~~decreased~~ $~~811 thousand~~ ~~from the prior~~ ~~year second~~ ~~quarter primarily~~ ~~due to an accrual adjustment for the State of Montana regulatory semi-annual assessment which was waived for the first half of 2020.~~ ~~Other expenses of $19.9~~ ~~million,~~ ~~increased~~ ~~$8.~~4 ~~million, or~~ 72 ~~percent, from the prior quarter and was largely due to a $6.9~~ ~~million~~ ~~increase~~ ~~in expense related to unfunded loan commitments. In t~~he ~~current~~ ~~quarter,~~ ~~there was a $3.4 million~~ ~~expense related to unfunded loan commitments~~ compared to the prior quarter which had a $3.5 million reversal of expense related to unfunded loan commitments. The current quarter unfunded loan commitment expense reflects changes in the economic forecast related to COVID-19. Other expenses increased $4.6 million, or 30 percent, from the prior year second quarter and was due to the increase in expense related to unfunded loan commitments and $1.9 million increase in acquisition-related expenses. ~~Other expenses included acquisition-related expenses of $3.7~~ ~~million in the current quarter compared to $2.8~~ ~~million in the prior quarter and $1.8 million~~ ~~in the prior year~~ ~~second~~ ~~quarter.~~

~~Efficiency Ratio~~

The current quarter efficiency ratio was 49.29 percent. Excluding the $15.7 million impact from the PPP loans, the efficiency ratio would have been 55.73 percent, which was a 318 basis points increase from the prior quarter efficiency ratio of 52.55 percent and was primarily due to an increase in expenses related to unfunded loan commitments and increases in compensation that were greater than the increase in gain on sale of loans. Excluding the impact of the PPP loans, the current quarter efficiency ratio increased 123 basis points from the prior year second quarter efficiency ratio of 54.50 percent which was driven by the increased compensation costs and decreases in service fee income from the Durbin Amendment that outpaced the increases in commercial loan interest income and gain on sale of loans.

~~Credit Loss Expense~~

~~The following table summarizes credit loss expense, net charge-offs and select ratios relating to credit loss expense for the previous eight quarters:~~

(Dollars in thousands) Credit
Loss
Expense Net
Charge-Offs Allowance for
Credit Losses
as a Percent
of Loans Accruing
Loans 30-89
Days Past Due
as a Percent of
Loans Non-Performing
Assets to
Total Sub-sidiary Assets
Second quarter 2020 $ 13,552 $ 1,233 1.42 % 0.22 % 0.27 %
First quarter 2020 22,744 813 1.49 % 0.41 % 0.26 %
Fourth quarter 2019 — 1,045 1.31 % 0.24 % 0.27 %
Third quarter 2019 — 3,519 1.32 % 0.31 % 0.40 %
Second quarter 2019 — 732 1.46 % 0.43 % 0.41 %
First quarter 2019 57 1,510 1.56 % 0.44 % 0.42 %
Fourth quarter 2018 1,246 2,542 1.58 % 0.41 % 0.47 %
Third quarter 2018 3,194 2,223 1.63 % 0.31 % 0.61 %

Net charge-offs for the current quarter were $1.2 million compared to $813 thousand for the prior quarter and $732 thousand from the same quarter last year. Loan portfolio growth, composition, average loan size, credit quality considerations, economic forecasts and other environmental factors will continue to determine the level of the credit loss expense.

The determination of the allowance for credit losses (“ACL” or “allowance”) on loans and the related credit loss expense is a critical accounting estimate that involves management’s judgments about the loan portfolio that impact credit losses. For additional information on the allowance, see the Allowance For Credit Losses section under “Additional Management’s Discussion and Analysis.”

~~Operating Results for Six Months Ended June 30, 2020~~

~~Compared to June 30, 2019~~

~~Income Summary~~

Six Months ended
(Dollars in thousands) Jun 30,
2020 Jun 30,
2019 $ Change % Change
Net interest income
Interest income $ 298,269 $ 258,501 $ 39,768 15 %
Interest expense 15,681 22,993 (7,312) (32) %
Total net interest income 282,588 235,508 47,080 20 %
Non-interest income
Service charges and other fees 25,386 38,040 (12,654) (33) %
Miscellaneous loan fees and charges 2,967 2,159 808 37 %
Gain on sale of loans 37,720 13,560 24,160 178 %
Gain on sale of investments 991 347 644 186 %
Other income 7,432 5,202 2,230 43 %
Total non-interest income 74,496 59,308 15,188 26 %
$ 357,084 $ 294,816 $ 62,268 21 %
Net interest margin (tax-equivalent) 4.23 % 4.33 %

~~Net Interest Income~~

Net-interest income of $283 million for the first half of 2020 increased $47.1 million, or 20 percent, over the first half of 2019. Interest income of $298 million for the first six months of 2020 increased $39.8 million, or 15 percent, from the first six months of 2019 and was primarily attributable to a $33.4 million increase in income from commercial loans. Interest expense of $15.7 million for the first six months of 2020 decreased $7.3 million, or 32 percent over the prior year same period primarily as a result of decreased higher cost FHLB advances and the decrease in the cost of deposits and borrowings. The total funding cost (including non-interest bearing deposits) for the first six months of 2020 was 25 basis points compared to 44 basis points for the first six months of 2019.

The net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the first six months of 2020 was 4.23 percent, a 10 basis points decrease from the net interest margin of 4.33 percent for the first six months of 2019. The core net interest margin, excluding 3 basis points of discount accretion and 6 basis points of income from the PPP loans was 4.26 which was the same as the prior year first half core margin. The Company has benefited this year with a reduction in higher cost FHLB advances and decreases in interest rates that has lowered the cost of funds, the combination of which offset the decrease in yields on the earning assets.

~~Non-interest Income~~

Non-interest income of $74.5 million for the first six months of 2020 increased $15.2 million, or 26 percent, over the same period last year. Service charges and other fees of $25.4 million for 2020 year to date decreased $12.7 million, or 33 percent, from the same period prior year as a result of a decrease in overdraft activity and the impact of the Durbin Amendment. Gain on the sale of loans of $37.7 million for the first six months of 2020, increased $24.2 million, or 178 percent, compared to the prior year as a result of increased refinance activity. Other income increased $2.2 million from the prior year and was the result of a gain of $2.4 million on the sale of a former branch building in the first quarter of 2020.

Non-interest Expense

The following table summarizes non-interest expense for the periods indicated:


		Six Months ended											Three Months ended		$ Change from
(Dollars in thousands)	(Dollars in thousands)	Jun 30, 2020		Jun 30, 2019		$ Change		% Change		(Dollars in thousands)	Mar 31, 2021		Dec 31, 2020	Mar 31, 2020	Dec 31, 2020	Mar 31, 2020
Compensation and employee benefits	Compensation and employee benefits	$	117,641	$	104,701	$	12,940	12	%	Compensation and employee benefits	$	62,468	70,540	59,660	(8,072)	2,808
Occupancy and equipment	Occupancy and equipment	18,576		16,617		1,959		12	%	Occupancy and equipment	9,515		9,728	9,219	(213)	296
Advertising and promotions	Advertising and promotions	4,625		5,155		(530)		(10)	%	Advertising and promotions	2,371		2,797	2,487	(426)	(116)
Data processing	Data processing	10,324		7,954		2,370		30	%	Data processing	5,206		5,211	5,282	(5)	(76)
Other real estate owned	Other real estate owned	187		330		(143)		(43)	%	Other real estate owned	12		550	112	(538)	(100)
Regulatory assessments and insurance	Regulatory assessments and insurance	2,127		3,133		(1,006)		(32)	%	Regulatory assessments and insurance	1,879		1,034	1,090	845	789

Core deposit intangibles amortization	Core deposit intangibles amortization	5,146		3,559		1,587		45	%	Core deposit intangibles amortization	2,488		2,612	2,533	(124)	(45)
Other expenses	Other expenses	31,443		27,551		3,892		14	%	Other expenses	12,646		18,715��	15,104	(6,069)	(2,458)
Total non-interest expense	Total non-interest expense	$	190,069	$	169,000	$	21,069	12	%	Total non-interest expense	$	96,585	111,187	95,487	(14,602)	1,098

Total non-interest expense of ~~$190~~$96.6 million for the ~~first six months of 2020 increased $21.1~~current quarter decreased $14.6 million, or 1213 percent, over the prior quarter and increased $1.1 million, or 1 percent, over the prior year ~~same period.~~first quarter. Compensation and employee benefits ~~for the first six months of 2020 increased $12.9~~decreased $8.1 million, or 1211 percent, from the ~~same period last~~prior quarter which was primarily driven by the $5.2 million increase in deferred compensation on originating Round 2 PPP loans. Compensation and employee benefits increased by $2.8 million, or 5 percent, from the prior year first quarter which was due to ~~the~~ increased ~~number of~~real estate commissions, increased employees from acquisitions and organic growth ~~and annual salary increases~~ which more than offset the ~~deferral of compensation cost~~decreased expense from originating PPP loans. Regulatory assessment and insurance increased $845 thousand from the ~~PPP loans. Occupancy and equipment expense~~prior quarter primarily due to an accrual adjustment in the prior quarter for waiver of the State of Montana regulatory semi-annual assessment for the second half of 2020. Regulatory assessment and insurance increased $789 thousand from the prior year first ~~six months~~quarter primarily due to $530 thousand in Small Bank Assessment credits applied in the prior year first quarter. Other expenses of ~~2020 increased $2.0~~$12.6 million, decreased $6.1 million, or 1232 percent, from the prior quarter and decreased $2.5 million, or 16 percent, from the prior year ~~primarily from increased cost from acquisitions. Data processing expense for the~~ first ~~six months~~quarter. Current quarter other expenses included acquisition-related expenses of ~~2020 increased $2.4 million, or 30 percent, from~~$104 thousand compared to $501 thousand in the prior ~~year as a result of recent~~ ~~acquisitions~~ ~~along with general cost increases. Regulatory assessments~~quarter and insurance decreased $1.0 million from the prior year primarily as a result of the State of Montana waiving the first semi-annual regulatory assessment of 2020 and Small Bank Assessment credits applied by the FDIC in the first quarter of 2020. Other expenses of $31.4 million, increased $3.9 million, or 14 percent, from the prior year and was primarily driven by an increase in acquisition-related expenses which were $6.5 million in the current year first half compared to $2.0$2.8 million in the prior year first ~~half.~~quarter.

Efficiency Ratio

The efficiency ratio was ~~50.81~~46.75 percent ~~for~~in the ~~six months of 2020.~~current quarter and 50.34 percent in the prior quarter. Excluding the ~~$15.7 million~~ impact from the PPP loans, the efficiency ratio would have been ~~54.21~~52.89 percent in the current quarter, which was ~~an improvement of 71~~a 307 basis points decrease from the prior ~~year~~quarter efficiency ratio of ~~54.93~~55.96 percent and was driven by the decrease in non-interest expense, including a $5.2 increase in deferred compensation on originating the PPP loans, that more than offset the decrease in net interest income and gain on sale of loans. Excluding the current year impact from the PPP loans, the current quarter efficiency ratio of 52.89 which was a decrease of 176 basis points the ~~result~~prior year first quarter efficiency ratio of ~~increases~~54.65 percent and was primarily from the increase in gain on sale of loans and ~~commercial loan~~net interest ~~income that more than offset~~income.

Provision for Credit Losses

The following table summarizes credit loss expense (benefit), net charge-offs and select ratios relating to provision for credit losses for the ~~decreases in service fee income from the Durbin Amendment and increases in compensation expenses.~~previous eight quarters:


(Dollars in thousands)	Provision for Credit Losses on Loans		Net Charge-Offs		Allowance for Credit Losses as a Percent of Loans		Accruing Loans 30-89 Days Past Due as a Percent of Loans		Non-Performing Assets to Total Sub-sidiary Assets
First quarter 2021	$	489	$	2,286	1.39	%	0.40	%	0.19	%
Fourth quarter 2020	(1,528)		4,781		1.42	%	0.20	%	0.19	%
Third quarter 2020	2,869		826		1.42	%	0.15	%	0.25	%
Second quarter 2020	13,552		1,233		1.42	%	0.22	%	0.27	%
First quarter 2020	22,744		813		1.49	%	0.41	%	0.26	%
Fourth quarter 2019	—		1,045		1.31	%	0.24	%	0.27	%
Third quarter 2019	—		3,519		1.32	%	0.31	%	0.40	%
Second quarter 2019	—		732		1.46	%	0.43	%	0.41	%

~~Credit Loss Expense~~Net charge-offs for the current quarter were $2.3 million compared to $4.8 million for the prior quarter and $813 thousand from the same quarter last year. Loan portfolio growth, composition, average loan size, credit quality considerations, economic forecasts and other environmental factors will continue to determine the level of the provision for credit losses for loans.

