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 ~~September~~June 30, ~~2020~~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 ~~October 15, 2020~~July 14, 2021 was ~~95,414,850.~~95,507,565. 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 – ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020			4
Unaudited Condensed Consolidated Statements of Operations – Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020			5
Unaudited Condensed Consolidated Statements of Comprehensive Income – Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020			6
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity – Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020			7
Unaudited Condensed Consolidated Statements of Cash Flows – ~~Nine~~Six Months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020			9
Notes to Unaudited Condensed Consolidated Financial Statements			11
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			47
Item 3 – Quantitative and Qualitative Disclosure about Market Risk			8178
Item 4 – Controls and Procedures			8178
Part II. Other Information			8178
Item 1 – Legal Proceedings			8178
Item 1A – Risk Factors			8178
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			8278
Item 3 – Defaults upon Senior Securities			8278
Item 4 – Mine Safety Disclosures			8279
Item 5 – Other Information			8279
Item 6 – Exhibits			8380
Signatures			8481

ABBREVIATIONS/ACRONYMS


ACL or allowance – allowance for credit losses
ALCO – Asset Liability Committee
Alta - Altabancorp, and its subsidiary, Altabank
ASC – Accounting Standards CodificationTM
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)	June 30, 2021		December 31, 2020
Assets
Cash on hand and in banks	$	272,363	227,108

Interest bearing cash deposits	648,844		406,034
Cash and cash equivalents	921,207		633,142
Debt securities, available-for-sale	6,147,143		5,337,814
Debt securities, held-to-maturity	1,024,730		189,836
Total debt securities	7,171,873		5,527,650
Loans held for sale, at fair value	98,410		166,572
Loans receivable	11,238,048		11,122,696
Allowance for credit losses	(151,448)		(158,243)
Loans receivable, net	11,086,600		10,964,453
Premises and equipment, net	315,573		325,335
Other real estate owned	771		1,744
Accrued interest receivable	70,452		75,497

Core deposit intangible, net	50,533		55,509
Goodwill	514,013		514,013
Non-marketable equity securities	10,019		10,023
Bank-owned life insurance	123,035		123,763
Other assets	125,547		106,505
Total assets	$	20,488,033	18,504,206
Liabilities
Non-interest bearing deposits	$	6,307,794	5,454,539
Interest bearing deposits	10,453,098		9,342,990
Securities sold under agreements to repurchase	995,201		1,004,583

Other borrowed funds	33,556		33,068
Subordinated debentures	132,540		139,959
Accrued interest payable	2,433		3,305
Deferred tax liability	6,463		23,860
Other liabilities	202,993		194,861
Total liabilities	18,134,078		16,197,165
Commitments and Contingent Liabilities	0		0
Stockholders’ Equity
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	955		954
Paid-in capital	1,496,488		1,495,053
Retained earnings - substantially restricted	766,070		667,944
Accumulated other comprehensive income	90,442		143,090
Total stockholders’ equity	2,353,955		2,307,041
Total liabilities and stockholders’ equity	$	20,488,033	18,504,206
Number of common stock shares issued and outstanding	95,507,234		95,426,364

(Dollars in thousands, except per share data) September 30,
2020 December 31,
2019
Assets
Cash on hand and in banks $ 249,245 198,639
Federal funds sold 590 0
Interest bearing cash deposits 520,044 132,322
Cash and cash equivalents 769,879 330,961
Debt securities, available-for-sale 4,125,548 2,575,252
Debt securities, held-to-maturity 193,509 224,611
Total debt securities 4,319,057 2,799,863
Loans held for sale, at fair value 147,937 69,194
Loans receivable 11,618,731 9,512,810
Allowance for credit losses (164,552) (124,490)
Loans receivable, net 11,454,179 9,388,320
Premises and equipment, net 326,925 310,309
Other real estate owned 5,361 5,142
Accrued interest receivable 91,393 56,047
Deferred tax asset 0 2,037
Core deposit intangible, net 58,121 63,286
Goodwill 514,013 456,418
Non-marketable equity securities 10,366 11,623
Bank-owned life insurance 123,095 109,428
Other assets 105,741 81,371
Total assets $ 17,926,067 13,683,999
Liabilities
Non-interest bearing deposits $ 5,479,311 3,696,627
Interest bearing deposits 8,820,577 7,079,830
Securities sold under agreements to repurchase 965,668 569,824
Federal Home Loan Bank advances 7,318 38,611
Other borrowed funds 32,967 28,820
Subordinated debentures 139,918 139,914
Accrued interest payable 3,951 4,686
Deferred tax liability 17,227 0
Other liabilities 204,041 164,954
Total liabilities 15,670,978 11,723,266
Commitments and Contingent Liabilities
Stockholders’ Equity
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 954 923
Paid-in capital 1,493,928 1,378,534
Retained earnings - substantially restricted 629,109 541,050
Accumulated other comprehensive income 131,098 40,226
Total stockholders’ equity 2,255,089 1,960,733
Total liabilities and stockholders’ equity $ 17,926,067 13,683,999
Number of common stock shares issued and outstanding 95,413,743 92,289,750

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months ended Nine Months ended
(Dollars in thousands, except per share data) September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Interest Income
Investment securities $ 25,381 21,357 72,228 64,600
Residential real estate loans 11,592 12,156 35,216 34,345
Commercial loans 109,514 97,224 314,541 268,806
Consumer and other loans 11,000 11,658 33,771 33,145
Total interest income 157,487 142,395 455,756 400,896
Interest Expense
Deposits 3,952 6,214 14,120 17,179
Securities sold under agreements to repurchase 886 999 2,783 2,687
Federal Home Loan Bank advances 70 2,035 684 8,937
Other borrowed funds 173 47 473 123
Subordinated debentures 1,003 1,652 3,705 5,014
Total interest expense 6,084 10,947 21,765 33,940
Net Interest Income 151,403 131,448 433,991 366,956
Credit loss expense 2,869 0 39,165 57
Net interest income after credit loss expense 148,534 131,448 394,826 366,899
Non-Interest Income
Service charges and other fees 13,404 15,138 38,790 53,178
Miscellaneous loan fees and charges 2,084 1,775 5,051 3,934
Gain on sale of loans 35,516 10,369 73,236 23,929
Gain on sale of debt securities 24 13,811 1,015 14,158
Other income 2,639 1,956 10,071 7,158
Total non-interest income 53,667 43,049 128,163 102,357
Non-Interest Expense
Compensation and employee benefits 64,866 62,509 182,507 167,210
Occupancy and equipment 9,369 8,731 27,945 25,348
Advertising and promotions 2,779 2,719 7,404 7,874
Data processing 5,597 4,466 15,921 12,420
Other real estate owned 186 166 373 496
Regulatory assessments and insurance 1,495 593 3,622 3,726
Loss on termination of hedging activities 0 13,528 0 13,528
Core deposit intangibles amortization 2,612 2,360 7,758 5,919
Other expenses 18,786 15,603 50,229 43,154
Total non-interest expense 105,690 110,675 295,759 279,675
Income Before Income Taxes 96,511 63,822 227,230 189,581
Federal and state income tax expense 18,754 12,212 42,690 36,447
Net Income $ 77,757 51,610 184,540 153,134
Basic earnings per share $ 0.81 0.57 1.95 1.76
Diluted earnings per share $ 0.81 0.57 1.95 1.76
Dividends declared per share $ 0.30 0.29 0.88 0.82
Average outstanding shares - basic 95,411,656 90,294,811 94,704,198 86,911,402
Average outstanding shares - diluted 95,442,576 90,449,195 94,747,894 87,082,178


	Three Months ended			Six Months ended
(Dollars in thousands, except per share data)	June 30, 2021		June 30, 2020	June 30, 2021	June 30, 2020
Interest Income
Investment securities	$	28,730	25,833	56,036	46,847
Residential real estate loans	9,541		12,098	19,687	23,624
Commercial loans	110,829		106,343	224,370	205,027
Consumer and other loans	10,856		11,130	21,415	22,771
Total interest income	159,956		155,404	321,508	298,269
Interest Expense
Deposits	2,804		4,587	5,818	10,168
Securities sold under agreements to repurchase	651		908	1,340	1,897
Federal Home Loan Bank advances	0		268	0	614
Other borrowed funds	177		172	351	300
Subordinated debentures	855		1,250	1,718	2,702
Total interest expense	4,487		7,185	9,227	15,681
Net Interest Income	155,469		148,219	312,281	282,588
Provision for credit losses	(5,653)		16,929	(5,605)	36,114
Net interest income after provision for credit losses	161,122		131,290	317,886	246,474
Non-Interest Income
Service charges and other fees	13,795		11,366	26,587	25,386
Miscellaneous loan fees and charges	2,923		1,682	5,701	2,967
Gain on sale of loans	16,106		25,858	37,730	37,720
(Loss) gain on sale of debt securities	(61)		128	223	991
Other income	2,759		2,190	5,402	7,432
Total non-interest income	35,522		41,224	75,643	74,496
Non-Interest Expense
Compensation and employee benefits	64,109		57,981	126,577	117,641
Occupancy and equipment	9,208		9,357	18,723	18,576
Advertising and promotions	2,906		2,138	5,277	4,625
Data processing	5,661		5,042	10,867	10,324
Other real estate owned	48		75	60	187
Regulatory assessments and insurance	1,702		1,037	3,581	2,127

Core deposit intangibles amortization	2,488		2,613	4,976	5,146
Other expenses	13,960		16,521	26,606	31,625
Total non-interest expense	100,082		94,764	196,667	190,251
Income Before Income Taxes	96,562		77,750	196,862	130,719
Federal and state income tax expense	18,935		14,306	38,433	23,936
Net Income	$	77,627	63,444	158,429	106,783
Basic earnings per share	$	0.81	0.67	1.66	1.13
Diluted earnings per share	$	0.81	0.66	1.66	1.13
Dividends declared per share	$	0.32	0.29	0.63	0.58
Average outstanding shares - basic	95,505,877		95,405,493	95,485,839	94,346,582
Average outstanding shares - diluted	95,580,904		95,430,403	95,565,591	94,395,930

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months ended Nine Months ended
(Dollars in thousands) September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Net Income $ 77,757 51,610 184,540 153,134
Other Comprehensive Income, Net of Tax
Unrealized gains on available-for-sale securities 1,693 11,113 123,262 87,442
Reclassification adjustment for gains included in net income (24) (13,811) (1,014) (14,166)
Net unrealized gains (losses) on available-for-sale securities 1,669 (2,698) 122,248 73,276
Tax effect (424) 684 (30,979) (18,568)
Net of tax amount 1,245 (2,014) 91,269 54,708
Unrealized losses on derivatives used for cash flow hedges (76) (1,393) (532) (7,047)
Reclassification adjustment for losses included in net income 0 10,315 0 10,816
Net unrealized (losses) gains on derivatives used for cash flow hedges (76) 8,922 (532) 3,769
Tax effect 20 (2,261) 135 (955)
Net of tax amount (56) 6,661 (397) 2,814
Total other comprehensive income, net of tax 1,189 4,647 90,872 57,522
Total Comprehensive Income $ 78,946 56,257 275,412 210,656


	Three Months ended			Six Months ended
(Dollars in thousands)	June 30, 2021		June 30, 2020	June 30, 2021	June 30, 2020
Net Income	$	77,627	63,444	158,429	106,783
Other Comprehensive Income (Loss), Net of Tax
Available-For-Sale and Transferred Securities:
Unrealized gains (losses) on available-for-sale securities	15,073		41,014	(69,670)	121,569
Reclassification adjustment for gains included in net income	(46)		(128)	(372)	(990)
Reclassification adjustment for securities transferred from available-for-sale to held-to-maturity	(803)		0	(858)	0
Tax effect	(3,595)		(10,360)	17,916	(30,555)
Net of tax amount	10,629		30,526	(52,984)	90,024
Cash Flow Hedge:
Unrealized (losses) gains on derivatives used for cash flow hedges	(144)		(456)	449	(456)

Tax effect	37		115	(113)	115
Net of tax amount	(107)		(341)	336	(341)
Total other comprehensive income (loss), net of tax	10,522		30,185	(52,648)	89,683
Total Comprehensive Income	$	88,149	93,629	105,781	196,466

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

Three Months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

(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 July 1, 2019 86,637,394 $ 866 1,139,289 503,773 43,448 1,687,376
Net income — — — 51,610 — 51,610
Other comprehensive income — — — — 4,647 4,647
Cash dividends declared ($0.29 per share) — — — (26,784) — (26,784)
Stock issued in connection with acquisitions 5,473,276 55 229,330 — — 229,385
Stock issuances under stock incentive plans 69,948 1 (1) — — 0
Stock-based compensation and related taxes — — 7,167 — — 7,167
Balance at September 30, 2019 92,180,618 $ 922 1,375,785 528,599 48,095 1,953,401
Balance at July 1, 2020 95,409,061 $ 954 1,492,817 580,035 129,909 2,203,715
Net income — — — 77,757 — 77,757
Other comprehensive income — — — — 1,189 1,189
Cash dividends declared ($0.30 per share) — — — (28,683) — (28,683)
Stock issuances under stock incentive plans 4,682 0 0 — — 0
Stock-based compensation and related taxes — — 1,111 — — 1,111
Balance at September 30, 2020 95,413,743 $ 954 1,493,928 629,109 131,098 2,255,089


(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, 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
Balance at April 1, 2021	95,501,819	$	955	1,495,438	719,072	79,920	2,295,385
Net income	—	—		—	77,627	—	77,627
Other comprehensive income	—	—		—	—	10,522	10,522
Cash dividends declared ( $0.32 per share)	—	—		—	(30,629)	—	(30,629)

Stock issuances under stock incentive plans	5,415	—		—	—	—	—
Stock-based compensation and related taxes	—	—		1,050	—	—	1,050

Balance at June 30, 2021	95,507,234	$	955	1,496,488	766,070	90,442	2,353,955

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

~~Nine~~Six Months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020


(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	—	—		—	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
Balance at January 1, 2021	95,426,364	$	954	1,495,053	667,944	143,090	2,307,041
Net income	—	—		—	158,429	—	158,429
Other comprehensive loss	—	—		—	—	(52,648)	(52,648)
Cash dividends declared ( $0.63 per share)	—	—		—	(60,303)	—	(60,303)

Stock issuances under stock incentive plans	80,870	1		(1)	—	—	—
Stock-based compensation and related taxes	—	—		1,436	—	—	1,436

Balance at June 30, 2021	95,507,234	$	955	1,496,488	766,070	90,442	2,353,955

(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 — — — 153,134 — 153,134
Other comprehensive income — — — — 57,522 57,522
Cash dividends declared ($0.82 per share) — — — (72,260) — (72,260)
Stock issued in connection with acquisitions 7,519,617 75 316,463 — — 316,538
Stock issuances under stock incentive plans 139,309 2 (2) — — 0
Stock-based compensation and related taxes — — 8,071 — — 8,071
Cumulative-effect of accounting changes — — — (25,458) — (25,458)
Balance at September 30, 2019 92,180,618 $ 922 1,375,785 528,599 48,095 1,953,401
Balance at January 1, 2020 92,289,750 $ 923 1,378,534 541,050 40,226 1,960,733
Net income — — — 184,540 — 184,540
Other comprehensive income — — — — 90,872 90,872
Cash dividends declared ($0.88 per share) — — — (84,134) — (84,134)
Stock issued in connection with acquisitions 3,007,044 30 112,103 — — 112,133
Stock issuances under stock incentive plans 116,949 1 (1) — — 0
Stock-based compensation and related taxes — — 3,292 — — 3,292
Cumulative-effect of accounting changes — — — (12,347) — (12,347)
Balance at September 30, 2020 95,413,743 $ 954 1,493,928 629,109 131,098 2,255,089

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months ended
(Dollars in thousands) September 30,
2020 September 30,
2019
Operating Activities
Net income $ 184,540 153,134
Adjustments to reconcile net income to net cash provided by operating activities:
Credit loss expense 39,165 57
Net amortization of debt securities 10,830 11,687
Net accretion of purchase accounting adjustments
and deferred loan fees and costs (23,369) (2,680)
Amortization of debt modification costs 0 4,630
Origination of loans held for sale (1,393,224) (671,038)
Proceeds from loans held for sale 1,400,697 633,085
Gain on sale of loans (73,236) (23,929)
Gain on sale of debt securities (1,015) (14,158)
Bank-owned life insurance income, net (2,059) (1,629)
Stock-based compensation, net of tax benefits 2,829 6,554
Depreciation and amortization of premises and equipment 15,124 13,713
Gain on sale and write-downs of other real estate owned, net (64) (288)
Amortization of core deposit intangibles 7,758 5,919
Amortization of investments in variable interest entities 8,244 6,767
Net increase in accrued interest receivable (33,558) (5,348)
Net increase in other assets (22,729) (367)
Net (decrease) increase in accrued interest payable (861) 61
Net decrease in other liabilities (5,315) (1,730)
Net cash provided by operating activities 113,757 114,440
Investing Activities
Sales of available-for-sale debt securities 0 711,268
Maturities, prepayments and calls of available-for-sale debt securities 545,191 457,299
Purchases of available-for-sale debt securities (1,839,308) (839,835)
Maturities, prepayments and calls of held-to-maturity debt securities 29,530 48,940
Principal collected on loans 2,978,796 2,497,073
Loan originations (4,627,653) (2,900,692)
Net additions to premises and equipment (8,140) (14,230)
Proceeds from sale of other real estate owned 2,140 2,960
Proceeds from redemption of non-marketable equity securities 76,275 115,436
Purchases of non-marketable equity securities (71,397) (93,397)
Investments in variable interest entities (7,975) (7,956)
Net cash received from acquisitions 43,713 79,334
Net cash (used in) provided by investing activities (2,878,828) 56,200


	Six Months ended
(Dollars in thousands)	June 30, 2021		June 30, 2020
Operating Activities
Net income	$	158,429	106,783
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	(5,605)		36,114
Net amortization of debt securities	19,615		6,831
Net amortization of purchase accounting adjustments and deferred loan fees and costs	4,113		33,329

Origination of loans held for sale	(827,653)		(847,288)
Proceeds from loans held for sale	976,517		849,626
Gain on sale of loans	(37,730)		(37,720)
Gain on sale of debt securities	(223)		(991)

Bank-owned life insurance income, net	(1,352)		(1,356)
Stock-based compensation, net of tax benefits	2,408		1,994
Depreciation and amortization of premises and equipment	10,446		9,907
Gain on sale and write-downs of other real estate owned, net	(247)		(169)
Amortization of core deposit intangibles	4,976		5,146

Amortization of investments in variable interest entities	6,474		4,973
Net decrease (increase) in accrued interest receivable	5,045		(19,529)
Net increase in other assets	(13,239)		(15,048)
Net decrease in accrued interest payable	(11,017)		(602)
Net (decrease) increase in other liabilities	(872)		5,174
Net cash provided by operating activities	290,085		137,174
Investing Activities

Maturities, prepayments and calls of available-for-sale debt securities	611,077		341,724
Purchases of available-for-sale debt securities	(2,351,093)		(1,042,423)
Maturities, prepayments and calls of held-to-maturity debt securities	6,360		20,250

Principal collected on loans	3,281,147		1,835,968
Loan originations	(3,446,582)		(3,371,733)
Net disposals (additions) to premises and equipment	1,435		(4,861)
Proceeds from sale of other real estate owned	2,679		1,523
Proceeds from redemption of non-marketable equity securities	3		75,049
Purchases of non-marketable equity securities	0		(71,398)
Proceeds from bank-owned life insurance	2,112		0
Investments in variable interest entities	(10,711)		(7,321)
Net cash received from acquisitions	0		43,713
Net cash used in investing activities	(1,903,573)		(2,179,509)

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Nine Months ended
(Dollars in thousands) September 30,
2020 September 30,
2019
Financing Activities
Net increase in deposits $ 2,920,429 377,986
Net increase in securities sold under agreements to repurchase 388,595 161,191
Net decrease in short-term Federal Home Loan Bank advances (30,000) (285,000)
Proceeds from long-term Federal Home Loan Bank advances 30,000 0
Repayments of long-term Federal Home Loan Bank advances (31,271) (151,073)
Net increase in other borrowed funds 463 97
Cash dividends paid (73,999) (70,970)
Tax withholding payments for stock-based compensation (1,023) (277)
Proceeds from stock option exercises 795 0
Net cash provided by financing activities 3,203,989 31,954
Net increase in cash, cash equivalents and restricted cash 438,918 202,594
Cash, cash equivalents and restricted cash at beginning of period 330,961 203,790
Cash, cash equivalents and restricted cash at end of period $ 769,879 406,384
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 22,626 33,878
Cash paid during the period for income taxes 43,944 33,032
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 2,062 2,347
Right-of-use assets obtained in exchange for operating lease liabilities 7,343 3,910
Dividends declared during the period but not paid 28,799 26,874
Acquisitions
Fair value of common stock shares issued 112,133 316,538
Cash consideration 13,721 16,424
Fair value of assets acquired 745,420 1,190,267
Liabilities assumed 619,565 1,024,141


	Six Months ended
(Dollars in thousands)	June 30, 2021		June 30, 2020
Financing Activities
Net increase in deposits	$	1,963,419	2,001,950
Net (decrease) increase in securities sold under agreements to repurchase	(9,382)		304,154
Net decrease in short-term Federal Home Loan Bank advances	0		(30,000)
Proceeds from long-term Federal Home Loan Bank advances	0		30,000
Repayments of long-term Federal Home Loan Bank advances	0		(631)
Net (increase) decrease in other borrowed funds	(7,012)		43
Cash dividends paid	(44,142)		(46,324)
Tax withholding payments for stock-based compensation	(1,495)		(1,003)
Proceeds from stock option exercises	165		795
Net cash provided by financing activities	1,901,553		2,258,984
Net increase in cash, cash equivalents and restricted cash	288,065		216,649
Cash, cash equivalents and restricted cash at beginning of period	633,142		330,961
Cash, cash equivalents and restricted cash at end of period	$	921,207	547,610
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	10,099	16,282
Cash paid during the period for income taxes	49,663		8,550
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Transfer of debt securities from available-for-sale to held-to-maturity	$	844,020	0
Sale and refinancing of other real estate owned	$	0	215
Transfer of loans to other real estate owned	1,459		791
Right-of-use assets obtained in exchange for operating lease liabilities	720		5,253
Dividends declared during the period but not paid	30,697		27,785
Acquisitions
Fair value of common stock shares issued	0		112,133
Cash consideration	0		13,721

Fair value of assets acquired	0		745,420
Liabilities assumed	0		619,566

See accompanying notes to unaudited condensed consolidated financial statements.

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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~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~~reserve requirement due to the coronavirus disease of ~~State Bank Corp., the bank holding company for~~ ~~State Bank of Arizona, a community bank based in Lake Havasu City, Arizona (collectively,~~ ~~“SBAZ”~~2019 (“COVID-19.”). The ~~business combination~~required reserve balance at June 30, 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.

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 are 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 may or may not be 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 to 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.

The following table presents the provision for credit losses on the loan portfolio and off-balance sheet exposures:


	Three Months ended			Six Months ended
(Dollars in thousands)	June 30, 2021		June 30, 2020	June 30, 2021	June 30, 2020
Provision for credit loss loans	$	(5,723)	13,552	(5,234)	36,296
Provision for credit losses unfunded	70		3,377	(371)	(182)
Total provision for credit losses	$	(5,653)	16,929	(5,605)	36,114

There was 0 provision for credit losses on debt securities for the three and six months ended June 30, 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.

