GBCI Glacier Bancorp Inc

¨ 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

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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)

Large accelerated filer	ý		Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

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GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

(Dollars in thousands, except per share data)	September 30, 2016				December 31, 2015
Assets
Cash on hand and in banks	$	129,727			117,137
Federal funds sold	225				6,080
Interest bearing cash deposits	121,461				70,036
Cash and cash equivalents	251,413				193,253
Investment securities, available-for-sale	2,292,079				2,610,760
Investment securities, held-to-maturity	679,707				702,072
Total investment securities	2,971,786				3,312,832
Loans held for sale	71,069				56,514
Loans receivable	5,595,962				5,078,681
Allowance for loan and lease losses	(132,534		)		(129,697	)
Loans receivable, net	5,463,428				4,948,984
Premises and equipment, net	178,638				194,030
Other real estate owned	22,662				26,815
Accrued interest receivable	50,138				44,524
Deferred tax asset	51,757				58,475
Core deposit intangible, net	12,955				14,555
Goodwill	147,053				140,638
Non-marketable equity securities	20,103				27,495
Other assets	75,873				71,117
Total assets	$	9,316,875			9,089,232
Liabilities
Non-interest bearing deposits	$	2,098,747			1,918,310
Interest bearing deposits	5,210,572				5,026,698
Securities sold under agreements to repurchase	401,243				423,414
Federal Home Loan Bank advances	211,833				394,131
Other borrowed funds	5,956				6,602
Subordinated debentures	125,956				125,848
Accrued interest payable	3,439				3,517
Other liabilities	111,350				114,062
Total liabilities	8,169,096				8,012,582
Stockholders’ Equity
Preferred shares, $0.01 par value per share, 1,000,000 shares authorized, none issued or outstanding	—				—
Common stock, $0.01 par value per share, 117,187,500 shares authorized	765				761
Paid-in capital	748,463				736,368
Retained earnings - substantially restricted	381,713				337,532
Accumulated other comprehensive income	16,838				1,989
Total stockholders’ equity	1,147,779				1,076,650
Total liabilities and stockholders’ equity	$	9,316,875			9,089,232
Number of common stock shares issued and outstanding	76,525,402				76,086,288

See accompanying notes to unaudited condensed consolidated financial statements.

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GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months ended							Nine Months ended
(Dollars in thousands, except per share data)	September 30, 2016				September 30, 2015			September 30, 2016			September 30, 2015
Interest Income
Investment securities	$	21,827			22,437			68,747			67,355
Residential real estate loans	8,538				7,878			24,947			23,581
Commercial loans	47,694				42,137			139,199			121,857
Consumer and other loans	7,885				7,915			23,501			23,677
Total interest income	85,944				80,367			256,394			236,470
Interest Expense
Deposits	4,550				3,947			13,905			12,206
Securities sold under agreements to repurchase	289				261			882			734
Federal Home Loan Bank advances	1,527				2,273			4,844			6,685
Other borrowed funds	17				21			49			63
Subordinated debentures	935				807			2,737			2,372
Total interest expense	7,318				7,309			22,417			22,060
Net Interest Income	78,626				73,058			233,977			214,410
Provision for loan losses	626				826			1,194			1,873
Net interest income after provision for loan losses	78,000				72,232			232,783			212,537
Non-Interest Income
Service charges and other fees	16,307				15,357			46,760			43,868
Miscellaneous loan fees and charges	1,195				1,055			3,379			3,354
Gain on sale of loans	9,592				7,326			23,841			20,356
Loss on sale of investments	(594		)		(31	)		(706	)		(124	)
Other income	1,793				2,092			6,030			6,840
Total non-interest income	28,293				25,799			79,304			74,294
Non-Interest Expense
Compensation and employee benefits	38,370				33,534			112,871			98,507
Occupancy and equipment	6,168				6,435			19,287			18,927
Advertising and promotions	2,098				2,459			6,308			6,626
Data processing	4,080				2,710			11,391			8,232
Other real estate owned	215				1,047			819			3,182
Regulatory assessments and insurance	1,158				1,478			3,732			3,789
Core deposit intangibles amortization	777				720			2,362			2,206
Other expenses	12,314				10,729			35,227			33,085
Total non-interest expense	65,180				59,112			191,997			174,554
Income Before Income Taxes	41,113				38,919			120,090			112,277
Federal and state income tax expense	10,156				9,305			30,000			25,658
Net Income	$	30,957			29,614			90,090			86,619
Basic earnings per share	$	0.40			0.39			1.18			1.15
Diluted earnings per share	$	0.40			0.39			1.18			1.15
Dividends declared per share	$	0.20			0.19			0.60			0.56
Average outstanding shares - basic	76,288,640				75,531,923			76,195,550			75,424,147
Average outstanding shares - diluted	76,350,873				75,586,453			76,247,051			75,469,355

See accompanying notes to unaudited condensed consolidated financial statements.

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GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

	Three Months ended							Nine Months ended
(Dollars in thousands)	September 30, 2016				September 30, 2015			September 30, 2016			September 30, 2015
Net Income	$	30,957			29,614			90,090			86,619
Other Comprehensive (Loss) Income, Net of Tax
Unrealized (losses) gains on available-for-sale securities	(9,945		)		11,506			30,614			(9,063	)
Reclassification adjustment for losses included in net income	594				50			651			95
Net unrealized (losses) gains on available-for-sale securities	(9,351		)		11,556			31,265			(8,968	)
Tax effect	3,624				(4,476	)		(12,111	)		3,502
Net of tax amount	(5,727		)		7,080			19,154			(5,466	)
Unrealized gains (losses) on derivatives used for cash flow hedges	1,959				(8,630	)		(11,989	)		(10,727	)
Reclassification adjustment for losses included in net income	1,555				1,263			4,962			3,771
Net unrealized gains (losses) on derivatives used for cash flow hedges	3,514				(7,367	)		(7,027	)		(6,956	)
Tax effect	(1,362		)		2,854			2,722			2,685
Net of tax amount	2,152				(4,513	)		(4,305	)		(4,271	)
Total other comprehensive (loss) income, net of tax	(3,575		)		2,567			14,849			(9,737	)
Total Comprehensive Income	$	27,382			32,181			104,939			76,882

See accompanying notes to unaudited condensed consolidated financial statements.

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GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months ended September 30, 2016 and 2015

 

(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 December 31, 2014	75,026,092			$	750			708,356			301,197			17,744			1,028,047
Comprehensive income (loss)	—			—				—			86,619			(9,737	)		76,882
Cash dividends declared ($0.56 per share)	—			—				—			(42,409	)		—			(42,409	)
Stock issuances under stock incentive plans	62,346			1				16			—			—			17
Stock issued in connection with acquisitions	443,644			4				10,772			—			—			10,776
Stock-based compensation and related taxes	—			—				1,495			—			—			1,495
Balance at September 30, 2015	75,532,082			$	755			720,639			345,407			8,007			1,074,808
Balance at December 31, 2015	76,086,288			$	761			736,368			337,532			1,989			1,076,650
Comprehensive income	—			—				—			90,090			14,849			104,939
Cash dividends declared ($0.60 per share)	—			—				—			(45,909	)		—			(45,909	)
Stock issuances under stock incentive plans	89,569			1				(1	)		—			—			—
Stock issued in connection with acquisitions	349,545			3				10,462			—			—			10,465
Stock-based compensation and related taxes	—			—				1,634			—			—			1,634
Balance at September 30, 2016	76,525,402			$	765			748,463			381,713			16,838			1,147,779

See accompanying notes to unaudited condensed consolidated financial statements.

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GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

	Nine Months ended
(Dollars in thousands)	September 30, 2016				September 30, 2015
Operating Activities
Net income	$	90,090			86,619
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,194				1,873
Net amortization of investment securities premiums and discounts	19,990				20,082
Loans held for sale originated or acquired	(789,605		)		(681,826	)
Proceeds from sales of loans held for sale	816,236				719,989
Gain on sale of loans	(23,841		)		(20,356	)
Loss on sale of investments	706				124
Stock-based compensation expense, net of tax benefits	1,441				737
Excess tax benefits from stock-based compensation	(8		)		(102	)
Depreciation of premises and equipment	11,440				10,178
(Gain) loss on sale of other real estate owned and write-downs, net	(103		)		997
Amortization of core deposit intangibles	2,362				2,206
Net increase in accrued interest receivable	(5,466		)		(5,397	)
Net increase in other assets	(6,397		)		(7,198	)
Net decrease in accrued interest payable	(90		)		(645	)
Net (decrease) increase in other liabilities	(201		)		6,547
Net cash provided by operating activities	117,748				133,828
Investing Activities
Sales of available-for-sale securities	20,539				52,691
Maturities, prepayments and calls of available-for-sale securities	527,596				504,062
Purchases of available-for-sale securities	(217,261		)		(686,146	)
Maturities, prepayments and calls of held-to-maturity securities	21,965				16,762
Purchases of held-to-maturity securities	(1,222		)		(148,583	)
Principal collected on loans	1,270,573				1,202,256
Loans originated or acquired	(1,755,185		)		(1,524,814	)
Net decrease (increase) of premises and equipment and other real estate owned	6,610				(10,099	)
Proceeds from sale of other real estate owned	8,793				7,769
Net proceeds from sale of non-marketable equity securities	7,608				29,886
Net cash received in acquisitions	6,701				19,712
Net cash used in investing activities	(103,283		)		(536,504	)

See accompanying notes to unaudited condensed consolidated financial statements.

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GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

 

	Nine Months ended
(Dollars in thousands)	September 30, 2016				September 30, 2015
Financing Activities
Net increase in deposits	$	305,947			181,147
Net (decrease) increase in securities sold under agreements to repurchase	(22,171		)		42,578
Net decrease in short-term Federal Home Loan Bank advances	(140,000		)		—
Proceeds from long-term Federal Home Loan Bank advances	—				50,000
Repayments of long-term Federal Home Loan Bank advances	(45,558		)		(19,581	)
Net decrease in other borrowed funds	(538		)		(585	)
Cash dividends paid	(53,393		)		(50,576	)
Excess tax benefits from stock-based compensation	8				102
Stock-based compensation activity	(600		)		17
Net cash provided by financing activities	43,695				203,102
Net increase (decrease) in cash and cash equivalents	58,160				(199,574	)
Cash and cash equivalents at beginning of period	193,253				442,409
Cash and cash equivalents at end of period	$	251,413			242,835
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	22,506			22,705
Cash paid during the period for income taxes	25,254				33,912
Supplemental Disclosure of Non-Cash Investing Activities
Sale and refinancing of other real estate owned	$	611			382
Transfer of loans to other real estate owned	4,117				6,910
Dividend declared but not paid	15,409				14,390
Acquisitions
Fair value of common stock shares issued	10,465				10,776
Cash consideration for outstanding shares	3,475				12,219
Fair value of assets acquired	69,750				174,637
Liabilities assumed	62,225				152,779

See accompanying notes to unaudited condensed consolidated financial statements.

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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, Wyoming, Colorado, Utah and Washington through its wholly-owned bank subsidiary, Glacier Bank (“Bank”). The Company offers a wide range of banking products and services, including transaction and savings deposits, real estate, commercial, agriculture and consumer loans and 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 contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s financial condition as of September 30, 2016 , the results of operations and comprehensive income for the three and nine month periods ended September 30, 2016 and 2015 , and changes in stockholders’ equity and cash flows for the nine month periods ended September 30, 2016 and 2015 . The condensed consolidated statement of financial condition of the Company as of December 31, 2015 has been derived from the audited consolidated statements of the Company as of that date.

The accompanying unaudited condensed consolidated 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. These unaudited condensed consolidated financial statements 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, 2015 . Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results anticipated for the year ending December 31, 2016 .

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 loan and lease losses (“ALLL” or “allowance”); 2) the valuation of investment securities; 3) the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans; and 4) the evaluation of goodwill impairment. For the determination of the ALLL and real estate valuation estimates, management obtains independent appraisals (new or updated) for significant items. Estimates relating to investment valuations are obtained from independent third parties. Estimates relating to the evaluation of goodwill for impairment are determined based on internal calculations using significant independent party inputs.

Principles of Consolidation

The consolidated financial statements of the Company include the parent holding company, the Bank and all variable interest entities (“VIE”) for which the Company 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. The Bank consists of thirteen bank divisions, a treasury division and an information technology division. The treasury division includes the Bank’s investment portfolio and wholesale borrowings and the information technology division includes the Bank’s internal data processing and information technology expenses. 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 (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.

In August 2016, the Company completed its acquisition of Treasure State Bank (“TSB”), a community bank based in Missoula, Montana. In October 2015, the Company completed its acquisition of Cañon Bank Corporation and its wholly-owned subsidiary, Cañon National Bank, a community bank based in Cañon City, Colorado. In February 2015, the Company completed its acquisition of Montana Community Banks, Inc. and its wholly-owned subsidiary, Community Bank, Inc., a community bank based in Ronan, Montana. The transactions were accounted for using the acquisition method, and their results of operations have been included in the Company’s consolidated financial statements as of the acquisition dates.

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In February 2015, the Financial Accounting Standards Board’s (“FASB”) amended consolidation guidance by modifying the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities and by changing how entities analyze related-party relationships and fee arrangements. As a result of this amendment, the Company determined it was no longer the primary beneficiary of its Low-Income Housing Tax Credit (“LIHTC”) partnerships and deconsolidated its LIHTC investments effective January 1, 2016. There was no material effect on the Company’s financial condition or results of operations upon adoption of this accounting guidance.

Loans Receivable

Loans that are intended to be held-to-maturity are reported at the unpaid principal balance less net charge-offs and adjusted for deferred fees and costs on originated loans and unamortized premiums or discounts on acquired loans. Fees and costs on originated loans and premiums or discounts on acquired loans are deferred and subsequently amortized or accreted as a yield adjustment over the expected life of the loan utilizing the interest method. The objective of the interest method is to calculate periodic interest income at a constant effective yield. When a loan is paid off prior to maturity, the remaining fees and costs on originated loans and premiums or discounts on acquired loans are immediately recognized into interest income.

The Company’s loan segments, which are based on the purpose of the loan, include residential real estate, commercial, and consumer loans. The Company’s loan classes, a further disaggregation of segments, include residential real estate loans (residential real estate segment), commercial real estate and other commercial loans (commercial segment), and home equity and other consumer loans (consumer segment).

Loans that are thirty days or more past due based on payments received and applied to the loan are considered delinquent. Loans are designated non-accrual and the accrual of interest is discontinued when the collection of the contractual principal or interest is unlikely. A loan is typically placed on non-accrual when principal or interest is due and has remained unpaid for ninety days or more. When a loan is placed on non-accrual status, interest previously accrued but not collected is reversed against current period interest income. Subsequent payments on non-accrual loans are applied to the outstanding principal balance if doubt remains as to the ultimate collectability of the loan. Interest accruals are not resumed on partially charged-off impaired loans. For other loans on nonaccrual, interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.

The Company considers impaired loans to be the primary credit quality indicator for monitoring the credit quality of the loan portfolio. Loans are designated impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement and, therefore, the Company has serious doubts as to the ability of such borrowers to fulfill the contractual obligation. Impaired loans include non-performing loans (i.e., non-accrual loans and accruing loans ninety days or more past due) and accruing loans under ninety days past due where it is probable payments will not be received according to the loan agreement (e.g., troubled debt restructuring). Interest income on accruing impaired loans is recognized using the interest method. The Company measures impairment on a loan-by-loan basis in the same manner for each class within the loan portfolio. An insignificant delay or shortfall in the amounts of payments would not cause a loan or lease to be considered impaired. The Company determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the facts and circumstances surrounding the loan and the borrower, including the length and reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest due.

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A restructured loan is considered a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Company periodically enters into restructure agreements with borrowers whereby the loans were previously identified as TDRs. When such circumstances occur, the Company carefully evaluates the facts of the subsequent restructure to determine the appropriate accounting and under certain circumstances it may be acceptable not to account for the subsequently restructured loan as a TDR. When assessing whether a concession has been granted by the Company, any prior forgiveness on a cumulative basis is considered a continuing concession. A TDR loan is considered an impaired loan and a specific valuation allowance is established when the fair value of the collateral-dependent loan or present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate based on the original contractual rate) is lower than the carrying value of the impaired loan. The Company has made the following types of loan modifications, some of which were considered a TDR:

•	reduction of the stated interest rate for the remaining term of the debt;

•	extension of the maturity date(s) at a stated rate of interest lower than the current market rate for newly originated debt having similar risk characteristics; and

•	reduction of the face amount of the debt as stated in the debt agreements.

The Company recognizes that while borrowers may experience deterioration in their financial condition, many continue to be creditworthy customers who have the willingness and capacity for debt repayment. In determining whether non-restructured or unimpaired loans issued to a single or related party group of borrowers should continue to accrue interest when the borrower has other loans that are impaired or are TDRs, the Company on a quarterly or more frequent basis performs an updated and comprehensive assessment of the willingness and capacity of the borrowers to timely and ultimately repay their total debt obligations, including contingent obligations. Such analysis takes into account current financial information about the borrowers and financially responsible guarantors, if any, including for example:

•	analysis of global, i.e., aggregate debt service for total debt obligations;

•	assessment of the value and security protection of collateral pledged using current market conditions and alternative market assumptions across a variety of potential future situations; and

•	loan structures and related covenants.

For additional information relating to loans, see Note 3.

Allowance for Loan and Lease Losses

Based upon management’s analysis of the Company’s loan portfolio, the balance of the ALLL is an estimate of probable credit losses known and inherent within the Bank’s loan portfolio as of the date of the consolidated financial statements. The ALLL is analyzed at the loan class level and is maintained within a range of estimated losses. Determining the adequacy of the ALLL involves a high degree of judgment and is inevitably imprecise as the risk of loss is difficult to quantify. The determination of the ALLL and the related provision for loan losses is a critical accounting estimate that involves management’s judgments about all known relevant internal and external environmental factors that affect loan losses. The balance of the ALLL is highly dependent upon management’s evaluations of borrowers’ current and prospective performance, appraisals and other variables affecting the quality of the loan portfolio. Individually significant loans and major lending areas are reviewed periodically to determine potential problems at an early date. Changes in management’s estimates and assumptions are reasonably possible and may have a material impact upon the Company’s consolidated financial statements, results of operations or capital.

Risk characteristics considered in the ALLL analysis applicable to each loan class within the Company's loan portfolio are as follows:

Residential Real Estate.   Residential real estate loans are secured by owner-occupied 1-4 family residences.  Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers.  Credit risk in these loans is impacted by economic conditions within the Company’s market areas that affect the value of the property securing the loans and affect the borrowers' personal incomes.  Mitigating risk factors for this loan class include a large number of borrowers, geographic dispersion of market areas and the loans are originated for relatively smaller amounts.