The determination of the allowance for credit losses (“ACL” or “allowance”) on loans and the related credit loss expense ~~was $36.3 million for~~is a critical accounting estimate that involves management’s judgments about the ~~first six months of 2020, an increase of $36.2 million from~~loan portfolio that impact credit losses. For additional information on the ~~same period in~~allowance, see the prior year, this increase was primarily attributable to changes in the economic forecast related to COVID-19. Net charge-offs during the first six months of 2020 were $2.0 million compared to $2.2 million during the same period in 2019.Allowance For Credit Losses section under “Additional Management’s Discussion and Analysis.”

5752

ADDITIONAL MANAGEMENT’S DISCUSSION AND ANALYSIS

Investment Activity

The Company’s investment securities primarily consist of debt securities classified as available-for-sale or held-to-maturity. Non-marketable equity securities consist of capital stock issued by the FHLB of Des Moines.

Debt Securities

Debt securities classified as available-for-sale are carried at estimated fair value and debt securities classified as held-to-maturity are carried at amortized cost. During the current quarter, the Company transferred $404 million of available-for-sale securities with an unrealized net gain of $3.8 million into the held-to-maturity portfolio after determining it had the intent and ability to hold such securities until maturity. Unrealized gains or losses, net of tax, on available-for-sale debt securities are reflected as an adjustment to other comprehensive income. The Company’s debt securities are summarized below:


		June 30, 2020						December 31, 2019								June 30, 2019					March 31, 2021				December 31, 2020		March 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Carrying Amount		Percent		Carrying Amount		Percent		Carrying Amount		Percent		(Dollars in thousands)	Carrying Amount		Percent		Carrying Amount		Percent		Carrying Amount		Percent
Available-for-sale	Available-for-sale													Available-for-sale
U.S. government and federal agency	U.S. government and federal agency	$	42,235	1	%	$	20,044	1	%	$	19,487	1	%	U.S. government and federal agency	$	35,863	1	%	$	38,588	1	%	$	44,567	1	%
U.S. government sponsored enterprises	U.S. government sponsored enterprises	10,863		1	%	43,677		1	%	119,950		4	%	U.S. government sponsored enterprises	5,253		—	%	9,781		1	%	31,251		1	%
State and local governments	State and local governments	1,277,552		34	%	702,398		25	%	700,193		26	%	State and local governments	978,652		15	%	1,416,683		26	%	1,258,342		34	%
Corporate bonds	Corporate bonds	388,375		10	%	157,602		6	%	179,684		7	%	Corporate bonds	288,781		5	%	349,098		6	%	331,184		9	%
Residential mortgage-backed securities	Residential mortgage-backed securities	857,641		23	%	738,724		26	%	700,789		26	%	Residential mortgage-backed securities	3,363,627		52	%	2,289,090		41	%	794,733		22	%
Commercial mortgage-backed securities	Commercial mortgage-backed securities	957,284		26	%	912,807		33	%	750,531		27	%	Commercial mortgage-backed securities	1,181,139		18	%	1,234,574		22	%	969,813		27	%
Total available-for-sale	Total available-for-sale	3,533,950		95	%	2,575,252		92	%	2,470,634		91	%	Total available-for-sale	5,853,315		91	%	5,337,814		97	%	3,429,890		94	%
Held-to-maturity	Held-to-maturity													Held-to-maturity
State and local governments	State and local governments	203,275		5	%	224,611		8	%	252,097		9	%	State and local governments	588,751		9	%	189,836		3	%	203,814		6	%
Total held-to-maturity	Total held-to-maturity	203,275		5	%	224,611		8	%	252,097		9	%	Total held-to-maturity	588,751		9	%	189,836		3	%	203,814		6	%
Total debt securities	Total debt securities	$	3,737,225	100	%	$	2,799,863	100	%	$	2,722,731	100	%	Total debt securities	$	6,442,066	100	%	$	5,527,650	100	%	$	3,633,704	100	%

The Company’s debt securities are 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 federal statutory income tax rate of 21 percent is used in calculating the tax-equivalent yields on the tax-exempt securities. Mortgage-backed securities largely consists of short, weighted-average life U.S. agency guaranteed residential and commercial mortgage pass-through securities and to a lesser extent, short, weighted-average life U.S. agency guaranteed residential collateralized mortgage obligations. 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”]~~&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.

5853

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.


		June 30, 2020				December 31, 2019					March 31, 2021		December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value	(Dollars in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value
S&P: AAA / Moody’s: Aaa	S&P: AAA / Moody’s: Aaa	$	385,131	415,953	251,101	259,690	S&P: AAA / Moody’s: Aaa	$	371,012	397,769	385,773	420,646
S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	883,833		937,058	523,150	539,758	S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	1,025,452		1,066,918	1,015,634	1,080,972
S&P: A+, A, A- / Moody’s: A1, A2, A3	S&P: A+, A, A- / Moody’s: A1, A2, A3	116,767		124,248	113,275	120,048	S&P: A+, A, A- / Moody’s: A1, A2, A3	96,373		102,342	101,494	109,504
S&P: BBB+, BBB, BBB- / Moody’s: Baa1, Baa2, Baa3	S&P: BBB+, BBB, BBB- / Moody’s: Baa1, Baa2, Baa3	3,217		3,259	3,217	3,302	S&P: BBB+, BBB, BBB- / Moody’s: Baa1, Baa2, Baa3	3,217		3,229	3,217	3,230
Not rated by either entity	Not rated by either entity	12,420		12,717	13,451	13,795	Not rated by either entity	7,269		7,354	5,481	5,547
Below investment grade	Below investment grade	200		200	201	201	Below investment grade	—		—	—	—
Total	Total	$	1,401,568	1,493,435	904,395	936,794	Total	$	1,503,323	1,577,612	1,511,599	1,619,899

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.


		June 30, 2020				December 31, 2019					March 31, 2021		December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value	(Dollars in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value
General obligation - unlimited	General obligation - unlimited	$	628,333	670,680	445,584	465,066	General obligation - unlimited	$	614,436	650,364	625,660	672,610
General obligation - limited	General obligation - limited	146,111		153,082	119,884	124,939	General obligation - limited	117,467		122,602	121,886	129,250
Revenue	Revenue	607,164		648,293	325,331	332,354	Revenue	755,349		787,328	745,908	798,188
Certificate of participation	Certificate of participation	15,872		17,164	8,003	8,815	Certificate of participation	12,287		13,424	14,098	15,636
Other	Other	4,088		4,216	5,593	5,620	Other	3,784		3,894	4,047	4,215
Total	Total	$	1,401,568	1,493,435	904,395	936,794	Total	$	1,503,323	1,577,612	1,511,599	1,619,899

The following table outlines the five states in which the Company owns the highest concentrations of state and local government securities.


		June 30, 2020				December 31, 2019					March 31, 2021		December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value	(Dollars in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value
New York	New York	$	160,617	176,472	14,701	14,870	New York	$	234,460	250,105	235,036	254,976
Texas	Texas	156,241		166,450	112,397	121,641	Texas	135,853		144,170	143,421	154,511
Michigan	Michigan	143,008		151,033	141,131	116,581	Michigan	140,101		146,031	139,836	148,544
California	California	128,048		143,490	23,482	24,406	California	146,234		160,452	148,564	166,311
Washington	Washington	114,808		120,726	116,458	146,538	Washington	99,665		104,127	99,699	106,012
All other states	All other states	698,846		735,264	496,226	512,758	All other states	747,010		772,727	745,043	789,545
Total	Total	$	1,401,568	1,493,435	904,395	936,794	Total	$	1,503,323	1,577,612	1,511,599	1,619,899

5954

The following table presents the carrying amount and weighted-average yield of available-for-sale and held-to-maturity debt securities by contractual maturity at ~~June 30, 2020.~~March 31, 2021. 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 debt securities exclude the federal income tax benefit.


		One Year or Less						After One through Five Years						After Five through Ten Years						After Ten Years									Mortgage-Backed Securities ¹						Total						One Year or Less				After One through Five Years				After Five through Ten Years				After Ten Years	Mortgage-Backed Securities 1	Total
(Dollars in thousands)	(Dollars in thousands)	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount			Yield		(Dollars in thousands)	Amount		Yield		Amount		Yield			Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Available-for-sale	Available-for-sale																										Available-for-sale
U.S. government and federal agency	U.S. government and federal agency	$	504	2.03	%	$	1,640	1.13	%	$	12,970	1.47	%	$	27,121	1.62	%	$	—	—	%	$	42,235		1.59	%	U.S. government and federal agency	$	64	1.57	%	$	2,094	1.54		%	$	11,241	1.63	%	$	22,464	1.66	%	$	—	—	%	$	35,863	1.65	%
U.S. government sponsored enterprises	U.S. government sponsored enterprises	8,042		1.12	%	2,821		0.95	%	—		—	%	—		—	%	—		—	%	10,863			1.08	%	U.S. government sponsored enterprises	4,986		0.97	%	267		0.93		%	—		—	%	—		—	%	—		—	%	5,253		0.97	%
State and local governments	State and local governments	3,697		2.48	%	39,239		2.65	%	245,394		3.56	%	989,222		3.46	%	—		—	%	1,277,552			3.45	%	State and local governments	11,435		2.17	%	36,803		2.72		%	241,877		3.54	%	688,537		3.33	%	—		—	%	978,652		3.35	%
Corporate bonds	Corporate bonds	133,734		3.26	%	237,826		3.63	%	16,815		3.98	%	—		—	%	—		—	%	388,375			3.51	%	Corporate bonds	75,643		3.59	%	209,224		3.28		%	3,914		4.00	%	—		—	%	—		—	%	288,781		3.38	%
Residential mortgage-backed securities	Residential mortgage-backed securities	—		—	%	—		—	%	—		—	%	—		—	%	857,641		1.90	%	857,641			1.90	%	Residential mortgage-backed securities	—		—	%	—		—		%	—		—	%	—		—	%	3,363,627		1.09	%	3,363,627		1.09	%
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—		—	%	—		—	%	—		—	%	—		—	%	957,284		2.82	%	957,284			2.82	%	Commercial mortgage-backed securities	—		—	%	—		—		%	—		—	%	—		—	%	1,181,139		2.39	%	1,181,139		2.39	%
Total available-for-sale	Total available-for-sale	145,977		3.12	%	281,526		3.45	%	275,179		3.48	%	1,016,343		3.41	%	1,814,925		2.38	%	3,533,950			2.87	%	Total available-for-sale	92,128		3.27	%	248,388		3.18		%	257,032		3.46	%	711,001		3.28	%	4,544,766		1.42	%	5,853,315		1.82	%
Held-to-maturity	Held-to-maturity																							Held-to-maturity
State and local governments	State and local governments	—		—	%	17,132		2.47	%	71,471		2.72	%	114,672		3.04	%	—		—	%	203,275			2.88	%	State and local governments	482		1.82	%	23,431		2.57		%	66,883		2.77	%	497,955		2.58	%	—		—	%	588,751		2.60	%
Total held-to-maturity	Total held-to-maturity	—		—	%	17,132		2.47	%	71,471		2.72	%	114,672		3.04	%	—		—	%	203,275			2.88	%	Total held-to-maturity	482		1.82	%	23,431		2.57		%	66,883		2.77	%	497,955		2.58	%	—		—	%	588,751		2.60	%
Total debt securities	Total debt securities	$	145,977	3.12	%	$	298,658	3.39	%	$	346,650	3.32	%	$	1,131,015	3.37	%	$	1,814,925	2.38	%	$	3,737,225		2.87	%	Total debt securities	$	92,610	3.26	%	$	271,819	3.13		%	$	323,915	3.31	%	$	1,208,956	2.98	%	$	4,544,766	1.42	%	$	6,442,066	1.89	%

¹ Mortgage-backed securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.

Based on an analysis of its available-for-sale debt securities with unrealized losses as of ~~June 30, 2020,~~March 31, 2021, the Company determined their decline in value was unrelated to credit loss and was primarily the result of interest rate changes and market spreads subsequent to acquisition. The fair value of the debt securities is expected to recover as payments are received and the debt securities approach maturity. In addition, the Company determined an insignificant amount of credit losses is expected on the held-to-maturity debt securities portfolio; therefore, no ACL has been recognized at ~~June 30, 2020.~~March 31, 2021.

For additional information on debt securities, see Note 2 to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”

6055

Equity securities

Non-marketable equity securities primarily consist of capital stock issued by the FHLB of Des Moines and are carried at cost less impairment. The Company also has an insignificant amount of marketable equity securities that are included in other assets on the Company’s statements of financial condition.

Non-marketable equity securities and marketable equity securities without readily determinable fair values 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 and marketable equity securities without readily determinable fair values as of ~~June 30, 2020,~~March 31, 2021, the Company determined that none of such securities were impaired.