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.

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 ~~$40,184,000~~$28,901,000 and ~~$54,608,000~~$26,239,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 and there were 0 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.

~~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 Furthermore, there are no newly issued but not yet effective ASUs that could have 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, basedmaterial effect 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~~or 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, 2021
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
Available-for-sale
U.S. government and federal agency	$	34,544	243	(306)	34,481
U.S. government sponsored enterprises	48,303		11	(298)	48,016
State and local governments	504,524		32,164	(141)	536,547
Corporate bonds	249,058		8,824	(4)	257,878
Residential mortgage-backed securities	4,139,439		14,819	(14,673)	4,139,585
Commercial mortgage-backed securities	1,093,676		40,991	(4,031)	1,130,636
Total available-for-sale	$	6,069,544	97,052	(19,453)	6,147,143
Held-to-maturity
State and local governments	$	1,024,730	22,542	(259)	1,047,013
Total held-to-maturity	$	1,024,730	22,542	(259)	1,047,013

September 30, 2020
(Dollars in thousands) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Available-for-sale
U.S. government and federal agency $ 40,082 297 (239) 40,140
U.S. government sponsored enterprises 9,767 58 0 9,825
State and local governments 1,192,905 82,509 (38) 1,275,376
Corporate bonds 347,400 13,647 (23) 361,024
Residential mortgage-backed securities 1,255,016 21,551 (709) 1,275,858
Commercial mortgage-backed securities 1,104,252 59,075 (2) 1,163,325
Total available-for-sale $ 3,949,422 177,137 (1,011) 4,125,548
Held-to-maturity
State and local governments $ 193,509 13,068 0 206,577
Total held-to-maturity $ 193,509 13,068 0 206,577


		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	0	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	0	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	0	234,396	Total held-to-maturity	$	189,836	13,380	0	203,216

2021

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 ~~September~~June 30, ~~2020.~~2021. Actual maturities may differ from expected or contractual maturities since some issuers have the right to prepay obligations with or without prepayment penalties.


		September 30, 2020						June 30, 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	$	119,874	121,303	0	0	Due within one year	$	77,093	78,370	1,924	1,956
Due after one year through five years	Due after one year through five years	264,927		277,758	19,543	20,996	Due after one year through five years	236,705		247,063	26,870	28,562
Due after five years through ten years	Due after five years through ten years	263,208		277,022	69,924	75,680	Due after five years through ten years	266,078		274,949	86,095	91,222
Due after ten years	Due after ten years	942,145		1,010,282	104,042	109,901	Due after ten years	256,553		276,540	909,841	925,273
		1,590,154		1,686,365	193,509	206,577		836,429		876,922	1,024,730	1,047,013
Mortgage-backed securities 1	Mortgage-backed securities 1	2,359,268		2,439,183	0	0	Mortgage-backed securities 1	5,233,115		5,270,221	0	0
Total	Total	$	3,949,422	4,125,548	193,509	206,577	Total	$	6,069,544	6,147,143	1,024,730	1,047,013

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 Nine Months ended
(Dollars in thousands) September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Available-for-sale
Proceeds from sales and calls of debt securities $ 69,304 401,701 184,088 878,072
Gross realized gains 1
102 14,329 1,206 18,613
Gross realized losses 1
(78) (518) (192) (4,447)
Held-to-maturity
Proceeds from calls of debt securities 9,280 16,365 29,530 48,940
Gross realized gains 1
0 0 1 2
Gross realized losses 1
0 0 0 (10)


	Three Months ended			Six Months ended
(Dollars in thousands)	June 30, 2021		June 30, 2020	June 30, 2021	June 30, 2020
Available-for-sale
Proceeds from sales and calls of debt securities	$	22,361	37,711	76,697	114,784
Gross realized gains 1	69		142	438	1,104
Gross realized losses 1	(23)		(14)	(66)	(114)
Held-to-maturity
Proceeds from calls of debt securities	2,230		0	6,360	20,250
Gross realized gains 1	0		0	0	1
Gross realized losses 1	(107)		0	(149)	0

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

2122

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, 2021
	Number of Securities	Less than 12 Months			12 Months or More		Total
(Dollars in thousands)		Fair Value		Unrealized Loss	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss
Available-for-sale
U.S. government and federal agency	23	$	8,991	(47)	6,789	(259)	15,780	(306)
U.S. government sponsored enterprises	3	45,234		(298)	0	0	45,234	(298)
State and local governments	11	17,169		(141)	0	0	17,169	(141)
Corporate bonds	1	10,005		(4)	0	0	10,005	(4)
Residential mortgage-backed securities	92	2,903,724		(14,673)	0	0	2,903,724	(14,673)
Commercial mortgage-backed securities	18	236,994		(4,031)	0	0	236,994	(4,031)
Total available-for-sale	148	$	3,222,117	(19,194)	6,789	(259)	3,228,906	(19,453)
Held-to-maturity
State and local governments	61	$	79,147	(259)	0	0	79,147	(259)
Total held-to-maturity	61	$	79,147	(259)	0	0	79,147	(259)

September 30, 2020
Number
of
Securities Less than 12 Months 12 Months or More Total
(Dollars in thousands) Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
Available-for-sale
U.S. government and federal agency 19 $ 13,656 (230) 663 (9) 14,319 (239)
State and local governments 11 5,383 (38) 0 0 5,383 (38)
Corporate bonds 6 11,029 (23) 0 0 11,029 (23)
Residential mortgage-backed securities 28 282,912 (709) 27 0 282,939 (709)
Commercial mortgage-backed securities 1 11,035 (2) 0 0 11,035 (2)
Total available-for-sale 65 $ 324,015 (1,002) 690 (9) 324,705 (1,011)

December 31, 2019
Number
of
Securities Less than 12 Months 12 Months or More Total
(Dollars in thousands) Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
Available-for-sale
U.S. government and federal agency 20 $ 464 0 9,902 (65) 10,366 (65)
State and local governments 12 19,044 (80) 0 0 19,044 (80)
Corporate bonds 2 7,378 (1) 0 0 7,378 (1)
Residential mortgage-backed securities 35 85,562 (234) 29,038 (315) 114,600 (549)
Commercial mortgage-backed securities 19 177,051 (1,293) 7,697 (99) 184,748 (1,392)
Total available-for-sale 88 $ 289,499 (1,608) 46,637 (479) 336,136 (2,087)


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

State and local governments	6	3,121		(54)	0	0	3,121	(54)
Corporate bonds	3	5,500		(8)	0	0	5,500	(8)
Residential mortgage-backed securities	14	2,354		(4)	27	0	2,381	(4)
Commercial mortgage-backed securities	5	120,741		(459)	0	0	120,741	(459)
Total available-for-sale	46	$	145,530	(783)	753	(9)	146,283	(792)

2223

With respect to severity, the majority of available-for-sale debt securities with unrealized loss positions at ~~September~~June 30, ~~2020~~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 ~~September~~June 30, ~~2020~~2021 have been determined to be investment grade.

~~As of September 30, 2020, the~~The Company did 0t have any past due available-for-sale debt securities ~~past due.~~as of June 30, 2021 and December 31, 2020, respectively. Accrued interest receivable on available-for-sale debt securities totaled ~~$23,491,000~~$15,714,000 and $20,215,000 at ~~September~~June 30, 2021, and December 31, 2020, respectively, and was excluded from the estimate of credit losses.

During the period ended September 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 ~~September~~June 30, ~~2020,~~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 ~~September~~June 30, ~~2020,~~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 ~~September~~June 30, ~~2020.~~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)	September 30, 2020		December 31, 2019	(Dollars in thousands)	June 30, 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	$	40,735	65,217	S&P: AAA / Moody’s: Aaa	$	272,177	39,022
S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	125,573		130,316	S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	710,835		123,664
S&P: A+, A, A- / Moody’s: A1, A2, A3	S&P: A+, A, A- / Moody’s: A1, A2, A3	27,201		28,689	S&P: A+, A, A- / Moody’s: A1, A2, A3	40,139		27,150

Not rated by either entity	Not rated by either entity	0		389	Not rated by either entity	1,579		0

Total held-to-maturity	Total held-to-maturity	$	193,509	224,611	Total held-to-maturity	$	1,024,730	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 ~~September~~June 30, ~~2020~~2021 have been determined to be investment grade.

As of ~~September~~June 30, 2021 and December 31, 2020, the Company did 0t have any held-to-maturity debt securities past due. Accrued interest receivable on held-to-maturity debt securities totaled ~~$2,079,000~~$7,539,000 and $1,728,000 at ~~September~~June 30, 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 ~~September~~June 30, 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)	September 30, 2020		December 31, 2019	(Dollars in thousands)	June 30, 2021		December 31, 2020
Residential real estate	Residential real estate	$	862,614	926,388	Residential real estate	$	734,838	802,508
Commercial real estate	Commercial real estate	6,201,817		5,579,307	Commercial real estate	6,584,322		6,315,895
Other commercial	Other commercial	3,593,322		2,094,254	Other commercial	2,932,419		3,054,817
Home equity	Home equity	646,850		617,201	Home equity	648,800		636,405
Other consumer	Other consumer	314,128		295,660	Other consumer	337,669		313,071
Loans receivable	Loans receivable	11,618,731		9,512,810	Loans receivable	11,238,048		11,122,696
Allowance for credit losses	Allowance for credit losses	(164,552)		(124,490)	Allowance for credit losses	(151,448)		(158,243)
Loans receivable, net	Loans receivable, net	$	11,454,179	9,388,320	Loans receivable, net	$	11,086,600	10,964,453
Net deferred origination (fees) costs included in loans receivable	Net deferred origination (fees) costs included in loans receivable	$	(38,712)	(6,964)	Net deferred origination (fees) costs included in loans receivable	$	(35,391)	(26,709)
Net purchase accounting (discounts) premiums included in loans receivable	Net purchase accounting (discounts) premiums included in loans receivable	$	(18,063)	(21,574)	Net purchase accounting (discounts) premiums included in loans receivable	$	(13,774)	(17,091)
Accrued interest receivable on loans	Accrued interest receivable on loans	$	65,806	40,962	Accrued interest receivable on loans	$	47,184	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 ~~nine~~six months ended ~~September~~June 30, ~~2020.~~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 September 30, 2020
(Dollars in thousands) Total Residential
Real Estate Commercial
Real Estate Other
Commercial Home
Equity Other
Consumer
Balance at beginning of period $ 162,509 9,986 89,104 48,838 9,962 4,619
Credit loss expense (reversal) 2,869 (216) 5,208 1,199 (2,526) (796)
Charge-offs (2,630) 0 (445) (1,598) (99) (488)
Recoveries 1,804 35 530 314 93 832
Balance at end of period $ 164,552 9,805 94,397 48,753 7,430 4,167

Three Months ended September 30, 2019
(Dollars in thousands) Total Residential
Real Estate Commercial
Real Estate Other
Commercial Home
Equity Other
Consumer
Balance at beginning of period $ 129,054 10,695 72,447 36,259 5,801 3,852
Credit loss expense (reversal) 0 (325) (1,480) 1,220 (777) 1,362
Charge-offs (5,890) (141) (1,858) (1,399) 0 (2,492)
Recoveries 2,371 8 549 778 17 1,019
Balance at end of period $ 125,535 10,237 69,658 36,858 5,041 3,741

Nine Months ended September 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 0 49 0 0 0
Credit loss expense (reversal) 39,165 (3,923) 14,084 28,358 (860) 1,506
Charge-offs (7,865) (21) (625) (3,471) (293) (3,455)
Recoveries 4,993 54 860 1,496 246 2,337
Balance at end of period $ 164,552 9,805 94,397 48,753 7,430 4,167

Nine Months ended September 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 (152) (1,824) (524) (786) 3,343
Charge-offs (12,090) (482) (2,267) (2,597) (28) (6,716)
Recoveries 6,329 240 1,301 1,819 44 2,925
Balance at end of period $ 125,535 10,237 69,658 36,858 5,041 3,741

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 nine months ended September 30, 2020, primarily as a result of the COVID-19 pandemic, there was a significant increase 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 adjusted 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”).


	Three Months ended June 30, 2021
(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Balance at beginning of period	$	156,446	9,018	95,251	39,385	8,068	4,724


Provision for credit losses	(5,723)		884	1,269	(8,319)	(278)	721
Charge-offs	(1,700)		0	(41)	(351)	0	(1,308)
Recoveries	2,425		241	118	1,268	47	751
Balance at end of period	$	151,448	10,143	96,597	31,983	7,837	4,888


	Three 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	$	150,190	9,315	70,848	56,409	7,934	5,684


Provision for credit losses	13,552		662	18,309	(6,974)	2,174	(619)
Charge-offs	(2,668)		(1)	(150)	(1,088)	(193)	(1,236)
Recoveries	1,435		10	97	491	47	790
Balance at end of period	$	162,509	9,986	89,104	48,838	9,962	4,619


	Six Months ended June 30, 2021
(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Balance at beginning of period	$	158,243	9,604	86,999	49,133	8,182	4,325


Provision for credit losses	(5,234)		302	8,732	(15,584)	(367)	1,683
Charge-offs	(5,946)		(38)	(41)	(3,113)	(45)	(2,709)
Recoveries	4,385		275	907	1,547	67	1,589
Balance at end of period	$	151,448	10,143	96,597	31,983	7,837	4,888


	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		0	49	0	0	0
Provision for credit losses	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

During the six months ended June 30, 2021, the ACL decreased primarily as a result of an improvement in the quantitative factors including the economic forecasts along with adjustments to qualitative factors.

The ~~most notable change in~~sizeable charge-offs ~~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 ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, there have been no significant changes to the types of collateral securing collateral-dependent loans.

During the nine month period ended September 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, 2021
(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Accruing loans 30-59 days past due	$	8,677	0	3,230	1,940	1,808	1,699
Accruing loans 60-89 days past due	3,399		233	518	2,299	163	186
Accruing loans 90 days or more past due	4,220		338	2,349	1,234	155	144
Non-accrual loans with no ACL	46,843		2,888	10,648	30,164	2,617	526
Non-accrual loans with ACL	1,207		295	462	343	50	57
Total past due and non-accrual loans	64,346		3,754	17,207	35,980	4,793	2,612
Current loans receivable	11,173,702		731,084	6,567,115	2,896,439	644,007	335,057
Total loans receivable	$	11,238,048	734,838	6,584,322	2,932,419	648,800	337,669

September 30, 2020
(Dollars in thousands) Total Residential
Real Estate Commercial
Real Estate Other
Commercial Home
Equity Other
Consumer
Accruing loans 30-59 days past due $ 9,534 520 2,662 2,782 2,160 1,410
Accruing loans 60-89 days past due 8,097 1,666 2,954 2,263 977 237
Accruing loans 90 days or more past due 2,952 217 1,426 1,102 80 127
Non-accrual loans with no ACL 32,047 3,213 16,318 9,441 2,804 271
Non-accrual loans with ACL 4,303 275 1,980 1,930 87 31
Total past due and
non-accrual loans
56,933 5,891 25,340 17,518 6,108 2,076
Current loans receivable 11,561,798 856,723 6,176,477 3,575,804 640,742 312,052
Total loans receivable $ 11,618,731 862,614 6,201,817 3,593,322 646,850 314,128

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 0 452
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 ~~$628,000~~$447,000 and $517,000 of interest reversed on non-accrual loans during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021 and June 30, 2020, respectively. 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, 2021
(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Business assets	$	27,208	0	30	27,178	0	0
Residential real estate	6,727		3,126	807	137	2,480	177
Other real estate	24,830		651	21,313	2,340	187	339
Other	20,345		0	0	19,976	0	369
Total	$	79,110	3,777	22,150	49,631	2,667	885

September 30, 2020
(Dollars in thousands) Total Residential
Real Estate Commercial
Real Estate Other
Commercial Home
Equity Other
Consumer
Business assets $ 5,080 0 84 4,996 0 0
Residential real estate 4,201 1,536 658 0 1,954 53
Other real estate 13,572 31 12,880 624 21 16
Other 132 0 0 16 0 116
Total $ 22,985 1,567 13,622 5,636 1,975 185


	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, 2021
(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	3		0	1	2	0	0
Pre-modification recorded balance	$	615	0	99	516	0	0
Post-modification recorded balance	$	615	0	99	516	0	0
TDRs that subsequently defaulted
Number of loans	0		0	0	0	0	0
Recorded balance	$	0	0	0	0	0	0


		Three Months ended September 30, 2020								Three Months ended June 30, 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	6		0	5	1	0	0	Number of loans	8		1	3	3	1	0
Pre-modification recorded balance	Pre-modification recorded balance	$	7,482	0	6,648	834	0	0	Pre-modification recorded balance	$	1,672	210	1,263	160	39	0
Post-modification recorded balance	Post-modification recorded balance	$	7,482	0	6,648	834	0	0	Post-modification recorded balance	$	1,672	210	1,263	160	39	0
TDRs that subsequently defaulted	TDRs that subsequently defaulted								TDRs that subsequently defaulted
Number of loans	Number of loans	0		0	0	0	0	0	Number of loans	0		0	0	0	0	0
Recorded balance	Recorded balance	$	0	0	0	0	0	0	Recorded balance	$	0	0	0	0	0	0

Three Months ended September 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 6 0 4 2 0 0
Pre-modification recorded balance $ 3,168 0 3,067 101 0 0
Post-modification recorded balance $ 3,168 0 3,067 101 0 0
TDRs that subsequently defaulted
Number of loans 0 0 0 0 0 0
Recorded balance $ 0 0 0 0 0 0


	Six Months ended June 30, 2021
(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	10		1	5	3	0	1
Pre-modification recorded balance	$	2,368	210	1,473	554	0	131
Post-modification recorded balance	$	2,368	210	1,473	554	0	131
TDRs that subsequently defaulted
Number of loans	0		0	0	0	0	0
Recorded balance	$	0	0	0	0	0	0

2728

Nine Months ended September 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 16 1 10 4 1 0
Pre-modification recorded balance $ 14,945 210 13,392 1,304 39 0
Post-modification recorded balance $ 14,945 210 13,392 1,304 39 0
TDRs that subsequently defaulted
Number of loans 0 0 0 0 0 0
Recorded balance $ 0 0 0 0 0 0


		Nine Months ended September 30, 2019								Six Months ended June 30, 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	14		1	5	4	1	3	Number of loans	13		1	6	5	1	0
Pre-modification recorded balance	Pre-modification recorded balance	$	5,261	117	4,102	668	103	271	Pre-modification recorded balance	$	8,940	210	8,120	571	39	0
Post-modification recorded balance	Post-modification recorded balance	$	5,247	123	4,102	668	103	251	Post-modification recorded balance	$	8,940	210	8,120	571	39	0
TDRs that subsequently defaulted	TDRs that subsequently defaulted								TDRs that subsequently defaulted
Number of loans	Number of loans	1		0	0	0	0	1	Number of loans	1		0	1	0	0	0
Recorded balance	Recorded balance	$	305	0	0	0	0	305	Recorded balance	$	106	0	106	0	0	0

The modifications for the loans designated as TDRs during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 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 ~~$2,265,000~~$1,600,000 and ~~$2,982,000~~$904,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 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 six months ended June 30, 2021 and commercial real estate for the ~~nine~~six months ended ~~September~~June 30, ~~2020 and 2019.~~2020. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had ~~$765,000~~$209,000 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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had ~~$1,917,000~~$88,000 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.

2829

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, 2021
(Dollars in thousands)	Total		Pass	Special Mention	Substandard	Doubtful/ Loss
Commercial real estate loans
Term loans by origination year
2021 (year-to-date)	$	1,021,389	1,020,590	0	799	0
2020	1,345,598		1,341,472	0	4,126	0
2019	960,097		948,682	0	11,415	0
2018	797,895		757,454	0	40,441	0
2017	585,881		556,345	0	29,536	0
Prior	1,741,920		1,691,966	0	49,868	86
Revolving loans	131,542		128,806	0	2,735	1

Total	$	6,584,322	6,445,315	0	138,920	87
Other commercial loans 1
Term loans by origination year
2021 (year-to-date)	$	766,841	765,356	0	1,485	0
2020	613,476		591,994	0	21,481	1
2019	266,759		258,482	0	8,274	3
2018	201,000		194,842	0	6,157	1
2017	226,830		225,041	0	1,786	3
Prior	357,769		341,707	0	15,511	551
Revolving loans	499,744		471,791	0	27,936	17

Total	$	2,932,419	2,849,213	0	82,630	576

___________________________

1 Includes PPP loans.

September 30, 2020
(Dollars in thousands) Total Pass Special Mention Substandard Doubtful/
Loss
Commercial real estate loans
Term loans by origination year
2020 (year-to-date) $ 1,023,640 1,018,529 697 4,414 0
2019 1,149,893 1,141,014 335 8,544 0
2018 986,619 947,230 1,190 38,199 0
2017 786,907 756,583 0 30,324 0
2016 526,236 507,694 206 18,336 0
Prior 1,581,948 1,546,314 0 35,286 348
Revolving loans 146,574 143,265 691 2,617 1
Total $ 6,201,817 6,060,629 3,119 137,720 349
Other commercial loans
Term loans by origination year
2020 (year-to-date) $ 1,790,810 1,784,359 606 5,845 0
2019 335,126 330,303 0 4,820 3
2018 281,578 275,011 0 6,566 1
2017 287,150 281,371 0 5,323 456
2016 191,092 188,849 0 2,066 177
Prior 239,070 229,806 0 8,100 1,164
Revolving loans 468,496 453,105 0 14,416 975
Total $ 3,593,322 3,542,804 606 47,136 2,776


	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	—	5,147	—
2019	1,077,461		1,069,503	—	7,958	—
2018	914,506		874,673	—	39,833	—
2017	723,448		696,371	—	27,077	—
2016	496,275		481,392	—	14,883	—
Prior	1,488,281		1,450,596	—	37,574	111
Revolving loans	119,830		116,548	—	3,282	—

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	—
2019	304,430		284,981	12,582	6,864	3
2018	241,222		234,988	—	6,233	1
2017	269,857		264,651	—	5,114	92
2016	179,225		177,164	—	2,056	5
Prior	218,306		206,431	—	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.