Commercial Real Estate .  Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operation of the property securing the loan and/or the business conducted on the property securing the loan.  Credit risk in these loans is impacted by the creditworthiness of a borrower, valuation of the property securing the loan and conditions within the local economies in the Company’s diverse, geographic market areas.

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Commercial .  Commercial loans consist of loans to commercial customers for use in financing working capital needs, equipment purchases and business expansions.  The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation.  Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations across the Company’s diverse, geographic market areas.

Home Equity .  Home equity loans consist of junior lien mortgages and first and junior lien lines of credit (revolving open-end and amortizing closed-end) secured by owner-occupied 1-4 family residences.  Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers.  Credit risk in these loans is impacted by economic conditions within the Company’s market areas that affect the value of the residential property securing the loans and affect the borrowers' personal incomes.  Mitigating risk factors for this loan class are a large number of borrowers, geographic dispersion of market areas and the loans are originated for terms that range from 10 years to 20 years.

Other Consumer .  The other consumer loan portfolio consists of various short-term loans such as automobile loans and loans for other personal purposes.  Repayment of these loans is primarily dependent on the personal income of the borrowers.  Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Company’s diverse, geographic market area) and the creditworthiness of a borrower.

The ALLL consists of a specific valuation allowance component and a general valuation allowance component. The specific component relates to loans that are determined to be impaired and individually evaluated for impairment. The Company measures impairment on a loan-by-loan basis based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except when it is determined that repayment of the loan is expected to be provided solely by the underlying collateral. For impairment based on expected future cash flows, the Company considers all information available as of a measurement date, including past events, current conditions, potential prepayments, and estimated cost to sell when such costs are expected to reduce the cash flows available to repay or otherwise satisfy the loan. For alternative ranges of cash flows, the likelihood of the possible outcomes is considered in determining the best estimate of expected future cash flows. The effective interest rate for a loan restructured in a TDR is based on the original contractual rate. For collateral-dependent loans and real estate loans for which foreclosure or a deed-in-lieu of foreclosure is probable, impairment is measured by the fair value of the collateral, less estimated cost to sell. The fair value of the collateral is determined primarily based upon appraisal or evaluation of the underlying real property value.

The general valuation allowance component relates to probable credit losses inherent in the balance of the loan portfolio based on historical loss experience, adjusted for changes in trends and conditions of qualitative or environmental factors. The historical loss experience is based on the previous twelve quarters loss experience by loan class adjusted for risk characteristics in the existing loan portfolio. The same trends and conditions are evaluated for each class within the loan portfolio; however, the risk characteristics are weighted separately at the individual class level based on the Company’s judgment and experience.

The changes in trends and conditions evaluated for each class within the loan portfolio include the following:

•	Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;

•	Changes in global, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;

•	Changes in the nature and volume of the portfolio and in the terms of loans;

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

•	Changes in the volume and severity of past due and nonaccrual loans;

•	Changes in the quality of the Company’s loan review system;

•	Changes in the value of underlying collateral for collateral-dependent loans;

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

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

13

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The ALLL is increased by provisions for loan losses which are charged to expense. The portions of loan balances determined by management to be uncollectible are charged off as a reduction of the ALLL and recoveries of amounts previously charged off are credited as an increase to the ALLL. The Company’s charge-off policy is consistent with bank regulatory standards. Consumer loans generally are charged off when the loan becomes over 120 days delinquent. Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until such time as it is sold.

At acquisition date, the assets and liabilities of acquired banks are recorded at their estimated fair values which results in no ALLL carried over from acquired banks. Subsequent to acquisition, an allowance will be recorded on the acquired loan portfolios for further credit deterioration, if any.

Reclassifications

Certain reclassifications have been made to the 2015 financial statements to conform to the 2016 presentation.

Impact of Recent Authoritative Accounting Guidance

The Accounting Standards Codification ^™ (“ASC”) is FASB’s officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of the federal securities laws are also sources of authoritative GAAP for the Company as an SEC registrant. All other accounting literature is non-authoritative. The following paragraphs provide descriptions of recently adopted or newly issued but not yet effective accounting standards that could have a material effect on the Company’s financial position or results of operations.

In June 2016, FASB amended FASB ASC Topic 326, Financial Instruments - Credit Losses. The amendments in this Update replace the incurred loss model with a methodology that reflects expected credit losses over the life of the loan and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of these amendments to the Company’s financial position and results of operations.

In March 2016, FASB amended FASB ASC Topic 718, Compensation - Stock Compensation. The amendments in this Update address certain aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of awards on the statement of cash flows. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted in any interim or annual period. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.

In February 2016, FASB amended FASB ASC Topic 842, Leases. The amendments in this Update address several aspects of lease accounting with the significant change being the recognition of lease assets and lease liabilities for leases previously classified as operating leases. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.

In January 2016, FASB amended FASB ASC Topic 825, Financial Instruments. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2017. Early adoption is only permitted under certain circumstances outlined in the amendments. A reporting entity should apply the amendments by means of a cumulative-effect adjustment to the Company’s statement of financial condition as of the beginning of the reporting year of adoption. The amendments related to equity securities without readily determinable fair values should be applied prospectively. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.

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In September 2015, FASB amended FASB ASC Topic 805, Business Combinations. The amendments in this Update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are necessary. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments were to be applied prospectively to all periods presented and were effective for public business entities for annual periods and interim periods within those annual periods, beginning after December 15, 2015. The Company has evaluated the impact of these amendments and determined there was not a material effect on the Company’s financial position or results of operations.

In February 2015, FASB amended FASB ASC Topic 810, Consolidation. The amendments in this Update make targeted changes to the current consolidation guidance and end a deferral available for investment companies. The amendments modify the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. Consolidation conclusions may change for entities that already are VIEs due to changes in how entities would analyze related-party relationships and fee arrangements. The amendments relax existing criteria for determining when fees paid to a decision maker or service provider do not represent a variable interest by focusing on whether those fees are “at market.” The amendments eliminate both the consolidation model specific to limited partnerships and the current presumption that a general partner controls a limited partnership. Application of the new amendments could result in some entities being deconsolidated or considered a VIE and subject to additional disclosures. The amendments were effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2015. Early adoption was permitted, including adoption in an interim period with any adjustments reflected as of the beginning of the reporting year that includes the interim period. A reporting entity could have applied the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the reporting year of adoption or may apply the amendments retrospectively. The Company has evaluated the impact of these amendments and determined there was not a material effect on the Company’s financial position or results of operations.

In May 2014, FASB amended FASB ASC Topic 606, Revenue from Contracts with Customers. The amendments clarify the principals for recognizing revenue and develop a common revenue standard among industries. The new guidance establishes the following core principal: recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services. Five steps are provided for a company or organization to follow to achieve such core principle. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The entity should apply the amendments using one of two retrospective methods described in the amendment. Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606) delayed the effective date for public entities to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.

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Note 2. Investment Securities

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

	September 30, 2016
	Amortized Cost				Gross Unrealized						Fair Value
(Dollars in thousands)					Gains			Losses
Available-for-sale
U.S. government and federal agency	$	41,727			24			(158	)		41,593
U.S. government sponsored enterprises	16,100				267			—			16,367
State and local governments	816,898				40,925			(5,764	)		852,059
Corporate bonds	401,291				3,154			(32	)		404,413
Residential mortgage-backed securities	962,051				16,024			(428	)		977,647
Total available-for-sale	2,238,067				60,394			(6,382	)		2,292,079
Held-to-maturity
State and local governments	679,707				39,542			(4,354	)		714,895
Total held-to-maturity	679,707				39,542			(4,354	)		714,895
Total investment securities	$	2,917,774			99,936			(10,736	)		3,006,974

	December 31, 2015
	Amortized Cost				Gross Unrealized						Fair Value
(Dollars in thousands)					Gains			Losses
Available-for-sale
U.S. government and federal agency	$	47,868			15			(432	)		47,451
U.S. government sponsored enterprises	93,230				100			(163	)		93,167
State and local governments	856,738				34,159			(5,878	)		885,019
Corporate bonds	386,629				611			(3,077	)		384,163
Residential mortgage-backed securities	1,203,548				6,180			(8,768	)		1,200,960
Total available-for-sale	2,588,013				41,065			(18,318	)		2,610,760
Held-to-maturity
State and local governments	702,072				31,863			(4,422	)		729,513
Total held-to-maturity	702,072				31,863			(4,422	)		729,513
Total investment securities	$	3,290,085			72,928			(22,740	)		3,340,273

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The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity securities by contractual maturity at September 30, 2016 . Actual maturities may differ from expected or contractual maturities since issuers have the right to prepay obligations with or without prepayment penalties.

	September 30, 2016
	Available-for-Sale							Held-to-Maturity
(Dollars in thousands)	Amortized Cost				Fair Value			Amortized Cost			Fair Value
Due within one year	$	129,520			129,979			—			—
Due after one year through five years	394,977				399,137			—			—
Due after five years through ten years	191,676				201,943			43,656			45,926
Due after ten years	559,843				583,373			636,051			668,969
	1,276,016				1,314,432			679,707			714,895
Residential mortgage-backed securities 1	962,051				977,647			—			—
Total	$	2,238,067			2,292,079			679,707			714,895

__________

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

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

	Three Months ended							Nine Months ended
(Dollars in thousands)	September 30, 2016				September 30, 2015			September 30, 2016			September 30, 2015
Available-for-sale
Proceeds from sales and calls of investment securities	$	59,974			39,502			148,458			114,123
Gross realized gains 1	366				516			1,309			598
Gross realized losses 1	(960		)		(566	)		(1,960	)		(693	)
Held-to-maturity
Proceeds from calls of investment securities	340				6,697			21,965			16,762
Gross realized gains 1	—				19			91			34
Gross realized losses 1	—				—			(146	)		(63	)

__________

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

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Investment securities with an unrealized loss position are summarized as follows:

	September 30, 2016
	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	$	2,190			(7	)		30,009			(151	)		32,199			(158	)
State and local governments	45,697				(443	)		109,147			(5,321	)		154,844			(5,764	)
Corporate bonds	5,049				(3	)		6,153			(29	)		11,202			(32	)
Residential mortgage-backed securities	75,091				(252	)		23,241			(176	)		98,332			(428	)
Total available-for-sale	$	128,027			(705	)		168,550			(5,677	)		296,577			(6,382	)
Held-to-maturity
State and local governments	$	13,863			(159	)		89,024			(4,195	)		102,887			(4,354	)
Total held-to-maturity	$	13,863			(159	)		89,024			(4,195	)		102,887			(4,354	)

 

	December 31, 2015
	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	$	42,493			(432	)		2			—			42,495			(432	)
U.S. government sponsored enterprises	60,010				(163	)		—			—			60,010			(163	)
State and local governments	102,422				(1,629	)		115,943			(4,249	)		218,365			(5,878	)
Corporate bonds	228,258				(1,812	)		13,962			(1,265	)		242,220			(3,077	)
Residential mortgage-backed securities	730,412				(7,226	)		53,021			(1,542	)		783,433			(8,768	)
Total available-for-sale	$	1,163,595			(11,262	)		182,928			(7,056	)		1,346,523			(18,318	)
Held-to-maturity
State and local governments	$	42,322			(594	)		81,709			(3,828	)		124,031			(4,422	)
Total held-to-maturity	$	42,322			(594	)		81,709			(3,828	)		124,031			(4,422	)

Based on an analysis of its investment securities with unrealized losses as of September 30, 2016 and December 31, 2015 , the Company determined that none of such securities had other-than-temporary impairment and the unrealized losses were primarily the result of interest rate changes and market spreads subsequent to acquisition. The fair value of the investment securities is expected to recover as payments are received and the securities approach maturity. At September 30, 2016 , management determined that it did not intend to sell investment securities with unrealized losses, and there was no expected requirement to sell any of its investment securities with unrealized losses before recovery of their amortized cost.

 

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Note 3. Loans Receivable, Net

The Company’s loan portfolio is comprised of three segments: residential real estate, commercial, and consumer and other loans. The loan segments are further disaggregated into the following classes: residential real estate, commercial real estate, other commercial, home equity and other consumer loans. The following table presents loans receivable for each portfolio class of loans:

	At or for the Nine Months ended				At or for the Year ended
(Dollars in thousands)	September 30, 2016				December 31, 2015
Residential real estate loans	$	696,817			688,912
Commercial loans
Real estate	2,919,415				2,633,953
Other commercial	1,303,241				1,099,564
Total	4,222,656				3,733,517
Consumer and other loans
Home equity	435,935				420,901
Other consumer	240,554				235,351
Total	676,489				656,252
Loans receivable 1	5,595,962				5,078,681
Allowance for loan and lease losses	(132,534		)		(129,697	)
Loans receivable, net	$	5,463,428			4,948,984
Weighted-average interest rate on loans (tax-equivalent)	4.79		%		4.84	%

__________

1	Includes net deferred fees, costs, premiums and discounts of $14,765,000 and $15,529,000 at September 30, 2016 and December 31, 2015 , respectively.

The following tables summarize the activity in the ALLL by portfolio segment:

  

	Three Months ended September 30, 2016
(Dollars in thousands)	Total				Residential Real Estate			Commercial Real Estate			Other Commercial			Home Equity			Other Consumer
Balance at beginning of period	$	132,386			13,666			66,809			37,031			8,629			6,251
Provision for loan losses	626				108			—			(1,118	)		561			1,075
Charge-offs	(2,800		)		(11	)		(55	)		(131	)		(693	)		(1,910	)
Recoveries	2,322				148			490			797			77			810
Balance at end of period	$	132,534			13,911			67,244			36,579			8,574			6,226

	Three Months ended September 30, 2015
(Dollars in thousands)	Total				Residential Real Estate			Commercial Real Estate			Other Commercial			Home Equity			Other Consumer
Balance at beginning of period	$	130,519			14,850			68,697			31,483			8,946			6,543
Provision for loan losses	826				854			(657	)		195			397			37
Charge-offs	(2,073		)		(20	)		(921	)		(367	)		(433	)		(332	)
Recoveries	1,496				24			907			290			136			139
Balance at end of period	$	130,768			15,708			68,026			31,601			9,046			6,387

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	Nine Months ended September 30, 2016
(Dollars in thousands)	Total				Residential Real Estate			Commercial Real Estate			Other Commercial			Home Equity			Other Consumer
Balance at beginning of period	$	129,697			14,427			67,877			32,525			8,998			5,870
Provision for loan losses	1,194				(342	)		(3,490	)		3,256			215			1,555
Charge-offs	(5,332		)		(366	)		(342	)		(722	)		(891	)		(3,011	)
Recoveries	6,975				192			3,199			1,520			252			1,812
Balance at end of period	$	132,534			13,911			67,244			36,579			8,574			6,226

 

	Nine Months ended September 30, 2015
(Dollars in thousands)	Total				Residential Real Estate			Commercial Real Estate			Other Commercial			Home Equity			Other Consumer
Balance at beginning of period	$	129,753			14,680			67,799			30,891			9,963			6,420
Provision for loan losses	1,873				1,036			(452	)		1,839			(621	)		71
Charge-offs	(4,671		)		(78	)		(1,669	)		(1,736	)		(586	)		(602	)
Recoveries	3,813				70			2,348			607			290			498
Balance at end of period	$	130,768			15,708			68,026			31,601			9,046			6,387

The following tables disclose the balance in the ALLL and the recorded investment in loans by portfolio segment:

	September 30, 2016
(Dollars in thousands)	Total				Residential Real Estate			Commercial Real Estate			Other Commercial			Home Equity			Other Consumer
Allowance for loan and lease losses
Individually evaluated for impairment	$	5,966			880			1,375			3,120			196			395
Collectively evaluated for impairment	126,568				13,031			65,869			33,459			8,378			5,831
Total allowance for loan and lease losses	$	132,534			13,911			67,244			36,579			8,574			6,226
Loans receivable
Individually evaluated for impairment	$	135,153			17,336			84,765			24,036			5,876			3,140
Collectively evaluated for impairment	5,460,809				679,481			2,834,650			1,279,205			430,059			237,414
Total loans receivable	$	5,595,962			696,817			2,919,415			1,303,241			435,935			240,554

 

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	December 31, 2015
(Dollars in thousands)	Total				Residential Real Estate			Commercial Real Estate			Other Commercial			Home Equity			Other Consumer
Allowance for loan and lease losses
Individually evaluated for impairment	$	8,124			782			1,629			5,277			64			372
Collectively evaluated for impairment	121,573				13,645			66,248			27,248			8,934			5,498
Total allowance for loan and lease losses	$	129,697			14,427			67,877			32,525			8,998			5,870
Loans receivable
Individually evaluated for impairment	$	140,773			20,767			85,845			23,874			6,493			3,794
Collectively evaluated for impairment	4,937,908				668,145			2,548,108			1,075,690			414,408			231,557
Total loans receivable	$	5,078,681			688,912			2,633,953			1,099,564			420,901			235,351

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

The following tables disclose information related to impaired loans by portfolio segment:

	At or for the Three or Nine Months ended September 30, 2016
(Dollars in thousands)	Total				Residential Real Estate			Commercial Real Estate			Other Commercial			Home Equity			Other Consumer
Loans with a specific valuation allowance
Recorded balance	$	21,539			3,024			10,378			7,125			234			778
Unpaid principal balance	21,812				3,086			10,379			7,280			244			823
Specific valuation allowance	5,966				880			1,375			3,120			196			395
Average balance - three months	22,641				3,100			10,223			8,156			195			967
Average balance - nine months	27,899				5,489			10,769			10,096			237			1,308
Loans without a specific valuation allowance
Recorded balance	$	113,614			14,312			74,387			16,911			5,642			2,362
Unpaid principal balance	136,316				15,857			91,472			19,412			7,125			2,450
Average balance - three months	110,336				14,692			70,029			17,428			5,964			2,223
Average balance - nine months	108,999				13,859			71,278			15,637			6,105			2,120
Total
Recorded balance	$	135,153			17,336			84,765			24,036			5,876			3,140
Unpaid principal balance	158,128				18,943			101,851			26,692			7,369			3,273
Specific valuation allowance	5,966				880			1,375			3,120			196			395
Average balance - three months	132,977				17,792			80,252			25,584			6,159			3,190
Average balance - nine months	136,898				19,348			82,047			25,733			6,342			3,428

 

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	At or for the Year ended December 31, 2015
(Dollars in thousands)	Total				Residential Real Estate			Commercial Real Estate			Other Commercial			Home Equity			Other Consumer
Loans with a specific valuation allowance
Recorded balance	$	34,683			8,253			12,554			11,923			102			1,851
Unpaid principal balance	36,157				9,198			12,581			12,335			109			1,934
Specific valuation allowance	8,124				782			1,629			5,277			64			372
Average balance	36,176				6,393			15,827			11,768			426			1,762
Loans without a specific valuation allowance
Recorded balance	$	106,090			12,514			73,291			11,951			6,391			1,943
Unpaid principal balance	132,718				13,969			94,028			15,539			7,153			2,029
Average balance	116,356				13,615			78,684			15,479			6,350			2,228
Total
Recorded balance	$	140,773			20,767			85,845			23,874			6,493			3,794
Unpaid principal balance	168,875				23,167			106,609			27,874			7,262			3,963
Specific valuation allowance	8,124				782			1,629			5,277			64			372
Average balance	152,532				20,008			94,511			27,247			6,776			3,990

Interest income recognized on impaired loans for the nine months ended September 30, 2016 and 2015 was not significant.