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, 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:


		June 30, 2020						December 31, 2019								June 30, 2019					March 31, 2021				December 31, 2020		March 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent		(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Residential real estate	Residential real estate	$	903,198	8	%	$	926,388	10	%	$	920,715	11	%	Residential real estate	$	745,097	7	%	$	802,508	7	%	$	957,830	10	%
Commercial real estate	Commercial real estate	6,047,692		54	%	5,579,307		59	%	4,959,863		57	%	Commercial real estate	6,474,701		58	%	6,315,895		58	%	5,928,303		60	%
Other commercial	Other commercial	3,547,249		31	%	2,094,254		22	%	2,076,605		24	%	Other commercial	3,100,584		28	%	3,054,817		28	%	2,239,878		23	%
Home equity	Home equity	654,392		6	%	617,201		7	%	596,041		7	%	Home equity	625,369		6	%	636,405		6	%	652,942		6	%
Other consumer	Other consumer	300,847		3	%	295,660		3	%	288,553		3	%	Other consumer	324,178		3	%	313,071		3	%	309,253		3	%
Loans receivable	Loans receivable	11,453,378		102	%	9,512,810		101	%	8,841,777		102	%	Loans receivable	11,269,929		102	%	11,122,696		102	%	10,088,206		102	%
Allowance for credit losses	Allowance for credit losses	(162,509)		(2)	%	(124,490)		(1)	%	(129,054)		(2)	%	Allowance for credit losses	(156,446)		(2)	%	(158,243)		(2)	%	(150,190)		(2)	%
Loans receivable, net	Loans receivable, net	$	11,290,869	100	%	$	9,388,320	100	%	$	8,712,723	100	%	Loans receivable, net	$	11,113,483	100	%	$	10,964,453	100	%	$	9,938,016	100	%

6156

Non-performing Assets

The following table summarizes information regarding non-performing assets at the dates indicated:


		At or for the Six Months ended			At or for the Three Months ended		At or for the Year ended		At or for the Six Months ended			At or for the Three Months ended			At or for the Year ended		At or for the Three Months ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020			March 31, 2020		December 31, 2019		June 30, 2019		(Dollars in thousands)	March 31, 2021			December 31, 2020		March 31, 2020
Other real estate owned	Other real estate owned	$	4,743		4,748		5,142		7,281		Other real estate owned	$	2,965		1,744		4,748
Accruing loans 90 days or more past due	Accruing loans 90 days or more past due										Accruing loans 90 days or more past due
Residential real estate	Residential real estate	206			701		753		1,333		Residential real estate	188			934		701
Commercial real estate	Commercial real estate	3,110			3,700		64		1,385		Commercial real estate	2,319			231		3,700
Other commercial	Other commercial	2,519			1,738		143		254		Other commercial	961			293		1,738
Home equity	Home equity	98			140		—		229		Home equity	26			135		140
Other consumer	Other consumer	138			345		452		262		Other consumer	239			132		345
Total	Total	6,071			6,624		1,412		3,463		Total	3,733			1,725		6,624
Non-accrual loans	Non-accrual loans										Non-accrual loans
Residential real estate	Residential real estate	4,243			4,433		4,715		5,744		Residential real estate	3,276			3,403		4,433
Commercial real estate	Commercial real estate	19,682			13,465		15,650		23,517		Commercial real estate	13,935			15,817		13,465
Other commercial	Other commercial	7,713			6,652		6,592		2,513		Other commercial	8,823			9,509		6,652
Home equity	Home equity	3,086			3,003		3,266		1,585		Home equity	2,805			2,713		3,003
Other consumer	Other consumer	433			453		660		7,836		Other consumer	1,048			522		453
Total	Total	35,157			28,006		30,883		41,195		Total	29,887			31,964		28,006
Total non-performing assets	Total non-performing assets	$	45,971		39,378		37,437		51,939		Total non-performing assets	$	36,585		35,433		39,378
Non-performing assets as a percentage of subsidiary assets	Non-performing assets as a percentage of subsidiary assets	0.27		%	0.26	%	0.27	%	0.41	%	Non-performing assets as a percentage of subsidiary assets	0.19		%	0.19	%	0.26	%
Allowance for credit losses as a percentage of non-performing loans		394		%	434	%	385	%	289	%
ACL as a percentage of non-performing loans											ACL as a percentage of non-performing loans	465		%	470	%	434	%
Accruing loans 30-89 days past due	Accruing loans 30-89 days past due	$	25,225		41,375		23,192		37,937		Accruing loans 30-89 days past due	$	44,616		22,721		41,375
Accruing troubled debt restructurings	Accruing troubled debt restructurings	$	41,759		44,371		34,055		25,019		Accruing troubled debt restructurings	$	41,345		42,003		44,371
Non-accrual troubled debt restructurings	Non-accrual troubled debt restructurings	$	8,204		6,911		3,346		6,041		Non-accrual troubled debt restructurings	$	4,702		3,507		6,911
U.S. government guarantees included in non-performing assets	U.S. government guarantees included in non-performing assets	$	3,305		3,204		1,786		2,785		U.S. government guarantees included in non-performing assets	$	2,778		3,011		3,204
Interest income ¹	Interest income ¹	$	851		353		1,603		1,057		Interest income 1	$	357		1,545		353

¹Amounts 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 of $~~46.0~~$36.6 million at ~~June 30, 2020~~March 31, 2021 increased $~~6.6~~$1.2 million, or 17 ~~percent,~~3 basis points, over the prior quarter and decreased $~~6.0~~$2.8 million, or 117 percent, over the prior year ~~second~~first quarter.Non-performing assets as a percentage of subsidiary assets at ~~June 30, 2020~~March 31, 2021 was ~~0.2~~7 ~~percent~~.0.19 percent. Excluding the government guaranteed PPP loans, the non-performing assets as a percentage of subsidiary assets at ~~June 30, 2020~~March 31, 2021 was ~~0.30~~0.19 percent, ~~at June 30, 2020,~~ anin~~crease~~ decrease of 41 basis ~~points~~point from the prior quarter and ~~a decrease of 1~~17 basis points decrease from the prior year first quarter.

~~second~~ ~~quarter.~~

Early stage delinquencies (accruing loans 30-89 days past due) of $~~25.2~~$44.6 million at ~~June 30, 2020~~ ~~decreased~~ $~~16.2~~March 31, 2021 increased $21.9 million from the prior quarter ~~and~~ ~~decreased~~ $~~12.7~~with the increase primarily isolated to one credit relationship. Early stage delinquencies increased $3.2 million from the prior year ~~second~~first quarter. Early stage delinquencies as a percentage of loans at ~~June 30,~~ ~~2020~~March 31, 2021 was 0.220.40 percent, which was a ~~decrease~~an increase of 1920 basis points from prior quarter and a 211 basis ~~points~~point decrease from prior year ~~second~~first quarter. Excluding PPP loans, early stage delinquencies as a percentage of loans at March 31, 2021 was 0.43 percent, which was an increase of 21 basis points from prior quarter and a 2 basis points increase from prior year first quarter.

6257

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. 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. With very limited exceptions, the Company does not disburse additional funds on non-performing loans. Instead, the Company proceeds 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, see Note 1 to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”

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 their obligations 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 has TDR loans of ~~$50.0~~$46.0 million and ~~$37.4~~$45.5 million at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

On March 27, 2020, the CARES Act was signed into law which includes many provisions that impact the Company and its customers. The banking regulatory agencies have encouraged banks to work with borrowers who have been impacted by the COVID-19 pandemic, and the CARES Act, along with related regulatory guidance, allows the Bank to not designate certain modifications as TDRs that otherwise may have been classified as TDRs. For additional information on modifications related to the COVID-19 pandemic, see the PPP and COVID-19 ~~Total~~Bank Loan Modifications ~~and PPP Loans section~~sections under “Additional Management’s Discussion and Analysis.”

Other Real Estate Owned

The book value of loans prior to the acquisition of collateral and transfer of the loans into other real estate owned (“OREO”) during ~~2020~~2021 was ~~$904~~$1,474 thousand. The fair value of the loan collateral acquired in foreclosure during ~~2020~~2021 was ~~$791~~$1,397 thousand. The following table sets forth the changes in OREO for the periods indicated:


		At or for the Six Months ended		At or for the Three Months ended	At or for the Year ended	At or for the Six Months ended		At or for the Three Months ended		At or for the Year ended	At or for the Three Months ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		March 31, 2020	December 31, 2019	June 30, 2019	(Dollars in thousands)	March 31, 2021		December 31, 2020	March 31, 2020
Balance at beginning of period	Balance at beginning of period	$	5,142	5,142	7,480	7,480	Balance at beginning of period	$	1,744	5,142	5,142
Acquisitions	Acquisitions	307		307	—	—	Acquisitions	—		307	307
Additions	Additions	791		465	2,349	1,914	Additions	1,397		2,076	465
Capital improvements	Capital improvements	72		51	63	—	Capital improvements	—		145	51
Write-downs	Write-downs	(60)		(60)	(766)	(144)	Write-downs	—		(451)	(60)
Sales	Sales	(1,509)		(1,157)	(3,984)	(1,969)	Sales	(176)		(5,475)	(1,157)
Balance at end of period	Balance at end of period	$	4,743	4,748	5,142	7,281	Balance at end of period	$	2,965	1,744	4,748

6358

~~COVID-19 Total Loan Modifications and~~ PPP Loans


	March 31, 2021
(Dollars in thousands)	Number of PPP Loans	Round 1 PPP 2020 Loans		Round 2 PPP 2021 Loans	Total PPP Loans	Total Loans Receivable, Net of PPP Loans	PPP Loans as a Percent of Total Loans Receivable, Net of PPP Loans
Residential real estate	—	$	—	—	—	745,097	—	%
Commercial real estate and other commercial
Real estate rental and leasing	684	14,795		13,970	28,765	3,614,584	0.80	%
Accommodation and food services	1,324	48,140		130,304	178,444	664,115	26.87	%
Healthcare	1,165	150,949		53,041	203,990	835,975	24.40	%
Manufacturing	506	20,013		25,002	45,015	181,641	24.78	%
Retail and wholesale trade	850	39,275		24,616	63,891	496,052	12.88	%
Construction	1,426	62,445		81,326	143,771	765,959	18.77	%
Other	5,148	153,592		158,323	311,915	2,041,167	15.28	%
Home equity and other consumer	—	—		—	—	949,548	—	%
Total	11,103	$	489,209	486,582	975,791	10,294,138	9.48	%

During the current quarter, the Company originated $487 million of Round 2 PPP loans which generated $27.7 million of SBA processing fees and $5.2 million of deferred compensation costs for total net deferred fees of $22.5 million. During the current quarter, the SBA processing fees received on Round 2 averaged 5.67 percent which compared to the average of 3.75 percent received on Round 1 in the prior year. The ~~following table summarizes information regarding COVID-19~~increase in the fee received was the result of an increase in the number of smaller loans which receive a higher percentage fee and the change in the SBA fee schedule for loans under $50 thousand.

The Company continued to submit applications to the SBA for Round 1 PPP loan ~~modifications~~forgiveness which resulted in a $426 million decrease in PPP loans during the current quarter. As of March 31, 2021, the Company had $489 million or 33 percent remaining of the original $1.472 billion of Round 1 PPP loans originated in the prior year.

The Company recognized $13.5 million of interest income (including deferred fees and costs) from the Round 1 and Round 2 PPP ~~loans:~~loans in the current quarter. The income recognized in the current quarter included $7.8 million acceleration of net deferred fees in interest income resulting from the SBA forgiveness of loans. Net deferred fees remaining on the balance of PPP loans at March 31, 2021 were $28.1 million, which will be recognized into interest income over the remaining life of the loans or when the loans are forgiven in whole or in part by the SBA.