2931

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:


		September 30, 2020						June 30, 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)		$	141,655	141,655	0	0
2021 (year-to-date)							2021 (year-to-date)	$	121,489	121,489	0	0
2020							2020	205,741		205,741	0	0
2019	2019	228,558		228,558	0	0	2019	101,077		101,077	0	0
2018	2018	129,077		128,043	791	243	2018	67,729		67,445	52	232
2017	2017	92,899		92,899	0	0	2017	58,675		58,495	0	180
2016		65,216		64,382	0	834
Prior	Prior	202,810		198,787	1,395	2,628	Prior	177,776		174,486	181	3,109
Revolving loans	Revolving loans	2,399		2,399	0	0	Revolving loans	2,351		2,351	0	0

Total	Total	$	862,614	856,723	2,186	3,705	Total	$	734,838	731,084	233	3,521
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)		$	75	75	0	0
2021 (year-to-date)							2021 (year-to-date)	$	47	47	0	0
2020							2020	69		69	0	0
2019	2019	1,028		992	0	36	2019	607		573	0	34
2018	2018	1,862		1,861	0	1	2018	1,093		1,093	0	0
2017	2017	1,745		1,745	0	0	2017	852		827	0	25
2016		1,047		1,047	0	0
Prior	Prior	17,337		15,599	1,059	679	Prior	11,616		11,068	24	524
Revolving loans	Revolving loans	623,756		619,423	2,078	2,255	Revolving loans	634,516		630,330	1,947	2,239

Total	Total	$	646,850	640,742	3,137	2,971	Total	$	648,800	644,007	1,971	2,822
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)		$	106,569	106,501	56	12
2021 (year-to-date)							2021 (year-to-date)	$	98,287	98,258	29	0
2020							2020	100,652		100,363	247	42
2019	2019	75,743		75,340	354	49	2019	48,832		48,485	104	243
2018	2018	49,929		49,737	144	48	2018	27,480		27,170	99	211
2017	2017	21,930		21,829	62	39	2017	11,159		11,115	37	7
2016		12,424		12,278	80	66
Prior	Prior	22,250		21,106	932	212	Prior	22,098		20,568	1,308	222
Revolving loans	Revolving loans	25,283		25,261	19	3	Revolving loans	29,161		29,098	61	2

Total	Total	$	314,128	312,052	1,647	429	Total	$	337,669	335,057	1,885	727

3032

~~Additional Disclosures~~


	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	—
2019	181,924		179,915	2,009	—
2018	100,273		99,135	556	582
2017	76,394		75,527	867	—
2016	53,819		52,905	87	827
Prior	179,085		174,281	1,876	2,928
Revolving loans	2,334		2,334	—	—

Total	$	802,508	791,529	6,642	4,337
Home equity loans
Term loans by origination year
2020	$	89	89	—	—
2019	807		771	—	36
2018	1,782		1,782	—	—
2017	1,452		1,426	26	—
2016	1,016		1,016	—	—
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 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.

~~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 0 73 10 0 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 0 5,343 10 0 35
Unpaid principal balance 5,388 0 5,343 10 0 35
Specific valuation allowance 95 0 73 10 0 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 0 73 10 0 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.~~

3133

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:


		September 30, 2020					December 31, 2019					June 30, 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	$	5,999				6,537				ROU assets	$	5,999				5,999
Accumulated depreciation	Accumulated depreciation	(212)					(917)				Accumulated depreciation	(396)					(273)
Net ROU assets	Net ROU assets	$	5,787		47,329		5,620		41,453		Net ROU assets	$	5,603		45,273		5,726		46,820
Lease liabilities	Lease liabilities	$	5,917		50,089		5,671		43,904		Lease liabilities	$	5,837		48,296		5,891		49,675
Weighted-average remaining lease term	Weighted-average remaining lease term	24 years			17 years		24 years		19 years		Weighted-average remaining lease term	23 years			17 years		24 years		17 years
Weighted-average discount rate	Weighted-average discount rate	2.6		%	3.5	%	3.0	%	3.7	%	Weighted-average discount rate	2.6		%	3.4	%	2.6	%	3.4	%

Maturities of lease liabilities consist of the following:

September 30, 2020
(Dollars in thousands) Finance
Leases Operating
Leases
Maturing within one year $ 259 4,608
Maturing one year through two years 265 4,431
Maturing two years through three years 270 3,961
Maturing three years through four years 277 3,914
Maturing four years through five years 285 3,869
Thereafter 6,808 48,432
Total lease payments 8,164 69,215
Present value of lease payments
Short-term 214 2,973
Long-term 5,703 47,116
Total present value of lease payments 5,917 50,089
Difference between lease payments and present value of lease payments $ 2,247 19,126


	June 30, 2021
(Dollars in thousands)	Finance Leases		Operating Leases
Maturing within one year	$	263	4,742
Maturing one year through two years	269		4,214
Maturing two years through three years	275		3,938
Maturing three years through four years	283		3,895
Maturing four years through five years	289		3,792
Thereafter	6,591		45,582
Total lease payments	7,970		66,163
Present value of lease payments
Short-term	114		3,176
Long-term	5,723		45,120
Total present value of lease payments	5,837		48,296
Difference between lease payments and present value of lease payments	$	2,133	17,867

The components of lease expense consist of the following:


	Three Months ended			Six Months ended
(Dollars in thousands)	June 30, 2021		June 30, 2020	June 30, 2021	June 30, 2020
Finance lease cost
Amortization of ROU assets	$	62	58	123	115
Interest on lease liabilities	38		40	75	81
Operating lease cost	1,302		1,191	2,581	2,299
Short-term lease cost	82		88	168	178
Variable lease cost	234		328	495	713
Sublease income	(10)		(1)	(21)	(3)
Total lease expense	$	1,708	1,704	3,421	3,383

Three Months ended Nine Months ended
(Dollars in thousands) September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Finance lease cost
Amortization of ROU assets $ 59 16 174 48
Interest on lease liabilities 40 2 121 6
Operating lease cost 1,254 1,057 3,553 2,967
Short-term lease cost 88 102 266 330
Variable lease cost 264 236 977 657
Sublease income (2) (2) (5) (5)
Total lease expense $ 1,703 1,411 5,086 4,003

Supplemental cash flow information related to leases is as follows:

Three Months ended

September 30, 2020

September 30, 2019

June 30, 2021

June 30, 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

706

565

Operating cash flows

786

673

Financing cash flows

N/A

Financing cash flows

N/A

Nine Months ended

Six Months ended

September 30, 2020

September 30, 2019

June 30, 2021

June 30, 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

121

1,994

1,541

Operating cash flows

1,566

1,288

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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was not significant.

Note 5. Goodwill

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


		Three Months ended			Nine Months ended			Three Months ended			Six Months ended
(Dollars in thousands)	(Dollars in thousands)	September 30, 2020		September 30, 2019	September 30, 2020	September 30, 2019	(Dollars in thousands)	June 30, 2021		June 30, 2020	June 30, 2021	June 30, 2020
Net carrying value at beginning of period	Net carrying value at beginning of period	$	513,355	330,887	456,418	289,586	Net carrying value at beginning of period	$	514,013	513,355	514,013	456,418
Acquisitions and adjustments	Acquisitions and adjustments	658		125,535	57,595	166,836	Acquisitions and adjustments	0		0	0	56,937

Net carrying value at end of period	Net carrying value at end of period	$	514,013	456,422	514,013	456,422	Net carrying value at end of period	$	514,013	513,355	514,013	513,355

The Company performed its annual goodwill impairment test during the third quarter of 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. 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 ~~September~~June 30, ~~2020~~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, only the servicing rights are recorded and included in other assets. The following schedules disclose the change in the carrying value of mortgage servicing rights that is included in other assets, principal balances of loans serviced and the fair value of mortgage servicing rights:


(Dollars in thousands)	June 30, 2021		December 31, 2020
Carrying value at beginning of period	$	8,976	1,618

Additions	3,351		8,298
Amortization	(821)		(940)
Carrying value at end of period	$	11,506	8,976
Principal balances of loans serviced for others	$	1,506,310	1,269,080
Fair value of servicing rights	$	15,182	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.

3436

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)	September 30, 2020		December 31, 2019	(Dollars in thousands)	June 30, 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	457		63	Accrued interest receivable	574		410
Other assets	Other assets	55,863		54,692	Other assets	39,989		40,282
Total assets	Total assets	$	146,503	139,145	Total assets	$	149,280	130,875
Liabilities	Liabilities				Liabilities
Other borrowed funds	Other borrowed funds	$	27,050	23,149	Other borrowed funds	$	27,719	27,176
Accrued interest payable	Accrued interest payable	167		36	Accrued interest payable	149		53
Other liabilities	Other liabilities	47		123	Other liabilities	51		171
Total liabilities	Total liabilities	$	27,264	23,308	Total liabilities	$	27,919	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 ~~$43,730,000~~$46,589,000 and ~~$41,521,000~~$45,953,000 as of ~~September~~June 30, ~~2020~~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 0 impairment losses on the Company’s LIHTC investments during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. Future unfunded contingent equity commitments related to the Company’s LIHTC investments at ~~September~~June 30, ~~2020~~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		$	7,608
2021	2021	14,883		2021	$	15,277
2022	2022	14,165		2022	28,037
2023	2023	5,277		2023	14,448
2024	2024	427		2024	1,610
2025				2025	232
Thereafter	Thereafter	812		Thereafter	904
Total	Total	$	43,172	Total	$	60,508

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
(Dollars in thousands)	June 30, 2021		June 30, 2020	June 30, 2021	June 30, 2020
Amortization expense	$	2,400	1,988	4,726	3,830
Tax credits and other tax benefits recognized	3,182		2,678	6,277	5,163

Three Months ended Nine Months ended
(Dollars in thousands) September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Amortization expense $ 1,936 1,609 5,766 4,504
Tax credits and other tax benefits recognized 2,608 2,202 7,771 6,169

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)	September 30, 2020		December 31, 2019	(Dollars in thousands)	June 30, 2021	December 31, 2020

State and local governments	State and local governments	$	742,753					0	State and local governments	$	146,295	787,016
Corporate bonds	Corporate bonds	222,915						0	Corporate bonds	160,070		217,567
Residential mortgage-backed securities	Residential mortgage-backed securities	0						312,015	Residential mortgage-backed securities	676,954		0
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0						257,809	Commercial mortgage-backed securities	11,882		0
Total	Total	$	965,668					569,824	Total	$	995,201	1,004,583

The repurchase agreements are secured by debt securities with carrying values of ~~$1,096,781,000~~$1,120,212,000 and ~~$711,210,000~~$1,151,264,000 at ~~September~~June 30, ~~2020~~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. 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 debentures and were determined to be fully effective during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~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 ~~September~~June 30, 2021 and December 31, 2020, the interest rate caps had a fair value of ~~$183,000~~$566,000 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. Amortization recorded on the interest rate caps totaled $84,000 and ~~was reported as a component of interest expense on subordinated debentures~~$123,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~

~~Interest Rate Swap Derivatives.~~ ~~In September 2019, the Company implemented a balance sheet strategy to increase its net interest income~~2021 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 $5,532,000 for the nine months ended September 30, 2020, ~~and 2019,~~ respectively, and was reported as a component of interest expense on ~~deposits and FHLB advances.~~subordinated debentures.

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

Three Months ended

Six Months ended

(Dollars in thousands)

June 30,
2021

June 30,
2020

June 30,
2021

June 30,
2020

Amount of loss recognized in OCI

(144)

(456)

449

(456)

Three Months ended Nine Months ended
(Dollars in thousands) September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Amount of loss recognized in OCI $ (76) (1,393) (532) (7,047)
Amount of loss reclassified from OCI to net income 0 (10,315) 0 (10,816)

Residential Real Estate Derivatives

~~At September 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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, loan commitments with interest rate lock commitments totaled ~~$408,859,000~~$180,342,000 and ~~$84,803,000,~~$229,862,000, respectively. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the fair value of the related derivatives on the interest rate lock commitments was ~~$14,967,000~~$5,577,000 and ~~$1,852,000,~~$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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, TBA commitments were ~~$353,750,000~~$121,750,000 and ~~$82,000,000,~~$206,000,000, respectively. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the fair value of the related derivatives on the TBA securities was ~~$1,344,000~~$319,000 and ~~$236,000, respectively,~~$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 10. Other Expenses

Other expenses consists of the following:


	Three Months ended			Six Months ended
(Dollars in thousands)	June 30, 2021		June 30, 2020	June 30, 2021	June 30, 2020
Consulting and outside services	$	2,744	2,319	4,915	4,554
Loan expenses	1,755		1,125	3,379	1,989
Telephone	1,339		1,313	2,714	2,551
VIE amortization and other expenses	1,143		1,045	2,674	1,886
Debit card expenses	970		1,197	2,292	2,290
Business development	1,048		923	1,870	1,971
Postage	874		833	1,835	1,628
Printing and supplies	823		924	1,613	1,827
Employee expenses	753		644	1,184	1,687
Mergers and acquisition expenses	1,078		3,728	1,182	6,519
Legal fees	636		386	792	819
Checking and operating expenses	598		551	754	908
Accounting and audit fees	238		550	693	998
(Gain) loss on dispositions of fixed assets	(1,045)		66	(1,398)	125
Other	1,006		917	2,107	1,873
Total other expenses	$	13,960	16,521	26,606	31,625

Note ~~9. Other Expenses~~

~~Other expenses consists of the following:~~

Three Months ended Nine Months ended
(Dollars in thousands) September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Consulting and outside services 4,050 1,938 8,604 5,715
Mergers and acquisition expenses $ 792 2,058 7,311 4,103
Loan expenses 1
4,060 924 5,867 2,726
Telephone 1,314 1,216 3,865 3,601
Debit card expenses 1,414 1,699 3,704 5,003
VIE amortization and other expenses 1,510 1,427 3,396 2,878
Business development 1,139 1,176 3,110 3,189
Printing and supplies 877 735 2,704 2,246
Postage 851 831 2,479 2,487
Employee expenses 560 1,245 2,247 3,646
Accounting and audit fees 455 365 1,453 1,290
Checking and operating expenses 355 361 1,263 1,353
Legal fees 206 338 1,025 926
ATM expenses 245 299 373 1,312
Other 958 991 2,828 2,679
Total other expenses $ 18,786 15,603 50,229 43,154

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) (Losses) Gains on Available-For-Sale Debt Securities Losses on Derivatives Used for Cash Flow Hedges Total
Balance at January 1, 2019 $ (6,613) (2,814) (9,427)
Other comprehensive income (loss) before reclassifications 65,284 (5,261) 60,023
Reclassification adjustments for (gains) losses included in net income (10,576) 8,075 (2,501)
Net current period other comprehensive income 54,708 2,814 57,522
Balance at September 30, 2019 $ 48,095 0 48,095
Balance at January 1, 2020 $ 40,226 0 40,226
Other comprehensive income (loss) before reclassifications 92,027 (397) 91,630
Reclassification adjustments for gains included in net income (loss) (758) 0 (758)
Net current period other comprehensive income (loss) 91,269 (397) 90,872
Balance at September 30, 2020 $ 131,495 (397) 131,098


(Dollars in thousands)	Gains (Losses) on Available-For-Sale and Transferred Debt Securities		(Losses) Gains on Derivatives Used for Cash Flow Hedges	Total
Balance at January 1, 2020	$	40,226	0	40,226
Other comprehensive income before reclassifications	90,763		(341)	90,422
Reclassification adjustments for gains included in net income	(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 January 1, 2021	$	143,443	(353)	143,090
Other comprehensive (loss) income before reclassifications	(52,064)		336	(51,728)
Reclassification adjustments for gains and transfers included in net income	(278)		—	(278)
Reclassification adjustments for amortization included in net income for transferred securities	(642)		—	(642)
Net current period other comprehensive income (loss)	(52,984)		336	(52,648)
Balance at June 30, 2021	$	90,459	(17)	90,442

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			Nine Months ended			Three Months ended			Six Months ended
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	September 30, 2020		September 30, 2019	September 30, 2020	September 30, 2019	(Dollars in thousands, except per share data)	June 30, 2021		June 30, 2020	June 30, 2021	June 30, 2020
Net income available to common stockholders, basic and diluted	Net income available to common stockholders, basic and diluted	$	77,757	51,610	184,540	153,134	Net income available to common stockholders, basic and diluted	$	77,627	63,444	158,429	106,783
Average outstanding shares - basic	Average outstanding shares - basic	95,411,656		90,294,811	94,704,198	86,911,402	Average outstanding shares - basic	95,505,877		95,405,493	95,485,839	94,346,582
Add: dilutive restricted stock units and stock options	Add: dilutive restricted stock units and stock options	30,920		154,384	43,696	170,776	Add: dilutive restricted stock units and stock options	75,027		24,910	79,752	49,348
Average outstanding shares - diluted	Average outstanding shares - diluted	95,442,576		90,449,195	94,747,894	87,082,178	Average outstanding shares - diluted	95,580,904		95,430,403	95,565,591	94,395,930
Basic earnings per share	Basic earnings per share	$	0.81	0.57	1.95	1.76	Basic earnings per share	$	0.81	0.67	1.66	1.13
Diluted earnings per share	Diluted earnings per share	$	0.81	0.57	1.95	1.76	Diluted earnings per share	$	0.81	0.66	1.66	1.13
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	93,253		4,037	78,605	1,360	Restricted stock units and stock options excluded from the diluted average outstanding share calculation 1	0		143,938	0	121,533

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 0no transfers between fair value hierarchy levels during the ~~nine~~six month periods ended ~~September~~June 30, ~~2020~~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 ~~September~~June 30, ~~2020.~~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 ~~$3,435,000~~$3,870,000 and net gains of ~~$993,000~~$3,236,000 for the ~~nine~~six month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 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.

4042

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
(Dollars in thousands) Fair Value
September 30,
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
U.S. government and federal agency $ 40,140 0 40,140 0
U.S. government sponsored enterprises 9,825 0 9,825 0
State and local governments 1,275,376 0 1,275,376 0
Corporate bonds 361,024 0 361,024 0
Residential mortgage-backed securities 1,275,858 0 1,275,858 0
Commercial mortgage-backed securities 1,163,325 0 1,163,325 0
Loans held for sale, at fair value 147,937 0 147,937 0
Interest rate caps 182 0 182 0
Interest rate lock commitment 14,967 0 14,967 0
Total assets measured at fair value
on a recurring basis
$ 4,288,634 0 4,288,634 0
TBA hedge $ 1,344 0 1,344 0
Total liabilities measured at fair value on a recurring basis $ 1,344 0 1,344 0


			Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Fair Value June 30, 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
U.S. government and federal agency	$	34,481	0		34,481		0
U.S. government sponsored enterprises	48,016		0		48,016		0
State and local governments	536,547		0		536,547		0
Corporate bonds	257,878		0		257,878		0
Residential mortgage-backed securities	4,139,585		0		4,139,585		0
Commercial mortgage-backed securities	1,130,636		0		1,130,636		0
Loans held for sale, at fair value	98,410		0		98,410		0
Interest rate caps	566		0		566		0
Interest rate locks	5,577		0		5,577		0

Total assets measured at fair value on a recurring basis	$	6,251,696	0		6,251,696		0
TBA hedge	$	319	0	0	319	0	0
Total liabilities measured at fair value on a recurring basis	$	319	0		319		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	0	20,044	0	U.S. government and federal agency	$	38,588	0	38,588	0
U.S. government sponsored enterprises	U.S. government sponsored enterprises	43,677		0	43,677	0	U.S. government sponsored enterprises	9,781		0	9,781	0
State and local governments	State and local governments	702,398		0	702,398	0	State and local governments	1,416,683��		0	1,416,683	0
Corporate bonds	Corporate bonds	157,602		0	157,602	0	Corporate bonds	349,098		0	349,098	0
Residential mortgage-backed securities	Residential mortgage-backed securities	738,724		0	738,724	0	Residential mortgage-backed securities	2,289,090		0	2,289,090	0
Commercial mortgage-backed securities	Commercial mortgage-backed securities	912,807		0	912,807	0	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		0	69,194	0	Loans held for sale, at fair value	166,572		0	166,572	0
Interest rate lock commitment		1,852		0	1,852	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	$	2,646,298	0	2,646,298	0	Total assets measured at fair value on a recurring basis	$	5,513,192	0	5,513,192	0
TBA hedge	TBA hedge	$	236	0	236	0	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	$	236	0	236	0	Total liabilities measured at fair value on a recurring basis	$	2,056	0	2,056	0

4143

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 ~~September~~June 30, ~~2020.~~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
(Dollars in thousands)	Fair Value June 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)

Collateral-dependent impaired loans, net of ACL	15,428		0	0	15,428

Total assets measured at fair value on a non-recurring basis	$	15,428	0	0	15,428


			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

4244

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 0 0 1,983
Collateral-dependent loans, net of ACL 23 0 0 23
Total assets measured at fair value
on a non-recurring basis
$ 2,006 0 0 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 ~~September~~ June 30, ~~2020~~ 2021		Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)			Valuation Technique	Unobservable Input	Range (Weighted-Average) 1








Collateral-dependent impaired loans, net of ACL	$	1,751	Cost approach	Selling costs	10.0% - 10.0% (10.0%)


	13,677		Sales comparison approach	Selling costs	10.0% - 5.0% (5.1%)

				Adjustment to comparables	10.0% - 5.0% (5.4%)



	$	15,428

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

~~297~~564

Sales comparison approach

Selling costs

8.0% - 10.0% (9.0%)

Collateral-dependent

loans, net of ACL

~~943~~144

Cost approach

Selling costs

10.0% - 10.0% (10.0%)

4525,309

Sales comparison approach

Selling ~~costs~~Costs

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

Adjustment to comparables

0.0% - 100.0% (11.1%)

1,296

Combined approach

Selling costs

10.0% - 10.0% (10.0%)

Discount rate

8.0% - 8.0% (8.0%)

~~2,284~~

~~Fair Value December 31, 2019~~

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

~~(Dollars in thousands)~~

~~Valuation Technique~~

~~Unobservable Input~~

~~Range~~

~~(Weighted-Average)~~ 1

~~Other real estate owned~~

~~1,983~~

~~Sales comparison approach~~

~~Selling costs~~

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

~~Adjustment to comparables~~

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

~~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

1 The 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 June 30, 2021.

Fair Value Measurements
At the End of the Reporting Period Using
(Dollars in thousands) Carrying Amount
September 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 $ 769,879 769,879 0 0
Debt securities, held-to-maturity 193,509 0 206,577 0
Loans receivable, net of ACL 11,454,179 0 0 11,619,887
Total financial assets $ 12,417,567 769,879 206,577 11,619,887
Financial liabilities
Term deposits $ 1,098,988 0 1,104,273 0
FHLB advances 7,318 0 7,537 0
Repurchase agreements and
other borrowed funds
998,635 0 998,635 0
Subordinated debentures 139,918 0 119,318 0
Total financial liabilities $ 2,244,859 0 2,229,763 0

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 0 0
Debt securities, held-to-maturity 224,611 0 234,396 0
Loans receivable, net of ACL 9,388,320 0 0 9,438,121
Total financial assets $ 9,943,892 330,961 234,396 9,438,121
Financial liabilities
Term deposits $ 1,011,798 0 1,017,505 0
FHLB advances 38,611 0 38,787 0
Repurchase agreements and
other borrowed funds
598,644 0 598,644 0
Subordinated debentures 139,914 0 124,094 0
Total financial liabilities $ 1,788,967 0 1,779,030 0

: 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

~~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 term deposits is estimated by discounting the ~~Company shares issued was determined~~future cash flows using rates of similar deposits with similar maturities. The market rates used were obtained from an independent third party based on ~~the basis of the closing market price of~~current rates offered by 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~~

~~33,971~~

~~Total identifiable assets acquired~~

~~687,825~~

~~Liabilities assumed~~

~~Deposits~~

~~603,289~~

~~Borrowings~~

~~10,904~~

~~Accrued expenses and other liabilities~~

~~5,373~~

~~Total liabilities assumed~~

~~619,566~~

~~Total identifiable net assets~~

~~68,259~~

~~Goodwill recognized~~

~~57,595~~

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

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 $4,167,000~~Subordinated debentures: fair value of ~~expenses in connection with~~ the ~~SBAZ acquisition during~~subordinated debt is estimated by discounting the nine months ended September 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 $21,144,000~~unused lines of credit and ~~net income was approximately $3,921,000 from February 29, 2020 to September 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.


			Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Carrying Amount June 30, 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	$	921,207	921,207	0	0
Debt securities, held-to-maturity	1,024,730		0	1,047,013	0
Loans receivable, net of ACL	11,086,600		0	0	11,349,564
Total financial assets	$	13,032,537	921,207	1,047,013	11,349,564
Financial liabilities
Term deposits	$	939,563	0	942,998	0

Repurchase agreements and other borrowed funds	1,028,757		0	1,028,757	0
Subordinated debentures	132,540		0	127,765	0
Total financial liabilities	$	2,100,860	0	2,099,520	0

Three Months ended Nine Months ended
(Dollars in thousands) September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Net interest income and non-interest income $ 205,070 182,185 567,406 491,830
Net income 77,757 54,000 183,429 159,601


			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

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.