The following tables present an aging analysis of the recorded investment in loans by portfolio segment:

 

	September 30, 2016
(Dollars in thousands)	Total				Residential Real Estate			Commercial Real Estate			Other Commercial			Home Equity			Other Consumer
Accruing loans 30-59 days past due	$	17,462			259			10,471			4,284			1,545			903
Accruing loans 60-89 days past due	9,922				1,086			4,631			2,493			1,471			241
Accruing loans 90 days or more past due	3,299				222			638			2,049			376			14
Non-accrual loans	52,280				4,538			32,411			9,810			5,016			505
Total past due and non-accrual loans	82,963				6,105			48,151			18,636			8,408			1,663
Current loans receivable	5,512,999				690,712			2,871,264			1,284,605			427,527			238,891
Total loans receivable	$	5,595,962			696,817			2,919,415			1,303,241			435,935			240,554

 

	December 31, 2015
(Dollars in thousands)	Total				Residential Real Estate			Commercial Real Estate			Other Commercial			Home Equity			Other Consumer
Accruing loans 30-59 days past due	$	15,801			4,895			4,393			3,564			1,601			1,348
Accruing loans 60-89 days past due	3,612				961			1,841			286			280			244
Accruing loans 90 days or more past due	2,131				—			231			1,820			15			65
Non-accrual loans	51,133				8,073			28,819			7,691			6,022			528
Total past due and non-accrual loans	72,677				13,929			35,284			13,361			7,918			2,185
Current loans receivable	5,006,004				674,983			2,598,669			1,086,203			412,983			233,166
Total loans receivable	$	5,078,681			688,912			2,633,953			1,099,564			420,901			235,351

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The following tables present TDRs that occurred during the periods presented and the TDRs that occurred within the previous twelve months that subsequently defaulted during the periods presented:

	Three Months ended September 30, 2016
(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	5				—			4			1			—			—
Pre-modification recorded balance	$	7,781			—			7,014			767			—			—
Post-modification recorded balance	$	7,718			—			6,990			728			—			—
TDRs that subsequently defaulted
Number of loans	1				—			—			1			—			—
Recorded balance	$	5			—			—			5			—			—

	Three Months ended September 30, 2015
(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				2			3			4			—			1
Pre-modification recorded balance	$	3,004			2,134			436			397			—			37
Post-modification recorded balance	$	3,004			2,134			436			397			—			37
TDRs that subsequently defaulted
Number of loans	3				1			—			2			—			—
Recorded balance	$	2,287			1,947			—			340			—			—

	Nine Months ended September 30, 2016
(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	27				—			10			15			2			—
Pre-modification recorded balance	$	21,652			—			9,217			12,226			209			—
Post-modification recorded balance	$	21,613			—			9,193			12,211			209			—
TDRs that subsequently defaulted
Number of loans	9				—			1			2			—			6
Recorded balance	$	704			—			570			5			—			129

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	Nine Months ended September 30, 2015
(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	30				2			12			12			—			4
Pre-modification recorded balance	$	10,127			2,134			5,446			2,306			—			241
Post-modification recorded balance	$	9,833			2,134			5,366			2,092			—			241
TDRs that subsequently defaulted
Number of loans	7				1			1			3			1			1
Recorded balance	$	2,542			1,947			78			440			75			2

The modifications for the TDRs that occurred during the nine months ended September 30, 2016 and 2015 included one or a combination of the following: an extension of the maturity date, a reduction of the interest rate or a reduction in the principal amount.

In addition to the TDRs that occurred during the period provided in the preceding tables, the Company had TDRs with pre-modification loan balances of $4,967,000 and $7,677,000 for the nine months ended September 30, 2016 and 2015 , respectively, for which other real estate owned (“OREO”) was received in full or partial satisfaction of the loans. The majority of such TDRs were in residential real estate and commercial real estate for the nine months ended September 30, 2016 and 2015 , respectively. At September 30, 2016 and December 31, 2015 , the Company had $1,997,000 and $3,253,000 , respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At September 30, 2016 and December 31, 2015 , the Company had $2,389,000 and $1,496,000 , respectively, of OREO secured by residential real estate properties.

Note 4. Goodwill

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

	Three Months ended							Nine Months ended
(Dollars in thousands)	September 30, 2016				September 30, 2015			September 30, 2016			September 30, 2015
Net carrying value at beginning of period	$	140,638			130,843			140,638			129,706
Acquisitions	6,415				—			6,415			1,137
Net carrying value at end of period	$	147,053			130,843			147,053			130,843

The gross carrying value of goodwill and the accumulated impairment charge consists of the following:

(Dollars in thousands)	September 30, 2016				December 31, 2015
Gross carrying value	$	187,212			180,797
Accumulated impairment charge 1	(40,159		)		(40,159	)
Net carrying value	$	147,053			140,638

__________

¹ A goodwill impairment charge was recognized in 2011 and was due to high levels of volatility and dislocation in bank stock prices nationwide.

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The Company performed its annual goodwill impairment test during the third quarter of 2016 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.

For additional information on goodwill related to acquisitions, see Note 12.

 

Note 5. 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. In February 2015, FASB amended consolidation guidance by modifying the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities and by changing how entities analyze related-party relationships and fee arrangements. As a result of this amendment, the Company determined it was no longer the primary beneficiary of its LIHTC partnerships and deconsolidated its LIHTC investments effective January 1, 2016. Due to this reevaluation event, the Company determined its LIHTC investments would qualify for the proportional amortization method and elected to adopt this accounting method. The proportional amortization method allows for the amortization of LIHTC investments to be presented as a component of income taxes. Once elected, the proportional amortization method is required for all eligible LIHTC investments.

Consolidated Variable Interest Entities

The Company has equity investments in Certified Development Entities (“CDE”) which have received allocations of New Markets Tax Credits (“NMTC”). The NMTC program provides federal tax incentives to investors to make investments in distressed communities and promotes economic improvements through the development of successful businesses in these communities. The NMTC is available to investors over a seven -year period and is subject to recapture if certain events occur during such period. The maximum exposure to loss in the CDEs is the amount of equity invested and credit extended by the Company. However, the Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. The Company has evaluated the variable interests held by the Company in each CDE (NMTC) investment and determined the Company does not individually meet the characteristics of a primary beneficiary; however, the related-party group does meet the criteria as a group and substantially all of the activities of the CDEs either involve or are conducted on behalf of the Company. As a result, the Company is the primary beneficiary of the CDEs and their assets, liabilities, and results of operations are included in the Company’s consolidated financial statements. The primary activities of the CDEs are recognized in commercial loans interest income and other borrowed funds interest expense on the Company’s statements of operations and the federal income tax credit allocations from the investments are recognized in the Company’s statements of operations as a component of income tax expense. Such related cash flows are recognized in loans originated, principal collected on loans and change in other borrowed funds.

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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)	September 30, 2016				December 31, 2015
Assets
Loans receivable	$	44,918			57,126
Premises and equipment, net	—				13,503
Accrued interest receivable	137				117
Other assets	1,537				1,429
Total assets	$	46,592			72,175
Liabilities
Other borrowed funds	$	5,603			6,195
Accrued interest payable	5				9
Other liabilities	47				139
Total liabilities	$	5,655			6,343

Unconsolidated Variable Interest Entities

The Company has equity investments in LIHTC partnerships with carrying values of $4,646,000 as of September 30, 2016 . The LIHTCs are indirect federal subsidies to finance low-income housing and are used in connection with both newly constructed and renovated residential rental buildings. Once a project is placed in service, it is generally eligible for the tax credit for ten consecutive years. To continue generating the tax credit and to avoid tax credit recapture, a LIHTC building must satisfy specific low-income housing compliance rules for a full fifteen -year period. The maximum exposure to loss in the VIEs is the amount of equity invested and credit extended by the Company. However, the Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. The Company has evaluated the variable interests held by the Company in each LIHTC investment and determined that the Company does not have controlling financial interests in such investments, and is not the primary beneficiary. The Company reports the investments in the unconsolidated LIHTCs as other assets on the Company’s statements of financial condition. Total unfunded contingent commitments related to the Company’s LIHTC investments totaled $10,018,000 at September 30, 2016 . The Company expects to fulfill these commitments during 2017 . There were no impairment losses on the Company’s LIHTC investments during the nine months ended September 30, 2016 .

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 three and nine months ended September 30, 2016 and 2015 . Amortization expense is recognized as a component of income tax expense.

	Three Months ended							Nine Months ended
(Dollars in thousands)	September 30, 2016				September 30, 2015			September 30, 2016			September 30, 2015
Amortization expense	$	258			177			867			680
Tax credits and other tax benefits recognized	322				363			1,145			1,145

The Company also owns the following trust subsidiaries, each of which issued trust preferred securities as Tier 1 capital instruments: Glacier Capital Trust II, Glacier Capital Trust III, Glacier Capital Trust IV, Citizens (ID) Statutory Trust I, Bank of the San Juans Bancorporation Trust I, First Company Statutory Trust 2001, and First Company Statutory Trust 2003. The trust subsidiaries have no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the securities held by third parties. The trust subsidiaries are not included in the Company’s consolidated financial statements because the sole asset of each trust subsidiary is a receivable from the Company, even though the Company owns all of the voting equity shares of the trust subsidiaries, has fully guaranteed the obligations of the trust subsidiaries and may have the right to redeem the third party securities under certain circumstances. The Company reports the trust preferred securities issued to the trust subsidiaries as subordinated debentures on the Company’s statements of financial condition.

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Note 6. Securities Sold Under Agreements to Repurchase

The Company’s securities sold under agreements to repurchase (“repurchase agreements”) totaled $401,243,000 and $423,414,000 at September 30, 2016 and December 31, 2015 , respectively, and are secured by investment securities with carrying values of $382,438,000 and $446,838,000 , respectively. Securities are pledged to customers at the time of the transaction in an amount at least equal to the outstanding balance and are held in custody accounts by third parties. The fair value of collateral is continually monitored and additional collateral is provided as deemed appropriate.

The following tables summarize the carrying value of the Company’s repurchase agreements by remaining contractual maturity and category of collateral:

	September 30, 2016
	Remaining Contractual Maturity of the Agreements
(Dollars in thousands)	Overnight and Continuous				Up to 30 Days			Total
Residential mortgage-backed securities	$	400,129			1,114			401,243

	December 31, 2015
	Remaining Contractual Maturity of the Agreements
(Dollars in thousands)	Overnight and Continuous				Up to 30 Days			Total
U.S. government sponsored enterprises	$	12,507			—			12,507
Residential mortgage-backed securities	408,460				2,447			410,907
	$	420,967			2,447			423,414

Note 7. Derivatives and Hedging Activities

As of September 30, 2016 , the Company’s interest rate swap derivative financial instruments were designated as cash flow hedges and are summarized as follows:

 

(Dollars in thousands)	Forecasted Notional  Amount				Variable Interest Rate  1		Fixed Interest Rate  1			Payment Term
Interest rate swap	$	160,000			3 month LIBOR		3.378	%		Oct. 21, 2014 - Oct. 21, 2021
Interest rate swap	100,000				3 month LIBOR		2.498	%		Nov. 30, 2015 - Nov. 30, 2022

__________

¹ The Company pays the fixed interest rate and the counterparty pays the Company the variable interest rate.

The hedging strategy converts the LIBOR-based variable interest rate on borrowings to a fixed interest rate, thereby protecting the Company from interest rate variability.

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The interest rate swaps with the $160,000,000 and $100,000,000 notional amounts began their payment terms in October 2014 and November 2015, respectively. The Company designated wholesale deposits as the cash flow hedge and these deposits were determined to be fully effective during the current and prior year. As such, no amount of ineffectiveness has been included in the Company’s statements of operations for the nine months ended September 30, 2016 and 2015 . Therefore, the aggregate fair value of the interest rate swaps was recorded in other liabilities with changes recorded in other comprehensive income (“OCI”). The Company expects the hedges to remain highly effective during the remaining terms of the interest rate swaps. Interest expense recorded on the interest rate swaps totaled $6,015,000 and $4,099,000 for the nine months ended September 30, 2016 and 2015 , respectively, and is reported as a component of interest expense on deposits. Unless the interest rate swaps are terminated during the next year, the Company expects $7,903,000 of the unrealized loss reported in other comprehensive income at September 30, 2016 to be reclassified to interest expense during the next twelve months.

The following table presents the pre-tax gains or losses recorded in accumulated other comprehensive income and the Company’s statements of operations relating to the interest rate swap derivative financial instruments:

	Three Months ended							Nine Months ended
(Dollars in thousands)	September 30, 2016				September 30, 2015			September 30, 2016			September 30, 2015
Interest rate swaps
Amount of gain (loss) recognized in OCI (effective portion)	$	1,959			(8,630	)		(11,989	)		(10,727	)
Amount of loss reclassified from OCI to interest expense	(1,555		)		(1,263	)		(4,962	)		(3,771	)
Amount of loss recognized in other non-interest expense (ineffective portion)	—				—			—			—

The following table discloses the offsetting of financial liabilities and interest rate swap derivative liabilities. There were no interest rate swap derivative assets at the dates presented.

	September 30, 2016										December 31, 2015
(Dollars in thousands)	Gross Amounts of Recognized Liabilities				Gross Amounts Offset in the Statements of Financial Position			Net Amounts of Liabilities Presented in the Statements of Financial Position			Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Statements of Financial Position			Net Amounts of Liabilities Presented in the Statements of Financial Position
Interest rate swaps	$	26,526			—			26,526			19,499			—			19,499

Pursuant to the interest rate swap agreements, the Company pledged collateral to the counterparty in the form of investment securities totaling $32,634,000 at September 30, 2016 . There was $0 collateral pledged from the counterparty to the Company as of September 30, 2016 . There is the possibility that the Company may need to pledge additional collateral in the future if there were declines in the fair value of the interest rate swap derivative financial instruments versus the collateral pledged.

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Note 8. Other Expenses

Other expenses consists of the following:

	Three Months ended							Nine Months ended
(Dollars in thousands)	September 30, 2016				September 30, 2015			September 30, 2016			September 30, 2015
Debit card expenses	$	2,522			1,625			6,623			4,510
Consulting and outside services	1,549				898			4,055			4,173
Telephone	977				816			2,920			2,453
Loan expenses	1,062				642			2,800			2,433
Employee expenses	964				629			2,468			1,786
Checking and operating expenses	742				1,104			2,434			2,551
Printing and supplies	733				937			2,404			2,633
Postage	626				902			2,296			2,743
VIE write-downs and other expenses	773				761			1,814			3,062
Business development	629				403			1,514			1,041
Accounting and audit fees	409				405			1,109			1,264
Legal fees	210				332			921			780
ATM expenses	271				242			789			811
Other	847				1,033			3,080			2,845
Total other expenses	$	12,314			10,729			35,227			33,085

Note 9. Accumulated Other Comprehensive Income

The following table illustrates the activity within accumulated other comprehensive income by component, net of tax:

 

(Dollars in thousands)	Gains on Available-For-Sale Securities				Losses on Derivatives Used for Cash Flow Hedges			Total
Balance at December 31, 2014	$	27,945			(10,201	)		17,744
Other comprehensive loss before reclassification	(5,524		)		(6,581	)		(12,105	)
Amounts reclassified from accumulated other comprehensive income	58				2,310			2,368
Net current period other comprehensive loss	(5,466		)		(4,271	)		(9,737	)
Balance at September 30, 2015	$	22,479			(14,472	)		8,007
Balance at December 31, 2015	$	13,935			(11,946	)		1,989
Other comprehensive income (loss) before reclassification	18,755				(7,344	)		11,411
Amounts reclassified from accumulated other comprehensive income	399				3,039			3,438
Net current period other comprehensive income (loss)	19,154				(4,305	)		14,849
Balance at September 30, 2016	$	33,089			(16,251	)		16,838

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Note 10. Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares as if dilutive outstanding stock options were exercised and restricted stock awards were vested, using the treasury stock method.

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

	Three Months ended							Nine Months ended
(Dollars in thousands, except per share data)	September 30, 2016				September 30, 2015			September 30, 2016			September 30, 2015
Net income available to common stockholders, basic and diluted	$	30,957			29,614			90,090			86,619
Average outstanding shares - basic	76,288,640				75,531,923			76,195,550			75,424,147
Add: dilutive stock options and awards	62,233				54,530			51,501			45,208
Average outstanding shares - diluted	76,350,873				75,586,453			76,247,051			75,469,355
Basic earnings per share	$	0.40			0.39			1.18			1.15
Diluted earnings per share	$	0.40			0.39			1.18			1.15

There were 10,677 and 3,181 stock options or restricted stock awards excluded from the diluted average outstanding share calculation for the nine months ended September 30, 2016 and 2015 , respectively, because to do so would have been anti-dilutive for those periods. Anti-dilution occurs when the exercise price of a stock option or the unrecognized compensation cost per share of a restricted stock award exceeds the market price of the Company’s stock.

Note 11. Fair Value of Assets and Liabilities

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:

 

Level 1    Quoted prices in active markets for identical assets or liabilities

Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Transfers in and out of Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) are recognized on the actual transfer date. There were no transfers between fair value hierarchy levels during the nine month periods ended September 30, 2016 and 2015 .

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 30, 2016 .

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Investment securities, available-for-sale: fair value for available-for-sale securities is estimated by obtaining quoted market prices for identical assets, where available. If such prices are not available, fair value is based on independent asset pricing services and models, the inputs of which are market-based or independently sourced market parameters, including but not limited to, yield curves, interest rates, volatilities, market spreads, prepayments, defaults, recoveries, cumulative loss projections, and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. Where Level 1 or Level 2 inputs are not available, such securities are classified as Level 3 within the hierarchy.

Fair value determinations of available-for-sale securities are the responsibility of the Company’s corporate accounting and treasury departments. The Company obtains fair value estimates from independent third party vendors on a monthly basis. The vendors’ pricing system methodologies, procedures and system controls are reviewed to ensure they are appropriately designed and operating effectively. The Company reviews the vendors’ inputs for fair value estimates and the recommended assignments of levels within the fair value hierarchy. The review includes the extent to which markets for investment securities are determined to have limited or no activity, or are judged to be active markets. The Company reviews the extent to which observable and unobservable inputs are used as well as the appropriateness of the underlying assumptions about risk that a market participant would use in active markets, with adjustments for limited or inactive markets. In considering the inputs to the fair value estimates, the Company places less reliance on quotes that are judged to not reflect orderly transactions, or are non-binding indications. In assessing credit risk, the Company reviews payment performance, collateral adequacy, third party research and analyses, credit rating histories and issuers’ financial statements. For those markets determined to be inactive or limited, the valuation techniques used are models for which management has verified that discount rates are appropriately adjusted to reflect illiquidity and credit risk.