June 30, 2020
(Dollars in thousands) Number of Loan Modifi-cations Amount of Loan Modifi-cations Number of PPP Loans Amount of PPP Loans Loans
Receivable, Net of PPP Loans Loan Modifi-cations (Amount) as a Percent of Loans
Receivable, Net of PPP Loans PPP Loans (Amount) as a Percent of Loans
Receivable, Net of PPP Loans
Residential real estate 227 $ 66,395 — $ — $ 903,198 7.35 % — %
Commercial real estate
and other commercial
Real estate rental
and leasing 607 587,609 1,072 62,382 3,244,073 18.11 % 1.92 %
Accommodation and
food services 413 395,882 1,373 144,036 644,648 61.41 % 22.34 %
Healthcare 264 126,808 1,752 263,259 792,272 16.01 % 33.23 %
Manufacturing 134 49,338 728 69,370 202,151 24.41 % 34.32 %
Retail and wholesale
trade 159 46,623 1,532 159,433 476,841 9.78 % 33.44 %
Construction 122 38,751 2,045 193,606 765,539 5.06 % 25.29 %
Other 580 192,060 6,789 534,660 2,042,671 9.40 % 26.17 %
Home equity and other
consumer 548 11,326 — — 955,239 1.19 % — %
Total 3,054 $ 1,514,792 15,291 $ 1,426,746 $ 10,026,632 15.11 % 14.23 %
COVID-19 Bank Loan Modifications


	March 31, 2021							December 31, 2020
(Dollars in thousands)	Total Loans Receivable, Net of PPP Loans		Amount of Unexpired Original Loan Modifications	Amount of Re-deferral Loan Modifications	Amount of Remaining Loan Modifications	Loan Modifications as a Percent of Total Loans Receivable, Net of PPP Loans		Amount of Remaining Loan Modifications		Loan Modifications as a Percent of Total Loans Receivable, Net of PPP Loans
Residential real estate	$	745,097	2,080	3,840	5,920	0.79	%	$	4,322	0.54	%
Commercial real estate and other commercial
Real estate rental and leasing	3,614,584		32,889	4,333	37,222	1.03	%	43,313		1.24	%
Accommodation and food services	664,115		269	14,641	14,910	2.25	%	22,054		3.35	%
Healthcare	835,975		4,013	6,482	10,495	1.26	%	1,131		0.14	%
Manufacturing	181,641		828	1,541	2,369	1.30	%	9,488		5.20	%
Retail and wholesale trade	496,052		932	408	1,340	0.27	%	2,655		0.56	%
Construction	765,959		764	—	764	0.10	%	927		0.12	%
Other	2,041,167		1,871	5,816	7,687	0.38	%	10,255		0.50	%
Home equity and other consumer	949,548		640	—	640	0.07	%	705		0.07	%
Total	$	10,294,138	44,286	37,061	81,347	0.79	%	$	94,850	0.93	%

In response to ~~the~~ COVID-19, ~~pandemic,~~ the Company modified 3,054 loans in the amount of $1.515 billion during the ~~current quarter.~~second quarter of 2020. These modifications were primarily short-term payment deferrals under six months. During the second half of 2020, the majority of the modified loan deferral periods expired, and the loans returned to regular payment status. As of March 31, 2021, $81.3 million of the modifications, or 79 basis points of the $10.294 billion of loans, net of the PPP loans, remain in the deferral period, a reduction of $13.5 million in the current quarter and a reduction of $1.433 billion from the $1.515 billion of the original loan modifications in the second quarter.

~~The PPP~~In addition to the Bank loan ~~originations generated $53.6 million~~modifications presented above, the state of ~~SBA processing fees, or an average~~Montana created the Montana Loan Deferment Program for only Montana-based businesses and was implemented only in the third quarter of ~~3.75 percent,~~2020. Cares Act Funds were used to provide interest payments upfront and ~~$8.4 million~~directly to lenders on behalf of ~~deferred compensation costs~~participating borrowers to convert existing commercial loans to interest only status, resulting in the deferral of principal and interest for ~~total net deferred fees~~a period of ~~$45.2 million. Net deferred fees remaining on the PPP loans at June 30, 2020 were $40.6 million, which will be recognized into interest income over the life~~six to twelve months. None of the ~~loans, generally two years, or when the loans~~interest payments are ~~forgiven~~required to be repaid by the ~~SBA.~~borrowers, thus providing a grant to the borrowers. This program was unique to Montana, had minimal qualification requirements, and required that participating lenders modify eligible loans to conform to the program in order for borrowers to qualify for the grant. As of March 31, 2021, the Company had $272 million in eligible loans benefiting from this grant program, which was 2.6 percent of total loans receivable, net of PPP loans. Given the unique nature of the Montana only grant program, the $272 million was not included in the Bank loan modifications presented above.

6460

COVID-19 Higher Risk Industries - Enhanced Monitoring

~~The~~


	March 31, 2021
(Dollars in thousands)	Enhanced Monitoring Total Loans Receivable, Net of PPP Loans		Percent of Total Loans Receivable, Net of PPP Loans		Amount of Unexpired Original Loan Modifications	Amount of Re-deferral Loan Modifications	Amount of Remaining Loan Modifications	Loan Modifications as a Percent of Enhanced Monitoring Loans Receivable, Net of PPP Loans
Hotel and motel	$	423,606	4.12	%	—	11,845	11,845	2.80	%
Restaurant	158,246		1.54	%	269	2,796	3,065	1.94	%
Travel and tourism	23,638		0.23	%	—	—	—	—	%
Gaming	13,971		0.14	%	—	—	—	—	%
Oil and gas	23,334		0.23	%	—	—	—	—	%
Total	$	642,795	6.24	%	269	14,641	14,910	2.32	%

Excluding the PPP loans, the Company has ~~certain~~$643 million, or 6 percent, of its total loan portfolio with direct exposure to industries for which it has identified as higher ~~risk. The following table summarizes information regarding these higher~~ risk, ~~loans:~~

June 30, 2020
(Dollars in thousands) Loans
Receivable, Net of PPP Loans Percent of Total Loans Receivable, Net of PPP Loans Average
Loan-To-
Value on Loans Receivable, Net of PPP Loans Amount of Loan Modifi-cations Loan Modifi-cations as a Percent of Loans
Receivable, Net of PPP Loans Amount of PPP Loans
Hotel and motel $ 421,569 4.20 % 50.75 % $ 300,747 71.34 % $ 36,933
Restaurant 150,515 1.50 % 68.97 % 76,632 50.91 % 93,853
Travel and tourism 20,758 0.21 % 52.66 % 7,845 37.79 % 9,969
Gaming 15,118 0.15 % 72.13 % 9,214 60.95 % 1,084
Oil and gas 22,748 0.23 % 57.61 % 6,013 26.43 % 24,315
Total $ 630,708 6.29 % $ 400,451 63.49 % $ 166,154

~~Excluding the PPP loans, the Company has $631~~requiring enhanced monitoring. As of March 31, 2021, $14.9 million, or 62.32 percent, of ~~its loan portfolio with direct exposure to~~the loans in the higher risk industries ~~requiring enhanced monitoring. The Company modified 63~~have modifications which was a reduction of $8.60 million, or 36 percent, from the $23.5 million of modifications at the end of the ~~higher risk loans which accounted for 26 percent of the total loan modifications during the current~~prior quarter. The Company ~~also originated $166 million in PPP loans~~continues to ~~support these customers which was 12 percent of the total PPP loans originated during the current quarter. Although there is limited exposure, the Company is conducting~~conduct enhanced portfolio reviews and monitoring for potential credit ~~deterioration related to the COVID-19 pandemic.~~deterioration.

Supplemental information regarding credit quality and identification of the Company’s loan portfolio based on regulatory classification is provided in the exhibits at the end of this press release. The regulatory classification of loans is based primarily on collateral type while the Company’s loan segments presented herein are based on the purpose of the loan.

Allowance for Credit Losses - Loans Receivable

On January 1, 2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Updates (“ASU”) 2016-13, Financial Instruments - Credit Losses, which significantly changed the allowance for credit loss accounting policies. The following allowance for credit loss discussion was presented under Accounting Standards Codification™ (“ASC”) Topic ~~326, whereas prior periods are presented in accordance with the incurred loss model as disclosed in the Company’s 2019 Annual Report on Form 10-K.~~326.

The following table summarizes the allocation of the ACL as of the dates indicated:


		June 30, 2020										December 31, 2019												June 30, 2019										March 31, 2021						December 31, 2020	March 31, 2020
(Dollars in thousands)	(Dollars in thousands)	ACL		Percent of ACL in Category		Percent of Loans in Category		ACL		Percent of ACL in Category		Percent of Loans in Category		ACL		Percent of ACL in Category		Percent of Loans in Category		(Dollars in thousands)	ACL		Percent of ACL in Category			Percent of Loans in Category		ACL		Percent of ACL in Category		Percent of Loans in Category		ACL		Percent of ACL in Category		Percent of Loans in Category
Residential real estate	Residential real estate	$	9,986	6	%	8	%	$	10,111	8	%	10	%	$	10,695	8	%	10	%	Residential real estate	$	9,018	6		%	7	%	$	9,604	6	%	7	%	$	9,315	6	%	10	%
Commercial real estate	Commercial real estate	89,104		55	%	53	%	69,496		56	%	59	%	72,447		56	%	56	%	Commercial real estate	95,251		61		%	57	%	86,999		55	%	57	%	71,085		47	%	59	%
Other commercial	Other commercial	48,838		30	%	31	%	36,129		29	%	22	%	36,259		28	%	24	%	Other commercial	39,385		25		%	27	%	49,133		31	%	27	%	56,172		38	%	22	%
Home equity	Home equity	9,962		6	%	6	%	4,937		4	%	6	%	5,801		5	%	7	%	Home equity	8,068		5		%	6	%	8,182		5	%	6	%	7,934		5	%	6	%
Other consumer	Other consumer	4,619		3	%	2	%	3,817		3	%	3	%	3,852		3	%	3	%	Other consumer	4,724		3		%	3	%	4,325		3	%	3	%	5,684		4	%	3	%
Total	Total	$	162,509	100	%	100	%	$	124,490	100	%	100	%	$	129,054	100	%	100	%	Total	$	156,446	100		%	100	%	$	158,243	100	%	100	%	$	150,190	100	%	100	%

6562

The following table summarizes the ACL experience for the periods indicated:


		At or for the Six Months ended			At or for the Three Months ended		At or for the Year ended		At or for the Six Months ended			At or for the Three Months ended			At or for the Year ended		At or for the Three Months ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020			March 31, 2020		December 31, 2019		June 30, 2019		(Dollars in thousands)	March 31, 2021			December 31, 2020		March 31, 2020
Balance at beginning of period	Balance at beginning of period	$	124,490		124,490		131,239		131,239		Balance at beginning of period	$	158,243		124,490		124,490
Impact of adopting CECL	Impact of adopting CECL	3,720			3,720		—		—		Impact of adopting CECL	—			3,720		3,720
Acquisitions	Acquisitions	49			49		—		—		Acquisitions	—			49		49
Credit loss expense		36,296			22,744		57		57
Provision for credit losses											Provision for credit losses	489			37,637		22,744
Charge-offs	Charge-offs										Charge-offs
Residential real estate	Residential real estate	(21)			(20)		(608)		(341)		Residential real estate	(38)			(21)		(20)
Commercial real estate	Commercial real estate	(180)			(30)		(2,460)		(409)		Commercial real estate	—			(3,497)		(30)
Other commercial	Other commercial	(1,873)			(785)		(4,189)		(1,198)		Other commercial	(2,762)			(4,860)		(785)
Home equity	Home equity	(194)			(1)		(90)		(28)		Home equity	(45)			(384)		(1)
Other consumer	Other consumer	(2,967)			(1,731)		(7,831)		(4,224)		Other consumer	(1,401)			(5,046)		(1,731)
Total charge-offs	Total charge-offs	(5,235)			(2,567)		(15,178)		(6,200)		Total charge-offs	(4,246)			(13,808)		(2,567)
Recoveries	Recoveries										Recoveries
Residential real estate	Residential real estate	19			9		251		232		Residential real estate	34			61		9
Commercial real estate	Commercial real estate	330			470		2,212		752		Commercial real estate	789			1,094		470
Other commercial	Other commercial	1,182			454		2,181		1,041		Other commercial	279			1,811		454
Home equity	Home equity	153			106		79		27		Home equity	20			256		106
Other consumer	Other consumer	1,505			715		3,649		1,906		Other consumer	838			2,933		715
Total recoveries	Total recoveries	3,189			1,754		8,372		3,958		Total recoveries	1,960			6,155		1,754
Net charge-offs	Net charge-offs	(2,046)			(813)		(6,806)		(2,242)		Net charge-offs	(2,286)			(7,653)		(813)
Balance at end of period	Balance at end of period	$	162,509		150,190		124,490		129,054		Balance at end of period	$	156,446		158,243		150,190
ACL as a percentage of total loans	ACL as a percentage of total loans	1.42		%	1.49	%	1.31	%	1.46	%	ACL as a percentage of total loans	1.39		%	1.42	%	1.49	%
Net charge-offs as a percentage of total loans	Net charge-offs as a percentage of total loans	0.02		%	0.01	%	0.07	%	0.03	%	Net charge-offs as a percentage of total loans	0.02		%	0.07	%	0.01	%

~~The Company’s adoption of the CECL accounting standard resulted in a $3.7 million increase in the allowance for credit losses.~~ The current quarter provision for credit loss expense on loans of $489 thousand was ~~$13.6 million, a decrease~~an increase of ~~$9.2~~$2.0 million from the prior quarter provision for credit loss benefit of $1.5 million and a $22.3 million decrease from the prior year first quarter provision for credit loss expense of $22.7 million. The ~~increase~~higher levels of provision for credit losses in the ~~ACL during the~~prior year first ~~six months~~quarter was ~~primarily attributable to the Company recognizing $37.6 million of~~from credit ~~loss expense~~losses related to ~~the~~ COVID-19 ~~pandemic~~ and an additional $4.8 ~~million~~ of provision for credit ~~loss expense~~losses related to the ~~SBAZ acquisition.~~acquisition of State Bank Corp. (“SBAZ”). The ~~ACL~~allowance for credit losses on loans (“ACL”) as a percentage of total loans outstanding at ~~June 30, 2020~~March 31, 2021 was ~~1.42~~1.39 percent which was a 73 basis points decrease compared to the prior quarter. ~~The decrease was the result of originating $1.427 billion of government guaranteed PPP loans for which no ACL was recorded.~~ Excluding the PPP loans, the ACL as percentage of loans was ~~1.62~~1.51 percent ~~a 13 basis points increase over~~compared to 1.55 percent in as of the prior quarter and ~~was primarily the result of changes~~1.49 percent in the ~~economic forecast related to the COVID-19 pandemic.~~ prior year first quarter. The Company’s ACL of ~~$163~~$156 million is considered adequate to absorb the estimated credit losses from any segment of its loan portfolio. For the periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company believes the ACL 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.

