e10vq
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2011
     
o   Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number 000-18911
GLACIER BANCORP, INC.
 
(Exact name of registrant as specified in its charter)
     
MONTANA   81-0519541
 
(State or other jurisdiction of incorporation or organization)   (IRS Employer Identification No.)
     
49 Commons Loop, Kalispell, Montana   59901
 
(Address of principal executive offices)   (Zip Code)
(406) 756-4200
 
Registrant’s telephone number, including area code
Not Applicable
 
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes   o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes   o No
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ Accelerated Filer o  Non-Accelerated Filer o
(Do not check if a smaller reporting company)
Smaller reporting Company o
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes   þ No
The number of shares of Registrant’s common stock outstanding on July 22, 2011 was 71,915,073. No preferred shares are issued or outstanding.
 
 

 


 

GLACIER BANCORP, INC.
Quarterly Report on Form 10-Q
Index
         
    Page  
Part I. Financial Information
       
Item 1 — Financial Statements
       
    3  
    4  
    5  
    6  
    7  
    23  
    57  
    57  
    58  
    58  
    58  
    64  
    64  
    64  
    65  
    65  
 EX-31.1
 EX-31.2
 EX-32
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Financial Condition
                 
    June 30,     December 31,  
(Dollars in thousands, except per share data)   2011     2010  
 
               
Assets
               
Cash on hand and in banks
  $ 94,890       71,465  
Interest bearing cash deposits
    34,151       33,626  
 
           
Cash and cash equivalents
    129,041       105,091  
 
               
Investment securities, available-for-sale
    2,784,415       2,395,847  
Loans held for sale
    35,440       76,213  
 
               
Loans receivable
    3,601,811       3,749,289  
Allowance for loan and lease losses
    (139,795 )     (137,107 )
 
           
Loans receivable, net
    3,462,016       3,612,182  
 
               
Premises and equipment, net
    154,410       152,492  
Other real estate owned
    99,585       73,485  
Accrued interest receivable
    35,229       30,246  
Deferred tax asset
    23,548       40,284  
Core deposit intangible, net
    9,440       10,757  
Goodwill
    146,259       146,259  
Non-marketable equity securities
    50,762       65,040  
Other assets
    48,175       51,391  
 
           
Total assets
  $ 6,978,320       6,759,287  
 
           
 
               
Liabilities
               
Non-interest bearing deposits
  $ 916,887       855,829  
Interest bearing deposits
    3,787,912       3,666,073  
Federal Home Loan Bank advances
    925,061       965,141  
Securities sold under agreements to repurchase
    251,303       249,403  
Federal funds purchased
    48,000        
Other borrowed funds
    14,799       20,005  
Accrued interest payable
    6,261       7,245  
Subordinated debentures
    125,203       125,132  
Other liabilities
    38,122       32,255  
 
           
Total liabilities
    6,113,548       5,921,083  
 
           
 
               
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
    719       719  
Paid-in capital
    642,878       643,894  
Retained earnings — substantially restricted
    196,536       193,063  
Accumulated other comprehensive income
    24,639       528  
 
           
Total stockholders’ equity
    864,772       838,204  
 
           
Total liabilities and stockholders’ equity
  $ 6,978,320       6,759,287  
 
           
 
               
Number of common stock shares issued and outstanding
    71,915,073       71,915,073  
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 June 30,     Six Months ended June 30,  
(Dollars in thousands, except per share data)   2011     2010     2011     2010  
 
                               
Interest Income
                               
Residential real estate loans
  $ 8,156       11,421       16,872       23,254  
Commercial loans
    32,977       37,003       66,035       73,675  
Consumer and other loans
    10,211       10,720       20,661       21,360  
Investment securities
    20,218       14,674       36,367       28,927  
 
                       
Total interest income
    71,562       73,818       139,935       147,216  
 
                       
 
                               
Interest Expense
                               
Deposits
    6,584       9,222       13,672       18,553  
Federal Home Loan Bank advances
    3,093       2,454       5,641       4,765  
Securities sold under agreements to repurchase
    319       399       676       815  
Subordinated debentures
    1,273       1,648       2,916       3,284  
Other borrowed funds
    62       26       95       216  
 