Interest rate swap derivative financial instruments: fair values for interest rate swap derivative financial instruments are based upon the estimated amounts to settle the contracts considering current interest rates and are calculated using discounted cash flows that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. The inputs used to determine fair value include the 3 month LIBOR forward curve to estimate variable rate cash inflows and the Fed Funds Effective Swap Rate to estimate the discount rate. The estimated variable rate cash inflows are compared to the fixed rate outflows and such difference is discounted to a present value to estimate the fair value of the interest rate swaps. The Company also obtains and compares the reasonableness of the pricing from an independent third party.

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

  

					Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Fair Value September 30, 2016				Quoted Prices in Active  Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Investment securities, available-for-sale
U.S. government and federal agency	$	41,593			—			41,593			—
U.S. government sponsored enterprises	16,367				—			16,367			—
State and local governments	852,059				—			852,059			—
Corporate bonds	404,413				—			404,413			—
Residential mortgage-backed securities	977,647				—			977,647			—
Total assets measured at fair value on a recurring basis	$	2,292,079			—			2,292,079			—
Interest rate swaps	$	26,526			—			26,526			—
Total liabilities measured at fair value on a recurring basis	$	26,526			—			26,526			—

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					Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Fair Value December 31, 2015				Quoted Prices in Active  Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Investment securities, available-for-sale
U.S. government and federal agency	$	47,451			—			47,451			—
U.S. government sponsored enterprises	93,167				—			93,167			—
State and local governments	885,019				—			885,019			—
Corporate bonds	384,163				—			384,163			—
Residential mortgage-backed securities	1,200,960				—			1,200,960			—
Total assets measured at fair value on a recurring basis	$	2,610,760			—			2,610,760			—
Interest rate swaps	$	19,499			—			19,499			—
Total liabilities measured at fair value on a recurring basis	$	19,499			—			19,499			—

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 30, 2016 .

Other real estate owned: OREO is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell. Estimated fair value of OREO is based on appraisals or evaluations (new or updated). OREO is classified within Level 3 of the fair value hierarchy.

Collateral-dependent impaired loans, net of ALLL: loans included in the Company’s loan portfolio for which it is probable that the Company will not collect all principal and interest due according to contractual terms are considered impaired. Estimated fair value of collateral-dependent impaired loans is based on the fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company’s credit departments review 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.

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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 September 30, 2016				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	$	744			—			—			744
Collateral-dependent impaired loans, net of ALLL	5,381				—			—			5,381
Total assets measured at fair value on a non-recurring basis	$	6,125			—			—			6,125

					Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Fair Value December 31, 2015				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	$	7,609			—			—			7,609
Collateral-dependent impaired loans, net of ALLL	12,938				—			—			12,938
Total assets measured at fair value on a non-recurring basis	$	20,547			—			—			20,547

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 30, 2016				Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)					Valuation Technique		Unobservable Input		Range (Weighted-Average) 1
Other real estate owned	$	672			Sales comparison approach		Selling costs		8.0% - 10.0% (8.2%)
	72				Combined approach		Selling costs		10.0% - 10.0% (10.0%)
	$	744
Collateral-dependent impaired loans, net of ALLL	$	141			Cost approach		Selling costs		10.0% - 20.0% (10.3%)
	2,276				Sales comparison approach		Selling costs		8.0% - 10.0% (9.6%)
	2,964				Combined approach		Selling costs		10.0% - 10.0% (10.0%)
							Adjustment to comparables		20.0% - 20.0% (20.0%)
	$	5,381

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	Fair Value December 31, 2015				Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)					Valuation Technique		Unobservable Input		Range (Weighted-Average) 1
Other real estate owned	$	4,067			Sales comparison approach		Selling costs		7.0% - 10.0% (7.9%)
	3,542				Combined approach		Selling costs		8.0% - 8.0% (8.0%)
	$	7,609
Collateral-dependent impaired loans, net of ALLL	$	162			Cost approach		Selling costs		0.0% - 20.0% (6.1%)
	9,465				Sales comparison approach		Selling costs		8.0% - 20.0% (8.9%)
							Adjustment to comparables		0.0% - 5.0% (0.0%)
	3,311				Combined approach		Selling costs		10.0% - 10.0% (10.0%)
							Adjustment to comparables		20.0% - 20.0% (20.0%)
	$	12,938

__________

¹ The range for selling costs and adjustments to comparables indicate reductions to the fair value.

Fair Value of Financial Instruments

The following is a description of the methods used to estimate the fair value of all other assets and liabilities recognized at amounts other than fair value.

Cash and cash equivalents: fair value is estimated at book value.

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

Loans held for sale: fair value is estimated at book value.

Loans receivable, net of ALLL: fair value is estimated by discounting the future cash flows using the rates at which similar notes would be written for the same remaining maturities. The market rates used are based on current rates the Company would impose for similar loans and reflect a market participant assumption about risks associated with non-performance, illiquidity, and the structure and term of the loans along with local economic and market conditions. Estimated fair value of impaired loans is based on the fair value of the collateral, less estimated cost to sell, or the present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate). All impaired loans are classified as Level 3 and all other loans are classified as Level 2 within the valuation hierarchy.

Accrued interest receivable: fair value is estimated at book value.

Non-marketable equity securities: fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.

Deposits: fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The market rates used were obtained from an independent third party and reviewed by the Company. The rates were the average of current rates offered by the Company’s local competitors. The estimated fair value of demand, NOW, savings, and money market deposits is the book value since rates are regularly adjusted to market rates and transactions are executed at book value daily. Therefore, such deposits are classified in Level 1 of the valuation hierarchy. Certificate accounts and wholesale deposits are classified as Level 2 within the hierarchy.

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Federal Home Loan Bank advances: fair value of non-callable Federal Home Loan Bank (“FHLB”) advances is estimated by discounting the future cash flows using rates of similar advances with similar maturities. Such rates were obtained from current rates offered by FHLB. The estimated fair value of callable FHLB advances was obtained from FHLB and the model was reviewed by the Company.

Securities sold under agreements to repurchase and other borrowed funds: fair value of term repurchase agreements and other term borrowings is estimated based on current repurchase rates and borrowing rates currently available to the Company for repurchases and borrowings with similar terms and maturities. The estimated fair value for overnight repurchase agreements and other borrowings is book value.

Subordinated debentures: fair value of the subordinated debt is estimated by discounting the estimated future cash flows using current estimated market rates. The market rates used were averages of currently traded trust preferred securities with similar characteristics to the Company’s issuances and obtained from an independent third party.

Accrued interest payable: fair value is estimated at book value.

Off-balance sheet financial instruments: commitments to extend credit and letters of credit represent the principal categories of off-balance sheet financial instruments. Rates for these commitments are set at time of loan closing, such that no adjustment is necessary to reflect these commitments at market value. The Company has an insignificant amount of off-balance sheet 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:

					Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Carrying Amount September 30, 2016				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	$	251,413			251,413			—			—
Investment securities, available-for-sale	2,292,079				—			2,292,079			—
Investment securities, held-to-maturity	679,707				—			714,895			—
Loans held for sale	71,069				71,069			—			—
Loans receivable, net of ALLL	5,463,428				—			5,354,017			129,187
Accrued interest receivable	50,138				50,138			—			—
Non-marketable equity securities	20,103				—			20,103			—
Total financial assets	$	8,827,937			372,620			8,381,094			129,187
Financial liabilities
Deposits	$	7,309,319			5,994,226			1,317,757			—
FHLB advances	211,833				—			224,335			—
Repurchase agreements and other borrowed funds	407,199				—			407,199			—
Subordinated debentures	125,956				—			84,084			—
Accrued interest payable	3,439				3,439			—			—
Interest rate swaps	26,526				—			26,526			—
Total financial liabilities	$	8,084,272			5,997,665			2,059,901			—

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					Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands)	Carrying Amount December 31, 2015				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	$	193,253			193,253			—			—
Investment securities, available-for-sale	2,610,760				—			2,610,760			—
Investment securities, held-to-maturity	702,072				—			729,513			—
Loans held for sale	56,514				56,514			—			—
Loans receivable, net of ALLL	4,948,984				—			4,851,934			132,649
Accrued interest receivable	44,524				44,524			—			—
Non-marketable equity securities	27,495				—			27,495			—
Total financial assets	$	8,583,602			294,291			8,219,702			132,649
Financial liabilities
Deposits	$	6,945,008			5,654,638			1,293,506			—
FHLB advances	394,131				—			401,530			—
Repurchase agreements and other borrowed funds	430,016				—			430,016			—
Subordinated debentures	125,848				—			81,840			—
Accrued interest payable	3,517				3,517			—			—
Interest rate swaps	19,499				—			19,499			—
Total financial liabilities	$	7,918,019			5,658,155			2,226,391			—

Note 12. Mergers and Acquisitions

On August 31, 2016 , the Company acquired 100 percent of the outstanding common stock of Treasure State Bank, a community bank based in Missoula, Montana. TSB provides banking services to individuals and businesses in the greater Missoula market. TSB has merged into Glacier Bank and has become a part of the First Security Bank of Missoula bank division. The TSB acquisition was valued at $13,940,000 and resulted in the Company issuing 349,545 shares of its common stock and $3,475,000 in cash in exchange for all of TSB’s outstanding common stock shares. The fair value of the Company shares issued was determined on the basis of the closing market price of the Company’s common stock on the August 31, 2016 acquisition date. The excess of the fair value of consideration transferred over total identifiable net assets was recorded as goodwill. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and TSB. None of the goodwill is deductible for income tax purposes as the acquisition was accounted for as a tax-free exchange.

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The assets and liabilities of TSB were recorded on the Company’s consolidated statements of financial condition at their estimated fair values as of the August 31, 2016 acquisition date and TSB’s results of operations have been included in the Company’s consolidated statements of operations since that date. The following table discloses the calculation of the fair value of the consideration transferred, the total identifiable net assets acquired and the resulting goodwill arising from the TSB acquisition:

(Dollars in thousands)	August 31, 2016
Fair value of consideration transferred
Fair value of Company shares issued, net of equity issuance costs	$	10,465
Cash consideration for outstanding shares	3,475
Contingent consideration	—
Total fair value of consideration transferred	13,940
Recognized amounts of identifiable assets acquired and liabilities assumed
Identifiable assets acquired
Cash and cash equivalents	10,176
Loans receivable	51,875
Core deposit intangible	762
Accrued income and other assets	6,937
Total identifiable assets acquired	69,750
Liabilities assumed
Deposits	58,364
FHLB advances	3,260
Accrued expenses and other liabilities	601
Total liabilities assumed	62,225
Total identifiable net assets	7,525
Goodwill recognized	$	6,415

The fair value of the TSB assets acquired includes loans with fair values of $51,875,000 and the gross principal and contractual interest due under the TSB contracts is $54,819,000 . The Company evaluated the principal and contractual interest due at the acquisition date and determined that an insignificant amount is not expected to be collectible.

Core deposit intangible assets related to the TSB acquisition totaled $762,000 with an estimated life of 10 years .

The Company incurred $302,000 of third-party acquisition-related costs in connection with the TSB acquisition during the nine months ended September 30, 2016 . The expenses are included in other expense in the Company's consolidated statements of operations.

Total income consisting of net interest income and non-interest income of the acquired operations of TSB was approximately $336,000 and the net income was approximately $59,000 from August 31, 2016 to September 30, 2016 . The following unaudited pro forma summary presents consolidated information of the Company as if the TSB acquisition had occurred on January 1, 2015:

	Three Months ended							Nine Months ended
(Dollars in thousands)	September 30, 2016				September 30, 2015			September 30, 2016			September 30, 2015
Net interest income and non-interest income	$	107,656			99,748			315,683			291,097
Net income	30,606				29,764			89,888			86,943

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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 Annual Report on Form 10-K for the year ended December 31, 2015 (the “ 2015 Annual Report”), 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;

•	legislative or regulatory changes, including increased banking and consumer protection regulation that adversely affect the Company’s business;

•	ability to complete pending or prospective future acquisitions, limit certain sources of revenue, or increase cost of operations;

•	costs or difficulties related to the completion and integration of acquisitions;

•	the goodwill the Company has recorded in connection with acquisitions could become impaired, which may have an adverse impact on earnings and capital;

•	reduced demand for banking products and services;

•	the 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;

•	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;

•	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; and

•	the Company’s success in managing risks involved in the foregoing.

Please take into account that forward-looking statements speak only as of the date of this Form 10-Q. The Company does not undertake any obligation to publicly correct or update any forward-looking statement if it later becomes aware that actual results are likely to differ materially from those expressed in such forward-looking statement.

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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 Nine Months ended
(Dollars in thousands, except per share and market data)	Sep 30, 2016				Jun 30, 2016			Mar 31, 2016			Sep 30, 2015			Sep 30, 2016			Sep 30, 2015
Operating results
Net income	$	30,957			30,451			28,682			29,614			90,090			86,619
Basic earnings per share	$	0.40			0.40			0.38			0.39			1.18			1.15
Diluted earnings per share	$	0.40			0.40			0.38			0.39			1.18			1.15
Dividends declared per share	$	0.20			0.20			0.20			0.19			0.60			0.56
Market value per share
Closing	$	28.52			26.58			25.42			26.39			28.52			26.39
High	$	29.99			27.68			26.34			29.88			29.99			30.08
Low	$	25.49			24.31			22.19			24.33			22.19			22.27
Selected ratios and other data
Number of common stock shares outstanding	76,525,402				76,171,580			76,168,388			75,532,082			76,525,402			75,532,082
Average outstanding shares - basic	76,288,640				76,170,734			76,126,251			75,531,923			76,195,550			75,424,147
Average outstanding shares - diluted	76,350,873				76,205,069			76,173,417			75,586,453			76,247,051			75,469,355
Return on average assets (annualized)	1.34		%		1.34	%		1.28	%		1.36	%		1.32	%		1.37	%
Return on average equity (annualized)	10.80		%		10.99	%		10.53	%		10.93	%		10.77	%		10.90	%
Efficiency ratio	55.84		%		56.10	%		56.53	%		54.32	%		56.15	%		55.01	%
Dividend payout ratio	50.00		%		50.00	%		52.63	%		48.72	%		50.85	%		48.70	%
Loan to deposit ratio	77.53		%		76.92	%		74.65	%		73.68	%		77.53	%		73.68	%
Number of full time equivalent employees	2,207				2,210			2,184			2,040			2,207			2,040
Number of locations	142				143			144			133			142			133
Number of ATMs	166				167			167			158			166			158

The Company reported net income of $31.0 million for the current quarter, an increase of $1.4 million, or 5 percent, from the $29.6 million of net income for the prior year third quarter. Diluted earnings per share for the current quarter was $0.40 per share, an increase of $0.01, or 3 percent, from the prior year third quarter diluted earnings per share of $0.39. Included in the current quarter was $228 thousand of acquisition-related expenses and $1.4 million of expenses related to the Company’s consolidation of its bank divisions’ core database systems (Core Consolidation Project or “CCP”) including expenses related to the re-issuance of debit cards with chip technology. As of September 30, 2016, the Company had completed the CCP conversion project for ten of its thirteen bank divisions.

Net income for the nine months ended September 30, 2016 was $90.1 million, an increase of $3.5 million, or 4 percent, from the $86.6 million of net income for the first nine months of the prior year. Diluted earnings per share for the first nine months of 2016 was $1.18 per share, an increase of $0.03, or 3 percent, from the diluted earnings per share of $1.15 for the same period in the prior year.

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Recent Acquisition

On August 31, 2016, the Company completed the acquisition of Treasure State Bank (“TSB”), which resulted in goodwill of $6.4 million. The Company’s results of operations and financial condition include the acquisition of TSB from the acquisition date. For additional information regarding this acquisition, see Note 12 to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”

The following table provides information on the fair value of selected classifications of assets and liabilities acquired:

(Dollars in thousands)	August 31, 2016
Total assets	$	76,165
Loans receivable	51,875
Non-interest bearing deposits	13,005
Interest bearing deposits	45,359
Federal Home Loan Bank advances	3,260

Financial Condition Analysis

Assets

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

														$ Change from
(Dollars in thousands)	Sep 30, 2016				Jun 30, 2016			Dec 31, 2015			Sep 30, 2015			Jun 30, 2016			Dec 31, 2015			Sep 30, 2015
Cash and cash equivalents	$	251,413			160,333			193,253			242,835			91,080			58,160			8,578
Investment securities, available-for-sale	2,292,079				2,487,955			2,610,760			2,530,994			(195,876	)		(318,681	)		(238,915	)
Investment securities, held-to-maturity	679,707				680,574			702,072			651,822			(867	)		(22,365	)		27,885
Total investment securities	2,971,786				3,168,529			3,312,832			3,182,816			(196,743	)		(341,046	)		(211,030	)
Loans receivable
Residential real estate	696,817				672,895			688,912			644,694			23,922			7,905			52,123
Commercial real estate	2,919,415				2,773,298			2,633,953			2,500,952			146,117			285,462			418,463
Other commercial	1,303,241				1,258,227			1,099,564			1,080,715			45,014			203,677			222,526
Home equity	435,935				431,659			420,901			412,256			4,276			15,034			23,679
Other consumer	240,554				242,538			235,351			237,802			(1,984	)		5,203			2,752
Loans receivable	5,595,962				5,378,617			5,078,681			4,876,419			217,345			517,281			719,543
Allowance for loan and lease losses	(132,534		)		(132,386	)		(129,697	)		(130,768	)		(148	)		(2,837	)		(1,766	)
Loans receivable, net	5,463,428				5,246,231			4,948,984			4,745,651			217,197			514,444			717,777
Other assets	630,248				624,349			634,163			592,997			5,899			(3,915	)		37,251
Total assets	$	9,316,875			9,199,442			9,089,232			8,764,299			117,433			227,643			552,576

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Total investment securities of $2.972 billion at September 30, 2016 decreased $197 million, or 6 percent, during the current quarter. The decrease in the investment portfolio resulted from the Company redeploying the investment securities portfolio cash flow into the Company’s higher yielding loan portfolio. Investment securities represented 32 percent of total assets at September 30, 2016 compared to 36 percent of total assets at December 31, 2015 and 36 percent at September 30, 2015.