While the Company has incorporated its estimate of the impact of the COVID-19 pandemic into its calculation of the allowance based on assumptions and forecasts that existed as of the reporting period end, the uncertainty of the current economic environment remains volatile and the Company cannot predict whether additional credit losses will be sustained as a result of the COVID-19 pandemic if assumptions and forecasts change in the future.

At the end of each quarter, the Company analyzes its loan portfolio and maintains an ACL at a level that is appropriate and determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Determining the adequacy of the ACL involves a high degree of judgment and is inevitably imprecise as the risk of loss is difficult to quantify. The ACL methodology is designed to reasonably estimate the probable credit losses within the Company’s loan portfolio. Accordingly, the ACL is maintained within a range of estimated losses. The determination of the ACL on loans, including credit loss expense and net charge-offs, is a critical accounting estimate that involves management’s judgments about the loan portfolio that impact credit losses, including the credit risk inherent in the loan portfolio, economic forecasts nationally and in the local markets in which the Company operates, trends and changes in collateral values, delinquencies, non-performing assets, net charge-offs, credit-related policies and personnel, and other environmental factors.

In determining the allowance, the loan portfolio is separated into pools of loans that share similar risk characteristics which are the Company’s loan segments. The Company then derives estimated loss assumptions from its model by loan segment which is further segregated by the credit quality indicators. The loss assumptions are then applied to each segment of loan to estimate the ACL on the pooled loans. For any loans that do not share similar risk characteristics, the estimated credit losses are determined on an individual loan basis and such loans primarily consist of non-accrual loans. An estimated credit loss is recorded on individually reviewed loans when the fair value of a collateral-dependent loan or the present value of the loan’s expected future cash flows (discounted at the loans original effective interest rate) is less than the amortized cost of the loan.

The Company provides commercial banking services to individuals, small to medium-sized businesses, community organizations and public entities from ~~192~~193 locations, including ~~174~~172 branches, across Montana, Idaho, Utah, Washington, Wyoming, Colorado, Arizona and Nevada. 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. The geographic dispersion of these market areas helps to mitigate the risk of credit loss. The Company’s model of sixteen bank divisions with separate management teams is also a significant benefit in mitigating and managing the Company’s credit risk. This model provides substantial local oversight to the lending and credit management function and requires multiple reviews of larger loans before credit is extended.

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 non-performing loans is necessary to support management’s evaluation of the ACL adequacy. An independent loan review function verifying credit risk ratings evaluates the loan officer and management’s evaluation of the loan portfolio credit quality. The ACL evaluation is well documented and approved by the Company’s Board. In addition, the policy and procedures for determining the balance of the ACL are reviewed annually by the Company’s Board, the internal audit department, independent credit reviewers and state and federal bank regulatory agencies.

Although the Company continues to actively monitor economic trends and regulatory developments, no assurance can be given that the Company will not, in any particular period, sustain losses that are significant relative to the ACL amount, or that subsequent evaluations of the loan portfolio applying management’s judgment about then current factors will not require significant changes in the ACL. Under such circumstances, additional credit loss expense could result.

For additional information regarding the ACL, its relation to credit loss expense and risk related to asset quality, see Note 3 to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”

6764

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 which are based on the purpose of the loan.

The following table summarizes the Company’s loan portfolio by regulatory classification:


		Loans Receivable, by Loan Type																% Change from							Loans Receivable, by Loan Type		% Change from
(Dollars in thousands)	(Dollars in thousands)	Jun 30, 2020		Mar 31, 2020		Dec 31, 2019		Jun 30, 2019		Mar 31, 2020		Dec 31, 2019		Jun 30, 2019		(Dollars in thousands)	Mar 31, 2021		Dec 31, 2020		Mar 31, 2020		Dec 31, 2020		Mar 31, 2020
Custom and owner occupied construction	Custom and owner occupied construction	$	177,172	$	172,238	$	143,479	$	140,186	3	%	23	%	26	%	Custom and owner occupied construction	$	153,226	$	157,529	$	172,238	(3)	%	(11)	%
Pre-sold and spec construction	Pre-sold and spec construction	161,964		180,799		180,539		171,464		(10)	%	(10)	%	(6)	%	Pre-sold and spec construction	154,312		148,845		180,799		4	%	(15)	%
Total residential construction	Total residential construction	339,136		353,037		324,018		311,650		(4)	%	5	%	9	%	Total residential construction	307,538		306,374		353,037		—	%	(13)	%
Land development	Land development	94,667		101,644		101,592		120,052		(7)	%	(7)	%	(21)	%	Land development	103,960		102,930		101,644		1	%	2	%
Consumer land or lots	Consumer land or lots	120,015		121,082		125,759		128,544		(1)	%	(5)	%	(7)	%	Consumer land or lots	133,409		123,747		121,082		8	%	10	%
Unimproved land	Unimproved land	63,459		65,355		62,563		74,244		(3)	%	1	%	(15)	%	Unimproved land	62,002		59,500		65,355		4	%	(5)	%
Developed lots for operative builders	Developed lots for operative builders	26,647		32,661		17,390		14,117		(18)	%	53	%	89	%	Developed lots for operative builders	27,310		30,449		32,661		(10)	%	(16)	%
Commercial lots	Commercial lots	60,563		59,023		46,408		57,447		3	%	31	%	5	%	Commercial lots	61,289		60,499		59,023		1	%	4	%
Other construction	Other construction	477,922		453,403		478,368		453,782		5	%	—	%	5	%	Other construction	604,326		555,375		453,403		9	%	33	%
Total land, lot, and other construction	Total land, lot, and other construction	843,273		833,168		832,080		848,186		1	%	1	%	(1)	%	Total land, lot, and other construction	992,296		932,500		833,168		6	%	19	%
Owner occupied	Owner occupied	1,855,994		1,813,284		1,667,526		1,418,190		2	%	11	%	31	%	Owner occupied	1,973,309		1,945,686		1,813,284		1	%	9	%
Non-owner occupied	Non-owner occupied	2,238,586		2,200,664		2,017,375		1,780,988		2	%	11	%	26	%	Non-owner occupied	2,372,644		2,290,512		2,200,664		4	%	8	%
Total commercial real estate	Total commercial real estate	4,094,580		4,013,948		3,684,901		3,199,178		2	%	11	%	28	%	Total commercial real estate	4,345,953		4,236,198		4,013,948		3	%	8	%
Commercial and industrial	Commercial and industrial	2,342,081		1,151,817		991,580		1,024,828		103	%	136	%	129	%	Commercial and industrial	1,883,438		1,850,197		1,151,817		2	%	64	%
Agriculture	Agriculture	714,227		694,444		701,363		697,893		3	%	2	%	2	%	Agriculture	728,579		721,490		694,444		1	%	5	%
1st lien	1st lien	1,227,514		1,213,232		1,186,889		1,154,221		1	%	3	%	6	%	1st lien	1,130,339		1,228,867		1,213,232		(8)	%	(7)	%
Junior lien	Junior lien	47,121		49,071		53,571		53,055		(4)	%	(12)	%	(11)	%	Junior lien	35,230		41,641		49,071		(15)	%	(28)	%
Total 1-4 family	Total 1-4 family	1,274,635		1,262,303		1,240,460		1,207,276		1	%	3	%	6	%	Total 1-4 family	1,165,569		1,270,508		1,262,303		(8)	%	(8)	%
Multifamily residential	Multifamily residential	343,870		352,379		342,498		278,539		(2)	%	—	%	23	%	Multifamily residential	380,172		391,895		352,379		(3)	%	8	%
Home equity lines of credit	Home equity lines of credit	655,492		656,953		617,900		592,355		—	%	6	%	11	%	Home equity lines of credit	664,800		657,626		656,953		1	%	1	%
Other consumer	Other consumer	181,402		180,832		174,643		167,964		—	%	4	%	8	%	Other consumer	191,152		190,186		180,832		1	%	6	%
Total consumer	Total consumer	836,894		837,785		792,543		760,319		—	%	6	%	10	%	Total consumer	855,952		847,812		837,785		1	%	2	%
States and political subdivisions	States and political subdivisions	581,673		566,953		533,023		454,085		3	%	9	%	28	%	States and political subdivisions	546,086		575,647		566,953		(5)	%	(4)	%
Other	Other	198,354		116,991		139,538		114,534		70	%	42	%	73	%	Other	183,077		156,647		116,991		17	%	56	%
Total loans receivable, including loans held for sale	Total loans receivable, including loans held for sale	11,568,723		10,182,825		9,582,004		8,896,488		14	%	21	%	30	%	Total loans receivable, including loans held for sale	11,388,660		11,289,268		10,182,825		1	%	12	%
Less loans held for sale ¹	Less loans held for sale ¹	(115,345)		(94,619)		(69,194)		(54,711)		22	%	67	%	111	%	Less loans held for sale 1	(118,731)		(166,572)		(94,619)		(29)	%	25	%
Total loans receivable	Total loans receivable	$	11,453,378	$	10,088,206	$	9,512,810	$	8,841,777	14	%	20	%	30	%	Total loans receivable	$	11,269,929	$	11,122,696	$	10,088,206	1	%	12	%

¹ Loans held for sale are primarily 1st lien 1-4 family loans.

6865

The following table summarizes the Company’s non-performing assets by regulatory classification:


		Non-performing Assets, by Loan Type										Non- Accrual Loans		Accruing Loans 90 Days or More Past Due		OREO	Non-performing Assets, by Loan Type			Non- Accrual Loans	Accruing Loans 90 Days or More Past Due	OREO
(Dollars in thousands)	(Dollars in thousands)	Jun 30, 2020		Mar 31, 2020	Dec 31, 2019	Jun 30, 2019	Jun 30, 2020	Jun 30, 2020	Jun 30, 2020					Mar 31, 2021		Dec 31, 2020	Mar 31, 2020			Mar 31, 2021
Custom and owner occupied construction	Custom and owner occupied construction	$	440	188	185	283	440	—	—				247		188			246	—	—
Pre-sold and spec construction	Pre-sold and spec construction	—		96	743	1,261	—	—	—	Pre-sold and spec construction	—		—		96			—	—	—
Total residential construction	Total residential construction	440		284	928	1,544	440	—	—	Total residential construction	246		247		284			246	—	—
Land development	Land development	659		1,432	852	1,272	411	—	248	Land development	330		342		1,432			82	—	248
Consumer land or lots	Consumer land or lots	427		471	330	1,075	239	26	162	Consumer land or lots	325		201		471			198	—	127
Unimproved land	Unimproved land	663		680	1,181	8,864	387	—	276	Unimproved land	243		294		680			197	—	46

Commercial lots	Commercial lots	529		529	529	575	—	—	529	Commercial lots	368		368		529			—	—	368
Other construction		—		—	—	241	—	—	—

Total land, lot and other construction	Total land, lot and other construction	2,278		3,112	2,892	12,027	1,037	26	1,215	Total land, lot and other construction	1,266		1,205		3,112			477	—	789
Owner occupied	Owner occupied	9,424		5,269	4,608	6,998	7,770	209	1,445	Owner occupied	5,272		6,725		5,269			5,152	—	120
Non-owner occupied	Non-owner occupied	5,482		5,133	8,229	7,198	5,482	—	—	Non-owner occupied	4,615		4,796		5,133			4,615	—	—
Total commercial real estate	Total commercial real estate	14,906		10,402	12,837	14,196	13,252	209	1,445	Total commercial real estate	9,887		11,521		10,402			9,767	—	120
Commercial and industrial	Commercial and industrial	5,039		5,438	5,297	5,690	4,609	265	165	Commercial and industrial	6,100		6,689		5,438			5,536	129	435
Agriculture	Agriculture	11,087		7,263	2,288	4,228	6,288	4,799	—	Agriculture	8,392		6,313		7,263			5,502	2,890	—
1st lien	1st lien	7,634		8,410	8,671	10,211	5,426	401	1,807	1st lien	4,303		5,353		8,410			4,115	188	—
Junior lien	Junior lien	746		640	569	592	567	179	—	Junior lien	290		301		640			262	28	—
Total 1-4 family	Total 1-4 family	8,380		9,050	9,240	10,803	5,993	580	1,807	Total 1-4 family	4,593		5,654		9,050			4,377	216	—
Multifamily residential	Multifamily residential	92		402	201	—	92	—	—	Multifamily residential	—		—		402			—	—	—
Home equity lines of credit	Home equity lines of credit	3,048		2,617	2,618	2,474	2,879	80	89	Home equity lines of credit	3,614		2,939		2,617			2,684	—	930
Other consumer	Other consumer	412		520	837	597	290	100	22	Other consumer	1,017		572		520			866	151	—
Total consumer	Total consumer	3,460		3,137	3,455	3,071	3,169	180	111	Total consumer	4,631		3,511		3,137			3,550	151	930