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
(Dollars in thousands, except per share and market data)	Jun 30, 2021			Mar 31, 2021		Jun 30, 2020			Jun 30, 2021		Jun 30, 2020
Operating results
Net income	$	77,627		80,802		63,444			158,429		106,783
Basic earnings per share	$	0.81		0.85		0.67			1.66		1.13
Diluted earnings per share	$	0.81		0.85		0.66			1.66		1.13
Dividends declared per share	$	0.32		0.31		0.29			0.63		0.58
Market value per share
Closing	$	55.08		57.08		35.29			55.08		35.29
High	$	63.05		67.35		46.54			67.35		46.54
Low	$	52.99		44.55		30.30			44.55		26.66
Selected ratios and other data
Number of common stock shares outstanding	95,507,234			95,501,819		95,409,061			95,507,234		95,409,061
Average outstanding shares - basic	95,505,877			95,465,801		95,405,493			95,485,839		94,346,582
Average outstanding shares - diluted	95,580,904			95,546,922		95,430,403			95,565,591		94,395,930
Return on average assets (annualized)	1.55		%	1.73	%	1.57	%		1.64	%	1.42	%
Return on average equity (annualized)	13.25		%	14.12	%	11.68	%		13.68	%	10.15	%
Efficiency ratio	49.92		%	46.75	%	47.54	%		48.31	%	50.86	%
Dividend payout ratio	39.51		%	36.47	%	43.28	%		37.95	%	51.33	%
Loan to deposit ratio	67.64		%	70.72	%	86.45	%		67.64	%	86.45	%
Number of full time equivalent employees	2,987			2,994		2,954			2,987		2,954
Number of locations	194			193		192			194		192
Number of ATMs	250			250		251			250		251

At or for the Three Months ended At or for the Nine Months ended
(Dollars in thousands, except per share and market data) Sep 30,
2020 Jun 30,
2020 Mar 31,
2020 Sep 30,
2019 Sep 30,
2020 Sep 30,
2019
Operating results
Net income $ 77,757 63,444 43,339 51,610 184,540 153,134
Basic earnings per share $ 0.81 0.67 0.46 0.57 1.95 1.76
Diluted earnings per share $ 0.81 0.66 0.46 0.57 1.95 1.76
Dividends declared per share $ 0.30 0.29 0.29 0.29 0.88 0.82
Market value per share
Closing $ 32.05 35.29 34.01 40.46 32.05 40.46
High $ 38.13 46.54 46.10 42.61 46.54 45.47
Low $ 30.05 30.30 26.66 37.70 26.66 37.58
Selected ratios and other data
Number of common stock shares outstanding 95,413,743 95,409,061 95,408,274 92,180,618 95,413,743 92,180,618
Average outstanding shares - basic 95,411,656 95,405,493 93,287,670 90,294,811 94,704,198 86,911,402
Average outstanding shares - diluted 95,442,576 95,430,403 93,359,792 90,449,195 94,747,894 87,082,178
Return on average assets (annualized) 1.80 % 1.57 % 1.25 % 1.55 % 1.56 % 1.63 %
Return on average equity (annualized) 13.73 % 11.68 % 8.52 % 10.92 % 11.40 % 12.17 %
Efficiency ratio 49.16 % 49.29 % 52.55 % 65.95 % 50.21 % 58.82 %
Dividend payout ratio 37.04 % 43.28 % 63.04 % 50.88 % 45.13 % 46.59 %
Loan to deposit ratio 82.29 % 86.45 % 88.10 % 88.71 % 82.29 % 88.71 %
Number of full time equivalent employees 2,946 2,954 2,955 2,802 2,946 2,802
Number of locations 193 192 192 182 193 182
Number of ATMs 250 251 247 238 250 238

The Company reported net income of ~~$77.8~~$77.6 million for the current quarter, an increase of ~~$26.2~~$14.2 million, or 5122 percent, from the ~~$51.6~~$63.4 million of net income for the prior year ~~third~~second quarter. Diluted earnings per share for the current quarter was $0.81 per share, an increase of 4223 percent from the prior year ~~third~~second quarter diluted earnings per share of ~~$0.57. Included in the current quarter was $793 thousand of acquisition-related expenses.~~$0.66.

Net income for the nine months ended September 30, 2020 was $185 million, an increase of $31.4 million, or 21 percent, from the $153 million net income from the first nine months of the prior year. Diluted earnings per share for the first nine months of the current year was $1.95 per share, an increase of 11 percent, from the diluted earnings per share of $1.76 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 geographic footprint has experienced varying levels of exposure and impact from COVID-19 and the Company’s pandemic team remains flexible in responding to the changing conditions in all the markets that it serves.

Pending Acquisition

In ~~order to meet the needs of customers impacted by the pandemic, during the second quarter of 2020~~May 2021, the Company ~~modified 3,054 loans in~~announced the ~~amount~~signing of ~~$1.515 billion primarily with short-term payment deferrals under six months. The majority of these modified loan deferral periods expired and the loans returned~~definitive agreement to ~~regular payment status with only $466 million loans, or 5 percent, remaining deferred as of September 30, 2020.~~

In addition, the Company originated SBA Payroll Protection Program (“PPP”) loans for businesses in its communities. The Company originated 16,090 PPP loans in the amount of $1.472 billion during the current year. During the current quarter, these loans provided an additional $9.3 million of interest income (including net deferred fees and costs) and $438 thousand of deferred compensation costs for a total increase in income of $9.8 million ($7.3 million net of tax).

~~Recent Acquisition~~

~~On February 29, 2020, the Company completed the acquisition of State Bank Corp.,~~acquire Altabancorp, the parent company of ~~State Bank of Arizona,~~Altabank, a community bank based in ~~Lake Havasu City, Arizona~~American Fork, Utah (collectively, ~~“SBAZ”~~“Alta”). ~~SBAZ~~Alta provides banking services to individuals and businesses in ~~Arizona~~Utah with ~~ten~~twenty-five banking offices ~~located~~from Preston, Idaho to St. George, Utah. As of March 31, 2021, Alta had total assets of $3.522 billion, total loans of $1.797 billion and total deposits of $3.159 billion. The acquisition is subject to required regulatory approvals and other customary conditions of closing and is expected to be completed in ~~Bullhead City, Cottonwood, Kingman, Lake Havasu City, Phoenix, Prescott Valley and Prescott.~~the fourth quarter of 2021. 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 inAlta will become 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.”seventeenth Bank division.

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

~~(Dollars in thousands)~~

State Bank Corp.
February 29, 2020

~~Total assets~~

~~745,420~~

~~Debt securities~~

~~142,174~~

~~Loans receivable~~

~~451,702~~

~~Non-interest bearing deposits~~

~~141,620~~

~~Interest bearing deposits~~

~~461,669~~

~~Borrowings~~

~~10,904~~

4948

Financial Condition Analysis

Assets

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

$ Change from
(Dollars in thousands) Sep 30,
2020 Jun 30,
2020 Dec 31,
2019 Sep 30,
2019 Jun 30,
2020 Dec 31,
2019 Sep 30,
2019
Cash and cash equivalents $ 769,879 547,610 330,961 406,384 222,269 438,918 363,495
Debt securities, available-for-sale 4,125,548 3,533,950 2,575,252 2,459,036 591,598 1,550,296 1,666,512
Debt securities, held-to-maturity 193,509 203,275 224,611 234,992 (9,766) (31,102) (41,483)
Total debt securities 4,319,057 3,737,225 2,799,863 2,694,028 581,832 1,519,194 1,625,029
Loans receivable
Residential real estate 862,614 903,198 926,388 936,877 (40,584) (63,774) (74,263)
Commercial real estate 6,201,817 6,047,692 5,579,307 5,548,174 154,125 622,510 653,643
Other commercial 3,593,322 3,547,249 2,094,254 2,145,257 46,073 1,499,068 1,448,065
Home equity 646,850 654,392 617,201 615,781 (7,542) 29,649 31,069
Other consumer 314,128 300,847 295,660 294,999 13,281 18,468 19,129
Loans receivable 11,618,731 11,453,378 9,512,810 9,541,088 165,353 2,105,921 2,077,643
Allowance for credit losses (164,552) (162,509) (124,490) (125,535) (2,043) (40,062) (39,017)
Loans receivable, net 11,454,179 11,290,869 9,388,320 9,415,553 163,310 2,065,859 2,038,626
Other assets 1,382,952 1,330,944 1,164,855 1,202,827 52,008 218,097 180,125
Total assets $ 17,926,067 16,906,648 13,683,999 13,718,792 1,019,419 4,242,068 4,207,275


						$ Change from
(Dollars in thousands)	Jun 30, 2021		Mar 31, 2021	Dec 31, 2020	Jun 30, 2020	Mar 31, 2021	Dec 31, 2020	Jun 30, 2020
Cash and cash equivalents	$	921,207	878,450	633,142	547,610	42,757	288,065	373,597
Debt securities, available-for-sale	6,147,143		5,853,315	5,337,814	3,533,950	293,828	809,329	2,613,193
Debt securities, held-to-maturity	1,024,730		588,751	189,836	203,275	435,979	834,894	821,455
Total debt securities	7,171,873		6,442,066	5,527,650	3,737,225	729,807	1,644,223	3,434,648
Loans receivable
Residential real estate	734,838		745,097	802,508	903,198	(10,259)	(67,670)	(168,360)
Commercial real estate	6,584,322		6,474,701	6,315,895	6,047,692	109,621	268,427	536,630
Other commercial	2,932,419		3,100,584	3,054,817	3,547,249	(168,165)	(122,398)	(614,830)
Home equity	648,800		625,369	636,405	654,392	23,431	12,395	(5,592)
Other consumer	337,669		324,178	313,071	300,847	13,491	24,598	36,822
Loans receivable	11,238,048		11,269,929	11,122,696	11,453,378	(31,881)	115,352	(215,330)
Allowance for credit losses	(151,448)		(156,446)	(158,243)	(162,509)	4,998	6,795	11,061
Loans receivable, net	11,086,600		11,113,483	10,964,453	11,290,869	(26,883)	122,147	(204,269)
Other assets	1,308,353		1,336,553	1,378,961	1,330,944	(28,200)	(70,608)	(22,591)
Total assets	$	20,488,033	19,770,552	18,504,206	16,906,648	717,481	1,983,827	3,581,385

Total debt securities of ~~$4.319~~$7.172 billion at ~~September~~June 30, ~~2020~~2021 increased ~~$582~~$730 million, or 1611 percent, during the current quarter and increased ~~$1.625~~$3.435 billion, or 6092 percent, from the prior year ~~third~~second quarter. The Company continues to purchase debt securities with ~~the~~ excess liquidity ~~produced~~ from the increase in core ~~deposits.~~deposits and SBA forgiveness of Paycheck Protection Program (“PPP”) loans. Debt securities represented 2435 percent of total assets at ~~September~~June 30, ~~2020~~2021 compared to ~~20 percent at December 31, 2019 and 20~~30 percent of total assets at ~~September~~December 30, ~~2019.~~2020 and 22 percent of total assets at June 30, 2020.

The loan portfolio of ~~$11.619~~$11.238 billion ~~increased $165~~at June 30, 2021 decreased $31.9 million, or 128 basis points, in the current quarter. Excluding the PPP loans, the loan portfolio increased $249 million, or 10 percent annualized, during the current quarter with the largest increase in other commercial ~~real estate~~loans which increased ~~$154~~$113 million.

The loan portfolio decreased $215 million, or ~~3 percent.~~2 percent, from the prior year second quarter. Excluding the PPP loans, ~~and the SBAZ acquisition,~~ the loan portfolio increased ~~$178~~$517 million, or 25 percent, ~~since~~from the prior year ~~third~~second quarter with the largest increase in commercial real estate loans which increased ~~$318~~$537 million, or 69 percent.

5049

Liabilities

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

$ Change from
(Dollars in thousands) Sep 30,
2020 Jun 30,
2020 Dec 31,
2019 Sep 30,
2019 Jun 30,
2020 Dec 31,
2019 Sep 30,
2019
Deposits
Non-interest bearing deposits $ 5,479,311 5,043,704 3,696,627 3,772,766 435,607 1,782,684 1,706,545
NOW and DDA accounts 3,300,152 3,113,863 2,645,404 2,592,483 186,289 654,748 707,669
Savings accounts 1,864,143 1,756,503 1,485,487 1,472,465 107,640 378,656 391,678
Money market deposit accounts 2,557,294 2,403,641 1,937,141 1,940,517 153,653 620,153 616,777
Certificate accounts 979,857 995,536 958,501 955,765 (15,679) 21,356 24,092
Core deposits, total 14,180,757 13,313,247 10,723,160 10,733,996 867,510 3,457,597 3,446,761
Wholesale deposits 119,131 68,285 53,297 134,629 50,846 65,834 (15,498)
Deposits, total 14,299,888 13,381,532 10,776,457 10,868,625 918,356 3,523,431 3,431,263
Securities sold under agreements to repurchase 965,668 881,227 569,824 558,752 84,441 395,844 406,916
Federal Home Loan Bank advances 7,318 37,963 38,611 8,707 (30,645) (31,293) (1,389)
Other borrowed funds 32,967 32,546 28,820 14,808 421 4,147 18,159
Subordinated debentures 139,918 139,917 139,914 139,913 1 4 5
Deferred tax liability 17,227 25,213 — — (7,986) 17,227 17,227
Other liabilities 207,992 204,535 169,640 174,586 3,457 38,352 33,406
Total liabilities $ 15,670,978 14,702,933 11,723,266 11,765,391 968,045 3,947,712 3,905,587


						$ Change from
(Dollars in thousands)	Jun 30, 2021		Mar 31, 2021	Dec 31, 2020	Jun 30, 2020	Mar 31, 2021	Dec 31, 2020	Jun 30, 2020
Deposits
Non-interest bearing deposits	$	6,307,794	6,040,440	5,454,539	5,043,704	267,354	853,255	1,264,090
NOW and DDA accounts	4,151,264		4,035,455	3,698,559	3,113,863	115,809	452,705	1,037,401
Savings accounts	2,346,129		2,206,592	2,000,174	1,756,503	139,537	345,955	589,626
Money market deposit accounts	2,990,021		2,817,708	2,627,336	2,403,641	172,313	362,685	586,380
Certificate accounts	939,563		965,986	978,779	995,536	(26,423)	(39,216)	(55,973)
Core deposits, total	16,734,771		16,066,181	14,759,387	13,313,247	668,590	1,975,384	3,421,524
Wholesale deposits	26,121		38,143	38,142	68,285	(12,022)	(12,021)	(42,164)
Deposits, total	16,760,892		16,104,324	14,797,529	13,381,532	656,568	1,963,363	3,379,360
Securities sold under agreements to repurchase	995,201		996,878	1,004,583	881,227	(1,677)	(9,382)	113,974
Federal Home Loan Bank advances	—		—	—	37,963	—	—	(37,963)
Other borrowed funds	33,556		33,452	33,068	32,546	104	488	1,010
Subordinated debentures	132,540		132,499	139,959	139,917	41	(7,419)	(7,377)
Other liabilities	211,889		208,014	222,026	229,748	3,875	(10,137)	(17,859)
Total liabilities	$	18,134,078	17,475,167	16,197,165	14,702,933	658,911	1,936,913	3,431,145

Core deposits of ~~$14.181~~$16.735 billion as of ~~September~~June 30, ~~2020~~2021 increased ~~$868~~$669 million, or 717 percent annualized, from the prior ~~quarter. Excluding the SBAZ acquisition, core deposits~~quarter and increased ~~$2.843~~$3.422 billion, or 26 percent, from the prior year ~~third quarter, with non-interest~~second quarter. Non-interest bearing deposits ~~increasing $1.565~~of $6.308 billion as of June 30, 2021 increased $267 million, or 4 percent, from the prior quarter and increased $1.264 billion, or ~~41 percent.~~25 percent, from the prior year second quarter. The ~~current year significant~~last fifteen months unprecedented increase in deposits ~~was attributable to~~resulted from a number of factors including the PPP loan proceeds deposited by customers, federal stimulus deposits and the increase in customer ~~savings rate.~~savings. Non-interest bearing deposits were 3938 percent of total core deposits at ~~September~~June 30, ~~2020~~2021 compared to 3537 percent of total core deposits at ~~September~~December 31, 2020 and 38 percent at June 30, ~~2019.~~2020.

During the prior quarter, the Company paid off $7.5 million of subordinated debt. The low levels of borrowings, including wholesale deposits and Federal Home Loan Bank (“FHLB”) advances, ~~of $7.3 million at September 30, 2020 decreased $31 million from the prior quarter and decreased $1.4 million from the prior year third quarter. The low level of FHLB advances was the result of~~reflected the significant increase in core deposits which funded ~~loans and debt security~~the asset growth. ~~FHLB advances will continue to fluctuate as necessary for balance sheet growth and to supplement liquidity needs of the Company.~~

5150

Stockholders’ Equity

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


						$ Change from
(Dollars in thousands, except per share data)	Jun 30, 2021		Mar 31, 2021	Dec 31, 2020	Jun 30, 2020	Mar 31, 2021	Dec 31, 2020	Jun 30, 2020
Common equity	$	2,263,513	2,215,465	2,163,951	2,073,806	48,048	99,562	189,707
Accumulated other comprehensive income	90,442		79,920	143,090	129,909	10,522	(52,648)	(39,467)
Total stockholders’ equity	2,353,955		2,295,385	2,307,041	2,203,715	58,570	46,914	150,240
Goodwill and core deposit intangible, net	(564,546)		(567,034)	(569,522)	(574,088)	2,488	4,976	9,542
Tangible stockholders’ equity	$	1,789,409	1,728,351	1,737,519	1,629,627	61,058	51,890	159,782

$ Change from
(Dollars in thousands, except per share data) Sep 30,
2020 Jun 30,
2020 Dec 31,
2019 Sep 30,
2019 Jun 30,
2020 Dec 31,
2019 Sep 30,
2019
Common equity $ 2,123,991 2,073,806 1,920,507 1,905,306 50,185 203,484 218,685
Accumulated other comprehensive income 131,098 129,909 40,226 48,095 1,189 90,872 83,003
Total stockholders’ equity 2,255,089 2,203,715 1,960,733 1,953,401 51,374 294,356 301,688
Goodwill and core deposit intangible, net (572,134) (574,088) (519,704) (522,274) 1,954 (52,430) (49,860)
Tangible stockholders’ equity $ 1,682,955 1,629,627 1,441,029 1,431,127 53,328 241,926 251,828


Stockholders’ equity to total assets	11.49		%	11.61	%	12.47	%	13.03	%
Tangible stockholders’ equity to total tangible assets	8.98		%	9.00	%	9.69	%	9.98	%
Book value per common share	$	24.65		24.03		24.18		23.10		0.62	0.47	1.55
Tangible book value per common share	$	18.74		18.10		18.21		17.08		0.64	0.53	1.66

Stockholders’ equity to total assets 12.58 % 13.03 % 14.33 % 14.24 %
Tangible stockholders’ equity to total tangible assets 9.70 % 9.98 % 10.95 % 10.84 %
Book value per common share $ 23.63 23.10 21.25 21.19 0.53 2.38 2.44
Tangible book value per common share $ 17.64 17.08 15.61 15.53 0.56 2.03 2.11

Tangible stockholders’ equity of ~~$1.683~~$1.789 billion at ~~September~~June 30, ~~2020~~2021 increased ~~$53~~$61.1 million, or 34 percent, from the prior quarter and was ~~primarily~~ the result of earnings ~~retention. Tangible stockholders’ equity increased $252 million over the prior year third quarter, which was the result of $112 million of Company stock issued for the acquisitions of SBAZ and~~retention coupled with an increase in other comprehensive ~~income~~income. Tangible stockholders’ equity of at June 30, 2021 increased $160 million, or 10 percent, from the prior year second quarter and was due to earnings ~~retention. These increases~~retention that more than offset the ~~increase in goodwill and core deposit intangible associated with the acquisition. The current 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 adding $1.448 billion of PPP loans.~~other comprehensive income. Tangible book value per common share of ~~$17.64~~$18.74 at the current quarter end increased ~~$0.56~~$0.64 per share, or 4 percent, from the prior quarter and increased ~~$2.11~~$1.66 per share, or 10 percent, from a year ~~ago~~. ~~For additional information on the~~ ~~current expected credit loss (“CECL”) accounting standard, see Note 1 to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”~~ago.

Cash Dividend

On ~~September~~June 30, ~~2020,~~2021, the Company’s Board of Directors declared a quarterly cash dividend of ~~$0.30~~$0.32 per ~~share.~~share, an increase of $0.01 per share, or 3 percent, over the prior quarter regular dividend. The dividend was payable ~~October~~July 22, ~~2020~~2021 to shareholders of record on ~~October~~July 13, ~~2020.~~2021. The dividend was the ~~142nd~~145th consecutive dividend. Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations.

~~S&P MidCap 400® Index~~

During the second quarter of 2020, Standard and Poor’s [“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.

5251

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

Compared to March 31, 2021, and June 30, ~~2020, and 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)	Sep 30, 2020			Jun 30, 2020		Mar 31, 2020		Sep 30, 2019		Jun 30, 2020	Mar 31, 2020	Sep 30, 2019	(Dollars in thousands)	Jun 30, 2021			Mar 31, 2021		Jun 30, 2020			Mar 31, 2021	Jun 30, 2020
Net interest income	Net interest income													Net interest income
Interest income	Interest income	$	157,487		155,404		142,865		142,395		2,083	14,622	15,092	Interest income	$	159,956		161,552		155,404			(1,596)	4,552
Interest expense	Interest expense	6,084			7,185		8,496		10,947		(1,101)	(2,412)	(4,863)	Interest expense	4,487			4,740		7,185			(253)	(2,698)
Total net interest income	Total net interest income	151,403			148,219		134,369		131,448		3,184	17,034	19,955	Total net interest income	155,469			156,812		148,219			(1,343)	7,250
Non-interest income	Non-interest income													Non-interest income
Service charges and other fees	Service charges and other fees	13,404			11,366		14,020		15,138		2,038	(616)	(1,734)	Service charges and other fees	13,795			12,792		11,366			1,003	2,429
Miscellaneous loan fees and charges	Miscellaneous loan fees and charges	2,084			1,682		1,285		1,775		402	799	309	Miscellaneous loan fees and charges	2,923			2,778		1,682			145	1,241
Gain on sale of loans	Gain on sale of loans	35,516			25,858		11,862		10,369		9,658	23,654	25,147	Gain on sale of loans	16,106			21,624		25,858			(5,518)	(9,752)
Gain on sale of investments		24			128		863		13,811		(104)	(839)	(13,787)
(Loss) gain on sale of investments														(Loss) gain on sale of investments	(61)			284		128			(345)	(189)
Other income	Other income	2,639			2,190		5,242		1,956		449	(2,603)	683	Other income	2,759			2,643		2,190			116	569
Total non-interest income	Total non-interest income	53,667			41,224		33,272		43,049		12,443	20,395	10,618	Total non-interest income	35,522			40,121		41,224			(4,599)	(5,702)
Total income	Total income	$	205,070		189,443		167,641		174,497		15,627	37,429	30,573	Total income	$	190,991		196,933		189,443			(5,942)	1,548
Net interest margin (tax-equivalent)	Net interest margin (tax-equivalent)	3.92		%	4.12	%	4.36	%	4.42	%				Net interest margin (tax-equivalent)	3.44		%	3.74	%	4.12	%

Net Interest Income

The current quarter net interest income of ~~$151~~$155 million ~~increased $3.2~~decreased $1.3 million, or ~~2 percent,~~86 basis points, over the prior quarter and increased ~~$20.0~~$7.3 million, or 155 percent, from the prior year ~~third~~second quarter. The current quarter interest income of ~~$157~~$160 million ~~increased $2.1~~decreased $1.6 million, or 1 percent, compared to the prior quarter ~~which was driven by an increase~~due to a decrease in interest income ~~from commercial loans primarily~~ from the PPP loans. The current quarter interest income increased ~~$15.1~~$4.6 million, or 113 percent, over the prior year ~~third~~second quarter ~~and was~~ due to an increase in ~~income from commercial loans and an increase in income on debt securities. Included in~~ interest income ~~was interest~~ from the PPP loans ~~of $9.3~~and debt securities. The interest income (which included deferred fees and deferred costs) from the PPP loans was $10.3 million in the current quarter and $13.5 million in the prior quarter and $7.3 million in the prior year second quarter. Excluding the PPP loans, net interest income was $150 million in the current quarter compared to $148 million in the prior quarter and $145 million in the prior year second quarter.