Excluding the acquisition of TSB, the loan portfolio grew $165 million, or 12 percent annualized, during the current quarter. Excluding the acquisition, the loan category with the largest increase was commercial real estate which increased $121 million, or 4 percent. Excluding the TSB acquisition and the acquisition of Cañon National Bank (collectively, “Cañon”) in October 2015, the loan portfolio increased $508 million, or 10 percent, since September 30, 2015 with $283 million and $198 million of the increase coming from growth in commercial real estate and other commercial loans, respectively.

Liabilities

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

														$ Change from
(Dollars in thousands)	Sep 30, 2016				Jun 30, 2016			Dec 31, 2015			Sep 30, 2015			Jun 30, 2016			Dec 31, 2015			Sep 30, 2015
Deposits
Non-interest bearing deposits	$	2,098,747			1,907,026			1,918,310			1,893,723			191,721			180,437			205,024
NOW and DDA accounts	1,514,330				1,495,952			1,516,026			1,373,295			18,378			(1,696	)		141,035
Savings accounts	938,547				926,865			838,274			771,719			11,682			100,273			166,828
Money market deposit accounts	1,442,602				1,403,028			1,382,028			1,350,098			39,574			60,574			92,504
Certificate accounts	975,521				1,017,681			1,060,650			1,094,565			(42,160	)		(85,129	)		(119,044	)
Core deposits, total	6,969,747				6,750,552			6,715,288			6,483,400			219,195			254,459			486,347
Wholesale deposits	339,572				338,264			229,720			189,779			1,308			109,852			149,793
Deposits, total	7,309,319				7,088,816			6,945,008			6,673,179			220,503			364,311			636,140
Securities sold under agreements to repurchase	401,243				414,327			423,414			441,041			(13,084	)		(22,171	)		(39,798	)
Federal Home Loan Bank advances	211,833				328,832			394,131			329,299			(116,999	)		(182,298	)		(117,466	)
Other borrowed funds	5,956				4,926			6,602			6,619			1,030			(646	)		(663	)
Subordinated debentures	125,956				125,920			125,848			125,812			36			108			144
Other liabilities	114,789				111,962			117,579			113,541			2,827			(2,790	)		1,248
Total liabilities	$	8,169,096			8,074,783			8,012,582			7,689,491			94,313			156,514			479,605

Excluding the TSB acquisition, non-interest bearing deposits increased $179 million, or 9 percent, from the prior quarter which was driven by seasonal fluctuations and a strong inflow of new accounts. Excluding the TSB and Cañon acquisitions, non-interest bearing deposits increased $103 million, or 5 percent, from September 30, 2015. Excluding the TSB acquisition, core interest bearing deposits decreased $17.9 million, or 37 basis points, from the prior quarter. Excluding the TSB and Cañon acquisitions, core interest bearing deposits at September 30, 2016 increased $88 million, or 2 percent, from September 30, 2015. Wholesale deposits (i.e., brokered deposits classified as NOW, DDA, money market deposit and certificate accounts) of $340 million at September 30, 2016 increased $110 million since December 31, 2015 and increased $150 million over the prior year third quarter. A majority of the increase was driven by a need to obtain wholesale deposits necessary for an interest rate swap.

Securities sold under agreements to repurchase (“repurchase agreements”) of $401 million at September 30, 2016 decreased $13.1 million, or 3 percent, from the prior quarter and decreased $39.8 million, or 9 percent, from the prior year third quarter. Repurchase agreements fluctuated as certain customers had significant deposit cash flows. Federal Home Loan Bank (“FHLB”) advances of $212 million at September 30, 2016 decreased $117 million, or 36 percent, during the current quarter as the Company’s funding needs decreased because of the increase in non-interest deposits during the current quarter.

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Stockholders’ Equity

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

														$ Change from
(Dollars in thousands, except per share data)	Sep 30, 2016				Jun 30, 2016			Dec 31, 2015			Sep 30, 2015			Jun 30, 2016			Dec 31, 2015			Sep 30, 2015
Common equity	$	1,130,941			1,104,246			1,074,661			1,066,801			26,695			56,280			64,140
Accumulated other comprehensive income	16,838				20,413			1,989			8,007			(3,575	)		14,849			8,831
Total stockholders’ equity	1,147,779				1,124,659			1,076,650			1,074,808			23,120			71,129			72,971
Goodwill and core deposit intangible, net	(160,008		)		(153,608	)		(155,193	)		(141,624	)		(6,400	)		(4,815	)		(18,384	)
Tangible stockholders’ equity	$	987,771			971,051			921,457			933,184			16,720			66,314			54,587

Stockholders’ equity to total assets	12.32		%		12.23	%		11.85	%		12.26	%
Tangible stockholders’ equity to total tangible assets	10.79		%		10.73	%		10.31	%		10.82	%
Book value per common share	$	15.00			14.76			14.15			14.23			0.24			0.85			0.77
Tangible book value per common share	$	12.91			12.75			12.11			12.35			0.16			0.80			0.56

Tangible stockholders’ equity of $988 million at September 30, 2016 increased $16.7 million, or 2 percent, from the prior quarter primarily from earnings retention and $10.5 million of Company stock issued in connection with the TSB acquisition, both of which more than offset the decrease in accumulated other comprehensive income and the increase in intangibles from the acquisition of TSB. Tangible stockholders’ equity increased $54.6 million, or 6 percent, from a year ago, the result of earnings retention, an increase in accumulated other comprehensive income and $25.6 million of Company stock issued in connection with the TSB and Cañon acquisitions; such increases more than offset the increase in goodwill and other intangibles from the acquisitions. Tangible book value per common share at quarter end increased $0.16 per share from the prior quarter and increased $0.56 per share from the prior year third quarter and was principally due to earnings retention.

Cash Dividend

On September 28, 2016, the Company’s Board of Directors (“Board”) declared a quarterly cash dividend of $0.20 per share. The dividend was payable October 20, 2016 to shareholders of record October 11, 2016. Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations.

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Operating Results for Three Months Ended September 30, 2016  

Compared to June 30, 2016 , March 31, 2016 and September 30, 2015

Income Summary

The following table summarizes revenue for the periods indicated: 

	Three Months ended													$ Change from
(Dollars in thousands)	Sep 30, 2016				Jun 30, 2016			Mar 31, 2016			Sep 30, 2015			Jun 30, 2016			Mar 31, 2016			Sep 30, 2015
Net interest income
Interest income	$	85,944			86,069			84,381			80,367			(125	)		1,563			5,577
Interest expense	7,318				7,424			7,675			7,309			(106	)		(357	)		9
Total net interest income	78,626				78,645			76,706			73,058			(19	)		1,920			5,568
Non-interest income
Service charges and other fees	16,307				15,772			14,681			15,357			535			1,626			950
Miscellaneous loan fees and charges	1,195				1,163			1,021			1,055			32			174			140
Gain on sale of loans	9,592				8,257			5,992			7,326			1,335			3,600			2,266
(Loss) gain on sale of investments	(594		)		(220	)		108			(31	)		(374	)		(702	)		(563	)
Other income	1,793				1,787			2,450			2,092			6			(657	)		(299	)
Total non-interest income	28,293				26,759			24,252			25,799			1,534			4,041			2,494
	$	106,919			105,404			100,958			98,857			1,515			5,961			8,062
Net interest margin (tax-equivalent)	4.00		%		4.06	%		4.01	%		3.96	%

Net Interest Income

In the current quarter, interest income of $85.9 million decreased $125 thousand, or 15 basis points, from the prior quarter and was primarily driven by the decrease in interest income from investment securities. As a result of loan growth, commercial loan interest income increased $692 thousand, or 1 percent, during the current quarter and residential real estate loan income increased $414 thousand, or 5 percent, during the current quarter. Current quarter interest income increased $5.6 million, or 7 percent, over the prior year third quarter because of increases in interest income on commercial loans which increased $5.6 million, or 13 percent. As a result of the decreased investment portfolio, the investment income decreased during the current quarter by $1.2 million and decreased $610 thousand compared to the prior year third quarter.

The current quarter interest expense of $7.3 million decreased $106 thousand, or 1 percent, from the prior quarter and increased $9 thousand from the prior year third quarter. The total cost of funding (including non-interest bearing deposits) for the current quarter was 37 basis points compared to 38 basis points for the prior quarter and 39 basis points in the prior year third quarter.

The Company’s net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the current quarter was 4.00 percent compared to 4.06 percent in the prior quarter. During the current quarter, the earning asset yield decreased by 8 basis points and was primarily driven by a 4 basis point decrease from the recovery of interest on loans previously placed on non-accrual and a 4 basis point decrease in discount accretion associated with the fair value of previously acquired loans. The Company’s current quarter net interest margin increased 4 basis points from the prior year third quarter net interest margin of 3.96 percent. The increase was driven by the shift in earning assets from the lower yielding investment securities to higher yielding loans and lower funding cost.

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Non-interest Income

Non-interest income for the current quarter totaled $28.3 million, an increase of $1.5 million, or 6 percent, from the prior quarter and an increase of $2.5 million, or 10 percent, over the same quarter last year. Service fee income of $16.3 million, increased $535 thousand, or 3 percent, from the prior quarter. Service fee income for the current quarter increased by $950 thousand, or 6 percent, from the prior year third quarter because of the increased number of deposit accounts. Gain on sale of residential loans for the current quarter increased $1.3 million, or 16 percent, from the prior quarter due to the third quarter traditionally experiencing stronger mortgage loan originations. Gain on sale of residential loans for the current quarter increased $2.3 million, or 31 percent, from the prior year third quarter as a result of the housing market continuing to strengthen during the current year coupled with the low interest rate environment. Included in other income was operating revenue of $34 thousand from other real estate owned (“OREO”) and a gain of $134 thousand from the sale of OREO, a combined total of $168 thousand for the current quarter compared to $182 thousand for the prior quarter and $129 thousand for the prior year third quarter.

Non-interest Expense

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

 

	Three Months ended													$ Change from
(Dollars in thousands)	Sep 30, 2016				Jun 30, 2016			Mar 31, 2016			Sep 30, 2015			Jun 30, 2016			Mar 31, 2016			Sep 30, 2015
Compensation and employee benefits	$	38,370			37,560			36,941			33,534			810			1,429			4,836
Occupancy and equipment	6,168				6,443			6,676			6,435			(275	)		(508	)		(267	)
Advertising and promotions	2,098				2,085			2,125			2,459			13			(27	)		(361	)
Data processing	4,080				3,938			3,373			2,710			142			707			1,370
Other real estate owned	215				214			390			1,047			1			(175	)		(832	)
Regulatory assessments and insurance	1,158				1,066			1,508			1,478			92			(350	)		(320	)
Core deposit intangibles amortization	777				788			797			720			(11	)		(20	)		57
Other expenses	12,314				12,367			10,546			10,729			(53	)		1,768			1,585
Total non-interest expense	$	65,180			64,461			62,356			59,112			719			2,824			6,068

Compensation and employee benefits for the current quarter increased by $810 thousand, or 2 percent, from the prior quarter. Compensation and employee benefits for the current quarter increased by $4.8 million, or 14 percent, from the prior year third quarter due to the increased number of employees, including increases from the Cañon acquisition, and annual salary increases. Current quarter occupancy and equipment expense decreased $275 thousand, or 4 percent, from the prior quarter and decreased $267 thousand, or 4 percent, from the prior year third quarter. The current quarter data processing expense increased $142 thousand, or 4 percent, from the prior quarter. The current quarter data processing expense increased $1.4 million from the prior year third quarter; such increases primarily from expenses associated with CCP. The current quarter OREO expense of $215 thousand included $162 thousand of operating expense, $13 thousand of fair value write-downs, and $40 thousand of loss from the sales of OREO. Current quarter other expenses of $12.3 million remained stable in total compared to the prior quarter, however several areas experienced increases or decreases related to acquisitions, CCP, and expenses connected with equity investments in New Markets Tax Credit (“NMTC”) projects. Current quarter other expenses increased $1.6 million, or 15 percent, from the prior year third quarter and was primarily driven by increases from costs associated with CCP.

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Efficiency Ratio

The current quarter efficiency ratio was 55.84 percent, a 26 basis points decrease from the prior quarter efficiency ratio of 56.10 percent which was driven by the increase in gain on sale of residential loans which outpaced the increase in operating expenses. The current quarter efficiency ratio of 55.84 percent compared to 54.32 percent in the prior year third quarter. The 1.52 percent increase in the efficiency ratio was the result of additional costs associated with CCP and increased compensation expense, which was greater than the benefits experienced in net interest income and non-interest income.

Provision for Loan Losses  

The following table summarizes the provision for loan losses, net charge-offs and select ratios relating to the provision for loan losses for the previous eight quarters:

(Dollars in thousands)	Provision for Loan Losses				Net Charge-Offs (Recoveries)				Allowance for Loan and Lease 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 2016	$	626			$	478			2.37	%		0.49	%		0.84	%
Second quarter 2016	—				(2,315		)		2.46	%		0.44	%		0.82	%
First quarter 2016	568				194				2.50	%		0.46	%		0.88	%
Fourth quarter 2015	411				1,482				2.55	%		0.38	%		0.88	%
Third quarter 2015	826				577				2.68	%		0.37	%		0.97	%
Second quarter 2015	282				(381		)		2.71	%		0.59	%		0.98	%
First quarter 2015	765				662				2.77	%		0.71	%		1.07	%
Fourth quarter 2014	191				1,070				2.89	%		0.58	%		1.08	%

Net charge-offs for the current quarter were $478 thousand compared to net recoveries of $2.3 million for the prior quarter and net charge-offs of $577 thousand from the same quarter last year. The net recoveries and charge-offs continue to trend in the right direction with a fair amount of volatility during the quarters. There was $626 thousand of current quarter provision for loan losses, compared to no provision in the prior quarter and $826 thousand in the prior year third quarter. Loan portfolio growth, composition, average loan size, credit quality considerations, and other environmental factors will continue to determine the level of the loan loss provision. 

The determination of the allowance for loan and lease losses (“ALLL” or “allowance”) and the related provision for loan losses is a critical accounting estimate that involves management’s judgments about current environmental factors which affect loan losses, such factors including economic conditions, changes in collateral values, net charge-offs, and other factors discussed below in “Additional Management’s Discussion and Analysis.”

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Operating Results for Nine Months ended September 30, 2016  

Compared to September 30, 2015

Income Summary

The following table summarizes revenue for the periods indicated: 

	Nine Months ended								$ Change				% Change
(Dollars in thousands)	September 30, 2016				September 30, 2015
Net interest income
Interest income	$	256,394			$	236,470			$	19,924			8	%
Interest expense	22,417				22,060				357				2	%
Total net interest income	233,977				214,410				19,567				9	%
Non-interest income
Service charges and other fees	46,760				43,868				2,892				7	%
Miscellaneous loan fees and charges	3,379				3,354				25				1	%
Gain on sale of loans	23,841				20,356				3,485				17	%
Loss on sale of investments	(706		)		(124		)		(582		)		469	%
Other income	6,030				6,840				(810		)		(12	)%
Total non-interest income	79,304				74,294				5,010				7	%
	$	313,281			$	288,704			$	24,577			9	%
Net interest margin (tax-equivalent)	4.02		%		3.99		%

Net Interest Income

Net interest income for the first nine months of the current year was $234 million, an increase of $19.6 million, or 9 percent, over the same period last year. Interest income for the first nine months of the current year increased $19.9 million, or 8 percent, from the prior year first nine months and was principally due to a $17.3 million increase in income from commercial loans. Additional increases included $1.4 million in interest income from investment securities and $1.4 million in interest income from residential loans.

Interest expense of $22.4 million for the first nine months of the current year increased $357 thousand, or 2 percent, over the same period in the prior year. Deposit interest expense for the first nine months of the current year increased $1.7 million, or 14 percent, from the prior year first nine months and was driven by the increase in wholesale deposits and the additional interest expense for an interest rate swap with a notional $100 million that began its accrual period in December 2015. FHLB interest expense decreased $1.8 million, or 28 percent, which resulted from long-term advances maturing which were replaced by lower rate short-term advances. The total funding cost (including non-interest bearing deposits) for the first nine months of 2016 was 38 basis points compared to 40 basis points for the first nine months of 2015. 

The net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the first nine months of 2016 was 4.02 percent, a 3 basis point increase from the net interest margin of 3.99 percent for the first nine months of 2015. The increase in the margin was primarily attributable to a shift in earning assets to higher yielding loans combined with a continued increase in low cost deposits.

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Non-interest Income

Non-interest income of $79.3 million for the first nine months of 2016 increased $5.0 million, or 7 percent, over the same period last year. Service charges and other fees of $46.8 million for the first nine months of 2016 increased $2.9 million, or 7 percent, from the same period last year as a result of an increased number of deposit accounts and increases from recent acquisitions. The gain of $23.8 million on the sale of residential loans for the first nine months of 2016 increased $3.5 million, or 17 percent, from the first nine months of 2015 which was attributable to the stronger housing market and the low interest rate environment. Included in other income was operating revenue of $84 thousand from OREO and gains of $479 thousand from the sales of OREO, which totaled $563 thousand for the first nine months of 2016 compared to $869 thousand for the same period in the prior year.

Non-interest Expense

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

	Nine Months ended								$ Change				% Change
(Dollars in thousands)	September 30, 2016				September 30, 2015
Compensation and employee benefits	$	112,871			$	98,507			$	14,364			15	%
Occupancy and equipment	19,287				18,927				360				2	%
Advertising and promotions	6,308				6,626				(318		)		(5	)%
Data processing	11,391				8,232				3,159				38	%
Other real estate owned	819				3,182				(2,363		)		(74	)%
Regulatory assessments and insurance	3,732				3,789				(57		)		(2	)%
Core deposit intangible amortization	2,362				2,206				156				7	%
Other expenses	35,227				33,085				2,142				6	%
Total non-interest expense	$	191,997			$	174,554			$	17,443			10	%

Compensation and employee benefits for the first nine months of 2016 increased $14.4 million, or 15 percent, from the same period due to the increased number of employees including from the acquired banks and annual salary increases. Occupancy and equipment expense of $19.3 million for the first nine months of 2016 increased $360 thousand, or 2 percent. Outsourced data processing expense increased $3.2 million, or 38 percent, from the prior year first nine months as a result of additional costs from CCP. OREO expense of $819 thousand in the first nine months of 2016 decreased $2.4 million, or 74 percent, from the first nine months of the prior year. OREO expense for the first nine months of 2016 included $443 thousand of operating expenses, $92 thousand of fair value write-downs, and $284 thousand of loss from the sales of OREO. Current year other expenses of $35.2 million increased $2.1 million, or 6 percent, from the prior year and was driven by increases from costs associated with CCP which were partially offset by decreases in expenses connected with the equity investments in NMTC projects.

Efficiency Ratio

The efficiency ratio was 56.15 percent for the first nine months of 2016 and 55.01 percent for the first nine months of 2015. Although there were increases in both net interest income and non-interest income, such increases were outpaced by the increases in CCP expenses and compensation expenses which contributed to the higher efficiency ratio in 2016.