Other	Other	289		290	299	380	277	12	—	Other	1,470		293		290			432	347	691
Total	Total	$	45,971	39,378	37,437	51,939	35,157	6,071	4,743	Total	$	36,585	35,433		39,378			29,887	3,733	2,965

6966

The following table summarizes the Company’s accruing loans 30-89 days past due by regulatory classification:


		Accruing 30-89 Days Delinquent Loans, by Loan Type																% Change from							Accruing 30-89 Days Delinquent Loans, by Loan Type		% Change from
(Dollars in thousands)	(Dollars in thousands)	Jun 30, 2020		Mar 31, 2020		Dec 31, 2019		Jun 30, 2019		Mar 31, 2020		Dec 31, 2019		Jun 30, 2019		(Dollars in thousands)	Mar 31, 2021		Dec 31, 2020		Mar 31, 2020		Dec 31, 2020		Mar 31, 2020
Custom and owner occupied construction	Custom and owner occupied construction	$	—	$	2,176	$	637	$	49	(100)	%	(100)	%	(100)	%	Custom and owner occupied construction	$	963	$	788	$	2,176	22	%	(56)	%
Pre-sold and spec construction	Pre-sold and spec construction	—		328		148		219		(100)	%	(100)	%	(100)	%	Pre-sold and spec construction	—		—		328		n/m		(100)	%
Total residential construction	Total residential construction	—		2,504		785		268		(100)	%	(100)	%	(100)	%	Total residential construction	963		788		2,504		22	%	(62)	%
Land development	Land development	—		840		—		1,990		(100)		n/m		(100)	%	Land development	—		202		840		(100)		(100)	%
Consumer land or lots	Consumer land or lots	248		321		672		206		(23)	%	(63)	%	20	%	Consumer land or lots	215		71		321		203	%	(33)	%
Unimproved land	Unimproved land	411		934		558		658		(56)	%	(26)	%	(38)	%	Unimproved land	334		357		934		(6)	%	(64)	%
Developed lots for operative builders	Developed lots for operative builders	—		—		2		—		n/m		(100)	%	n/m		Developed lots for operative builders	—		306		—		(100)	%	n/m
Commercial lots	Commercial lots	153		216		—		—		(29)	%	n/m		n/m		Commercial lots	—		—		216		n/m		(100)	%

Other construction																Other construction	1,520		—		—		n/m		n/m
Total land, lot and other construction	Total land, lot and other construction	812		2,311		1,232		2,854		(65)	%	(34)	%	(72)	%	Total land, lot and other construction	2,069		936		2,311		121	%	(10)	%
Owner occupied	Owner occupied	1,512		3,235		3,052		5,322		(53)	%	(50)	%	(72)	%	Owner occupied	1,784		3,432		3,235		(48)	%	(45)	%
Non-owner occupied	Non-owner occupied	966		4,764		1,834		11,700		(80)	%	(47)	%	(92)	%	Non-owner occupied	2,407		149		4,764		1,515	%	(49)	%
Total commercial real estate	Total commercial real estate	2,478		7,999		4,886		17,022		(69)	%	(49)	%	(85)	%	Total commercial real estate	4,191		3,581		7,999		17	%	(48)	%
Commercial and industrial	Commercial and industrial	4,127		6,122		2,036		3,006		(33)	%	103	%	37	%	Commercial and industrial	2,063		1,814		6,122		14	%	(66)	%
Agriculture	Agriculture	12,084		6,210		4,298		3,125		95	%	181	%	287	%	Agriculture	25,458		1,553		6,210		1,539	%	310	%
1st lien	1st lien	656		7,419		4,711		2,776		(91)	%	(86)	%	(76)	%	1st lien	5,984		6,677		7,419		(10)	%	(19)	%
Junior lien	Junior lien	160		795		624		1,302		(80)	%	(74)	%	(88)	%	Junior lien	18		55		795		(67)	%	(98)	%
Total 1-4 family	Total 1-4 family	816		8,214		5,335		4,078		(90)	%	(85)	%	(80)	%	Total 1-4 family	6,002		6,732		8,214		(11)	%	(27)	%
Multifamily residential		—		—		—		1,598		n/m		n/m		(100)

Home equity lines of credit	Home equity lines of credit	3,330		5,549		2,352		3,931		(40)	%	42	%	(15)	%	Home equity lines of credit	1,223		2,840		5,549		(57)	%	(78)	%
Other consumer	Other consumer	739		1,456		1,187		1,683		(49)	%	(38)	%	(56)	%	Other consumer	519		1,054		1,456		(51)	%	(64)	%
Total consumer	Total consumer	4,069		7,005		3,539		5,614		(42)	%	15	%	(28)	%	Total consumer	1,742		3,894		7,005		(55)	%	(75)	%
States and political subdivisions	States and political subdivisions	124		—		—		—		n/m		n/m		n/m		States and political subdivisions	375		2,358		—		(84)	%	n/m
Other	Other	715		1,010		1,081		372		(29)	%	(34)	%	92	%	Other	1,753		1,065		1,010		65	%	74	%
Total	Total	$	25,225	$	41,375	$	23,192	$	37,937	(39)	%	9	%	(34)	%	Total	$	44,616	$	22,721	$	41,375	96	%	8	%

n/m - not measurable

7067

The following table summarizes the Company’s charge-offs and recoveries by regulatory classification:


		Net Charge-Offs (Recoveries), Year-to-Date Period Ending, By Loan Type											Charge-Offs		Recoveries	Net Charge-Offs (Recoveries), Year-to-Date Period Ending, By Loan Type			Charge-Offs	Recoveries
(Dollars in thousands)	(Dollars in thousands)	Jun 30, 2020		Mar 31, 2020	Dec 31, 2019	Jun 30, 2019	Jun 30, 2020	Jun 30, 2020	(Dollars in thousands)	Mar 31, 2021		Dec 31, 2020		Mar 31, 2020			Mar 31, 2021	Mar 31, 2021
Custom and owner occupied construction	Custom and owner occupied construction	$	—	—	98	—	—	—	Custom and owner occupied construction	$	—	(9)		—			—	—
Pre-sold and spec construction	Pre-sold and spec construction	(12)		(6)	(18)	(6)	—	12	Pre-sold and spec construction	(7)		(24)		(6)			—	7
Total residential construction	Total residential construction	(12)		(6)	80	(6)	—	12	Total residential construction	(7)		(33)		(6)			—	7
Land development	Land development	(50)		(275)	(30)	15	—	50	Land development	(75)		(106)		(275)			—	75
Consumer land or lots	Consumer land or lots	(17)		3	(138)	(2)	7	24	Consumer land or lots	(141)		(221)		3			—	141
Unimproved land	Unimproved land	(287)		(37)	(311)	(54)	—	287	Unimproved land	(21)		(489)		(37)			—	21
Developed lots for operative builders		—		—	(18)	(18)	—	—

Commercial lots	Commercial lots	(3)		(1)	(6)	(3)	—	3	Commercial lots	—		(55)		(1)			—	—
Other construction		—		—	(142)	(32)	—	—

Total land, lot and other construction	Total land, lot and other construction	(357)		(310)	(645)	(94)	7	364	Total land, lot and other construction	(237)		(871)		(310)			—	237
Owner occupied	Owner occupied	(49)		(16)	(479)	139	30	79	Owner occupied	(54)		(168)		(16)			—	54
Non-owner occupied	Non-owner occupied	115		(20)	2,015	7	150	35	Non-owner occupied	(505)		3,030		(20)			—	505
Total commercial real estate	Total commercial real estate	66		(36)	1,536	146	180	114	Total commercial real estate	(559)		2,862		(36)			—	559
Commercial and industrial	Commercial and industrial	576		61	1,472	37	1,034	458	Commercial and industrial	80		1,533		61			168	88
Agriculture	Agriculture	33		36	21	(32)	37	4	Agriculture	(1)		337		36			4	5
1st lien	1st lien	—		14	(12)	56	21	21	1st lien	5		69		14			41	36
Junior lien	Junior lien	(129)		(110)	(303)	(222)	27	156	Junior lien	(47)		(211)		(110)			—	47
Total 1-4 family	Total 1-4 family	(129)		(96)	(315)	(166)	48	177	Total 1-4 family	(42)		(142)		(96)			41	83
Multifamily residential	Multifamily residential	(43)		(43)	—	—	—	43	Multifamily residential	—		(244)		(43)			—	—
Home equity lines of credit	Home equity lines of credit	24		(103)	19	(11)	166	142	Home equity lines of credit	25		101		(103)			41	16
Other consumer	Other consumer	161		88	603	313	281	120	Other consumer	46		307		88			119	73
Total consumer	Total consumer	185		(15)	622	302	447	262	Total consumer	71		408		(15)			160	89

Other	Other	1,727		1,222	4,035	2,055	3,482	1,755	Other	2,981		3,803		1,222			3,873	892
Total	Total	$	2,046	813	6,806	2,242	5,235	3,189	Total	$	2,286	7,653		813			4,246	1,960

7168

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 debt securities, securities sold under agreements to repurchase (“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’s deposits are summarized below:


		June 30, 2020						December 31, 2019								June 30, 2019					March 31, 2021				December 31, 2020		March 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent		(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Non-interest bearing deposits	Non-interest bearing deposits	$	5,043,704	38	%	$	3,696,627	34	%	$	3,265,077	33	%	Non-interest bearing deposits	$	6,040,440	37	%	$	5,454,539	37	%	$	3,875,848	34	%
NOW and DDA accounts	NOW and DDA accounts	3,113,863		23	%	2,645,404		25	%	2,487,806		25	%	NOW and DDA accounts	4,035,455		25	%	3,698,559		25	%	2,860,563		25	%
Savings accounts	Savings accounts	1,756,503		13	%	1,485,487		14	%	1,412,046		14	%	Savings accounts	2,206,592		14	%	2,000,174		13	%	1,578,062		14	%
Money market deposit accounts	Money market deposit accounts	2,403,641		18	%	1,937,141		18	%	1,647,372		17	%	Money market deposit accounts	2,817,708		18	%	2,627,336		18	%	2,155,203		18	%
Certificate accounts	Certificate accounts	995,536		7	%	958,501		9	%	897,625		9	%	Certificate accounts	965,986		6	%	978,779		7	%	1,025,237		9	%
Wholesale deposits	Wholesale deposits	68,285		1	%	53,297		—	%	144,949		2	%	Wholesale deposits	38,143		—	%	38,142		—	%	62,924		—	%
Total interest bearing deposits	Total interest bearing deposits	8,337,828		62	%	7,079,830		66	%	6,589,798		67	%	Total interest bearing deposits	10,063,884		63	%	9,342,990		63	%	7,681,989		66	%
Total deposits	Total deposits	$	13,381,532	100	%	$	10,776,457	100	%	$	9,854,875	100	%	Total deposits	$	16,104,324	100	%	$	14,797,529	100	%	$	11,557,837	100	%

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. 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 debt 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.

Additionally, the Company has other sources of secured and unsecured borrowing lines from various sources that may be used from time to time.

7269

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 Six Months ended			At or for the Year ended			At or for the Three Months ended			At or for the Year ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020			December 31, 2019		(Dollars in thousands)	March 31, 2021			December 31, 2020
Repurchase agreements	Repurchase agreements						Repurchase agreements
Amount outstanding at end of period	Amount outstanding at end of period	$	881,227		569,824		Amount outstanding at end of period	$	996,878		1,004,583
Weighted interest rate on outstanding amount	Weighted interest rate on outstanding amount	0.49		%	0.74	%	Weighted interest rate on outstanding amount	0.29		%	0.33	%
Maximum outstanding at any month-end	Maximum outstanding at any month-end	$	881,227		569,824		Maximum outstanding at any month-end	$	1,015,522		1,004,583
Average balance	Average balance	$	641,785		470,351		Average balance	$	1,001,394		783,100
Weighted-average interest rate	Weighted-average interest rate	0.59		%	0.79	%	Weighted-average interest rate	0.28		%	0.46	%

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. Subordinated debentures were issued in conjunction with the trust preferred securities and the terms of the subordinated debentures and trust preferred securities are the same. For regulatory capital purposes, the trust preferred securities are included in Tier 2 capital at June 30, 2020. Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 require that if a depository institution holding company exceeds $15 billion due to an acquisition, then trust preferred securities are to be excluded from Tier 1 capital beginning in the period in which the transaction occurred. During the current year, the Company’s acquisition of SBAZ resulted in total consolidated assets exceeding $15 billion; accordingly, trust preferred securities are now included in Tier 2 capital. The Company also has subordinated debt that qualifies as Tier 2 capital.March 31, 2021. The subordinated debentures outstanding as of ~~June 30, 2020~~March 31, 2021 were ~~$140~~$132 million, including fair value adjustments from acquisitions.