The current quarter interest expense of ~~$6.1~~$4.5 million decreased ~~$1.1 million,~~$253 thousand, or 155 percent, over the prior quarter and decreased $2.7 million, or 38 percent, over the prior year second quarter primarily as result of a decrease in deposit rates ~~and borrowing interest rates. Current quarter interest expense decreased $4.9 million, or 44 percent, over prior year third quarter which was due~~along with a shift in funding liabilities to ~~the decrease in higher~~low cost ~~borrowings and a decrease in deposit rates.~~deposits. During the current quarter, the total cost of funding (including non-interest bearing deposits) ~~declined 5~~of 10 basis points ~~to 16~~declined 2 basis points ~~compared to 21 basis points for~~from the prior quarter ~~primarily as a result of a decrease in rates on both deposits~~ and ~~borrowings. The total cost of funding decreased 23~~declined 10 basis points from the prior year ~~third~~second quarter ~~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 ~~3.92~~3.44 percent compared to ~~4.12~~3.74 percent in the prior quarter and 4.12 in the prior year second quarter. The core net interest margin, excluding 23 basis points of discount accretion, 1 basis point offrom non-accrual interest and 137 basis points ~~of interest income~~increase from the PPP loans, was ~~4.02~~3.33 percent compared to ~~4.21~~3.56 in the prior quarter and ~~4.35~~4.21 percent in the prior year ~~third~~second quarter. The Company experienced a 19 basis points decrease in the core net interest margin during the current quarter from decreased yields on loans and debt securities which were partially offset by the decrease in the cost of funding. The core net interest margin decreased 3323 basis points in the current quarter and decreased 88 basis points from the prior year ~~third~~second quarter ~~primarily from~~due to a decrease in earning asset yields. Earning asset yields ~~primarily loan yields, that outpaced~~have decreased due to the combined impact of the significant increase in the debt securities and the decrease in yields on both loans and debt securities. Debt securities comprised 39.4 percent of the ~~total cost of funding.~~earning assets during the current quarter compared to 35.7 percent in the prior quarter and 24.6 percent in the prior year second quarter.

5352

Non-interest Income

Non-interest income for the current quarter totaled ~~$53.7~~$35.5 million which was ~~an increase~~a decrease of ~~$12.4~~$4.6 million, or 3011 percent, over the prior quarter and ~~an increase~~a decrease of ~~$10.6~~$5.7 million, or 2514 percent, over the same quarter last year. Service charges and other fees ~~of $13.4~~increased $1.0 million ~~for the current quarter increased $2.0 million, or 18 percent,~~ from the prior ~~quarter. Service charges~~quarter and ~~other fees decreased $1.7~~increased $2.4 million from the prior year ~~third~~second quarter as a result of increased customer accounts and transaction activity. Miscellaneous loan fees and charges of $2.9 million in the current quarter increased $1.2 million, or 74 percent, from the prior year second quarter and was primarily driven by increases in loan servicing income and credit card interchange fees due to ~~the decreased overdraft~~increased activity.

Gain on the sale of loans of ~~$35.5~~$16.1 million for the current quarter ~~increased $9.7~~decreased $5.5 million, or 3726 percent, compared to the prior quarter and ~~increased $25.1~~decreased $9.8 million, or ~~242~~38 percent, from the prior year ~~third~~second quarter. The current quarter ~~due to the significant increase in refinance~~mortgage activity ~~driven by the decrease in interest rates.~~

~~During the~~was lower than prior year third quarter, the Company terminated $260 million notional pay-fixed interest rate swaps and corresponding debt along with the sale of $308 million of available-for-sale debt securities. Sale of the investment securities resulted in a gain of $13.8 million in the prior year third quarter. Offsetting the gain was a $10 million loss recognized on the early termination of the interest swaps and a $3.5 million write-off of deferred prepayment penalties on FHLB borrowings.periods, but still remained at historically elevated levels.

Non-interest Expense

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

Three Months ended $ Change from
(Dollars in thousands) Sep 30,
2020 Jun 30,
2020 Mar 31,
2020 Sep 30,
2019 Jun 30,
2020 Mar 31,
2020 Sep 30,
2019
Compensation and employee benefits $ 64,866 57,981 59,660 62,509 6,885 5,206 2,357
Occupancy and equipment 9,369 9,357 9,219 8,731 12 150 638
Advertising and promotions 2,779 2,138 2,487 2,719 641 292 60
Data processing 5,597 5,042 5,282 4,466 555 315 1,131
Other real estate owned 186 75 112 166 111 74 20
Regulatory assessments and insurance 1,495 1,037 1,090 593 458 405 902
Loss on termination of hedging activities — — — 13,528 — — (13,528)
Core deposit intangibles amortization 2,612 2,613 2,533 2,360 (1) 79 252
Other expenses 18,786 19,898 11,545 15,603 (1,112) 7,241 3,183
Total non-interest expense $ 105,690 98,141 91,928 110,675 7,549 13,762 (4,985)


	Three Months ended				$ Change from
(Dollars in thousands)	Jun 30, 2021		Mar 31, 2021	Jun 30, 2020		Mar 31, 2021	Jun 30, 2020
Compensation and employee benefits	$	64,109	62,468	57,981		1,641	6,128
Occupancy and equipment	9,208		9,515	9,357		(307)	(149)
Advertising and promotions	2,906		2,371	2,138		535	768
Data processing	5,661		5,206	5,042		455	619
Other real estate owned	48		12	75		36	(27)
Regulatory assessments and insurance	1,702		1,879	1,037		(177)	665

Core deposit intangibles amortization	2,488		2,488	2,613		—	(125)
Other expenses	13,960		12,646	16,521		1,314	(2,561)
Total non-interest expense	$	100,082	96,585	94,764		3,497	5,318

Total non-interest expense of ~~$106~~$100 million for the current quarter increased ~~$7.5~~$3.5 million, or 84 percent, over the prior quarter and ~~decreased $5.0~~increased $5.3 million, or 56 percent, over the prior year ~~third~~second quarter. Excluding deferred compensation from originating PPP loans, total non-interest expense was $102 million for the current and prior quarter compared to $103 million in the prior year second quarter. Compensation and employee benefits increased ~~by $6.9~~$1.6 million, or 123 percent, from the prior quarter and increased $6.1 million from the prior year second quarter which was primarily driven by the decrease in ~~deferring~~deferred compensation on originating ~~the~~PPP loans. Deferred compensation from originating PPP loans ~~which~~ was $438 thousand in the current quarter compared to $8.4 million in the prior quarter. Compensation and employee benefits increased $2.4 million, or 4 percent, from the prior year third quarter primarily due to an increased number of employees driven by acquisitions and organic growth which more than offset the decrease from the $5.4 million of stock compensation expense in the prior year third quarter related to the Heritage Bancorp acquisition. Occupancy and equipment expense increased $638 thousand, or 7 percent, over the prior year third quarter primarily as a result of increased costs from acquisitions. Data processing expense increased $555 thousand, or 11 percent, over the prior quarter and increased $1.1 million, or 25 percent over the prior year third quarter as a result of the increased cost from acquisitions along with increased investment in technology infrastructure. Regulatory assessment and insurance increased $458 thousand from the 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 first half of 2020. Regulatory assessment and insurance increased $902 thousand from the prior year third quarter quarter primarily due to $1.3 million in Small Bank Assessment credits applied in the prior year third quarter. The prior year loss on termination of hedging activities included $3.5 million write-off of the remaining unamortized deferred prepayment penalties on FHLB debt and a $10 million loss on the termination of pay-fixed interest rate swaps with notional amount of $260 million in the prior year third quarter.

Other expenses of $18.8 million, decreased $1.1 million, or 6 percent, from the prior quarter primarily due to a decrease in acquisition-related expenses. Other expenses increased $3.2 million, or 20 percent, over the prior year third quarter and was driven primarily from an increase in expense related to unfunded loan commitments. Current quarter other expenses included acquisition-related expenses of $793 thousand compared to $3.7 million in the prior quarter and $2.1 million in the prior year third quarter. Expense related to unfunded loan commitments was $2.3$1.5 million in the current quarter compared to ~~$3.4~~$5.2 million

in the prior quarter and ~~no expense~~$8.4 million in the prior year ~~third~~second quarter. ~~Also included in the current quarter other expenses was $1.9 million for third party consulting regarding improvements in technology, product and service offerings.~~

Efficiency Ratio

The efficiency ratio was ~~49.16~~49.92 percent in the current quarter and ~~49.29~~46.75 percent in the prior quarter and 47.54 in the prior year second quarter. Excluding the impact from the PPP loans, the efficiency ratio would have been ~~51.67~~53.53 percent in the current quarter ~~which was a 406~~compared to 52.89 percent in the prior quarter. The 64 basis points ~~decrease~~increase from the prior quarter ~~efficiency ratio of 55.73 percent and~~ was ~~primarily~~ due to the ~~increase~~decrease in gain on sale of ~~loans. The prior year third quarter efficiency was 65.95 and excluding~~loans in the current quarter. Excluding the impact ~~from the termination~~ of ~~the cash flow hedges and the accelerated stock compensation expense, the efficiency ratio would have been 54.41 percent. Excluding these adjustments,~~PPP loans, the current quarter efficiency ratio ~~decreased 274~~was a decrease of 39 basis points from the prior year ~~third~~second quarter efficiency ratio ~~which was also driven by the increased gain on sale~~ of ~~loan~~53.92 percent.

Provision for Credit ~~Loss Expense~~Losses for Loans

The following table summarizes provision for credit ~~loss expense,~~losses for loans, net charge-offs and select ratios relating to provision for credit ~~loss expense~~losses 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
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 %
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 %


(Dollars in thousands)	Provision for Credit Losses on Loans		Net (Recoveries) 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 2021	$	(5,723)	$	(725)	1.35	%	0.11	%	0.26	%
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	%

Net ~~charge-offs~~recoveries for the current quarter were ~~$826~~$725 thousand compared to ~~$1.2~~net charge-offs of $2.3 million for the prior quarter and ~~$3.5~~net charge-offs $1.2 million 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 ~~loss expense.~~ losses for loans.

The determination of the allowance for credit losses (“ACL” or “allowance”) on loans and the related provision for credit ~~loss expense~~losses 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.”

5554

Operating Results for ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

Compared to ~~September~~June 30, ~~2019~~2020

Income Summary

Nine Months ended
(Dollars in thousands) Sep 30,
2020 Sep 30,
2019 $ Change % Change
Net interest income
Interest income $ 455,756 $ 400,896 $ 54,860 14 %
Interest expense 21,765 33,940 (12,175) (36) %
Total net interest income 433,991 366,956 67,035 18 %
Non-interest income
Service charges and other fees 38,790 53,178 (14,388) (27) %
Miscellaneous loan fees and charges 5,051 3,934 1,117 28 %
Gain on sale of loans 73,236 23,929 49,307 206 %
Gain on sale of investments 1,015 14,158 (13,143) (93) %
Other income 10,071 7,158 2,913 41 %
Total non-interest income 128,163 102,357 25,806 25 %
Total income $ 562,154 $ 469,313 $ 92,841 20 %
Net interest margin (tax-equivalent) 4.12 % 4.36 %
The following table summarizes income for the periods indicated:


	Six Months ended
(Dollars in thousands)	Jun 30, 2021			Jun 30, 2020		$ Change	% Change
Net interest income
Interest income	$	321,508		298,269		23,239	8	%
Interest expense	9,227			15,681		(6,454)	(41)	%
Total net interest income	312,281			282,588		29,693	11	%
Non-interest income
Service charges and other fees	26,587			25,386		1,201	5	%
Miscellaneous loan fees and charges	5,701			2,967		2,734	92	%
Gain on sale of loans	37,730			37,720		10	—	%
(Loss) gain on sale of debt securities	223			991		(768)	(77)	%
Other income	5,402			7,432		(2,030)	(27)	%
Total non-interest income	75,643			74,496		1,147	2	%
Total income	$	387,924		357,084		30,840	9	%
Net interest margin (tax-equivalent)	3.58		%	4.23	%

Net Interest Income

Net-interest income of ~~$434~~$312 million for the first ~~nine months~~half of ~~2020~~2021 increased ~~$67.0~~$29.7 million, or 1811 percent, over the ~~first nine months of 2019.~~same period in 2020. Interest income of ~~$456~~$322 million for the first ~~nine~~six months of ~~2020~~the current year increased ~~$54.9~~$23.2 million, or 148 percent, from the ~~first nine months of 2019~~prior year and was primarily attributable to a ~~$45.7~~$19.3 million increase in income from commercial loans, including ~~$16.6~~$16.5 million from the PPP loans. ~~Interest expense of $21.8 million for the first nine months of 2020 decreased $12.2~~Additionally, interest income on debt securities increased $9.2 million, or 3620 percent, over the prior year ~~same period~~which resulted from the increased volume of debt securities. Interest expense of $9.2 million for the first half of 2021 decreased $6.5 million, or 41 percent over the prior year primarily as a result of ~~decreased higher cost FHLB advances and the~~a decrease in the cost of ~~deposits and borrowings.~~deposits. The total funding cost (including non-interest bearing deposits) for the first ~~nine~~six months of ~~2020~~2021 was 2211 basis points, which decreased 2014 basis points ~~or 48 percent,~~ compared to 4225 basis points ~~for the~~in first ~~nine~~six months of ~~2019.~~2020.

The net interest margin as a percentage of earning assets, on a tax-equivalent basis, ~~for~~during the first ~~nine months~~half of ~~2020~~2021 was ~~4.12~~3.58 percent, a 2465 basis points decrease from the net interest margin of ~~4.36~~4.23 percent for the ~~first nine months of 2019.~~same period in the prior year. The core net interest margin, excluding 34 basis points of discount accretion, 1 basis point of non-accrual interest and 910 basis points ~~of interest income~~increase from the PPP loans, was ~~4.17 compared to a~~3.43 which was an 83 basis point decrease from the core margin of ~~4.29~~4.26 percent in the prior ~~year first nine months.~~year. Although the Company was successful in reducing the total cost of funding, it was not enough to outpace the decrease in yields on loans and debt securities driven by the current interest rate ~~environment.~~environment and the shift in the earning asset mix to lower yielding debt securities.

Non-interest Income

Non-interest income of ~~$128~~$75.6 million for the first ~~nine months~~half of ~~2020~~2021 increased ~~$25.8~~$1.1 million, or 252 percent, over the same period last year. Service charges and other fees of ~~$38.8~~$26.6 million for ~~2020 year-to-date decreased $14.4~~the first six months of 2021 increased $1.2 million, or 275 percent, from ~~the same period~~ prior year as a result of ~~a decrease~~additional fees from increased customer accounts and transaction activity. Miscellaneous loan fees and charges increased $2.7 million, or 92 percent, driven by increases in ~~overdraft activity~~loan servicing income and ~~the impact of the Durbin Amendment. As of July 1, 2019, the Company became subject to the Durbin Amendment which established limits on the amount of~~credit card interchange fees ~~that can be charged~~due to ~~merchants for debit card processing. Gain on the sale of loans of $73.2 million for the first nine months of 2020,~~ increased ~~$49.3 million, or 206 percent, compared to the prior year as a result significant increase in refinance activity driven by the decrease in interest rates.~~activity. Other income ~~increased $2.9~~of $5.4 million decreased $2.0 million from the prior year and was primarily 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:


		Nine Months ended									Six Months ended
(Dollars in thousands)	(Dollars in thousands)	Sep 30, 2020		Sep 30, 2019		$ Change		% Change		(Dollars in thousands)	Jun 30, 2021		Jun 30, 2020		$ Change		% Change
Compensation and employee benefits	Compensation and employee benefits	$	182,507	$	167,210	$	15,297	9	%	Compensation and employee benefits	$	126,577	$	117,641	$	8,936	8	%
Occupancy and equipment	Occupancy and equipment	27,945		25,348		2,597		10	%	Occupancy and equipment	18,723		18,576		147		1	%
Advertising and promotions	Advertising and promotions	7,404		7,874		(470)		(6)	%	Advertising and promotions	5,277		4,625		652		14	%
Data processing	Data processing	15,921		12,420		3,501		28	%	Data processing	10,867		10,324		543		5	%
Other real estate owned	Other real estate owned	373		496		(123)		(25)	%	Other real estate owned	60		187		(127)		(68)	%
Regulatory assessments and insurance	Regulatory assessments and insurance	3,622		3,726		(104)		(3)	%	Regulatory assessments and insurance	3,581		2,127		1,454		68	%
Loss on termination of hedging activities		—		13,528		(13,528)		(100)	%

Core deposit intangibles amortization	Core deposit intangibles amortization	7,758		5,919		1,839		31	%	Core deposit intangibles amortization	4,976		5,146		(170)		(3)	%
Other expenses	Other expenses	50,229		43,154		7,075		16	%	Other expenses	26,606		31,625		(5,019)		(16)	%
Total non-interest expense	Total non-interest expense	$	295,759	$	279,675	$	16,084	6	%	Total non-interest expense	$	196,667	$	190,251	$	6,416	3	%

Total non-interest expense of ~~$296~~$197 million for the first ~~nine months~~half of ~~2020~~2021 increased ~~$16.1~~$6.4 million, or 63 percent, over the prior year ~~same period.~~first half. Compensation and employee benefits for the first ~~nine~~six months of ~~2020~~2021 increased ~~$15.3~~$8.9 million, or 98 percent, from ~~the same period~~ last year due to the increased number of employees from ~~acquisitions and~~ organic growth, increased real estate commissions, increased performance-related compensation and annual salary ~~increases which more than offset the $8.9 million deferral of compensation cost from the PPP loans in the current year~~increases. Regulatory assessment and ~~the $5.4 million of stock compensation expense in the prior year from the Heritage Bancorp acquisition. Occupancy and equipment expense~~insurance for the first ~~nine months~~half of ~~2020~~2021 increased ~~$2.6~~$1.5 million ~~or 10 percent~~ from the prior year same period primarily ~~from increased cost from acquisitions. Data processing expense for the first nine months of 2020 increased $3.5 million, or 28 percent, from the prior year~~ as a result of the ~~increased costs from acquisitions along with increased investment~~State of Montana waiving the first semi-annual regulatory assessment of 2020 and Small Bank assessment credits applied by the FDIC in ~~technology infrastructure.~~the first quarter of 2020. Other expenses of ~~$50.2~~$26.6 million, ~~increased $7.1~~decreased $5.0 million, or 16 percent, from the prior year, ~~and was~~ primarily ~~driven by an increase in expense related to unfunded loan commitments and an increase~~from a decrease in acquisition-related expenses. Acquisition-related expenses were ~~$7.3~~$1.1 million in the current year ~~first nine months~~ compared to ~~$4.1~~$6.5 million in the prior year first nine months. In the current year-to-date period, there was $2.1 million of expense related to unfunded loan commitments which was primarily attributable to the economic forecast related to COVID-19.year.

Efficiency Ratio

The efficiency ratio was ~~50.21~~48.31 percent for the first ~~nine~~six months of ~~2020.~~2021 compared to 50.86 percent for the same period last year. Excluding the impact from the PPP loans, the efficiency ratio ~~would have been 53.30 percent. The prior year first nine months efficiency ratio~~ was ~~58.82 and excluding~~53.21 in 2021 compared to 54.21 in 2020 with the impact from the termination of the cash flow hedges and the accelerated stock compensation expense, the efficiency ratio would have been 54.74 percent. Excluding these adjustments, the current year efficiency ratio decreased 144 basis points from the prior year efficiency ratio which wasimprovement driven by ~~the increased gain on sale of loans and~~an increase in ~~net~~investment interest income ~~that more than offset the~~and a decrease in ~~service fee income from the Durbin Amendment and increases in compensation~~deposit interest expense.

Provision for Credit ~~Loss Expense~~Losses

The provision for credit loss ~~expense~~benefit was ~~$39.2~~$5.6 million for the first ~~nine~~six months of ~~2020, an increase~~2021, including provision for credit loss benefit of ~~$39.1~~$5.2 million ~~from~~on the ~~same period~~loan portfolio and credit loss benefit of $371 thousand on unfunded loan commitments. The provision for credit loss benefit of $5.2 million on the loan portfolio in the current year decreased $41.5 million over the provision for credit loss expense of $36.3 million in the prior year ~~this increase~~which was primarily attributable to changes in the economic forecast related to COVID-19. Net charge-offs during the ~~first nine months of 2020~~current year were ~~$2.9~~$1.6 million compared to ~~$5.8~~$2.0 million during the ~~same period in 2019.~~

prior year.

5756

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 first quarter of the current year, 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. The Company transferred an additional $440 million of available-for-sale securities with an unrealized net gain of $40.6 million into held-to-maturity portfolio during the second quarter of the current year. 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:


		September 30, 2020				December 31, 2019				September 30, 2019					June 30, 2021				December 31, 2020				June 30, 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	$	40,140	1	%	$	20,044	1	%	$	147,434	5	%	U.S. government and federal agency	$	34,481	1	%	$	38,588	1	%	$	42,235	1	%
U.S. government sponsored enterprises	U.S. government sponsored enterprises	9,825		1	%	43,677		1	%	67,189		3	%	U.S. government sponsored enterprises	48,016		1	%	9,781		1	%	10,863		1	%
State and local governments	State and local governments	1,275,376		29	%	702,398		25	%	613,865		23	%	State and local governments	536,547		7	%	1,416,683		26	%	1,277,552		34	%
Corporate bonds	Corporate bonds	361,024		8	%	157,602		6	%	147,383		5	%	Corporate bonds	257,878		4	%	349,098		6	%	388,375		10	%
Residential mortgage-backed securities	Residential mortgage-backed securities	1,275,858		30	%	738,724		26	%	767,253		28	%	Residential mortgage-backed securities	4,139,585		57	%	2,289,090		41	%	857,641		23	%
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,163,325		26	%	912,807		33	%	715,912		27	%	Commercial mortgage-backed securities	1,130,636		16	%	1,234,574		22	%	957,284		26	%
Total available-for-sale	Total available-for-sale	4,125,548		95	%	2,575,252		92	%	2,459,036		91	%	Total available-for-sale	6,147,143		86	%	5,337,814		97	%	3,533,950		95	%
Held-to-maturity	Held-to-maturity													Held-to-maturity
State and local governments	State and local governments	193,509		5	%	224,611		8	%	234,992		9	%	State and local governments	1,024,730		14	%	189,836		3	%	203,275		5	%
Total held-to-maturity	Total held-to-maturity	193,509		5	%	224,611		8	%	234,992		9	%	Total held-to-maturity	1,024,730		14	%	189,836		3	%	203,275		5	%
Total debt securities	Total debt securities	$	4,319,057	100	%	$	2,799,863	100	%	$	2,694,028	100	%	Total debt securities	$	7,171,873	100	%	$	5,527,650	100	%	$	3,737,225	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 S&P and Moody’s) as support for the evaluation; however, they are not solely relied upon. There have been no significant differences in the Company’s internal evaluation of the creditworthiness of any issuer when compared with the ratings assigned by the NRSROs.