Provision for Loan Losses  

The provision for loan losses was $1.2 million for the first nine months of 2016, a decrease of $679 thousand, or 36 percent, from the same period in the prior year. Net recovery of loans during the first nine months of 2016 was $1.6 million compared to net charge-offs of $858 thousand from the first nine months of 2015.

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ADDITIONAL MANAGEMENT’S DISCUSSION AND ANALYSIS

Investment Activity

Investment securities classified as available-for-sale are carried at estimated fair value and investment securities classified as held-to-maturity are carried at amortized cost. Unrealized gains or losses, net of tax, on available-for-sale securities are reflected as an adjustment to other comprehensive income. The Company’s investment securities are summarized below:

	September 30, 2016							December 31, 2015							September 30, 2015
(Dollars in thousands)	Carrying Amount				Percent			Carrying Amount				Percent			Carrying Amount				Percent
Available-for-sale
U.S. government and federal agency	$	41,593			1	%		$	47,451			1	%		$	49,315			2	%
U.S. government sponsored enterprises	16,367				—	%		93,167				3	%		98,791				3	%
State and local governments	852,059				29	%		885,019				27	%		931,000				29	%
Corporate bonds	404,413				14	%		384,163				12	%		360,811				11	%
Residential mortgage-backed securities	977,647				33	%		1,200,960				36	%		1,091,077				34	%
Total available-for-sale	2,292,079				77	%		2,610,760				79	%		2,530,994				79	%
Held-to-maturity
State and local governments	679,707				23	%		702,072				21	%		651,822				21	%
Total held-to-maturity	679,707				23	%		702,072				21	%		651,822				21	%
Total investment securities	$	2,971,786			100	%		$	3,312,832			100	%		$	3,182,816			100	%

The Company’s investment portfolio is primarily comprised of state and local government securities and residential mortgage-backed securities. State and local government securities are largely exempt from federal income tax and the Company’s maximum federal statutory rate of 35 percent is used in calculating the tax-equivalent yields on the tax-exempt securities. Residential mortgage-backed securities are typically short, weighted-average life U.S. agency collateralized mortgage obligations that provide the Company with ongoing liquidity as scheduled and pre-paid principal is received on the securities.

State and local government securities carry different risks that are not as prevalent in other security types. The Company evaluates the investment grade quality of its securities in accordance with regulatory guidance. Investment grade securities are those where the issuer has an adequate capacity to meet the financial commitments under the security for the projected life of the investment. An issuer has an adequate capacity to meet financial commitments if the risk of default by the obligor is low and the full and timely payment of principal and interest are expected. In assessing credit risk, the Company may use credit ratings from Nationally Recognized Statistical Rating Organizations (“NRSRO” entities such as Standard and Poor’s [“S&P”] and Moody’s) as support for the evaluation; however, they are not solely relied upon. There have been no significant differences in the Company’s internal evaluation of the creditworthiness of any issuer when compared with the ratings assigned by the NRSROs.

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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, 2016							December 31, 2015
(Dollars in thousands)	Amortized Cost				Fair Value			Amortized Cost			Fair Value
S&P: AAA / Moody’s: Aaa	$	359,030			371,249			366,961			374,470
S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3	890,815				932,383			936,947			971,717
S&P: A+, A, A- / Moody’s: A1, A2, A3	229,130				244,477			239,371			252,292
S&P: BBB+, BBB, BBB- / Moody’s: Baa1, Baa2, Baa3	2,270				2,408			2,858			3,017
Not rated by either entity	14,509				15,550			12,673			13,036
Below investment grade	851				887			—			—
Total	$	1,496,605			1,566,954			1,558,810			1,614,532

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, 2016							December 31, 2015
(Dollars in thousands)	Amortized Cost				Fair Value			Amortized Cost			Fair Value
General obligation - unlimited	$	823,592			864,482			831,518			862,863
General obligation - limited	222,998				237,454			262,803			274,177
Revenue	411,571				424,662			423,171			434,610
Certificate of participation	27,334				29,030			28,245			29,634
Other	11,110				11,326			13,073			13,248
Total	$	1,496,605			1,566,954			1,558,810			1,614,532

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

	September 30, 2016							December 31, 2015
(Dollars in thousands)	Amortized Cost				Fair Value			Amortized Cost			Fair Value
Texas	$	206,367			215,193			211,023			218,051
Michigan	174,261				184,208			156,426			162,862
Washington	186,695				198,301			179,173			187,949
California	100,058				102,936			105,510			108,235
Montana	92,099				100,119			90,272			95,644
All other states	737,125				766,197			816,406			841,791
Total	$	1,496,605			1,566,954			1,558,810			1,614,532

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The following table presents the carrying amount and weighted-average yield of available-for-sale and held-to-maturity investment securities by contractual maturity at September 30, 2016 . Weighted-average yields are based upon the amortized cost of securities and are calculated using the interest method which takes into consideration premium amortization, discount accretion and mortgage-backed securities’ prepayment provisions. Weighted-average yields on tax-exempt investment securities exclude the federal income tax benefit.

	One Year or Less							After One through Five Years							After Five through Ten Years							After Ten Years							Residential Mortgage-Backed Securities							Total
(Dollars in thousands)	Amount				Yield			Amount				Yield			Amount				Yield			Amount				Yield			Amount				Yield			Amount				Yield
Available-for-sale
U.S. government and federal agency	$	—			—	%		$	1,380			1.62	%		$	9,989			1.05	%		$	30,224			1.27	%		$	—			—	%		$	41,593			1.22	%
U.S. government sponsored enterprises	455				2.23	%		15,912				2.00	%		—				—	%		—				—	%		—				—	%		16,367				2.01	%
State and local governments	49,539				2.05	%		57,417				2.11	%		191,954				3.47	%		553,149				4.25	%		—				—	%		852,059				3.79	%
Corporate bonds	79,985				2.03	%		324,428				2.09	%		—				—	%		—				—	%		—				—	%		404,413				2.08	%
Residential mortgage-backed securities	—				—	%		—				—	%		—				—	%		—				—	%		977,647				1.88	%		977,647				1.88	%
Total available-for-sale	129,979				2.03	%		399,137				2.09	%		201,943				3.34	%		583,373				4.08	%		977,647				1.88	%		2,292,079				2.60	%
Held-to-maturity
State and local governments	—				—	%		—				—	%		43,656				2.65	%		636,051				4.08	%		—				—	%		679,707				3.99	%
Total held-to-maturity	—				—	%		—				—	%		43,656				2.65	%		636,051				4.08	%		—				—	%		679,707				3.99	%
Total investment securities	$	129,979			2.03	%		$	399,137			2.09	%		$	245,599			3.21	%		$	1,219,424			4.08	%		$	977,647			1.88	%		$	2,971,786			2.92	%

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

Other-Than-Temporary Impairment on Securities Analysis

Non-marketable equity securities. Non-marketable equity securities largely consist of capital stock issued by the FHLB of Des Moines and are evaluated for impairment whenever events or circumstances suggest the carrying value may not be recoverable. Based on the Company’s evaluation of its investments in non-marketable equity securities as of September 30, 2016 , the Company determined that none of such securities had other-than-temporary impairment.

Debt securities. In evaluating debt securities for other-than-temporary impairment losses, management assesses whether the Company intends to sell the security or if it is more-likely-than-not that the Company will be required to sell the debt security. In so doing, management considers contractual constraints, liquidity, capital, asset/liability management and securities portfolio objectives. For debt securities with limited or inactive markets, the impact of macroeconomic conditions in the U.S. upon fair value estimates includes higher risk-adjusted discount rates and changes in credit ratings provided by NRSRO. In June 2016, S&P reaffirmed its AA+ rating of U.S. government long-term debt, and the outlook remains stable. In May 2016, Moody's reaffirmed its Aaa rating of U.S. government long-term debt and the outlook remains stable. In April 2016, Fitch reaffirmed its AAA rating of U.S. government long-term debt and the outlook remains stable. S&P, Moody's and Fitch have similar credit ratings and outlooks with respect to certain long-term debt instruments issued by Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and other U.S. government agencies linked to the long-term U.S. debt.

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The following table separates investments with an unrealized loss position at September 30, 2016 into two categories: investments purchased prior to 2016 and those purchased during 2016 . Of those investments purchased prior to 2016 , the fair market value and unrealized gain or loss at December 31, 2015 is also presented.

	September 30, 2016											December 31, 2015
(Dollars in thousands)	Fair Value				Unrealized Loss				Unrealized Loss as a Percent of Fair Value			Fair Value				Unrealized Loss				Unrealized Loss as a Percent of Fair Value
Temporarily impaired securities purchased prior to 2016
U.S. government and federal agency	$	32,199			$	(158	)		—	%		$	37,141			$	(361	)		(1	)%
State and local governments	249,046				(9,995		)		(4	)%		252,192				(8,342		)		(3	)%
Corporate bonds	11,202				(32		)		—	%		11,162				(182		)		(2	)%
Residential mortgage-backed securities	78,656				(371		)		—	%		103,705				(1,300		)		(1	)%
Total	$	371,103			$	(10,556	)		(3	)%		$	404,200			$	(10,185	)		(3	)%
Temporarily impaired securities purchased during 2016
State and local governments	$	8,685			$	(123	)		(1	)%
Residential mortgage-backed securities	19,676				(57		)		—	%
Total	$	28,361			$	(180	)		(1	)%
Temporarily impaired securities
U.S. government and federal agency	$	32,199			$	(158	)		—	%
State and local governments	257,731				(10,118		)		(4	)%
Corporate bonds	11,202				(32		)		—	%
Residential mortgage-backed securities	98,332				(428		)		—	%
Total	$	399,464			$	(10,736	)		(3	)%

With respect to severity, the following table provides the number of debt securities and amount of unrealized loss in the various ranges of unrealized loss as a percent of book value at September 30, 2016 :

(Dollars in thousands)	Number of Debt Securities			Unrealized Loss
5.1% to 10.0%	58			$	(6,257	)
0.1% to 5.0%	200			(4,479		)
Total	258			$	(10,736	)

With respect to the duration of the impaired debt securities, the Company identified 175 securities which have been continuously impaired for the twelve months ending September 30, 2016 . The valuation history of such securities in the prior year(s) was also reviewed to determine the number of months in the prior year(s) in which the identified securities were in an unrealized loss position.

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The following table provides details of the 175 debt securities which have been continuously impaired for the twelve months ended September 30, 2016 , including the most notable loss for any one bond in each category.

(Dollars in thousands)	Number of Debt Securities			Unrealized Loss for 12 Months Or More				Most Notable Loss
U.S. government and federal agency	24			$	(151	)		$	(23	)
State and local governments	136			(9,516		)		(783		)
Corporate bonds	3			(29		)		(13		)
Residential mortgage-backed securities	12			(176		)		(72		)
Total	175			$	(9,872	)

Based on the Company's analysis of its impaired debt securities as of September 30, 2016 , the Company determined that none of such securities had other-than-temporary impairment and the unrealized losses were primarily the result of interest rate changes and market spreads subsequent to acquisition. A substantial portion of the debt securities with unrealized losses at September 30, 2016 were issued by Fannie Mae, Freddie Mac, Government National Mortgage Association (“Ginnie Mae”) and other agencies of the U.S. government or have credit ratings issued by one or more of the NRSRO entities in the four highest credit rating categories. All of the Company's impaired debt securities at September 30, 2016 have been determined by the Company to be investment grade.

Lending Activity

The Company focuses its lending activities primarily on the following types of loans: 1) first-mortgage, conventional loans secured by residential properties, particularly single-family; 2) commercial lending, including agriculture, that concentrates on targeted businesses; and 3) installment lending for consumer purposes (e.g., home equity, automobile, etc.). Supplemental information regarding the Company’s loan portfolio and credit quality based on regulatory classification is provided in the section captioned “Loans by Regulatory Classification” included in “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The regulatory classification of loans is based primarily on the type of collateral for the loans. Loan information included in “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on the Company’s loan segments and classes, which are based on the purpose of the loan, unless otherwise noted as a regulatory classification.

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

	September 30, 2016							December 31, 2015							September 30, 2015
(Dollars in thousands)	Amount				Percent			Amount				Percent			Amount				Percent
Residential real estate loans	$	696,817			13	%		$	688,912			14	%		$	644,694			13	%
Commercial loans
Real estate	2,919,415				53	%		2,633,953				53	%		2,500,952				53	%
Other commercial	1,303,241				24	%		1,099,564				22	%		1,080,715				23	%
Total	4,222,656				77	%		3,733,517				75	%		3,581,667				76	%
Consumer and other loans
Home equity	435,935				8	%		420,901				9	%		412,256				9	%
Other consumer	240,554				4	%		235,351				5	%		237,802				5	%
Total	676,489				12	%		656,252				14	%		650,058				14	%
Loans receivable	5,595,962				102	%		5,078,681				103	%		4,876,419				103	%
Allowance for loan and lease losses	(132,534		)		(2	)%		(129,697		)		(3	)%		(130,768		)		(3	)%
Loans receivable, net	$	5,463,428			100	%		$	4,948,984			100	%		$	4,745,651			100	%

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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, 2016				June 30, 2016			December 31, 2015			September 30, 2015
Other real estate owned	$	22,662			24,370			26,815			26,609
Accruing loans 90 days or more past due
Residential real estate	222				772			—			43
Commercial	2,687				5,039			2,051			3,674
Consumer and other	390				383			80			67
Total	3,299				6,194			2,131			3,784
Non-accrual loans
Residential real estate	4,538				4,409			8,073			9,590
Commercial	42,221				34,455			36,510			37,411
Consumer and other	5,521				6,153			6,550			7,631
Total	52,280				45,017			51,133			54,632
Total non-performing assets 1	$	78,241			75,581			80,079			85,025
Non-performing assets as a percentage of subsidiary assets	0.84		%		0.82	%		0.88	%		0.97	%
ALLL as a percentage of non-performing loans	238		%		259	%		244	%		224	%
Accruing loans 30-89 days past due	$	27,384			23,479			19,413			17,822
Accruing troubled debt restructurings	$	52,578			50,054			63,590			63,638
Non-accrual troubled debt restructurings	$	23,427			23,822			27,057			27,442
Interest income 2	$	1,881			1,084			2,471			1,981

__________

1	As of September 30, 2016 , non-performing assets have not been reduced by U.S. government guarantees of $1.5 million .

2	Amounts represent estimated interest income that would have been recognized on loans accounted for on a non-accrual basis as of the end of each period had such loans performed pursuant to contractual terms.

Non-performing assets at September 30, 2016 were $78.2 million, an increase of $2.7 million, or 4 percent, during the current quarter and a decrease of $6.8 million, or 8 percent, from a year ago. Early stage delinquencies (accruing loans 30-89 days past due) of $27.4 million at September 30, 2016 increased $3.9 million from the prior quarter.

Most of the Company’s non-performing assets are secured by real estate, and based on the most current information available to management, including updated appraisals or evaluations (new or updated), the Company believes the value of the underlying real estate collateral is adequate to minimize significant charge-offs or losses to the Company. The Company evaluates the level of its non-performing loans, the values of the underlying real estate and other collateral, and related trends in internal and external environmental factors and net charge-offs in determining the adequacy of the ALLL. Through pro-active credit administration, the Company works closely with its borrowers to seek favorable resolution to the extent possible, thereby attempting to minimize net charge-offs or losses to the Company. The Company continues to maintain an adequate allowance while working to reduce non-performing loans.

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Construction loans, a regulatory classification, accounted for 21 percent of the Company’s non-accrual loans as of September 30, 2016 . Land, lot and other construction loans, a regulatory classification, were 94 percent of the non-accrual construction loans. Of the Company’s $11.2 million of non-accrual construction loans at September 30, 2016 , 92 percent of such loans had collateral properties securing the loans in Western Montana. Consistent with the gradual economic recovery, the upscale primary, secondary and other housing markets, as well as the associated construction and building industries show improved activity after several years of decline. As the housing market (rental and owner-occupied) and related industries continue to recover from the downturn, the Company continues to reduce its exposure to loss in the land, lot and other construction loan portfolio.

During the construction loan term, all construction loan collateral properties are inspected at least monthly, or more frequently as needed, until completion. Draws on construction loans are predicated upon the results of the inspection and advanced based upon a percentage-of-completion basis versus original budget percentages. When construction loans become non-performing and the associated project is not complete, the Company on a case-by-case basis makes the decision to advance additional funds or to initiate collection/foreclosure proceedings. Such decision includes obtaining “as-is” and “at completion” appraisals for consideration of potential increases or decreases in the collateral’s value. The Company also considers the increased costs of monitoring progress to completion, and the related collection/holding period costs should collateral ownership be transferred to the Company. With very limited exception, the Company does not disburse additional funds on non-performing loans. Instead, the Company has proceeded to collection and foreclosure actions in order to reduce the Company’s exposure to loss on such loans.

For additional information on accounting policies relating to non-performing assets and impaired loans, see Note 1 to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”

Impaired Loans

Loans are designated impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement and therefore, the Company has serious doubts as to the ability of such borrowers to fulfill the contractual obligation. Impaired loans include non-performing loans (i.e., non-accrual loans and accruing loans ninety days or more past due) and accruing loans under ninety days past due where it is probable payments will not be received according to the loan agreement (e.g., troubled debt restructuring).

Impaired loans were $135 million and $141 million as of September 30, 2016 and December 31, 2015 , respectively. The ALLL includes specific valuation allowances of $6.0 million and $8.1 million of impaired loans as of September 30, 2016 and December 31, 2015 , respectively. Of the total impaired loans at September 30, 2016 , there were 24 significant commercial real estate and other commercial loans that accounted for $63.3 million , or 47 percent , of the impaired loans. The 24 loans were collateralized by 140 percent of the loan value, the majority of which had appraisals or evaluations (new or updated) during the last year, such appraisals reviewed at least quarterly taking into account current market conditions. Of the total impaired loans at September 30, 2016 , there were 143 loans aggregating $81.9 million , or 61 percent , whereby the borrowers had more than one impaired loan.

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 had TDR loans of $76.0 million and $90.6 million as of September 30, 2016 and December 31, 2015 , respectively. The Company’s TDR loans are considered impaired loans of which $23.4 million and $27.1 million as of September 30, 2016 and December 31, 2015 , respectively, are designated as non-accrual.

Each restructured debt is separately negotiated with the borrower and includes terms and conditions that reflect the borrower’s prospective ability to service the debt as modified. The Company discourages the use of the multiple loan strategy when restructuring loans regardless of whether or not the loans are designated as TDRs.