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 unfunded loan commitments, which are not reflected in the accompanying condensed consolidated financial statements. The Company assessed the off-balance sheet credit exposures as of ~~June 30, 2020~~March 31, 2021 and determined its ACL of ~~$13.8~~$15.6 million was adequate to absorb the estimated credit losses.

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 variable interest entities (“VIE”), see Note 6 to the Unaudited Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”

7370

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., debt 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)	(Dollars in thousands)	June 30, 2020		December 31, 2019	(Dollars in thousands)	March 31, 2021		December 31, 2020
FHLB advances	FHLB advances				FHLB advances
Borrowing capacity	Borrowing capacity	$	2,665,832	2,360,599	Borrowing capacity	$	2,495,753	2,446,759
Amount utilized	Amount utilized	(37,958)		(38,589)	Amount utilized	—		—
Letters of credit					Letters of credit	(1,498)		(1,498)
Amount available	Amount available	$	2,627,874	2,322,010	Amount available	$	2,494,255	2,445,261
FRB discount window	FRB discount window				FRB discount window
Borrowing capacity	Borrowing capacity	$	1,187,601	1,061,872	Borrowing capacity	$	1,355,044	1,269,778
Amount utilized	Amount utilized	—		—	Amount utilized	—		—
Amount available	Amount available	$	1,187,601	1,061,872	Amount available	$	1,355,044	1,269,778
Unsecured lines of credit available	Unsecured lines of credit available	$	445,000	230,000	Unsecured lines of credit available	$	635,000	635,000
Unencumbered debt securities	Unencumbered debt securities				Unencumbered debt securities
U.S. government and federal agency	U.S. government and federal agency	$	41,731	19,540	U.S. government and federal agency	$	35,863	38,588
U.S. government sponsored enterprises	U.S. government sponsored enterprises	10,863		7,416	U.S. government sponsored enterprises	5,253		9,781
State and local governments	State and local governments	233,570		527,348	State and local governments	346,650		185,680
Corporate bonds	Corporate bonds	154,529		157,602	Corporate bonds	85,494		99,764
Residential mortgage-backed securities	Residential mortgage-backed securities	643,660		210,356	Residential mortgage-backed securities	2,619,564		1,994,927
Commercial mortgage-backed securities	Commercial mortgage-backed securities	759,066		401,849	Commercial mortgage-backed securities	974,189		1,028,944
Total unencumbered debt securities	Total unencumbered debt securities	$	1,843,419	1,324,111	Total unencumbered debt securities	$	4,067,013	3,357,684

7471

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 ~~95,409,061~~95,501,819 have been issued as of ~~June 30, 2020.~~March 31, 2021. The Company also has the capacity to issue 1,000,000 shares of preferred stock of which none have been issued as of ~~June 30, 2020.~~March 31, 2021. 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 issued final rules (“Final Rules”) that established a comprehensive regulatory capital framework based on the recommendation of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Final Rules require the Company to hold a 2.5 percent capital conservation buffer designed to absorb losses during periods of economic stress. As of ~~June 30, 2020,~~March 31, 2021, 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 capital ratios and the Federal Reserve’s capital adequacy guidelines as of ~~June 30, 2020:~~March 31, 2021:


		Total Capital (To Risk-Weighted Assets)		Tier 1 Capital (To Risk-Weighted Assets)		Common Equity Tier 1 (To Risk-Weighted Assets)		Leverage Ratio/ Tier 1 Capital (To Average Assets)			Total Capital (To Risk-Weighted Assets)		Tier 1 Capital (To Risk-Weighted Assets)		Common Equity Tier 1 (To Risk-Weighted Assets)		Leverage Ratio/ Tier 1 Capital (To Average Assets)

Glacier Bank	Glacier Bank	14.43	%	13.20	%	13.20	%	10.41	%	Glacier Bank	14.01	%	12.90	%	12.90	%	9.40	%
Minimum capital requirements	Minimum capital requirements	8.00	%	6.00	%	4.50	%	4.00	%	Minimum capital requirements	8.00	%	6.00	%	4.50	%	4.00	%
Minimum capital requirements plus capital conservation buffer	Minimum capital requirements plus capital conservation buffer	10.50	%	8.50	%	7.00	%	N/A		Minimum capital requirements plus capital conservation buffer	10.50	%	8.50	%	7.00	%	N/A
Well capitalized requirements	Well capitalized requirements	10.00	%	8.00	%	6.50	%	5.00	%	Well capitalized requirements	10.00	%	8.00	%	6.50	%	5.00	%

On January 1, 2020, the Company adopted the CECL accounting standard that requires management’s estimate of credit losses over the expected contractual lives of the Company's relevant financial assets. On March 27, 2020, in response to the COVID-19 pandemic, federal banking regulators issued an interim final rule to delay for two years the initial adoption impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during 2020 and 2021 (i.e., a five-year transition period). The Company has elected to utilize the five-year transition period. During the two-year delay, the Company will add back to Common Tier 1 capital 100 percent of the initial adoption impact of CECL plus 25 percent of the cumulative quarterly changes in ACL (i.e., quarterly transitional amounts). ~~After two years, starting~~Starting on January 1, 2022, the quarterly transitional amounts along with the initial adoption impact of CECL will be phased out of Common Tier 1 capital evenly over the three-year period.

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. The federal statutory corporate income tax rate is 21 percent.

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, 6.925 percent in Idaho, 4.95 percent in Utah, ~~4.5~~4.6 percent in Colorado and 4.9 percent in Arizona. Washington, Wyoming and Nevada do not impose a corporate income tax.

7572

The following table summarizes information relevant to the Company’s federal and state income taxes:


		Six Months ended									Three Months ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020			June 30, 2019		(Dollars in thousands)	March 31, 2021			March 31, 2020
Income Before Income Taxes	Income Before Income Taxes	$	130,719		125,759		Income Before Income Taxes	$	100,300		52,969
Federal and state income tax expense	Federal and state income tax expense	23,936			24,235		Federal and state income tax expense	19,498			9,630
Net Income	Net Income	$	106,783		101,524		Net Income	$	80,802		43,339
Effective tax rate ¹	Effective tax rate ¹	18.3		%	19.3	%	Effective tax rate 1	19.4		%	18.2	%
Income from tax-exempt debt securities, municipal loans and leases	Income from tax-exempt debt securities, municipal loans and leases	$	29,021		12,459		Income from tax-exempt debt securities, municipal loans and leases	$	17,051		12,544
Benefits from federal income tax credits	Benefits from federal income tax credits	$	5,862		4,774		Benefits from federal income tax credits	$	3,716		2,508

¹The current and prior year’s low effective income tax rates are due to income from tax-exempt debt securities, municipal loans and leases and benefits from federal income tax credits.

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 $25.9 million in 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 debt 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)	(Dollars in thousands)	New Markets Tax Credits		Low-Income Housing Tax Credits	Debt Securities Tax Credits	Total	(Dollars in thousands)	New Markets Tax Credits		Low-Income Housing Tax Credits	Debt Securities Tax Credits	Total
2020		$	5,351	8,399	794	14,544
2021	2021	5,642		9,569	736	15,947	2021	$	6,617	10,233	763	17,613
2022	2022	4,993		10,088	673	15,754	2022	5,969		11,951	664	18,584
2023	2023	4,398		10,013	640	15,051	2023	5,373		12,106	631	18,110
2024	2024	2,466		9,863	604	12,933	2024	3,636		11,965	594	16,195
2025							2025	1,890		11,807	451	14,148
Thereafter	Thereafter	720		39,887	905	41,512	Thereafter	2,340		42,033	452	44,825
		$	23,570	87,819	4,352	115,741		$	25,825	100,095	3,555	129,475

7673

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).


		Three Months ended										Six Months ended											Three Months ended				Three Months ended
		June 30, 2020										June 30, 2020											March 31, 2021				March 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends		Average Yield/ Rate		(Dollars in thousands)	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends		Average Yield/ Rate
Assets	Assets													Assets
Residential real estate loans	Residential real estate loans	$	1,048,095	$	12,098	4.62	%	$	1,014,371	$	23,624	4.66	%	Residential real estate loans	$	893,052	$	10,146	4.54	%	$	980,647	$	11,526	4.70	%
Commercial loans ¹	Commercial loans ¹	9,235,881		107,632		4.69	%	8,522,681		207,588		4.90	%	Commercial loans 1	9,412,281		114,928		4.95	%	7,809,482		99,956		5.15	%
Consumer and other loans	Consumer and other loans	957,798		11,130		4.67	%	942,361		22,771		4.86	%	Consumer and other loans	949,736		10,559		4.51	%	926,924		11,641		5.05	%
Total loans ²	Total loans ²	11,241,774		130,860		4.68	%	10,479,413		253,983		4.87	%	Total loans 2	11,255,069		135,633		4.89	%	9,717,053		123,123		5.10	%
Tax-exempt investment securities ³	Tax-exempt investment securities ³	1,401,603		14,248		4.07	%	1,166,102		23,657		4.06	%	Tax-exempt investment securities 3	1,545,484		14,710		3.81	%	930,601		9,409		4.04	%
Taxable investment securities ⁴	Taxable investment securities ⁴	2,266,707		14,730		2.60	%	2,163,144		28,502		2.64	%	Taxable investment securities 4	4,713,936		15,851		1.35	%	2,059,581		13,772		2.67	%
Total earning assets	Total earning assets	14,910,084		159,838		4.31	%	13,808,659		306,142		4.46	%	Total earning assets	17,514,489		166,194		3.85	%	12,707,235		146,304		4.63	%
Goodwill and intangibles	Goodwill and intangibles	575,296						557,363						Goodwill and intangibles	568,222						539,431
Non-earning assets	Non-earning assets	797,403						743,871						Non-earning assets	843,305						690,338
Total assets	Total assets	$	16,282,783					$	15,109,893					Total assets	$	18,926,016					$	13,937,004
Liabilities	Liabilities													Liabilities
Non-interest bearing deposits	Non-interest bearing deposits	$	4,733,485	$	—	—	%	$	4,203,222	$	—	—	%	Non-interest bearing deposits	$	5,591,531	$	—	—	%	$	3,672,959	$	—	—	%
NOW and DDA accounts	NOW and DDA accounts	3,018,706		687		0.09��	%	2,846,928		1,602		0.11	%	NOW and DDA accounts	3,830,856		570		0.06	%	2,675,152		915		0.14	%
Savings accounts	Savings accounts	1,687,448		175		0.04	%	1,603,129		414		0.05	%	Savings accounts	2,092,517		138		0.03	%	1,518,809		239		0.06	%
Money market deposit accounts	Money market deposit accounts	2,300,787		1,240		0.22	%	2,166,293		2,864		0.27	%	Money market deposit accounts	2,719,267		865		0.13	%	2,031,799		1,624		0.32	%
Certificate accounts	Certificate accounts	1,013,188		2,408		0.96	%	989,548		5,003		1.02	%	Certificate accounts	971,584		1,422		0.59	%	965,908		2,595		1.08	%
Total core deposits	Total core deposits	12,753,614		4,510		0.14	%	11,809,120		9,883		0.17	%	Total core deposits	15,205,755		2,995		0.08	%	10,864,627		5,373		0.20	%
Wholesale deposits ⁵	Wholesale deposits ⁵	68,503		77		0.46	%	62,806		285		0.91	%	Wholesale deposits 5	38,076		19		0.20	%	57,110		208		1.46	%
Repurchase agreements														Repurchase agreements	1,001,394		689		0.28	%	542,822		989		0.73	%
FHLB advances	FHLB advances	182,061		268		0.58	%	145,366		614		0.84	%	FHLB advances	—		—		—	%	108,672		346		1.26	%
Repurchase agreements and other borrowed funds		913,744		2,330		1.03	%	813,266		4,899		1.21	%
Subordinated debentures and other borrowed funds														Subordinated debentures and other borrowed funds	165,830		1,037		2.54	%	169,965		1,580		3.74	%
Total interest bearing liabilities	Total interest bearing liabilities	13,917,922		7,185		0.21	%	12,830,558		15,681		0.25	%	Total interest bearing liabilities	16,411,055		4,740		0.12	%	11,743,196		8,496		0.29	%
Other liabilities	Other liabilities	180,935						164,148						Other liabilities	193,858						147,361
Total liabilities	Total liabilities	14,098,857						12,994,706						Total liabilities	16,604,913						11,890,557
Stockholders’ Equity	Stockholders’ Equity													Stockholders’ Equity
Common stock	Common stock	954						944						Common stock	955						933
Paid-in capital	Paid-in capital	1,492,230						1,454,617						Paid-in capital	1,495,138						1,417,004
Retained earnings	Retained earnings	575,455						569,203						Retained earnings	710,137						562,951
Accumulated other comprehensive income	Accumulated other comprehensive income	115,287						90,423						Accumulated other comprehensive income	114,873						65,559
Total stockholders’ equity	Total stockholders’ equity	2,183,926						2,115,187						Total stockholders’ equity	2,321,103						2,046,447
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	16,282,783					$	15,109,893					Total liabilities and stockholders’ equity	$	18,926,016					$	13,937,004
Net interest income (tax-equivalent)	Net interest income (tax-equivalent)			$	152,653					$	290,461			Net interest income (tax-equivalent)			$	161,454					$	137,808
Net interest spread (tax-equivalent)	Net interest spread (tax-equivalent)					4.10	%					4.21	%	Net interest spread (tax-equivalent)					3.73	%					4.34	%
Net interest margin (tax-equivalent)	Net interest margin (tax-equivalent)					4.12	%					4.23	%	Net interest margin (tax-equivalent)					3.74	%					4.36	%

¹Includes tax effect of ~~$1.3~~$1.4 million and ~~$2.6~~$1.3 million on tax-exempt municipal loan and lease income for the three and ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, respectively.