5857

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.


		September 30, 2020			December 31, 2019			June 30, 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	$	355,351	386,927	251,101	259,690	S&P: AAA / Moody’s: Aaa	$	388,187	400,508	385,773	420,646
S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	910,314		966,159	523,150	539,758	S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	1,033,438		1,069,604	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	107,568		115,407	113,275	120,048	S&P: A+, A, A- / Moody’s: A1, A2, A3	92,239		97,819	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		3,245	3,217	3,302	S&P: BBB+, BBB, BBB- / Moody’s: Baa1, Baa2, Baa3	3,217		3,221	3,217	3,230
Not rated by either entity	Not rated by either entity	9,964		10,215	13,451	13,795	Not rated by either entity	12,173		12,408	5,481	5,547
Below investment grade	Below investment grade	—		—	201	201	Below investment grade	—		—	—	—
Total	Total	$	1,386,414	1,481,953	904,395	936,794	Total	$	1,529,254	1,583,560	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.


		September 30, 2020			December 31, 2019			June 30, 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	$	598,871	642,518	445,584	465,066	General obligation - unlimited	$	613,619	648,289	625,660	672,610
General obligation - limited	General obligation - limited	137,821		144,919	119,884	124,939	General obligation - limited	117,516		122,746	121,886	129,250
Revenue	Revenue	630,456		673,690	325,331	332,354	Revenue	781,808		795,056	745,908	798,188
Certificate of participation	Certificate of participation	15,199		16,599	8,003	8,815	Certificate of participation	12,545		13,577	14,098	15,636
Other	Other	4,067		4,227	5,593	5,620	Other	3,766		3,892	4,047	4,215
Total	Total	$	1,386,414	1,481,953	904,395	936,794	Total	$	1,529,254	1,583,560	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.


		September 30, 2020			December 31, 2019			June 30, 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	$	187,681	204,225	14,701	14,870	New York	$	246,803	252,461	235,036	254,976
Texas	Texas	143,709		154,138	112,397	121,641	Texas	141,524		145,625	143,421	154,511
Michigan	Michigan	140,018		148,274	141,131	116,581	Michigan	134,792		140,286	139,836	148,544
California	California	128,744		144,328	23,482	24,406	California	153,323		162,721	148,564	166,311
Washington	Washington	108,527		114,678	116,458	146,538	Washington	100,072		104,779	99,699	106,012
All other states	All other states	677,735		716,310	496,226	512,758	All other states	752,740		777,688	745,043	789,545
Total	Total	$	1,386,414	1,481,953	904,395	936,794	Total	$	1,529,254	1,583,560	1,511,599	1,619,899

5958

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 ~~September~~June 30, ~~2020.~~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	$	73	0.49	%	$	2,641	1.47	%	$	13,089	1.63	%	$	24,337	1.63	%	$	—	—	%	$	40,140		1.59	%	U.S. government and federal agency	$	42	1.28	%	$	2,637	1.58	%	$	11,498	1.35	%	$	20,304	1.74	%	$	—	—	%	$	34,481	1.60	%
U.S. government sponsored enterprises	U.S. government sponsored enterprises	8,022		1.07	%	1,803		0.95	%	—		—	%	—		—	%	—		—	%	9,825			1.08	%	U.S. government sponsored enterprises	2,516		0.96	%	266		0.93	%	45,234		1.08	%	—		—	%	—		—	%	48,016		1.08	%
State and local governments	State and local governments	6,248		2.15	%	34,628		2.60	%	248,555		3.59	%	985,945		3.36	%	—		—	%	1,275,376			3.45	%	State and local governments	14,890		2.24	%	52,346		2.52	%	214,134		3.66	%	255,177		3.24	%	—		—	%	536,547		3.31	%
Corporate bonds	Corporate bonds	106,960		3.29	%	238,686		3.32	%	15,378		3.76	%	—		—	%	—		—	%	361,024			3.51	%	Corporate bonds	60,922		3.44	%	191,814		3.24	%	4,083		4.00	%	1,059		1.00	%	—		—	%	257,878		3.29	%
Residential mortgage-backed securities	Residential mortgage-backed securities	—		—	%	—		—	%	—		—	%	—		—	%	1,275,858		1.48	%	1,275,858			1.90	%	Residential mortgage-backed securities	—		—	%	—		—	%	—		—	%	—		—	%	4,139,585		1.01	%	4,139,585		1.01	%
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—		—	%	—		—	%	—		—	%	—		—	%	1,163,325		2.57	%	1,163,325			2.82	%	Commercial mortgage-backed securities	—		—	%	—		—	%	—		—	%	—		—	%	1,130,636		2.40	%	1,130,636		2.40	%
Total available-for-sale	Total available-for-sale	121,303		3.09	%	277,758		3.20	%	277,022		3.50	%	1,010,282		3.32	%	2,439,183		1.99	%	4,125,548			2.87	%	Total available-for-sale	78,370		3.13	%	247,063		3.07	%	274,949		3.13	%	276,540		3.11	%	5,270,221		1.30	%	6,147,143		1.55	%
Held-to-maturity	Held-to-maturity																							Held-to-maturity
State and local governments	State and local governments	—		—	%	19,543		2.63	%	69,924		2.78	%	104,042		3.10	%	—		—	%	193,509			2.88	%	State and local governments	1,924		2.22	%	26,870		2.55	%	86,095		2.63	%	909,841		2.84	%	—		—	%	1,024,730		2.82	%
Total held-to-maturity	Total held-to-maturity	—		—	%	19,543		2.63	%	69,924		2.78	%	104,042		3.10	%	—		—	%	193,509			2.88	%	Total held-to-maturity	1,924		2.22	%	26,870		2.55	%	86,095		2.63	%	909,841		2.84	%	—		—	%	1,024,730		2.82	%
Total debt securities	Total debt securities	$	121,303	3.09	%	$	297,301	3.16	%	$	346,946	3.35	%	$	1,114,324	3.30	%	$	2,439,183	1.99	%	$	4,319,057		2.87	%	Total debt securities	$	80,294	3.11	%	$	273,933	3.02	%	$	361,044	3.01	%	$	1,186,381	2.90	%	$	5,270,221	1.30	%	$	7,171,873	1.73	%

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 ~~September~~June 30, ~~2020,~~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 ~~September~~June 30, ~~2020.~~2021.

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

6059

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 ~~September~~June 30, ~~2020,~~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:


		September 30, 2020				December 31, 2019				September 30, 2019					June 30, 2021				December 31, 2020				June 30, 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	$	862,614	8	%	$	926,388	10	%	$	936,877	10	%	Residential real estate	$	734,838	7	%	$	802,508	7	%	$	903,198	8	%
Commercial real estate	Commercial real estate	6,201,817		54	%	5,579,307		59	%	5,548,174		59	%	Commercial real estate	6,584,322		59	%	6,315,895		58	%	6,047,692		54	%
Other commercial	Other commercial	3,593,322		31	%	2,094,254		22	%	2,145,257		23	%	Other commercial	2,932,419		26	%	3,054,817		28	%	3,547,249		31	%
Home equity	Home equity	646,850		6	%	617,201		7	%	615,781		6	%	Home equity	648,800		6	%	636,405		6	%	654,392		6	%
Other consumer	Other consumer	314,128		3	%	295,660		3	%	294,999		3	%	Other consumer	337,669		3	%	313,071		3	%	300,847		3	%
Loans receivable	Loans receivable	11,618,731		102	%	9,512,810		101	%	9,541,088		101	%	Loans receivable	11,238,048		101	%	11,122,696		102	%	11,453,378		102	%
Allowance for credit losses	Allowance for credit losses	(164,552)		(2)	%	(124,490)		(1)	%	(125,535)		(1)	%	Allowance for credit losses	(151,448)		(1)	%	(158,243)		(2)	%	(162,509)		(2)	%
Loans receivable, net	Loans receivable, net	$	11,454,179	100	%	$	9,388,320	100	%	$	9,415,553	100	%	Loans receivable, net	$	11,086,600	100	%	$	10,964,453	100	%	$	11,290,869	100	%

6160

Non-performing Assets

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

At or for the Nine Months ended At or for the Six Months ended At or for the Year ended At or for the Nine Months ended
(Dollars in thousands) September 30,
2020 June 30,
2020 December 31,
2019 September 30,
2019
Other real estate owned $ 5,361 4,743 5,142 7,148
Accruing loans 90 days or more past due
Residential real estate 217 206 753 1,212
Commercial real estate 1,426 3,110 64 4,350
Other commercial 1,102 2,519 143 1,045
Home equity 80 98 — 681
Other consumer 127 138 452 624
Total 2,952 6,071 1,412 7,912
Non-accrual loans
Residential real estate 3,488 4,243 4,715 5,295
Commercial real estate 18,298 19,682 15,650 23,781
Other commercial 11,371 7,713 6,592 2,876
Home equity 2,891 3,086 3,266 766
Other consumer 302 433 660 7,299
Total 36,350 35,157 30,883 40,017
Total non-performing assets $ 44,663 45,971 37,437 55,077
Non-performing assets as a percentage of subsidiary assets 0.25 % 0.27 % 0.27 % 0.40 %
Allowance for credit losses as a percentage of non-performing loans 419 % 394 % 385 % 262 %
Accruing loans 30-89 days past due $ 17,631 25,225 23,192 29,954
Accruing troubled debt restructurings $ 39,999 41,759 34,055 32,949
Non-accrual troubled debt restructurings $ 7,579 8,204 3,346 6,723
U.S. government guarantees included in non-performing assets $ 4,411 3,305 1,786 3,000
Interest income 1
$ 1,296 851 1,603 1,544


	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
(Dollars in thousands)	June 30, 2021			March 31, 2021		December 31, 2020		June 30, 2020
Other real estate owned	$	771		2,965		1,744		4,743
Accruing loans 90 days or more past due
Residential real estate	338			188		934		206
Commercial real estate	2,349			2,319		231		3,110
Other commercial	1,234			961		293		2,519
Home equity	155			26		135		98
Other consumer	144			239		132		138
Total	4,220			3,733		1,725		6,071
Non-accrual loans
Residential real estate	3,183			3,276		3,403		4,243
Commercial real estate	11,110			13,935		15,817		19,682
Other commercial	30,507			8,823		9,509		3,086
Home equity	2,667			2,805		2,713		433
Other consumer	583			1,048		522		7,713
Total	48,050			29,887		31,964		35,157
Total non-performing assets	$	53,041		36,585		35,433		45,971
Non-performing assets as a percentage of subsidiary assets	0.26		%	0.19	%	0.19	%	0.27	%
ACL as a percentage of non-performing loans	290		%	465	%	470	%	394	%
Accruing loans 30-89 days past due	$	12,076		44,616		22,721		25,225
Accruing troubled debt restructurings	$	37,667		41,345		42,003		41,759
Non-accrual troubled debt restructurings	$	3,179		4,702		3,507		8,204
U.S. government guarantees included in non-performing assets	$	4,186		2,778		3,011		3,305
Interest income 1	$	1,144		357		1,545		851

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 ~~$44.7~~$53.0 million at ~~September~~June 30, ~~2020 decreased $1.3~~2021 increased $16.5 million, ~~or 3 percent,~~ over the prior quarter and ~~decreased $10.4~~was primarily isolated to one credit relationship. Non-performing assets increased $7.1 million, or 1915 percent, over the prior year ~~third~~second quarter. Non-performing assets as a percentage of subsidiary assets at ~~September~~June 30, ~~2020~~2021 was ~~0.25~~0.26 percent. Excluding the government guaranteed PPP loans, the non-performing assets as a percentage of subsidiary assets at ~~September~~June 30, ~~2020~~2021 was 0.27 percent, ~~a decrease~~an increase of 38 basis points from the prior quarter and ~~a decrease of 13~~3 basis points decrease from the prior year ~~third~~second quarter.

Early stage delinquencies (accruing loans 30-89 days past due) of ~~$17.6~~$12.1 million at ~~September~~June 30, ~~2020~~2021 decreased ~~$7.6~~$32.5 million from the prior quarter ~~and~~with a large portion of the decrease primarily isolated to one credit relationship which moved to non-accrual at June 30, 2021. Early stage delinquencies decreased ~~$12.3~~$13.1 million from the prior year ~~third~~second quarter. Early stage delinquencies as a percentage of loans at ~~September~~June 30, ~~2020~~2021 was ~~0.15~~0.11 percent, which was a decrease of 729 basis points from prior quarter and ~~a 16~~an 11 basis points decrease from prior year ~~third~~second quarter. Excluding PPP loans, early stage delinquencies as a percentage of loans at ~~September~~June 30, ~~2020~~2021 was ~~0.17~~0.11 percent, which was a decrease of 832 basis points from prior quarter and a 14 basis points decrease from prior year ~~third~~second quarter.

6261

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 ~~$47.6~~$40.8 million and ~~$37.4~~$45.5 million at ~~September~~June 30, ~~2020~~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 Bank Loan Modifications sections~~section 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 ~~$2,265 thousand.~~$1.6 million. The fair value of the loan collateral acquired in foreclosure during ~~2020~~2021 was ~~$2,062 thousand.~~$1.5 million. The following table sets forth the changes in OREO for the periods indicated:


		At or for the Nine Months ended		At or for the Six Months ended	At or for the Year ended	At or for the Nine Months 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 Six Months ended
(Dollars in thousands)	(Dollars in thousands)	September 30, 2020		June 30, 2020	December 31, 2019	September 30, 2019	(Dollars in thousands)	June 30, 2021		March 31, 2021	December 31, 2020	June 30, 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	1,744	5,142	5,142
Acquisitions	Acquisitions	307		307	—	—	Acquisitions	—		—	307	307
Additions	Additions	2,062		791	2,349	2,347	Additions	1,459		1,397	2,076	791
Capital improvements	Capital improvements	141		72	63	—	Capital improvements	—		—	145	72
Write-downs	Write-downs	(189)		(60)	(766)	(271)	Write-downs	—		—	(451)	(60)
Sales	Sales	(2,102)		(1,509)	(3,984)	(2,408)	Sales	(2,432)		(176)	(5,475)	(1,509)
Balance at end of period	Balance at end of period	$	5,361	4,743	5,142	7,148	Balance at end of period	$	771	2,965	1,744	4,743

6362

PPP ~~and COVID-19 Bank Loan Modifications~~

~~The following table summarizes information regarding PPP loans:~~Loans

September 30, 2020
(Dollars in thousands) Number of
PPP Loans Amount of
PPP Loans Total Loans
Receivable, Net of PPP Loans PPP Loans (Amount) as a Percent of Total Loans
Receivable, Net of PPP Loans
Residential real estate — $ — 862,614 — %
Commercial real estate and other commercial
Real estate rental and leasing 1,221 64,647 3,361,074 1.92 %
Accommodation and food services 1,502 160,295 644,627 24.87 %
Healthcare 1,928 288,612 826,809 34.91 %
Manufacturing 830 80,483 193,216 41.65 %
Retail and wholesale trade 1,672 168,837 471,115 35.84 %
Construction 2,297 214,652 774,069 27.73 %
Other 6,640 470,891 2,075,812 22.68 %
Home equity and other consumer — — 960,978 — %
Total 16,090 $ 1,448,417 10,170,314 14.24 %


	Three Months ended				Six Months ended
(Dollars in thousands)	June 30, 2021		March 31, 2021	June 30, 2020	June 30, 2021	June 30, 2020
PPP interest income	$	10,328	13,523	7,304	23,851	7,304
Deferred compensation on originating PPP loans	1,522		5,213	8,412	6,735	8,412
Total PPP income impact	$	11,850	18,736	15,716	30,586	15,716


(Dollars in thousands)	June 30, 2021		March 31, 2021	December 31, 2020	June 30, 2020
PPP Round 1 loans	$	176,498	489,208	909,173	1,426,746
PPP Round 2 loans	518,107		486,583	—	—
Total PPP loans	$	694,605	975,791	909,173	1,426,746

Net remaining fees - Round 1	$	1,313	6,244	17,605	40,590
Net remaining fees - Round 2	22,694		21,890	—	—
Total net remaining fees	$	24,007	28,134	17,605	40,590

The United States Small Business Administration (”SBA”) Round 2 PPP ~~loan originations~~program ended in early May after the available funds were fully drawn upon. During the current quarter, the Company originated $67.6 million of Round 2 PPP loans which generated ~~$55.2~~$5.6 million of SBA deferred processing fees ~~or an average of 3.75 percent,~~ and ~~$8.9~~$1.5 million of deferred compensation costs for total net deferred fees of ~~$46.3~~$4.1 million. During the first half of 2021, the Company originated $555 million of Round 2 PPP loans which generated $33.2 million of SBA deferred processing fees and $6.7 million of deferred compensation costs for total net deferred fees of $26.5 million.

During the current year, the SBA processing fees received on Round 2 averaged 5.99 percent which compared to the average of 3.75 percent received on Round 1 in the prior year. The increase in the fees 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 forgiveness and also began submitting forgiveness applications for Round 2. As of June 30, 2021, the Company had $176 million or 12 percent of the $1.472 billion of Round 1 PPP loans originated in the prior year and had $518 million or 93 percent of the $555 million of Round 2 PPP loans originated in the current year.

The Company recognized $10.3 million of interest income (including deferred fees and costs) from the Round 1 and Round 2 PPP loans in the current quarter. The income recognized in the current quarter included $6.0 million acceleration of net deferred fees in interest income resulting from the SBA forgiveness of loans. Net deferred fees remaining on the balance of the PPP loans at ~~September~~June 30, ~~2020~~2021 were ~~$36.1~~$24.0 million, which will be recognized into interest income over the remaining life of the loans ~~generally two years,~~ or when the loans are forgiven in whole or in part by the SBA. The Company has actively been working with its customers to submit applications to the SBA for forgiveness of the loans and the Company started receiving forgiveness payments in the fourth quarter of 2020.

~~COVID-19 Bank Loan Modifications~~

September 30, 2020 June 30, 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 (Amount) as a Percent of Total Loans
Receivable, Net of PPP Loans Amount of
Remaining Loan
Modifications Loan Modifications (Amount) as a Percent of Total Loans
Receivable, Net of PPP Loans
Residential real estate $ 862,614 28,571 — 28,571 3.31 % $ 66,395 7.35 %
Commercial real estate
and other commercial
Real estate rental
and leasing 3,361,074 163,103 43,735 206,838 6.15 % 587,609 18.11 %
Accommodation and
food services 644,627 69,328 12,854 82,182 12.75 % 395,882 61.41 %
Healthcare 826,809 29,136 14,117 43,253 5.23 % 126,808 16.01 %
Manufacturing 193,216 15,263 3,296 18,559 9.61 % 49,338 24.41 %
Retail and wholesale
trade 471,115 13,299 2,554 15,853 3.36 % 46,623 9.78 %
Construction 774,069 13,337 1,188 14,525 1.88 % 38,751 5.06 %
Other 2,075,812 23,146 27,442 50,588 2.44 % 192,060 9.40 %
Home equity and other
consumer 960,978 5,767 — 5,767 0.60 % 11,326 1.19 %
Total $ 10,170,314 360,950 105,186 466,136 4.58 % $ 1,514,792 15.11 %

~~In response to COVID-19,~~Supplemental information regarding credit quality and identification of the ~~Company modified 3,054 loans~~Company’s loan portfolio based on regulatory classification is provided in the amount of $1.515 billion during the second quarter of 2020. These modifications were primarily short-term payment deferrals under six months. During the third quarter of 2020, the majority of the modified loan deferral periods expired, and the loans returned to regular payment status. During the current quarter, the re-deferral rate was 9.12 percent for modified loans whose original deferral period had expired, with no industry category exceeding 20 percent. As of September 30, 2020, $466 million of the modifications, or 4.58 percent of the $10.170 billion of loans, net of the PPP loans, remain in the deferral period, a reduction of $1.049 billion from the $1.515 billion of loan modificationsexhibits at the end of this press release. The regulatory classification of loans is based primarily on collateral type while the ~~prior quarter.~~

~~In addition to~~Company’s loan segments presented herein are based on the Bank loan modifications presented above, the state of Montana created the Montana Loan Deferment Program for only Montana-based businesses and was implemented only in the third quarter. Cares Act Funds were used to provide interest payments upfront and directly to lenders on behalf of participating borrowers to convert existing commercial loans to interest only status, resulting in the deferral of principal and interest for a period of six to twelve months. Nonepurpose of the interest payments are required to be repaid by the 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 September 30, 2020, the Company had $237 million in eligible loans benefiting from this grant program, which was 2.33 percent of total loans receivable, net of PPP loans. Given the unique nature of the Montana only grant program, the $237 million was not included in the Bank loan modifications presented above.

~~COVID-19 Higher Risk Industries - Enhanced Monitoring~~

~~The Company has certain industries for which it has identified as higher risk. The following table summarizes information regarding these higher risk loans:~~

September 30, 2020
(Dollars in thousands) Enhanced Monitoring 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 (Amount) as a Percent of Enhanced Monitoring Loans
Receivable, Net of PPP Loans
Hotel and motel $ 422,500 4.15 % 44,091 6,679 50,770 12.02 %
Restaurant 138,944 1.37 % 12,977 6,175 19,152 13.78 %
Travel and tourism 19,726 0.19 % 4,605 397 5,002 25.36 %
Gaming 14,500 0.14 % 1,101 — 1,101 7.59 %
Oil and gas 22,178 0.22 % 1,474 — 1,474 6.65 %
Total $ 617,848 6.08 % 64,248 13,251 77,499 12.54 %

June 30, 2020
(Dollars in thousands) Amount of
Remaining Loan
Modifications Percent of Loans Receivable, Net of PPP Loans Loan Modifications (Amount) as a Percent of Enhanced Monitoring Loans
Receivable, Net of PPP Loans
Hotel and motel $ 300,747 4.20 % 71.34 %
Restaurant 76,632 1.50 % 50.91 %
Travel and tourism 7,845 0.21 % 37.79 %
Gaming 9,214 0.15 % 60.95 %
Oil and gas 6,013 0.23 % 26.43 %
Total $ 400,451 6.29 % 63.49 %

Excluding the PPP loans, the Company has $618 million, or 6 percent, of its total loan portfolio with direct exposure to industries for which it has identified as higher risk, requiring enhanced monitoring. As of September 30, 2020, $77.5 million have modifications, which was a reduction of $323 million, or 81 percent, from the $400 million of modifications at the end of the prior quarter. During the current quarter the re-deferral rate was 3.94 percent for modified loans whose original deferral period had expired, with no industry category exceeding 15 percent. The Company continues to conduct enhanced portfolio reviews and monitoring for potential credit deterioration.

loan.