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Other Real Estate Owned

The book value prior to the acquisition of collateral and transfer of the loan into OREO during 2016 was $5.0 million of which $2.7 million was residential real estate loans, $2.2 million was commercial loans, and $88 thousand was consumer loans. The fair value of the loan collateral acquired in foreclosure during 2016 was $4.1 million of which $2.6 million was residential real estate, $1.4 million was commercial, and $42 thousand was consumer loans. The following table sets forth the changes in OREO for the periods indicated:

	Nine Months ended				Six Months ended			Year ended			Nine Months ended
(Dollars in thousands)	September 30, 2016				June 30, 2016			December 31, 2015			September 30, 2015
Balance at beginning of period	$	26,815			26,815			27,804			27,804
Acquisitions	882				—			974			464
Additions	4,117				3,635			7,989			6,910
Capital improvements	149				136			1,710			579
Write-downs	(92		)		(79	)		(1,575	)		(1,522	)
Sales	(9,209		)		(6,137	)		(10,087	)		(7,626	)
Balance at end of period	$	22,662			24,370			26,815			26,609

Allowance for Loan and Lease Losses

Determining the adequacy of the ALLL involves a high degree of judgment and is inevitably imprecise as the risk of loss is difficult to quantify. The ALLL methodology is designed to reasonably estimate the probable loan and lease losses within the Company’s loan portfolio. Accordingly, the ALLL is maintained within a range of estimated losses. The determination of the ALLL, including the provision for loan losses and net charge-offs, is a critical accounting estimate that involves management’s judgments about all known relevant internal and external environmental factors that affect loan losses, including the credit risk inherent in the loan portfolio, economic conditions nationally and in the local markets in which the Company operates, trends and changes in collateral values, delinquencies, non-performing assets, net charge-offs and credit-related policies and personnel. Although the Company continues to actively monitor economic trends, soft economic conditions combined with potential declines in the values of real estate that collateralize most of the Company’s loan portfolio may adversely affect the credit risk and potential for loss to the Company.

The ALLL evaluation is well documented and approved by the Company’s Board. In addition, the policy and procedures for determining the balance of the ALLL are reviewed annually by the Company’s Board, the internal audit department, independent credit reviewers and state and federal bank regulatory agencies.

At the end of each quarter, the Company analyzes its loan portfolio and maintains an ALLL at a level that is appropriate and determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The allowance consists of a specific valuation allowance component and a general valuation allowance component. The specific valuation allowance component relates to loans that are determined to be impaired. A specific valuation allowance is established when the fair value of a collateral-dependent loan or the present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate) is lower than the carrying value of the impaired loan. The general valuation allowance component relates to probable credit losses inherent in the balance of the loan portfolio based on historical loss experience, adjusted for changes in trends and conditions of qualitative or environmental factors.

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The Bank divisions’ credit administration reviews their respective loan portfolios to determine which loans are impaired and estimates the specific valuation allowance. The impaired loans and related specific valuation allowance are then provided to the Company’s credit administration for further review and approval. The Company’s credit administration also determines the estimated general valuation allowance and reviews and approves the overall ALLL. The credit administration of the Company exercises significant judgment when evaluating the effect of applicable qualitative or environmental factors on the Company’s historical loss experience for loans not identified as impaired. Quantification of the impact upon the Company’s ALLL is inherently subjective as data for any factor may not be directly applicable, consistently relevant, or reasonably available for management to determine the precise impact of a factor on the collectability of the Company’s loans collectively evaluated for impairment as of each evaluation date. The Company’s credit administration documents its conclusions and rationale for changes that occur in each applicable factor’s weight (i.e., measurement) and ensures that such changes are directionally consistent based on the underlying current trends and conditions for the factor. To have directional consistency, the provision for loan losses and credit quality should generally move in the same direction.

The Company’s model includes thirteen Bank divisions with separate management teams providing substantial local oversight to the lending and credit management function. The Company’s business model affords multiple reviews of larger loans before credit is extended, a significant benefit in mitigating and managing the Company’s credit risk. The geographic dispersion of the market areas in which the Company operates further mitigates the risk of credit loss. While this process is intended to limit credit exposure, there can be no assurance that further problem credits will not arise and additional loan losses incurred, particularly in this slowly improving, but fragile economic recovery and in periods of rapid economic downturns.

The primary responsibility for credit risk assessment and identification of problem loans rests with the loan officer of the account. This continuous process of identifying impaired loans is necessary to support management’s evaluation of the ALLL adequacy. An independent loan review function verifying credit risk ratings evaluates the loan officer and management’s evaluation of the loan portfolio credit quality.

No assurance can be given that the Company will not, in any particular period, sustain losses that are significant relative to the ALLL amount, or that subsequent evaluations of the loan portfolio applying management’s judgment about then current factors, including economic and regulatory developments, will not require significant changes in the ALLL. Under such circumstances, this could result in enhanced provisions for loan losses.

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

	September 30, 2016										December 31, 2015										September 30, 2015
(Dollars in thousands)	ALLL				Percent of ALLL in Category			Percent of Loans in Category			ALLL				Percent of  ALLL in Category			Percent of Loans in Category			ALLL				Percent of  ALLL in Category			Percent of Loans in Category
Residential real estate	$	13,911			10	%		13	%		$	14,427			11	%		13	%		$	15,708			12	%		13	%
Commercial real estate	67,244				51	%		52	%		67,877				52	%		52	%		68,026				52	%		51	%
Other commercial	36,579				28	%		23	%		32,525				25	%		22	%		31,601				24	%		22	%
Home equity	8,574				6	%		8	%		8,998				7	%		8	%		9,046				7	%		9	%
Other consumer	6,226				5	%		4	%		5,870				5	%		5	%		6,387				5	%		5	%
Total	$	132,534			100	%		100	%		$	129,697			100	%		100	%		$	130,768			100	%		100	%

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

	Nine Months ended				Six Months ended			Year ended			Nine Months ended
(Dollars in thousands)	September 30, 2016				June 30, 2016			December 31, 2015			September 30, 2015
Balance at beginning of period	$	129,697			129,697			129,753			129,753
Provision for loan losses	1,194				568			2,284			1,873
Charge-offs
Residential real estate	(366		)		(355	)		(985	)		(78	)
Commercial loans	(1,064		)		(878	)		(4,242	)		(3,405	)
Consumer and other loans	(3,902		)		(1,299	)		(1,775	)		(1,188	)
Total charge-offs	(5,332		)		(2,532	)		(7,002	)		(4,671	)
Recoveries
Residential real estate	192				44			92			70
Commercial loans	4,719				3,432			3,620			2,955
Consumer and other loans	2,064				1,177			950			788
Total recoveries	6,975				4,653			4,662			3,813
Charge-offs, net of recoveries	1,643				2,121			(2,340	)		(858	)
Balance at end of period	$	132,534			132,386			129,697			130,768
ALLL as a percentage of total loans	2.37		%		2.46	%		2.55	%		2.68	%
Net (recoveries) charge-offs as a percentage of total loans	(0.03		)%		(0.04	)%		0.05	%		0.02	%

The allowance as a percent of total loans outstanding at September 30, 2016 was 2.37 percent, a decrease of 18 basis points from 2.55 percent at December 31, 2015 and a decrease of 31 basis points from 2.68 percent at September 30, 2015 which was driven by loan growth combined with stabilized credit quality.

The Company’s ALLL of $133 million is considered adequate to absorb losses from any class of its loan portfolio. For the periods ended September 30, 2016 and 2015 , the Company believes the ALLL is commensurate with the risk in the Company’s loan portfolio and is directionally consistent with the change in the quality of the Company’s loan portfolio.

When applied to the Company’s historical loss experience, the qualitative or environmental factors result in the provision for loan losses being recorded in the period in which the loss has probably occurred. When the loss is confirmed at a later date, a charge-off is recorded. During 2016 , the provision for loan losses exceeded loan charge-offs, net of recoveries, by $2.8 million . During the same period in 2015 , the provision for loan losses exceeded loan charge-offs, net of recoveries, by $1.0 million .

The Company provides commercial services to individuals, small to medium-sized businesses, community organizations and public entities from 142 locations, including 133 branches, across Montana, Idaho, Wyoming, Colorado, Utah, and Washington. The Rocky Mountain 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.

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Overall, there continues to be slow improvements in the economic environment compared to the past several years and the housing market is slowly recovering. Home prices continue to increase within the Company’s footprint. Colorado and Washington are experiencing the strongest pricing pressures, while Wyoming continues to lag behind the national trend. Four of the Company’s states are ranked in the top 10 nationally for house price appreciation. Home ownership in the United States increased during the second half of 2015 for the first time since 2013; however, home ownership fell slightly during the first half of 2016. The long-term average for the United States homeownership rate is at 64 percent. Annual personal income growth remains in positive territory for each of the Company’s states except Wyoming and Washington, Colorado and Utah exceed the national average. The Federal Reserve Bank of Philadelphia’s composite state coincident indices projects steady growth during the next six months in all of the Company’s footprint, except Montana. Gross Domestic Product growth increased during the prior quarter due to an increase in consumer spending, while consumer sentiment continues to decline as election season draws closer. Utah, Colorado, Idaho and Montana are below the full employment level of 5 percent. Crude oil, natural gas and base metal prices continue to be stressed and certain agriculture commodities within the Company’s footprint remain volatile. The tourism industry and related lodging activity continues to be a source of strength for the locations where the Company’s market areas have national parks and similar recreational areas in the market areas served. However, Canadian tourism in Washington, Idaho and Montana has been negatively impacted by the weak Canadian dollar. Overall, the Company sees positive signs in the various economic indices; however, given the significant recession experienced during 2008 and 2009, the Company is cautiously optimistic about the recovery of the housing industry. The Company will continue to actively monitor the economy’s impact on its lending portfolio.

In evaluating the need for a specific or general valuation allowance for impaired and unimpaired loans, respectively, within the Company’s construction loan portfolio (i.e., regulatory classification), including residential construction and land, lot and other construction loans, the credit risk related to such loans was considered in the ongoing monitoring of such loans, including assessments based on current information, including appraisals or evaluations (new or updated) of the underlying collateral, expected cash flows and the timing thereof, as well as the estimated cost to sell when such costs are expected to reduce the cash flows available to repay or otherwise satisfy the construction loan. Construction loans were 12 percent of the Company’s total loan portfolio and accounted for 21 percent and 34 percent of the Company’s non-accrual loans at September 30, 2016 and December 31, 2015 , respectively. Collateral securing construction loans includes residential buildings (e.g., single/multi-family and condominiums), commercial buildings, and associated land (e.g., multi-acre parcels and individual lots, with and without shorelines).

The Company’s ALLL consisted of the following components as of the dates indicated:

 

(Dollars in thousands)	September 30, 2016				June 30, 2016			December 31, 2015			September 30, 2015
Specific valuation allowance	$	5,966			4,365			8,124			7,497
General valuation allowance	126,568				128,021			121,573			123,271
Total ALLL	$	132,534			132,386			129,697			130,768

During 2016 , the ALLL increased by $2.8 million , the net result of a $2.2 million decrease in the specific valuation allowance and a $5.0 million increase in the general valuation allowance. The specific valuation allowance decreased compared to the prior year end due to a decrease in loans individually reviewed for impairment with a specific impairment. The increase in the general valuation allowance since the prior year end was a result of an increase of $523 million in loans collectively evaluated for impairment.

For additional information regarding the ALLL, its relation to the provision for loan losses and risk related to asset quality, see Note 3 to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”

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Loans by Regulatory Classification

Supplemental information regarding identification of the Company’s loan portfolio and credit quality based on regulatory classification is provided in the following tables. The regulatory classification of loans is based primarily on the type of collateral for the loans. There may be differences when compared to loan tables and loan amounts appearing elsewhere which reflect the Company’s internal loan segments and classes which are based on the purpose of the loan.

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

	Loans Receivable, by Loan Type																% Change from
(Dollars in thousands)	Sep 30, 2016				Jun 30, 2016				Dec 31, 2015				Sep 30, 2015				Jun 30, 2016			Dec 31, 2015			Sep 30, 2015
Custom and owner occupied construction	$	82,935			$	78,525			$	75,094			$	64,951			6	%		10	%		28	%
Pre-sold and spec construction	66,812				59,530				50,288				46,921				12	%		33	%		42	%
Total residential construction	149,747				138,055				125,382				111,872				8	%		19	%		34	%
Land development	68,597				61,803				62,356				83,756				11	%		10	%		(18	)%
Consumer land or lots	96,798				95,247				97,270				98,490				2	%		—	%		(2	)%
Unimproved land	69,880				70,396				73,844				74,439				(1	)%		(5	)%		(6	)%
Developed lots for operative builders	13,256				13,845				12,336				13,697				(4	)%		7	%		(3	)%
Commercial lots	27,512				26,084				22,035				22,937				5	%		25	%		20	%
Other construction	246,753				206,343				156,784				122,347				20	%		57	%		102	%
Total land, lot, and other construction	522,796				473,718				424,625				415,666				10	%		23	%		26	%
Owner occupied	963,063				927,237				938,625				885,736				4	%		3	%		9	%
Non-owner occupied	890,981				835,272				774,192				739,057				7	%		15	%		21	%
Total commercial real estate	1,854,044				1,762,509				1,712,817				1,624,793				5	%		8	%		14	%
Commercial and industrial	697,598				705,011				649,553				619,688				(1	)%		7	%		13	%
Agriculture	425,645				421,097				367,339				386,523				1	%		16	%		10	%
1st lien	883,034				867,918				856,193				801,705				2	%		3	%		10	%
Junior lien	61,788				64,248				65,383				67,351				(4	)%		(5	)%		(8	)%
Total 1-4 family	944,822				932,166				921,576				869,056				1	%		3	%		9	%
Multifamily residential	204,395				198,583				201,542				189,944				3	%		1	%		8	%
Home equity lines of credit	399,446				388,939				372,039				359,605				3	%		7	%		11	%
Other consumer	154,547				156,568				150,469				154,095				(1	)%		3	%		—	%
Total consumer	553,993				545,507				522,508				513,700				2	%		6	%		8	%
Other	313,991				276,111				209,853				185,633				14	%		50	%		69	%
Total loans receivable, including loans held for sale	5,667,031				5,452,757				5,135,195				4,916,875				4	%		10	%		15	%
Less loans held for sale 1	(71,069		)		(74,140	)		(56,514		)		(40,456		)		(4	)%		26	%		76	%
Total loans receivable	$	5,595,962			$	5,378,617			$	5,078,681			$	4,876,419			4	%		10	%		15	%

__________

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

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The following tables summarize selected information identified by regulatory classification of the Company’s non-performing assets.

	Non-performing Assets, by Loan Type													Non- Accrual Loans			Accruing Loans 90  Days or  More Past Due			Other Real  Estate Owned
(Dollars in thousands)	Sep 30, 2016				Jun 30, 2016			Dec 31, 2015			Sep 30, 2015			Sep 30, 2016			Sep 30, 2016			Sep 30, 2016
Custom and owner occupied construction	$	375			390			1,016			1,048			375			—			—
Pre-sold and spec construction	250				—			—			—			250			—			—
Total residential construction	625				390			1,016			1,048			625			—			—
Land development	11,717				12,830			17,582			17,719			1,588			—			10,129
Consumer land or lots	2,196				1,656			2,250			2,430			766			—			1,430
Unimproved land	12,068				12,147			12,328			12,055			7,980			—			4,088
Developed lots for operative builders	175				176			488			492			—			—			175
Commercial lots	2,165				1,979			1,521			1,631			216			—			1,949
Other construction	—				—			4,236			4,244			—			—			—
Total land, lot and other construction	28,321				28,788			38,405			38,571			10,550			—			17,771
Owner occupied	19,970				10,503			10,952			12,719			18,190			—			1,780
Non-owner occupied	4,005				4,055			3,446			3,833			3,328			—			677
Total commercial real estate	23,975				14,558			14,398			16,552			21,518			—			2,457
Commercial and industrial	5,175				7,123			3,993			5,110			5,002			160			13
Agriculture	2,329				3,979			3,281			3,114			2,145			184			—
1st lien	9,333				11,332			10,691			11,953			6,267			817			2,249
Junior lien	1,335				1,489			668			660			1,160			35			140
Total 1-4 family	10,668				12,821			11,359			12,613			7,427			852			2,389
Multifamily residential	432				432			113			—			432			—			—
Home equity lines of credit	4,734				5,413			5,486			6,013			4,445			289			—
Other consumer	182				275			228			204			136			14			32
Total consumer	4,916				5,688			5,714			6,217			4,581			303			32
Other	1,800				1,802			1,800			1,800			—			1,800			—
Total	$	78,241			75,581			80,079			85,025			52,280			3,299			22,662

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	Accruing 30-89 Days Delinquent  Loans,  by Loan Type																% Change from
(Dollars in thousands)	Sep 30, 2016				Jun 30, 2016				Dec 31, 2015				Sep 30, 2015				Jun 30, 2016			Dec 31, 2015			Sep 30, 2015
Custom and owner occupied construction	$	65			$	375			$	462			$	138			(83	)%		(86	)%		(53	)%
Pre-sold and spec construction	—				304				181				144				(100	)%		(100	)%		(100	)%
Total residential construction	65				679				643				282				(90	)%		(90	)%		(77	)%
Land development	—				37				447				—				(100	)%		(100	)%		n/m
Consumer land or lots	130				676				166				266				(81	)%		(22	)%		(51	)%
Unimproved land	857				879				774				304				(3	)%		11	%		182	%
Developed lots for operative builders	—				166				—				—				(100	)%		n/m			n/m
Other construction	7,125				—				337				—				n/m			2,014	%		n/m
Total land, lot and other construction	8,112				1,758				1,724				570				361	%		371	%		1,323	%
Owner occupied	586				2,975				2,760				2,497				(80	)%		(79	)%		(77	)%
Non-owner occupied	5,830				5,364				923				5,529				9	%		532	%		5	%
Total commercial real estate	6,416				8,339				3,683				8,026				(23	)%		74	%		(20	)%
Commercial and industrial	4,038				4,956				1,968				2,774				(19	)%		105	%		46	%
Agriculture	989				804				1,014				867				23	%		(2	)%		14	%
1st lien	3,439				2,667				6,272				2,510				29	%		(45	)%		37	%
Junior lien	977				1,251				1,077				228				(22	)%		(9	)%		329	%
Total 1-4 family	4,416				3,918				7,349				2,738				13	%		(40	)%		61	%
Multifamily residential	—				—				662				114				n/m			(100	)%		(100	)%
Home equity lines of credit	2,383				2,253				1,046				1,599				6	%		128	%		49	%
Other consumer	943				736				1,227				811				28	%		(23	)%		16	%
Total consumer	3,326				2,989				2,273				2,410				11	%		46	%		38	%
Other	22				36				97				41				(39	)%		(77	)%		(46	)%
Total	$	27,384			$	23,479			$	19,413			$	17,822			17	%		41	%		54	%

__________

n/m - not measurable

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The following table summarizes net charge-offs at the dates indicated, including identification by regulatory classification:

	Net Charge-Offs (Recoveries), Year-to-Date Period Ending, By Loan Type													Charge-Offs			Recoveries
(Dollars in thousands)	Sep 30, 2016				Jun 30, 2016			Dec 31, 2015			Sep 30, 2015			Sep 30, 2016			Sep 30, 2016
Pre-sold and spec construction	$	(39	)		(37	)		(53	)		(34	)		—			39
Land development	(2,372		)		(2,342	)		(288	)		(293	)		29			2,401
Consumer land or lots	(487		)		(351	)		66			(8	)		25			512
Unimproved land	(114		)		(46	)		(325	)		(152	)		—			114
Developed lots for operative builders	(23		)		(54	)		(85	)		(72	)		15			38
Commercial lots	29				21			(26	)		(5	)		33			4
Other construction	—				—			(1	)		(1	)		—			—
Total land, lot and other construction	(2,967		)		(2,772	)		(659	)		(531	)		102			3,069
Owner occupied	(354		)		(51	)		247			249			32			386
Non-owner occupied	9				(3	)		93			105			13			4
Total commercial real estate	(345		)		(54	)		340			354			45			390
Commercial and industrial	(643		)		(112	)		1,389			1,011			761			1,404
Agriculture	(29		)		(1	)		50			(8	)		25			54
1st lien	132				245			834			(80	)		327			195
Junior lien	(15		)		(56	)		(125	)		(106	)		137			152
Total 1-4 family	117				189			709			(186	)		464			347
Multifamily residential	229				229			(318	)		(318	)		229			—
Home equity lines of credit	450				(25	)		740			531			696			246
Other consumer	255				149			143			39			409			154
Total consumer	705				124			883			570			1,105			400
Other	1,329				313			(1	)		—			2,601			1,272
Total	$	(1,643	)		(2,121	)		2,340			858			5,332			6,975

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Sources of Funds

The Company’s deposits have traditionally been the principal source of funds for use in lending and other business purposes. The Company also obtains funds from repayment of loans and investment securities, repurchase agreements, wholesale deposits, advances from FHLB and other borrowings. Loan repayments are a relatively stable source of funds, while interest bearing deposit inflows and outflows are significantly influenced by general interest rate levels and market conditions. Borrowings and advances may be used on a short-term basis to compensate for reductions in normal sources of funds such as deposit inflows at less than projected levels. Borrowings also may be used on a long-term basis to support expanded activities, match maturities of longer-term assets or manage interest rate risk.