²Total loans are gross of the allowance for credit losses, net of unearned income and include loans held for sale. Non-accrual loans were included in the average volume for the entire period.

³Includes tax effect of ~~$2.9~~$3.0 million and ~~$4.8~~$1.9 million on tax-exempt debt securities income for the three and ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, respectively.

⁴Includes tax effect of ~~$266~~$255 thousand and ~~$532~~$266 thousand on federal income tax credits for the three and ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, respectively.

⁵Wholesale deposits include brokered deposits classified as NOW, DDA, money market deposit and certificate ~~accounts.~~accounts with contractual maturities.

7774

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.


		Six Months ended								Three Months ended
		2020 vs. 2019								2021 vs. 2020
		Increase (Decrease) Due to:								Increase (Decrease) Due to:
(Dollars in thousands)	(Dollars in thousands)	Volume		Rate	Net	(Dollars in thousands)	Volume		Rate	Net
Interest income	Interest income					Interest income
Residential real estate loans	Residential real estate loans	$	2,066	(631)	1,435	Residential real estate loans	$	(1,029)	(351)	(1,380)
Commercial loans (tax-equivalent)	Commercial loans (tax-equivalent)	49,683		(15,899)	33,784	Commercial loans (tax-equivalent)	19,191		(4,218)	14,973
Consumer and other loans	Consumer and other loans	2,355		(1,071)	1,284	Consumer and other loans	155		(1,237)	(1,082)
Investment securities (tax-equivalent)	Investment securities (tax-equivalent)	8,303		(4,051)	4,252	Investment securities (tax-equivalent)	25,344		(17,963)	7,381
Total interest income	Total interest income	62,407		(21,652)	40,755	Total interest income	43,661		(23,769)	19,892
Interest expense	Interest expense					Interest expense
NOW and DDA accounts	NOW and DDA accounts	417		(762)	(345)	NOW and DDA accounts	381		(726)	(345)
Savings accounts	Savings accounts	84		(158)	(74)	Savings accounts	87		(188)	(101)
Money market deposit accounts	Money market deposit accounts	639		91	730	Money market deposit accounts	526		(1,285)	(759)
Certificate accounts	Certificate accounts	429		338	767	Certificate accounts	(13)		(1,160)	(1,173)
Wholesale deposits	Wholesale deposits	(1,338)		(537)	(1,875)	Wholesale deposits	(71)		(118)	(189)
Repurchase agreements						Repurchase agreements	816		(1,116)	(300)
FHLB advances	FHLB advances	(4,470)		(1,818)	(6,288)	FHLB advances	(346)		—	(346)
Repurchase agreements and other borrowed funds		2,161		(2,388)	(227)
Subordinated debentures and other borrowed funds						Subordinated debentures and other borrowed funds	(55)		(488)	(543)
Total interest expense	Total interest expense	(2,078)		(5,234)	(7,312)	Total interest expense	1,325		(5,081)	(3,756)
Net interest income (tax-equivalent)	Net interest income (tax-equivalent)	$	64,485	(16,418)	48,067	Net interest income (tax-equivalent)	$	42,336	(18,688)	23,648

Net interest income ~~(tax-equivalent)~~(tax-equivalent) increased ~~$48.1~~$23.6 million for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to the same period in ~~2019.~~ 2020. The interest income for the first ~~six~~three months of ~~2020~~2021 increased over the same period last year primarily from ~~increased loan growth in all categories,~~income associated with the ~~largest increase in the Company’s commercial loan portfolio which included increases from the~~ PPP ~~loans.~~loans and increased volume of debt securities. Total interest expense decreased from the prior year primarily from ~~decreased balances of FHLB advances and~~ a decrease in rates on both borrowings and deposits.

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.

7875

Item 3. Quantitative and Qualitative Disclosure about Market Risk

The Company’s assessment of market risk as of ~~June 30, 2020~~March 31, 2021 indicates there are no material changes in the quantitative and qualitative disclosures from those in the Company’s ~~2019~~2020 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(c)) as of ~~June 30, 2020.~~March 31, 2021. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective and timely, providing them with material information relating to the Company required to be disclosed in the reports the Company files or submits under the Exchange Act.

Changes in Internal Controls

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the ~~second~~first quarter of ~~2020,~~2021, to which this report relates that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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 1A. Risk Factors

The ~~following risk factor represents~~Company believes there have been no material ~~updates and additions to~~changes from the risk factors previously disclosed in the Company’s ~~2019~~2020 Annual Report on Form 10-K. The risks and uncertainties described in the ~~2019~~2020 Annual Report on Form 10-K should be carefully reviewed. These are not the only risks and uncertainties that the Company faces. Additional risks and uncertainties that ~~we do~~the Company does not currently know about or that we currently believe are immaterial, or that ~~we have~~the Company has not predicted, may also harm our business operations or adversely affect the Company. If any of these risks or uncertainties actually occurs, ~~our~~the Company’s business, financial condition, operating results or liquidity could be adversely affected.

~~The effects of the COVID-19 pandemic could adversely affect our customers’ future results of operations and/or the market price of our stock.~~

The COVID-19 pandemic continues to rapidly evolve, as do federal, state and local efforts to address it. Both the direct effects of the pandemic and the resulting United States governmental responses are of an unprecedented scope as it impacts both the health and the economy of our country and the world at large. No one can predict the extent or duration of the pandemic, or its effect on the markets that we serve. Further, the ongoing efforts and impact of the government in mitigating the health and the economic effects of the pandemic cannot currently be predicted, whether on our business or as to the economy as a whole. The pandemic has thus far resulted in significant volatility in international and United States markets, which could adversely affect the market price of our stock. To date, the pandemic has resulted in significant business disruption and volatility in the international and domestic markets, which has adversely affected the market price of our stock and stocks in general.

The Company believes it is well positioned to mitigate the potential financial impact of the COVID-19 pandemic with a strong liquidity and capital position. The Company has implemented several measures to manage through the pandemic, including:

•~~launched a pandemic team that addresses the daily impact to our business;~~

•~~contacted customers to assess their needs and provide funding, flexible repayment options or modifications as necessary;~~

•~~designated a “command center” that supports employees so they can work with customers to provide the PPP loans;~~

•~~increased monitoring of credit quality and portfolio risk for industries determined to have elevated risk; and~~

•developed safety measures for the health of our employees including elimination of unnecessary business travel, social distancing precautions, additional wellness and education programs, and preventative cleaning practices.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)Not Applicable

(b)Not Applicable

(c)Not Applicable

Item 3. Defaults upon Senior Securities

(a)Not Applicable

(b)Not Applicable

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

~~The following legislation represents material updates and additions to the Supervision and Regulation section previously disclosed in the Company’s 2019 Annual Report on Form 10-K.~~(a)Not Applicable

~~COVID-19 Legislation and Regulation~~

Governments at the federal, state, and local levels continue to take steps to address the impact of the COVID-19 pandemic. On March 27, 2020 the historic $2 trillion federal stimulus package known as the Coronavirus Aid, Relief, and Economic Security Act was signed into law, which included $350 billion in stimulus for small businesses under the so-called “Paycheck Protection Program,” along with direct stimulus payments ((b)~~i.e.~~, “economic impact payments” or “stimulus checks”) for many eligible Americans. The initial amounts available under the Paycheck Protection Program were quickly exhausted in less than two weeks, which prompted Congress to negotiate additional funding. On April 24, 2020, the Paycheck Protection Program and Health Care Enforcement Act was signed into law to replenish funding to the Paycheck Protection Program and to provide other spending for hospitals and virus testing. Further, on July 3, 2020 the President extended the deadline for potential borrowers to apply for Paycheck Protection Program funds until August 8, 2020. The legislative and regulatory landscape surrounding the COVID-19 pandemic is rapidly changing, and neither the Company nor the Bank can predict with certainty the impact it will have on our operations or business.Not Applicable

8077

Item 6. Exhibits

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.INS XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Labels Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

8178

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			GLACIER BANCORP, INC.

~~July 31, 2020~~May 3, 2021			/s/ Randall M. Chesler
			Randall M. Chesler
			President and CEO

~~July 31, 2020~~May 3, 2021			/s/ Ron J. Copher
			Ron J. Copher
			Executive Vice President and CFO

8279


	Six Months ended June 30, 2020
(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Balance at beginning of period	$	124,490	10,111	69,496	36,129	4,937	3,817
Impact of adopting CECL	3,720		3,584	10,533	(13,759)	3,400	(38)
Acquisitions	49		—	49	—	—	—
Credit loss expense (reversal)	36,296		(3,707)	8,876	27,159	1,666	2,302
Charge-offs	(5,235)		(21)	(180)	(1,873)	(194)	(2,967)
Recoveries	3,189		19	330	1,182	153	1,505
Balance at end of period	$	162,509	9,986	89,104	48,838	9,962	4,619


			Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Carrying Amount June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial assets
Cash and cash equivalents	$	547,610	547,610	—	—
Debt securities, held-to-maturity	203,275		—	215,883	—
Loans receivable, net of ACL	11,290,869		—	—	11,444,388
Total financial assets	$	12,041,754	547,610	215,883	11,444,388
Financial liabilities
Term deposits	$	1,063,821	—	1,069,748	—
FHLB advances	37,963		—	38,219	—
Repurchase agreements and other borrowed funds	913,773		—	913,773	—
Subordinated debentures	139,917		—	100,750	—
Total financial liabilities	$	2,155,474	—	2,122,490	—


			Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Carrying Amount December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial assets
Cash and cash equivalents	$	330,961	330,961	—	—
Debt securities, held-to-maturity	224,611		—	234,396	—
Loans receivable, net of ACL	9,388,320		—	—	9,438,121
Total financial assets	$	9,943,892	330,961	234,396	9,438,121
Financial liabilities
Term deposits	$	1,011,798	—	1,017,505	—
FHLB advances	38,611		—	38,787	—
Repurchase agreements and other borrowed funds	598,644		—	598,644	—
Subordinated debentures	139,914		—	124,094	—
Total financial liabilities	$	1,788,967	—	1,779,030	—


(Dollars in thousands)	Credit Loss Expense		Net Charge-Offs		Allowance for Credit Losses as a Percent of Loans		Accruing Loans 30-89 Days Past Due as a Percent of Loans		Non-Performing Assets to Total Sub-sidiary Assets
Second quarter 2020	$	13,552	$	1,233	1.42	%	0.22	%	0.27	%
First quarter 2020	22,744		813		1.49	%	0.41	%	0.26	%
Fourth quarter 2019	—		1,045		1.31	%	0.24	%	0.27	%
Third quarter 2019	—		3,519		1.32	%	0.31	%	0.40	%
Second quarter 2019	—		732		1.46	%	0.43	%	0.41	%
First quarter 2019	57		1,510		1.56	%	0.44	%	0.42	%
Fourth quarter 2018	1,246		2,542		1.58	%	0.41	%	0.47	%
Third quarter 2018	3,194		2,223		1.63	%	0.31	%	0.61	%


	June 30, 2020
(Dollars in thousands)	Number of Loan Modifi-cations	Amount of Loan Modifi-cations		Number of PPP Loans	Amount of PPP Loans		Loans Receivable, Net of PPP Loans		Loan Modifi-cations (Amount) as a Percent of Loans Receivable, Net of PPP Loans		PPP Loans (Amount) as a Percent of Loans Receivable, Net of PPP Loans
Residential real estate	227	$	66,395	—	$	—	$	903,198	7.35	%	—	%
Commercial real estate and other commercial
Real estate rental and leasing	607	587,609		1,072	62,382		3,244,073		18.11	%	1.92	%
Accommodation and food services	413	395,882		1,373	144,036		644,648		61.41	%	22.34	%
Healthcare	264	126,808		1,752	263,259		792,272		16.01	%	33.23	%
Manufacturing	134	49,338		728	69,370		202,151		24.41	%	34.32	%
Retail and wholesale trade	159	46,623		1,532	159,433		476,841		9.78	%	33.44	%
Construction	122	38,751		2,045	193,606		765,539		5.06	%	25.29	%
Other	580	192,060		6,789	534,660		2,042,671		9.40	%	26.17	%
Home equity and other consumer	548	11,326		—	—		955,239		1.19	%	—	%
Total	3,054	$	1,514,792	15,291	$	1,426,746	$	10,026,632	15.11	%	14.23	%