6663

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:


		September 30, 2020						December 31, 2019						September 30, 2019							June 30, 2021						December 31, 2020						June 30, 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	$	9,805	6	%	7	%	$	10,111	8	%	10	%	$	10,237	8	%	10	%	Residential real estate	$	10,143	7	%	7	%	$	9,604	6	%	7	%	$	9,986	6	%	8	%
Commercial real estate	Commercial real estate	94,397		57	%	53	%	69,496		56	%	59	%	69,658		56	%	58	%	Commercial real estate	96,597		64	%	58	%	86,999		55	%	57	%	89,104		55	%	53	%
Other commercial	Other commercial	48,753		30	%	31	%	36,129		29	%	22	%	36,858		29	%	22	%	Other commercial	31,983		21	%	26	%	49,133		31	%	27	%	48,838		30	%	31	%
Home equity	Home equity	7,430		5	%	6	%	4,937		4	%	6	%	5,041		4	%	7	%	Home equity	7,837		5	%	6	%	8,182		5	%	6	%	9,962		6	%	6	%
Other consumer	Other consumer	4,167		2	%	3	%	3,817		3	%	3	%	3,741		3	%	3	%	Other consumer	4,888		3	%	3	%	4,325		3	%	3	%	4,619		3	%	2	%
Total	Total	$	164,552	100	%	100	%	$	124,490	100	%	100	%	$	125,535	100	%	100	%	Total	$	151,448	100	%	100	%	$	158,243	100	%	100	%	$	162,509	100	%	100	%

6764

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


		At or for the Nine Months ended			At or for the Six Months ended		At or for the Year ended		At or for the Nine Months 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 Six Months ended
(Dollars in thousands)	(Dollars in thousands)	September 30, 2020			June 30, 2020		December 31, 2019		September 30, 2019		(Dollars in thousands)	June 30, 2021			March 31, 2021		December 31, 2020		June 30, 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		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		39,165			36,296		57		57
Provision for credit losses											Provision for credit losses	(5,234)			489		37,637		36,296
Charge-offs	Charge-offs										Charge-offs
Residential real estate	Residential real estate	(21)			(21)		(608)		(482)		Residential real estate	(38)			(38)		(21)		(21)
Commercial real estate	Commercial real estate	(625)			(180)		(2,460)		(2,266)		Commercial real estate	(41)			—		(3,497)		(180)
Other commercial	Other commercial	(3,471)			(1,873)		(4,189)		(2,598)		Other commercial	(3,113)			(2,762)		(4,860)		(1,873)
Home equity	Home equity	(293)			(194)		(90)		(28)		Home equity	(45)			(45)		(384)		(194)
Other consumer	Other consumer	(3,455)			(2,967)		(7,831)		(6,716)		Other consumer	(2,709)			(1,401)		(5,046)		(2,967)
Total charge-offs	Total charge-offs	(7,865)			(5,235)		(15,178)		(12,090)		Total charge-offs	(5,946)			(4,246)		(13,808)		(5,235)
Recoveries	Recoveries										Recoveries
Residential real estate	Residential real estate	54			19		251		240		Residential real estate	275			34		61		19
Commercial real estate	Commercial real estate	860			330		2,212		1,301		Commercial real estate	907			789		1,094		330
Other commercial	Other commercial	1,496			1,182		2,181		1,819		Other commercial	1,547			279		1,811		1,182
Home equity	Home equity	246			153		79		44		Home equity	67			20		256		153
Other consumer	Other consumer	2,337			1,505		3,649		2,925		Other consumer	1,589			838		2,933		1,505
Total recoveries	Total recoveries	4,993			3,189		8,372		6,329		Total recoveries	4,385			1,960		6,155		3,189
Net charge-offs	Net charge-offs	(2,872)			(2,046)		(6,806)		(5,761)		Net charge-offs	(1,561)			(2,286)		(7,653)		(2,046)
Balance at end of period	Balance at end of period	$	164,552		162,509		124,490		125,535		Balance at end of period	$	151,448		156,446		158,243		162,509
ACL as a percentage of total loans	ACL as a percentage of total loans	1.42		%	1.42	%	1.31	%	1.32	%	ACL as a percentage of total loans	1.35		%	1.39	%	1.42	%	1.42	%
Net charge-offs as a percentage of total loans	Net charge-offs as a percentage of total loans	0.03		%	0.02	%	0.07	%	0.06	%	Net charge-offs as a percentage of total loans	0.01		%	0.02	%	0.07	%	0.02	%

The current quarter provision for credit loss ~~expense~~benefit on loans of $5.7 million was ~~$2.9 million,~~ a decrease of ~~$10.7~~$6.2 million from the prior quarter provision for credit loss expense of $489 thousand and a $19.3 million decrease from the prior year second quarter provision for credit loss expense of $13.6 million. The higher levels of provision for credit losses in the prior year second quarter were driven by negative economic forecasts due to COVID-19. The lower levels in the current ~~year-to-date credit loss expense was $39.2 million and primarily attributable to credit loss expense~~quarter related to ~~COVID-19 and an additional $4.8 million of credit loss expense related to~~improvement in the ~~SBAZ acquisition.~~ economic forecasts.

The allowance for credit losses on loans (“ACL”) as a percentage of total loans outstanding at ~~September~~June 30, ~~2020~~2021 was ~~1.42~~1.35 percent which ~~remained unchanged~~was a 4 basis points decrease compared to the prior quarter. Excluding the PPP loans, the ACL as percentage of loans was 1.43 percent compared to 1.51 percent in the prior quarter and 1.62 percent ~~which also remained unchanged compared to~~in the prior year second quarter.The Company’s ACL of ~~$165~~$151 million is considered adequate to absorb the estimated credit losses from any segment of its loan portfolio. For the periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 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 ~~193~~194 locations, including ~~175~~173 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.”

6966

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)	Sep 30, 2020		Jun 30, 2020		Dec 31, 2019		Sep 30, 2019		Jun 30, 2020		Dec 31, 2019		Sep 30, 2019		(Dollars in thousands)	Jun 30, 2021		Mar 31, 2021		Dec 31, 2020		Jun 30, 2020		Mar 31, 2021		Dec 31, 2020		Jun 30, 2020
Custom and owner occupied construction	Custom and owner occupied construction	$	166,195	$	177,172	$	143,479	$	147,626	(6)	%	16	%	13	%	Custom and owner occupied construction	$	158,405	$	153,226	$	157,529	$	177,172	3	%	1	%	(11)	%
Pre-sold and spec construction	Pre-sold and spec construction	157,242		161,964		180,539		207,596		(3)	%	(13)	%	(24)	%	Pre-sold and spec construction	163,740		154,312		148,845		161,964		6	%	10	%	1	%
Total residential construction	Total residential construction	323,437		339,136		324,018		355,222		(5)	%	—	%	(9)	%	Total residential construction	322,145		307,538		306,374		339,136		5	%	5	%	(5)	%
Land development	Land development	96,814		94,667		101,592		103,090		2	%	(5)	%	(6)	%	Land development	111,736		103,960		102,930		94,667		7	%	9	%	18	%
Consumer land or lots	Consumer land or lots	122,019		120,015		125,759		128,668		2	%	(3)	%	(5)	%	Consumer land or lots	138,292		133,409		123,747		120,015		4	%	12	%	15	%
Unimproved land	Unimproved land	64,770		63,459		62,563		71,467		2	%	4	%	(9)	%	Unimproved land	63,469		62,002		59,500		63,459		2	%	7	%	—	%
Developed lots for operative builders	Developed lots for operative builders	30,871		26,647		17,390		13,782		16	%	78	%	124	%	Developed lots for operative builders	27,143		27,310		30,449		26,647		(1)	%	(11)	%	2	%
Commercial lots	Commercial lots	62,445		60,563		46,408		64,904		3	%	35	%	(4)	%	Commercial lots	64,664		61,289		60,499		60,563		6	%	7	%	7	%
Other construction	Other construction	537,105		477,922		478,368		443,947		12	%	12	%	21	%	Other construction	554,548		604,326		555,375		477,922		(8)	%	—	%	16	%
Total land, lot, and other construction	Total land, lot, and other construction	914,024		843,273		832,080		825,858		8	%	10	%	11	%	Total land, lot, and other construction	959,852		992,296		932,500		843,273		(3)	%	3	%	14	%
Owner occupied	Owner occupied	1,889,512		1,855,994		1,667,526		1,666,211		2	%	13	%	13	%	Owner occupied	2,019,860		1,973,309		1,945,686		1,855,994		2	%	4	%	9	%
Non-owner occupied	Non-owner occupied	2,259,062		2,238,586		2,017,375		2,023,262		1	%	12	%	12	%	Non-owner occupied	2,436,672		2,372,644		2,290,512		2,238,586		3	%	6	%	9	%
Total commercial real estate	Total commercial real estate	4,148,574		4,094,580		3,684,901		3,689,473		1	%	13	%	12	%	Total commercial real estate	4,456,532		4,345,953		4,236,198		4,094,580		3	%	5	%	9	%
Commercial and industrial	Commercial and industrial	2,308,710		2,342,081		991,580		1,009,310		(1)	%	133	%	129	%	Commercial and industrial	1,654,237		1,883,438		1,850,197		2,342,081		(12)	%	(11)	%	(29)	%
Agriculture	Agriculture	747,145		714,227		701,363		718,255		5	%	7	%	4	%	Agriculture	746,678		728,579		721,490		714,227		2	%	3	%	5	%
1st lien	1st lien	1,256,111		1,227,514		1,186,889		1,208,096		2	%	6	%	4	%	1st lien	1,105,579		1,130,339		1,228,867		1,227,514		(2)	%	(10)	%	(10)	%
Junior lien	Junior lien	43,355		47,121		53,571		53,931		(8)	%	(19)	%	(20)	%	Junior lien	38,029		35,230		41,641		47,121		8	%	(9)	%	(19)	%
Total 1-4 family	Total 1-4 family	1,299,466		1,274,635		1,240,460		1,262,027		2	%	5	%	3	%	Total 1-4 family	1,143,608		1,165,569		1,270,508		1,274,635		(2)	%	(10)	%	(10)	%
Multifamily residential	Multifamily residential	359,030		343,870		342,498		350,622		4	%	5	%	2	%	Multifamily residential	398,499		380,172		391,895		343,870		5	%	2	%	16	%
Home equity lines of credit	Home equity lines of credit	651,546		655,492		617,900		612,775		(1)	%	5	%	6	%	Home equity lines of credit	693,135		664,800		657,626		655,492		4	%	5	%	6	%
Other consumer	Other consumer	191,761		181,402		174,643		171,633		6	%	10	%	12	%	Other consumer	201,336		191,152		190,186		181,402		5	%	6	%	11	%
Total consumer	Total consumer	843,307		836,894		792,543		784,408		1	%	6	%	8	%	Total consumer	894,471		855,952		847,812		836,894		5	%	6	%	7	%
States and political subdivisions	States and political subdivisions	617,624		581,673		533,023		471,599		6	%	16	%	31	%	States and political subdivisions	631,199		546,086		575,647		581,673		16	%	10	%	9	%
Other	Other	205,351		198,354		139,538		174,755		4	%	47	%	18	%	Other	129,237		183,077		156,647		198,354		(29)	%	(17)	%	(35)	%
Total loans receivable, including loans held for sale	Total loans receivable, including loans held for sale	11,766,668		11,568,723		9,582,004		9,641,529		2	%	23	%	22	%	Total loans receivable, including loans held for sale	11,336,458		11,388,660		11,289,268		11,568,723		—	%	—	%	(2)	%
Less loans held for sale 1	Less loans held for sale 1	(147,937)		(115,345)		(69,194)		(100,441)		28	%	114	%	47	%	Less loans held for sale 1	(98,410)		(118,731)		(166,572)		(115,345)		(17)	%	(41)	%	(15)	%
Total loans receivable	Total loans receivable	$	11,618,731	$	11,453,378	$	9,512,810	$	9,541,088	1	%	22	%	22	%	Total loans receivable	$	11,238,048	$	11,269,929	$	11,122,696	$	11,453,378	—	%	1	%	(2)	%

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

7067

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)	Sep 30, 2020		Jun 30, 2020	Dec 31, 2019	Sep 30, 2019	Sep 30, 2020			(Dollars in thousands)	Jun 30, 2021				Mar 31, 2021			Dec 31, 2020		Jun 30, 2020		Jun 30, 2021
Custom and owner occupied construction	Custom and owner occupied construction	$	249	440	185	283	249		—			—		Custom and owner occupied construction	$	243		246		247		440		243	—	—
Pre-sold and spec construction		—		—	743	1,219	—	—		—
Total residential construction		249		440	928	1,502	249	—		—

Land development	Land development	450		659	852	1,006	202	—		248		Land development	279				330		342		659		31	—	248
Consumer land or lots	Consumer land or lots	223		427	330	828	61	—		162		Consumer land or lots	190				325		201		427		190	—	—
Unimproved land	Unimproved land	417		663	1,181	8,781	270	—		147		Unimproved land	178				243		294		663		178	—	—

Commercial lots	Commercial lots	682		529	529	575	153	—		529		Commercial lots	368				368		368		529		—	—	368

Total land, lot and other construction	Total land, lot and other construction	1,772		2,278	2,892	11,190	686	—		1,086		Total land, lot and other construction	1,015				1,266		1,205		2,278		399	—	616
Owner occupied	Owner occupied	9,077		9,424	4,608	8,251	7,338	—		1,739		Owner occupied	3,747				5,272		6,725		9,424		3,716	31	—
Non-owner occupied	Non-owner occupied	4,879		5,482	8,229	9,271	4,879	—		—		Non-owner occupied	1,892				4,615		4,796		5,482		1,892	—	—
Total commercial real estate	Total commercial real estate	13,956		14,906	12,837	17,522	12,217	—		1,739		Total commercial real estate	5,639				9,887		11,521		14,906		5,608	31	—
Commercial and industrial	Commercial and industrial	8,571		5,039	5,297	6,135	7,614	396		561		Commercial and industrial	6,046				6,100		6,689		5,039		5,419	597	30
Agriculture	Agriculture	8,972		11,087	2,288	3,469	7,011	1,961		—		Agriculture	31,742				8,392		6,313		11,087		28,787	2,955	—
1st lien	1st lien	6,559		7,634	8,671	9,420	4,698	217		1,644		1st lien	4,186				4,303		5,353		7,634		3,754	432	—
Junior lien	Junior lien	986		746	569	669	815	171		—		Junior lien	272				290		301		746		247	25	—
Total 1-4 family	Total 1-4 family	7,545		8,380	9,240	10,089	5,513	388		1,644		Total 1-4 family	4,458				4,593		5,654		8,380		4,001	457	—
Multifamily residential	Multifamily residential	—		92	201	206	—	—		—		Multifamily residential	—				—		—		92		—	—	—
Home equity lines of credit	Home equity lines of credit	2,903		3,048	2,618	3,553	2,550	80		273		Home equity lines of credit	2,653				3,614		2,939		3,048		2,529	36	88
Other consumer	Other consumer	407		412	837	1,098	241	108		58		Other consumer	542				1,017		572		412		406	99	37
Total consumer	Total consumer	3,310		3,460	3,455	4,651	2,791	188		331		Total consumer	3,195				4,631		3,511		3,460		2,935	135	125

Other	Other	288		289	299	313	269	19		—		Other	703				1,470		293		289		658	45	—
Total	Total	$	44,663	45,971	37,437	55,077	36,350	2,952		5,361		Total	$	53,041			36,585		35,433		45,971		48,050	4,220	771

7168

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)	Sep 30, 2020		Jun 30, 2020		Dec 31, 2019		Sep 30, 2019		Jun 30, 2020		Dec 31, 2019		Sep 30, 2019		(Dollars in thousands)	Jun 30, 2021		Mar 31, 2021		Dec 31, 2020		Jun 30, 2020		Mar 31, 2021		Dec 31, 2020		Jun 30, 2020
Custom and owner occupied construction	Custom and owner occupied construction	$	448	$	—	$	637	$	49	n/m		(30)	%	814	%	Custom and owner occupied construction	$	—	$	963	$	788	$	—	(100)	%	(100)	%	n/m
Pre-sold and spec construction	Pre-sold and spec construction	—		—		148		8		n/m		(100)	%	(100)	%	Pre-sold and spec construction	70		—		—		—		n/m		n/m		n/m
Total residential construction	Total residential construction	448		—		785		57		n/m		(43)	%	686	%	Total residential construction	70		963		788		—		(93)	%	(91)	%	n/m
Land development	Land development	—		—		—		1,282		n/m		n/m		(100)	%	Land development	—		—		202		—		n/m		(100)	%	n/m
Consumer land or lots	Consumer land or lots	220		248		672		836		(11)	%	(67)	%	(74)	%	Consumer land or lots	—		215		71		248		(100)	%	(100)	%	(100)	%
Unimproved land	Unimproved land	381		411		558		8		(7)	%	(32)	%	4,663	%	Unimproved land	307		334		357		411		(8)	%	(14)	%	(25)	%
Developed lots for operative builders	Developed lots for operative builders	—		—		2		—		n/m		(100)	%	n/m		Developed lots for operative builders	—		—		306		—		n/m		(100)	%	n/m
Commercial lots	Commercial lots	—		153		—		—		(100)	%	n/m		n/m		Commercial lots	—		—		—		153		n/m		n/m		(100)

Other construction																Other construction	—		1,520		—		—		(100)	%	n/m		n/m
Total land, lot and other construction	Total land, lot and other construction	601		812		1,232		2,268		(26)	%	(51)	%	(74)	%	Total land, lot and other construction	307		2,069		936		812		(85)	%	(67)	%	(62)	%
Owner occupied	Owner occupied	3,163		1,512		3,052		2,949		109	%	4	%	7	%	Owner occupied	2,243		1,784		3,432		1,512		26	%	(35)	%	48	%
Non-owner occupied	Non-owner occupied	1,157		966		1,834		1,286		20	%	(37)	%	(10)	%	Non-owner occupied	574		2,407		149		966		(76)	%	285	%	(41)	%
Total commercial real estate	Total commercial real estate	4,320		2,478		4,886		4,235		74	%	(12)	%	2	%	Total commercial real estate	2,817		4,191		3,581		2,478		(33)	%	(21)	%	14	%
Commercial and industrial	Commercial and industrial	2,354		4,127		2,036		12,780		(43)	%	16	%	(82)	%	Commercial and industrial	2,947		2,063		1,814		4,127		43	%	62	%	(29)	%
Agriculture	Agriculture	2,795		12,084		4,298		1,290		(77)	%	(35)	%	117	%	Agriculture	837		25,458		1,553		12,084		(97)	%	(46)	%	(93)	%
1st lien	1st lien	2,589		656		4,711		2,521		295	%	(45)	%	3	%	1st lien	736		5,984		6,677		656		(88)	%	(89)	%	12	%
Junior lien	Junior lien	738		160		624		715		361	%	18	%	3	%	Junior lien	106		18		55		160		489	%	93	%	(34)	%
Total 1-4 family	Total 1-4 family	3,327		816		5,335		3,236		308	%	(38)	%	3	%	Total 1-4 family	842		6,002		6,732		816		(86)	%	(87)	%	3	%
Multifamily residential		—		—		—		149		n/m		n/m		(100)

Home equity lines of credit	Home equity lines of credit	2,200		3,330		2,352		4,162		(34)	%	(6)	%	(47)	%	Home equity lines of credit	1,942		1,223		2,840		3,330		59	%	(32)	%	(42)	%
Other consumer	Other consumer	789		739		1,187		1,388		7	%	(34)	%	(43)	%	Other consumer	919		519		1,054		739		77	%	(13)	%	24	%
Total consumer	Total consumer	2,989		4,069		3,539		5,550		(27)	%	(16)	%	(46)	%	Total consumer	2,861		1,742		3,894		4,069		64	%	(27)	%	(30)	%
States and political subdivisions	States and political subdivisions	—		124		—		—		(100)		n/m		n/m		States and political subdivisions	—		375		2,358		124		(100)	%	(100)	%	(100)
Other	Other	797		715		1,081		389		11	%	(26)	%	105	%	Other	1,395		1,753		1,065		715		(20)	%	31	%	95	%
Total	Total	$	17,631	$	25,225	$	23,192	$	29,954	(30)	%	(24)	%	(41)	%	Total	$	12,076	$	44,616	$	22,721	$	25,225	(73)	%	(47)	%	(52)	%

n/m - not measurable

7269

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)	Sep 30, 2020		Jun 30, 2020	Dec 31, 2019	Sep 30, 2019	Sep 30, 2020	Sep 30, 2020	(Dollars in thousands)	Jun 30, 2021		Mar 31, 2021	Dec 31, 2020	Jun 30, 2020	Jun 30, 2021	Jun 30, 2021
Custom and owner occupied construction	Custom and owner occupied construction	$	(9)	—	98	—	—	9	Custom and owner occupied construction	$	—	—	(9)	—	—	—
Pre-sold and spec construction	Pre-sold and spec construction	(19)		(12)	(18)	(12)	—	19	Pre-sold and spec construction	(8)		(7)	(24)	(12)	—	8
Total residential construction	Total residential construction	(28)		(12)	80	(12)	—	28	Total residential construction	(8)		(7)	(33)	(12)	—	8
Land development	Land development	(63)		(50)	(30)	(25)	—	63	Land development	(77)		(75)	(106)	(50)	—	77
Consumer land or lots	Consumer land or lots	(217)		(17)	(138)	(160)	7	224	Consumer land or lots	(164)		(141)	(221)	(17)	3	167
Unimproved land	Unimproved land	(489)		(287)	(311)	(271)	—	489	Unimproved land	(21)		(21)	(489)	(287)	—	21
Developed lots for operative builders		—		—	(18)	(18)	—	—

Commercial lots	Commercial lots	(5)		(3)	(6)	(4)	—	5	Commercial lots	—		—	(55)	(3)	—	—
Other construction		—		—	(142)	(142)	—	—

Total land, lot and other construction	Total land, lot and other construction	(774)		(357)	(645)	(620)	7	781	Total land, lot and other construction	(262)		(237)	(871)	(357)	3	265
Owner occupied	Owner occupied	(82)		(49)	(479)	(35)	52	134	Owner occupied	(70)		(54)	(168)	(49)	41	111
Non-owner occupied	Non-owner occupied	246		115	2,015	1,861	295	49	Non-owner occupied	(503)		(505)	3,030	115	—	503
Total commercial real estate	Total commercial real estate	164		66	1,536	1,826	347	183	Total commercial real estate	(573)		(559)	2,862	66	41	614
Commercial and industrial	Commercial and industrial	740		576	1,472	1,066	1,317	577	Commercial and industrial	(218)		80	1,533	576	262	480
Agriculture	Agriculture	309		33	21	(32)	315	6	Agriculture	(6)		(1)	337	33	4	10
1st lien	1st lien	(27)		—	(12)	189	21	48	1st lien	(237)		5	69	—	42	279
Junior lien	Junior lien	(169)		(129)	(303)	(254)	28	197	Junior lien	(475)		(47)	(211)	(129)	—	475
Total 1-4 family	Total 1-4 family	(196)		(129)	(315)	(65)	49	245	Total 1-4 family	(712)		(42)	(142)	(129)	42	754
Multifamily residential	Multifamily residential	(244)		(43)	—	—	—	244	Multifamily residential	(40)		—	(244)	(43)	—	40
Home equity lines of credit	Home equity lines of credit	79		24	19	(25)	310	231	Home equity lines of credit	(23)		25	101	24	41	64
Other consumer	Other consumer	233		161	603	380	445	212	Other consumer	74		46	307	161	241	167
Total consumer	Total consumer	312		185	622	355	755	443	Total consumer	51		71	408	185	282	231

Other	Other	2,589		1,727	4,035	3,243	5,075	2,486	Other	3,329		2,981	3,803	1,727	5,312	1,983
Total	Total	$	2,872	2,046	6,806	5,761	7,865	4,993	Total	$	1,561	2,286	7,653	2,046	5,946	4,385

7370

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:


		September 30, 2020				December 31, 2019				September 30, 2019					June 30, 2021				December 31, 2020				June 30, 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	$	5,479,311	38	%	$	3,696,627	34	%	$	3,772,766	35	%	Non-interest bearing deposits	$	6,307,794	38	%	$	5,454,539	37	%	$	5,043,704	38	%
NOW and DDA accounts	NOW and DDA accounts	3,300,152		23	%	2,645,404		25	%	2,592,483		24	%	NOW and DDA accounts	4,151,264		25	%	3,698,559		25	%	3,113,863		23	%
Savings accounts	Savings accounts	1,864,143		13	%	1,485,487		14	%	1,472,465		13	%	Savings accounts	2,346,129		14	%	2,000,174		13	%	1,756,503		13	%
Money market deposit accounts	Money market deposit accounts	2,557,294		18	%	1,937,141		18	%	1,940,517		18	%	Money market deposit accounts	2,990,021		18	%	2,627,336		18	%	2,403,641		18	%
Certificate accounts	Certificate accounts	979,857		7	%	958,501		9	%	955,765		9	%	Certificate accounts	939,563		5	%	978,779		7	%	995,536		7	%
Wholesale deposits	Wholesale deposits	119,131		1	%	53,297		—	%	134,629		1	%	Wholesale deposits	26,121		—	%	38,142		—	%	68,285		1	%
Total interest bearing deposits	Total interest bearing deposits	8,820,577		62	%	7,079,830		66	%	7,095,859		65	%	Total interest bearing deposits	10,453,098		62	%	9,342,990		63	%	8,337,828		62	%
Total deposits	Total deposits	$	14,299,888	100	%	$	10,776,457	100	%	$	10,868,625	100	%	Total deposits	$	16,760,892	100	%	$	14,797,529	100	%	$	13,381,532	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.