Deposits

The Company has several deposit programs designed to attract both short-term and long-term deposits from the general public by providing a wide selection of accounts and rates. These programs include non-interest bearing demand accounts, interest bearing NOW and demand accounts, savings, money market deposit accounts, 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. In addition, 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, 2016							December 31, 2015							September 30, 2015
(Dollars in thousands)	Amount				Percent			Amount				Percent			Amount				Percent
Non-interest bearing deposits	$	2,098,747			29	%		$	1,918,310			28	%		$	1,893,723			28	%
NOW and DDA accounts	1,514,330				21	%		1,516,026				22	%		1,373,295				21	%
Savings accounts	938,547				13	%		838,274				12	%		771,719				12	%
Money market deposit accounts	1,442,602				20	%		1,382,028				20	%		1,350,098				20	%
Certificate accounts	975,521				13	%		1,060,650				15	%		1,094,565				16	%
Wholesale deposits	339,572				4	%		229,720				3	%		189,779				3	%
Total interest bearing deposits	5,210,572				71	%		5,026,698				72	%		4,779,456				72	%
Total deposits	$	7,309,319			100	%		$	6,945,008			100	%		$	6,673,179			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 that same securities at an agreed upon later date, typically overnight. A rate of interest is paid for the agreed period of time. Through a policy adopted by the Bank’s Board of Directors, the Bank enters into repurchase agreements with local municipalities, and certain customers, and has adopted procedures designed to ensure proper transfer of title and safekeeping of the underlying securities. In addition to retail repurchase agreements, the Company enters into wholesale repurchase agreements as additional funding sources. The Company has not entered into reverse repurchase agreements.

The Bank is a member of the FHLB of Des Moines, which is one of eleven banks that comprise the FHLB system.  The Bank is required to maintain a certain level of activity-based stock in order to borrow or to engage in other transactions with the FHLB of Des Moines. Additionally, the Bank is subject to a membership capital stock requirement that is based upon an annual calibration tied to the total assets of the Bank. The borrowings are collateralized by eligible categories of loans and investment securities (principally, securities which are obligations of, or guaranteed by, the U.S. government and its agencies), provided certain standards related to credit-worthiness have been met. Advances are made pursuant to several different credit programs, each of which has its own interest rates and range of maturities. The Bank’s maximum amount of FHLB advances is limited to the lesser of a fixed percentage of the Bank’s total assets or the discounted value of eligible collateral. FHLB advances fluctuate to meet seasonal and other withdrawals of deposits and to expand lending or investment opportunities of the Company.

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

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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 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, 2016				December 31, 2015
Repurchase agreements
Amount outstanding at end of period	$	401,243			423,414
Weighted interest rate on outstanding amount	0.33		%		0.31	%
Maximum outstanding at any month-end	$	445,960			441,041
Average balance	$	376,560			376,983
Weighted-average interest rate	0.31		%		0.27	%
FHLB advances
Amount outstanding at end of period	$	1,119			185,091
Weighted interest rate on outstanding amount	1.87		%		1.02	%
Maximum outstanding at any month-end	$	240,050			185,091
Average balance	$	105,595			107,341
Weighted-average interest rate	0.95		%		3.06	%

Subordinated Debentures

In addition to funds obtained in the ordinary course of business, the Company formed or acquired financing subsidiaries for the purpose of issuing trust preferred securities that entitle the investor to receive cumulative cash distributions thereon. The subordinated debentures outstanding as of September 30, 2016 were $126 million , including fair value adjustments from prior 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 un-advanced loan commitments, which are not reflected in the accompanying condensed consolidated financial statements. The Company does not anticipate any material losses as a result of these transactions.

Off-balance sheet arrangements also include any obligation related to a variable interest held in an unconsolidated entity. The Company does not anticipate any material losses as a result of these transactions. For additional information regarding the Company’s interests in unconsolidated variable interest entities (“VIE”), see Note 5 to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”

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Liquidity Risk

Liquidity risk is the possibility that the Company will not be able to fund present and future obligations as they come due because of an inability to liquidate assets or obtain adequate funding at a reasonable cost. The objective of liquidity management is to maintain cash flows adequate to meet current and future needs for credit demand, deposit withdrawals, maturing liabilities and corporate operating expenses. Effective liquidity management entails three elements:

1.	Assessing on an ongoing basis, the current and expected future needs for funds, and ensuring that sufficient funds or access to funds exist to meet those needs at the appropriate time;

2.	Providing for an adequate cushion of liquidity to meet unanticipated cash flow needs that may arise from potential adverse circumstances ranging from high probability/low severity events to low probability/high severity; and

3.	Balancing the benefits between providing for adequate liquidity to mitigate potential adverse events and the cost of that liquidity.

The Company has a wide range of versatility in managing the liquidity and asset/liability mix. The Bank’s ALCO meets regularly to assess liquidity risk, among other matters. The Company monitors liquidity and contingency funding alternatives through management reports of liquid assets (e.g., investment securities), both unencumbered and pledged, as well as borrowing capacity, both secured and unsecured, including off-balance sheet funding sources. The Company evaluates its potential funding needs across alternative scenarios and maintains contingency funding plans consistent with the Company’s access to diversified sources of contingent funding.

The following table identifies certain liquidity sources and capacity available to the Company as of the dates indicated:

(Dollars in thousands)	September 30, 2016				December 31, 2015
FHLB advances
Borrowing capacity	$	1,609,110			1,494,288
Amount utilized	(211,833		)		(394,131	)
Amount available	$	1,397,277			1,100,157
FRB discount window
Borrowing capacity	$	1,074,975			945,948
Amount utilized	—				—
Amount available	$	1,074,975			945,948
Unsecured lines of credit available	$	255,000			255,000
Unencumbered investment securities
U.S. government and federal agency	$	41,593			47,451
U.S. government sponsored enterprises	8,759				75,419
State and local governments	802,945				880,866
Corporate bonds	118,130				48,528
Residential mortgage-backed securities	268,354				435,749
Total unencumbered securities	$	1,239,781			1,488,013

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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 76,525,402 have been issued as of September 30, 2016 . The Company also has the capacity to issue 1,000,000 shares of preferred stock of which none have been issued as of September 30, 2016 . 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. In July 2013, the federal banking agencies approved the final rules (“Final Rules”) to establish a new comprehensive regulatory capital framework with a phase-in period beginning on January 1, 2015 and ending on January 1, 2019. The Final Rules implement the third installment of the Basel Accords (“Basel III”) regulatory capital reforms and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and substantially amend the regulatory risk-based capital rules applicable to the Company. Basel III redefines the regulatory capital elements and minimum capital ratios, introduces regulatory capital buffers above those minimums, revises rules for calculating risk-weighted assets and adds a new component of Tier 1 capital called Common Equity Tier 1, which includes common equity and retained earnings and excludes preferred equity.

The following table illustrates the Bank’s regulatory ratios and the Federal Reserve’s current capital adequacy guidelines as of September 30, 2016 . The Federal Reserve’s fully phased-in guidelines applicable in 2019 are also summarized.

	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’s actual regulatory ratios	16.31	%		15.05	%		15.05	%		11.77	%
Minimum capital requirements	8.00	%		6.00	%		4.50	%		4.00	%
Well capitalized requirements	10.00	%		8.00	%		6.50	%		5.00	%
Minimum capital requirements, including fully-phased in capital conservation buffer (2019)	10.50	%		8.50	%		7.00	%		N/A

The Company has evaluated the impact of the Final Rules and believes that, as of September 30, 2016 , the Company would meet all capital adequacy requirements under the Basel III capital rules on a fully phased-in basis as if all such requirements were currently in effect. There are no conditions or events since September 30, 2016 that management believes have changed the Company’s or the Bank’s risk-based capital category.

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Federal and State Income Taxes

The Company files a consolidated federal income tax return using the accrual method of accounting. All required tax returns have been timely filed. Financial institutions are subject to the provisions of the Internal Revenue Code of 1986, as amended, in the same general manner as other corporations.

Under Montana, Idaho, Colorado and Utah law, financial institutions are subject to a corporation income tax, which incorporates or is substantially similar to applicable provisions of the Internal Revenue Code. The corporation income tax is imposed on federal taxable income, subject to certain adjustments. State taxes are incurred at the rate of 6.75 percent in Montana, 7.4 percent in Idaho, 5 percent in Utah and 4.63 percent in Colorado. Wyoming and Washington do not impose a corporate income tax.

Income tax expense for the nine months ended September 30, 2016 and 2015 was $30.0 million and $25.7 million , respectively. The Company’s effective tax rate for the nine months ended September 30, 2016 and 2015 was 25.0 percent and 22.9 percent , respectively. The primary reason for the current and prior year’s low effective tax rate is the amount of tax-exempt investment income and federal income tax credits. Tax-exempt investment income was $37.8 million and $38.0 million for the nine months ended September 30, 2016 and 2015 , respectively. The benefits from federal income tax credits were $2.4 million and $3.0 million for the nine months ended September 30, 2016 and 2015 , respectively.

The Company has equity investments in Certified Development Entities (“CDE”) which have received allocations of NMTCs. 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 $22.8 million in Qualified Zone Academy and Qualified School Construction bonds whereby the Company receives quarterly federal income tax credits in lieu of taxable interest income. The federal income tax credits on these investment securities are subject to federal and state income tax.

Following is a list of expected federal income tax credits to be received in the years indicated.

 

(Dollars in thousands)	New Markets Tax Credits				Low-Income Housing Tax Credits			Investment Securities Tax Credits			Total
2016	$	2,150			1,079			863			4,092
2017	1,586				1,902			786			4,274
2018	1,264				2,261			709			4,234
2019	1,364				2,261			660			4,285
2020	1,364				2,047			611			4,022
Thereafter	1,959				7,596			2,494			12,049
	$	9,687			17,146			6,123			32,956

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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
	September 30, 2016											September 30, 2016
(Dollars in thousands)	Average Balance				Interest & Dividends				Average Yield/ Rate			Average Balance				Interest & Dividends				Average Yield/ Rate
Assets
Residential real estate loans	$	752,723			$	8,538			4.54	%		$	736,866			$	24,947			4.51	%
Commercial loans 1	4,092,627				48,817				4.75	%		3,915,503				142,108				4.85	%
Consumer and other loans	678,415				7,885				4.62	%		666,200				23,501				4.71	%
Total loans 2	5,523,765				65,240				4.70	%		5,318,569				190,556				4.79	%
Tax-exempt investment securities 3	1,311,616				18,764				5.72	%		1,337,511				57,420				5.72	%
Taxable investment securities 4	1,774,209				9,813				2.21	%		1,895,871				31,961				2.25	%
Total earning assets	8,609,590				93,817				4.33	%		8,551,951				279,937				4.37	%
Goodwill and intangibles	155,347											154,708
Non-earning assets	398,463											393,290
Total assets	$	9,163,400										$	9,099,949
Liabilities
Non-interest bearing deposits	$	1,973,648			$	—			—	%		$	1,897,176			$	—			—	%
NOW and DDA accounts	1,501,944				244				0.06	%		1,487,413				808				0.07	%
Savings accounts	934,911				119				0.05	%		900,141				331				0.05	%
Money market deposit accounts	1,425,655				543				0.15	%		1,410,257				1,635				0.15	%
Certificate accounts	986,411				1,482				0.60	%		1,030,283				4,605				0.60	%
Wholesale deposits 5	345,287				2,162				2.49	%		335,628				6,526				2.60	%
FHLB advances	259,216				1,527				2.30	%		319,808				4,844				1.99	%
Repurchase agreements and other borrowed funds	502,391				1,241				0.98	%		507,514				3,668				0.97	%
Total interest bearing liabilities	7,929,463				7,318				0.37	%		7,888,220				22,417				0.38	%
Other liabilities	93,250											94,718
Total liabilities	8,022,713											7,982,938
Stockholders’ Equity
Common stock	762											762
Paid-in capital	741,072											738,126
Retained earnings	381,197											366,094
Accumulated other comprehensive income	17,656											12,029
Total stockholders’ equity	1,140,687											1,117,011
Total liabilities and stockholders’ equity	$	9,163,400										$	9,099,949
Net interest income (tax-equivalent)					$	86,499										$	257,520
Net interest spread (tax-equivalent)									3.96	%										3.99	%
Net interest margin (tax-equivalent)									4.00	%										4.02	%

 

__________

1	Includes tax effect of $1.1 million and $2.9 million on tax-exempt municipal loan and lease income for the three and nine months ended September 30, 2016 .

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

3	Includes tax effect of $6.4 million and $19.6 million on tax-exempt investment securities income for the three and nine months ended September 30, 2016 .

4	Includes tax effect of $352 thousand and $1.1 million on federal income tax credits for the three and nine months ended September 30, 2016 .

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

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Rate/Volume Analysis

Net interest income can be evaluated from the perspective of relative dollars of change in each period. Interest income and interest expense, which are the components of net interest income, are shown in the following table on the basis of the amount of any increases (or decreases) attributable to changes in the dollar levels of the Company’s interest earning assets and interest bearing liabilities (“volume”) and the yields earned and rates paid on such assets and liabilities (“rate”). The change in interest income and interest expense attributable to changes in both volume and rates has been allocated proportionately to the change due to volume and the change due to rate.

	Nine Months ended September 30,
	2016 vs. 2015
	Increase (Decrease) Due to:
(Dollars in thousands)	Volume				Rate			Net
Interest income
Residential real estate loans	$	2,235			(869	)		1,366
Commercial loans (tax-equivalent)	18,799				(450	)		18,349
Consumer and other loans	1,624				(1,800	)		(176	)
Investment securities (tax-equivalent)	572				1,311			1,883
Total interest income	23,230				(1,808	)		21,422
Interest expense
NOW and DDA accounts	85				(67	)		18
Savings accounts	58				10			68
Money market deposit accounts	99				(8	)		91
Certificate accounts	(524		)		(155	)		(679	)
Wholesale deposits	2,657				(456	)		2,201
FHLB advances	126				(1,967	)		(1,841	)
Repurchase agreements and other borrowed funds	29				470			499
Total interest expense	2,530				(2,173	)		357
Net interest income (tax-equivalent)	$	20,700			365			21,065

Net interest income (tax-equivalent) increased $21.1 million for the nine months ended September 30, 2016 compared to the same period in 2015 . The interest income for the current year first nine months increased over the same period last year primarily from increased growth of the Company’s commercial loan portfolio along with an increased growth in other loan categories. Total interest expense remained relatively flat for the first nine months of 2016 compared to the same period in the prior year, although, there was an increase in expenses related to wholesale deposits which was offset by a decrease in expense on FHLB advances. The increase in the amount of wholesale deposits was driven by an interest rate swap which started interest expense accruals in the fourth quarter of 2015. The decrease in rates on FHLB advances was driven by long-term advances maturing and being replaced by short-term lower cost FHLB advances.

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.

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Item 3.	Quantitative and Qualitative Disclosure about Market Risk

The Company’s assessment of market risk as of September 30, 2016 indicates there are no material changes in the quantitative and qualitative disclosures from those in the 2015 Annual Report.

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 30, 2016 . 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 quarter of 2016 , 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 Company believes there have been no material changes from risk factors previously disclosed in the 2015 Annual Report. The risks and uncertainties described in the 2015 Annual Report should be carefully reviewed. These are not the only risks and uncertainties that the Company faces. Additional risks and uncertainties that the Company does not currently know about or that the Company currently believes are immaterial, or that the Company has not predicted, may also harm its business operations or adversely affect the Company. If any of these risks or uncertainties actually occurs, the Company’s business, financial condition, operating results or liquidity could be adversely affected.

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

(a)	Not Applicable

(b)	Not Applicable

(c)	Not Applicable

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Item 3.	Defaults upon Senior Securities

(a)	Not Applicable

(b)	Not Applicable

Item 4.	Mine Safety Disclosures

Not Applicable

Item 5.	Other Information

(a)	Not Applicable

(b)	Not Applicable

Item 6. Exhibits

 

Exhibit 31.1 -	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002

Exhibit 31.2 -	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002

Exhibit 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

Exhibit 101 -

The following financial information from Glacier Bancorp, Inc's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 is formatted in XBRL: (i) the Unaudited Condensed Consolidated Statements of Financial Condition, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income, (iv) the Unaudited Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Condensed Consolidated Financial Statements.

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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 31, 2016	/s/ Michael J. Blodnick
	Michael J. Blodnick
	President and CEO
October 31, 2016	/s/ Ron J. Copher
	Ron J. Copher
	Executive Vice President and CFO

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