7471

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 Nine Months ended At or for the Year ended
(Dollars in thousands) September 30,
2020 December 31,
2019
Repurchase agreements
Amount outstanding at end of period $ 965,668 569,824
Weighted interest rate on outstanding amount 0.40 % 0.74 %
Maximum outstanding at any month-end $ 965,668 569,824
Average balance $ 720,593 470,351
Weighted-average interest rate 0.51 % 0.79 %


	At or for the Six Months ended			At or for the Year ended
(Dollars in thousands)	June 30, 2021			December 31, 2020
Repurchase agreements
Amount outstanding at end of period	$	995,201		1,004,583
Weighted interest rate on outstanding amount	0.29		%	0.33	%
Maximum outstanding at any month-end	$	1,015,522		1,004,583
Average balance	$	987,995		783,100
Weighted-average interest rate	0.27		%	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 ~~September~~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.2021. The subordinated debentures outstanding as of ~~September~~June 30, ~~2020~~2021 were ~~$140~~$133 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 ~~September~~June 30, ~~2020~~2021 and determined its ACL of ~~$16.1~~$15.7 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 67 to the Unaudited Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”

7572

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)	September 30, 2020		December 31, 2019	(Dollars in thousands)	June 30, 2021		December 31, 2020
FHLB advances	FHLB advances				FHLB advances
Borrowing capacity	Borrowing capacity	$	2,606,534	2,360,599	Borrowing capacity	$	2,591,898	2,446,759
Amount utilized	Amount utilized	(7,318)		(38,589)	Amount utilized	—		—
Letters of credit					Letters of credit	(1,498)		(1,498)
Amount available	Amount available	$	2,599,216	2,322,010	Amount available	$	2,590,400	2,445,261
FRB discount window	FRB discount window				FRB discount window
Borrowing capacity	Borrowing capacity	$	1,300,146	1,061,872	Borrowing capacity	$	1,334,501	1,269,778
Amount utilized	Amount utilized	—		—	Amount utilized	—		—
Amount available	Amount available	$	1,300,146	1,061,872	Amount available	$	1,334,501	1,269,778
Unsecured lines of credit available	Unsecured lines of credit available	$	635,000	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	$	40,140	19,540	U.S. government and federal agency	$	34,481	38,588
U.S. government sponsored enterprises	U.S. government sponsored enterprises	9,825		7,416	U.S. government sponsored enterprises	48,016		9,781
State and local governments	State and local governments	137,222		527,348	State and local governments	547,856		185,680
Corporate bonds	Corporate bonds	107,843		157,602	Corporate bonds	77,701		99,764
Residential mortgage-backed securities	Residential mortgage-backed securities	1,062,492		210,356	Residential mortgage-backed securities	3,066,594		1,994,927
Commercial mortgage-backed securities	Commercial mortgage-backed securities	956,345		401,849	Commercial mortgage-backed securities	927,409		1,028,944
Total unencumbered debt securities	Total unencumbered debt securities	$	2,313,867	1,324,111	Total unencumbered debt securities	$	4,702,057	3,357,684

7673

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 ~~95,413,743~~95,507,234 have been issued as of ~~September~~June 30, ~~2020.~~2021. The Company also has the capacity to issue 1,000,000 shares of preferred stock of which none have been issued as of ~~September~~June 30, ~~2020.~~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 ~~September~~June 30, ~~2020,~~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 ~~September~~June 30, ~~2020:~~

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 14.35 % 13.12 % 13.12 % 10.08 %
Minimum capital requirements 8.00 % 6.00 % 4.50 % 4.00 %
Minimum capital requirements plus capital conservation buffer 10.50 % 8.50 % 7.00 % N/A
Well capitalized requirements 10.00 % 8.00 % 6.50 % 5.00 %
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)


Glacier Bank	13.71	%	12.67	%	12.67	%	9.00	%
Minimum capital requirements	8.00	%	6.00	%	4.50	%	4.00	%
Minimum capital requirements plus capital conservation buffer	10.50	%	8.50	%	7.00	%	N/A
Well capitalized requirements	10.00	%	8.00	%	6.50	%	5.00	%

On January 1, 2020, the Company adopted the ~~CECL~~current expected credit losses (“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). 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~~Within the Company’s geographic footprint, 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. The Company is also required to file in the states other than the eight states in which it has properties.

7774

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


		Nine Months ended						Six Months ended
(Dollars in thousands)	(Dollars in thousands)	September 30, 2020			September 30, 2019		(Dollars in thousands)	June 30, 2021			June 30, 2020
Income Before Income Taxes	Income Before Income Taxes	$	227,230		189,581		Income Before Income Taxes	$	196,862		130,719
Federal and state income tax expense	Federal and state income tax expense	42,690			36,447		Federal and state income tax expense	38,433			23,936
Net Income	Net Income	$	184,540		153,134		Net Income	$	158,429		106,783
Effective tax rate 1	Effective tax rate 1	18.8		%	19.2	%	Effective tax rate 1	19.5		%	18.3	%
Income from tax-exempt debt securities, municipal loans and leases	Income from tax-exempt debt securities, municipal loans and leases	$	45,378		36,879		Income from tax-exempt debt securities, municipal loans and leases	$	34,161		29,021
Benefits from federal income tax credits	Benefits from federal income tax credits	$	9,626		7,947		Benefits from federal income tax credits	$	7,517		5,862

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~~$17.4 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) New
Markets
Tax Credits Low-Income
Housing
Tax Credits Debt
Securities
Tax Credits Total
2020 $ 5,351 8,435 794 14,580
2021 5,642 10,031 736 16,409
2022 4,993 11,146 673 16,812
2023 4,398 11,167 640 16,205
2024 2,466 11,032 604 14,102
Thereafter 720 47,686 905 49,311
$ 23,570 99,497 4,352 127,419


(Dollars in thousands)	New Markets Tax Credits		Low-Income Housing Tax Credits	Debt Securities Tax Credits	Total
2021	$	6,617	10,307	763	17,687
2022	5,969		12,471	664	19,104
2023	5,373		13,810	631	19,814
2024	3,636		13,747	594	17,977
2025	1,890		13,588	451	15,929
Thereafter	2,340		53,950	452	56,742
	$	25,825	117,873	3,555	147,253

7875

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						Nine Months ended							Three Months ended						Six Months ended
		September 30, 2020						September 30, 2020							June 30, 2021						June 30, 2021
(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	$	1,010,503	$	11,592	4.59	%	$	1,013,072	$	35,216	4.63	%	Residential real estate loans	$	825,467	$	9,541	4.62	%	$	859,073	$	19,687	4.58	%
Commercial loans 1	Commercial loans 1	9,636,631		110,847		4.58	%	8,896,708		318,435		4.78	%	Commercial loans 1	9,520,603		112,226		4.73	%	9,466,763		227,154		4.84	%
Consumer and other loans	Consumer and other loans	957,284		11,000		4.57	%	947,372		33,771		4.76	%	Consumer and other loans	964,415		10,856		4.51	%	957,116		21,415		4.51	%
Total loans 2	Total loans 2	11,604,418		133,439		4.57	%	10,857,152		387,422		4.77	%	Total loans 2	11,310,485		132,623		4.70	%	11,282,952		268,256		4.79	%
Tax-exempt investment securities 3	Tax-exempt investment securities 3	1,379,577		13,885		4.03	%	1,237,779		37,542		4.04	%	Tax-exempt investment securities 3	1,548,323		14,740		3.81	%	1,546,912		29,450		3.81	%
Taxable investment securities 4	Taxable investment securities 4	2,809,545		14,568		2.07	%	2,380,184		43,070		2.41	%	Taxable investment securities 4	5,810,800		17,251		1.19	%	5,265,398		33,102		1.26	%
Total earning assets	Total earning assets	15,793,540		161,892		4.08	%	14,475,115		468,034		4.32	%	Total earning assets	18,669,608		164,614		3.54	%	18,095,262		330,808		3.69	%
Goodwill and intangibles	Goodwill and intangibles	572,759						562,533						Goodwill and intangibles	565,749						566,979
Non-earning assets	Non-earning assets	794,165						760,758						Non-earning assets	804,897						823,973
Total assets	Total assets	$	17,160,464					$	15,798,406					Total assets	$	20,040,254					$	19,486,214
Liabilities	Liabilities													Liabilities
Non-interest bearing deposits	Non-interest bearing deposits	$	5,171,984	$	—	—	%	$	4,528,500	$	—	—	%	Non-interest bearing deposits	$	6,100,872	$	—	—	%	$	5,847,608	$	—	—	%
NOW and DDA accounts	NOW and DDA accounts	3,218,536		642		0.08	%	2,971,702		2,244		0.10	%	NOW and DDA accounts	4,073,819		600		0.06	%	3,953,009		1,170		0.06	%
Savings accounts	Savings accounts	1,804,438		166		0.04	%	1,670,722		580		0.05	%	Savings accounts	2,295,334		141		0.02	%	2,194,485		279		0.03	%
Money market deposit accounts	Money market deposit accounts	2,453,659		1,161		0.19	%	2,262,781		4,025		0.24	%	Money market deposit accounts	2,921,642		861		0.12	%	2,821,014		1,726		0.12	%
Certificate accounts	Certificate accounts	981,385		1,936		0.78	%	986,807		6,940		0.94	%	Certificate accounts	955,694		1,181		0.50	%	963,595		2,603		0.54	%
Total core deposits	Total core deposits	13,630,002		3,905		0.11	%	12,420,512		13,789		0.15	%	Total core deposits	16,347,361		2,783		0.07	%	15,779,711		5,778		0.07	%
Wholesale deposits 5	Wholesale deposits 5	86,852		47		0.22	%	70,880		332		0.63	%	Wholesale deposits 5	34,301		21		0.24	%	36,178		40		0.22	%
Repurchase agreements														Repurchase agreements	974,744		651		0.27	%	987,995		1,340		0.27	%
FHLB advances	FHLB advances	21,273		70		1.30	%	103,700		684		0.87	%	FHLB advances	—		—		—	%	—		—		—	%
Repurchase agreements and other borrowed funds		1,049,002		2,062		0.78	%	892,418		6,960		1.04	%
Subordinated debentures and other borrowed funds														Subordinated debentures and other borrowed funds	166,002		1,032		2.49	%	165,917		2,069		2.51	%
Total interest bearing liabilities	Total interest bearing liabilities	14,787,129		6,084		0.16	%	13,487,510		21,765		0.22	%	Total interest bearing liabilities	17,522,408		4,487		0.10	%	16,969,801		9,227		0.11	%
Other liabilities	Other liabilities	120,294						149,423						Other liabilities	168,613						181,166
Total liabilities	Total liabilities	14,907,423						13,636,933						Total liabilities	17,691,021						17,150,967
Stockholders’ Equity	Stockholders’ Equity													Stockholders’ Equity
Common stock	Common stock	954						947						Common stock	955						955
Paid-in capital	Paid-in capital	1,493,353						1,467,623						Paid-in capital	1,495,886						1,495,514
Retained earnings	Retained earnings	622,099						586,963						Retained earnings	756,561						733,478
Accumulated other comprehensive income	Accumulated other comprehensive income	136,635						105,940						Accumulated other comprehensive income	95,831						105,300
Total stockholders’ equity	Total stockholders’ equity	2,253,041						2,161,473						Total stockholders’ equity	2,349,233						2,335,247
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	17,160,464					$	15,798,406					Total liabilities and stockholders’ equity	$	20,040,254					$	19,486,214
Net interest income (tax-equivalent)	Net interest income (tax-equivalent)			$	155,808					$	446,269			Net interest income (tax-equivalent)			$	160,127					$	321,581
Net interest spread (tax-equivalent)	Net interest spread (tax-equivalent)					3.92	%					4.10	%	Net interest spread (tax-equivalent)					3.44	%					3.58	%
Net interest margin (tax-equivalent)	Net interest margin (tax-equivalent)					3.92	%					4.12	%	Net interest margin (tax-equivalent)					3.44	%					3.58	%

1Includes tax effect of ~~$1.3~~$1.4 million and ~~$3.9~~$2.8 million on tax-exempt municipal loan and lease income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~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 ~~$2.8~~$3.0 million and ~~$7.6~~$6.0 million on tax-exempt debt securities income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively.

4Includes tax effect of ~~$266~~$255 thousand and ~~$798~~$510 thousand on federal income tax credits for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively.

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

7976

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.


		Nine Months ended					Six 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	$	2,260	(1,389)	871	Residential real estate loans	$	(3,616)	(321)	(3,937)
Commercial loans (tax-equivalent)	Commercial loans (tax-equivalent)	79,812		(33,646)	46,166	Commercial loans (tax-equivalent)	21,728		(2,162)	19,566
Consumer and other loans	Consumer and other loans	3,016		(2,390)	626	Consumer and other loans	230		(1,586)	(1,356)
Investment securities (tax-equivalent)	Investment securities (tax-equivalent)	19,872		(10,698)	9,174	Investment securities (tax-equivalent)	54,569		(44,175)	10,394
Total interest income	Total interest income	104,960		(48,123)	56,837	Total interest income	72,911		(48,244)	24,667
Interest expense	Interest expense					Interest expense
NOW and DDA accounts	NOW and DDA accounts	742		(1,536)	(794)	NOW and DDA accounts	610		(1,041)	(431)
Savings accounts	Savings accounts	151		(328)	(177)	Savings accounts	149		(284)	(135)
Money market deposit accounts	Money market deposit accounts	1,140		(790)	350	Money market deposit accounts	845		(1,983)	(1,138)
Certificate accounts	Certificate accounts	569		(278)	291	Certificate accounts	(158)		(2,242)	(2,400)
Wholesale deposits	Wholesale deposits	(1,694)		(1,035)	(2,729)	Wholesale deposits	(122)		(124)	(246)
Repurchase agreements						Repurchase agreements	1,007		(1,564)	(557)
FHLB advances	FHLB advances	(6,280)		(1,973)	(8,253)	FHLB advances	(614)		—	(614)
Repurchase agreements and other borrowed funds		3,877		(4,740)	(863)
Subordinated debentures and other borrowed funds						Subordinated debentures and other borrowed funds	(113)		(820)	(933)
Total interest expense	Total interest expense	(1,495)		(10,680)	(12,175)	Total interest expense	1,604		(8,058)	(6,454)
Net interest income (tax-equivalent)	Net interest income (tax-equivalent)	$	106,455	(37,443)	69,012	Net interest income (tax-equivalent)	$	71,307	(40,186)	31,121

Net interest income ~~(tax-equivalent)~~(tax-equivalent) increased ~~$69.0~~$31.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same period in ~~2019.~~2020. The interest income for the first ~~nine~~six 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.

8077

Item 3. Quantitative and Qualitative Disclosure about Market Risk

The Company’s assessment of market risk as of ~~September~~June 30, ~~2020~~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 ~~September~~June 30, ~~2020.~~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 ~~third~~second 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

8279

Item 6. Exhibits

2.1 Agreement and Plan of Merger, dated as of May 18, 2021, by and between Glacier Bancorp, Inc., Glacier Bank, Altabancorp and Altabank. Filed as Exhibit 2.1 to Form 8-K, filed on May 19, 2021

3.1 Restated Articles of Incorporation of Glacier Bancorp, Inc. Filed as Exhibit 3.1 to Form S-4 filed on July 2, 2021

3.2 Amended and Restated Bylaws of Glacier Bancorp, Inc. Filed as Exhibit 3.2 to Form 8-K filed on May 4, 2021

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)

8380

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.

~~October 30, 2020~~August 2, 2021			/s/ Randall M. Chesler
			Randall M. Chesler
			President and CEO

~~October 30, 2020~~August 2, 2021			/s/ Ron J. Copher
			Ron J. Copher
			Executive Vice President and CFO

8481


	Three Months ended September 30, 2019
(Dollars in thousands)	Total		Residential Real Estate	Commercial Real Estate	Other Commercial	Home Equity	Other Consumer
Balance at beginning of period	$	129,054	10,695	72,447	36,259	5,801	3,852
Credit loss expense (reversal)	0		(325)	(1,480)	1,220	(777)	1,362
Charge-offs	(5,890)		(141)	(1,858)	(1,399)	0	(2,492)
Recoveries	2,371		8	549	778	17	1,019
Balance at end of period	$	125,535	10,237	69,658	36,858	5,041	3,741


	Nine Months ended September 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		0	49	0	0	0
Credit loss expense (reversal)	39,165		(3,923)	14,084	28,358	(860)	1,506
Charge-offs	(7,865)		(21)	(625)	(3,471)	(293)	(3,455)
Recoveries	4,993		54	860	1,496	246	2,337
Balance at end of period	$	164,552	9,805	94,397	48,753	7,430	4,167


(Dollars in thousands)	(Losses) Gains on Available-For-Sale Debt Securities		Losses on Derivatives Used for Cash Flow Hedges	Total
Balance at January 1, 2019	$	(6,613)	(2,814)	(9,427)
Other comprehensive income (loss) before reclassifications	65,284		(5,261)	60,023
Reclassification adjustments for (gains) losses included in net income	(10,576)		8,075	(2,501)
Net current period other comprehensive income	54,708		2,814	57,522
Balance at September 30, 2019	$	48,095	0	48,095
Balance at January 1, 2020	$	40,226	0	40,226
Other comprehensive income (loss) before reclassifications	92,027		(397)	91,630
Reclassification adjustments for gains included in net income (loss)	(758)		0	(758)
Net current period other comprehensive income (loss)	91,269		(397)	90,872
Balance at September 30, 2020	$	131,495	(397)	131,098


			Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Fair Value September 30, 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
U.S. government and federal agency	$	40,140	0	40,140	0
U.S. government sponsored enterprises	9,825		0	9,825	0
State and local governments	1,275,376		0	1,275,376	0
Corporate bonds	361,024		0	361,024	0
Residential mortgage-backed securities	1,275,858		0	1,275,858	0
Commercial mortgage-backed securities	1,163,325		0	1,163,325	0
Loans held for sale, at fair value	147,937		0	147,937	0
Interest rate caps	182		0	182	0
Interest rate lock commitment	14,967		0	14,967	0
Total assets measured at fair value on a recurring basis	$	4,288,634	0	4,288,634	0
TBA hedge	$	1,344	0	1,344	0
Total liabilities measured at fair value on a recurring basis	$	1,344	0	1,344	0


			Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Carrying Amount September 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	$	769,879	769,879	0	0
Debt securities, held-to-maturity	193,509		0	206,577	0
Loans receivable, net of ACL	11,454,179		0	0	11,619,887
Total financial assets	$	12,417,567	769,879	206,577	11,619,887
Financial liabilities
Term deposits	$	1,098,988	0	1,104,273	0
FHLB advances	7,318		0	7,537	0
Repurchase agreements and other borrowed funds	998,635		0	998,635	0
Subordinated debentures	139,918		0	119,318	0
Total financial liabilities	$	2,244,859	0	2,229,763	0


			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	0	0
Debt securities, held-to-maturity	224,611		0	234,396	0
Loans receivable, net of ACL	9,388,320		0	0	9,438,121
Total financial assets	$	9,943,892	330,961	234,396	9,438,121
Financial liabilities
Term deposits	$	1,011,798	0	1,017,505	0
FHLB advances	38,611		0	38,787	0
Repurchase agreements and other borrowed funds	598,644		0	598,644	0
Subordinated debentures	139,914		0	124,094	0
Total financial liabilities	$	1,788,967	0	1,779,030	0


Stockholders’ equity to total assets	12.58		%	13.03	%	14.33	%	14.24	%
Tangible stockholders’ equity to total tangible assets	9.70		%	9.98	%	10.95	%	10.84	%
Book value per common share	$	23.63		23.10		21.25		21.19		0.53	2.38	2.44
Tangible book value per common share	$	17.64		17.08		15.61		15.53		0.56	2.03	2.11


(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
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	%
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	%


	September 30, 2020
(Dollars in thousands)	Number of PPP Loans	Amount of PPP Loans		Total Loans Receivable, Net of PPP Loans	PPP Loans (Amount) as a Percent of Total Loans Receivable, Net of PPP Loans
Residential real estate	—	$	—	862,614	—	%
Commercial real estate and other commercial
Real estate rental and leasing	1,221	64,647		3,361,074	1.92	%
Accommodation and food services	1,502	160,295		644,627	24.87	%
Healthcare	1,928	288,612		826,809	34.91	%
Manufacturing	830	80,483		193,216	41.65	%
Retail and wholesale trade	1,672	168,837		471,115	35.84	%
Construction	2,297	214,652		774,069	27.73	%
Other	6,640	470,891		2,075,812	22.68	%
Home equity and other consumer	—	—		960,978	—	%
Total	16,090	$	1,448,417	10,170,314	14.24	%


	September 30, 2020
(Dollars in thousands)	Enhanced Monitoring 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 (Amount) as a Percent of Enhanced Monitoring Loans Receivable, Net of PPP Loans
Hotel and motel	$	422,500	4.15	%	44,091	6,679	50,770	12.02	%
Restaurant	138,944		1.37	%	12,977	6,175	19,152	13.78	%
Travel and tourism	19,726		0.19	%	4,605	397	5,002	25.36	%
Gaming	14,500		0.14	%	1,101	—	1,101	7.59	%
Oil and gas	22,178		0.22	%	1,474	—	1,474	6.65	%
Total	$	617,848	6.08	%	64,248	13,251	77,499	12.54	%