                       
Total interest expense
    11,331       13,749       23,000       27,633  
 
                       
 
                               
Net Interest Income
    60,231       60,069       116,935       119,583  
Provision for loan losses
    19,150       17,246       38,650       38,156  
 
                       
Net interest income after provision for loan losses
    41,081       42,823       78,285       81,427  
 
                       
 
                               
Non-Interest Income
                               
Service charges and other fees
    11,330       10,641       21,538       20,161  
Miscellaneous loan fees and charges
    928       1,259       1,905       2,385  
Gain on sale of loans
    4,291       6,133       8,985       10,024  
(Loss) gain on sale of investments
    (591 )     242       (467 )     556  
Other income
    1,893       3,143       3,285       4,475  
 
                       
Total non-interest income
    17,851       21,418       35,246       37,601  
 
                       
 
                               
Non-Interest Expense
                               
Compensation, employee benefits and related expense
    21,170       21,652       42,773       43,008  
Occupancy and equipment expense
    5,728       5,988       11,682       11,936  
Advertising and promotions
    1,635       1,644       3,119       3,236  
Outsourced data processing expense
    791       761       1,564       1,455  
Core deposit intangibles amortization
    590       801       1,317       1,621  
Other real estate owned expense
    5,062       7,373       7,161       9,691  
Federal Deposit Insurance Corporation premiums
    2,197       2,165       4,521       4,365  
Other expense
    9,047       7,852       16,559       14,885  
 
                       
Total non-interest expense
    46,220       48,236       88,696       90,197  
 
                       
 
                               
Earnings Before Income Taxes
    12,712       16,005       24,835       28,831  
 
                               
Federal and state income tax expense
    826       2,783       2,664       5,539  
 
                               
 
                       
Net Earnings
  $ 11,886       13,222       22,171       23,292  
 
                       
 
                               
Basic earnings per share
  $ 0.17       0.19       0.31       0.35  
Diluted earnings per share
  $ 0.17       0.19       0.31       0.35  
Dividends declared per share
  $ 0.13       0.13       0.26       0.26  
Average outstanding shares — basic
    71,915,073       71,913,102       71,915,073       67,363,476  
Average outstanding shares — diluted
    71,915,073       71,914,894       71,915,073       67,364,377  
See accompanying notes to unaudited condensed consolidated financial statements.

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Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
and Comprehensive Income
Year ended December 31, 2010 and Six Months ended June 30, 2011
                                                 
                            Retained     Accumulated     Total  
                            Earnings     Other Comp-     Stock-  
    Common Stock     Paid-in     Substantially     rehensive     holders’  
(Dollars in thousands, except per share data)   Shares     Amount     Capital     Restricted     (Loss) Income     Equity  
 
                                               
Balance at December 31, 2009
    61,619,803     $ 616       497,493       188,129       (348 )     685,890  
 
                                               
Comprehensive income:
                                               
Net earnings
                      42,330             42,330  
Unrealized gain on securities, net of reclassification adjustment and taxes
                            876       876  
 
                                             
Total comprehensive income
                                            43,206  
 
                                             
 
                                               
Cash dividends declared ($0.52 per share)
                      (37,396 )           (37,396 )
Stock options exercised
    3,805             58                   58  
Public offering of stock issued
    10,291,465       103       145,493                   145,596  
Stock based compensation and related taxes
                850                   850  
 
                                   
Balance at December 31, 2010
    71,915,073     $ 719       643,894       193,063       528       838,204  
 
                                               
Comprehensive income:
                                               
Net earnings
                      22,171             22,171  
Unrealized gain on securities, net of reclassification adjustment and taxes
                            24,111       24,111  
 
                                             
Total comprehensive income
                                            46,282  
 
                                             
 
                                               
Cash dividends declared ($0.26 per share)
                      (18,698 )           (18,698 )
Stock based compensation and related taxes
                (1,016 )                 (1,016 )
 
                                   
Balance at June 30, 2011
    71,915,073     $ 719       642,878       196,536       24,639       864,772  
 
                                   
See accompanying notes to unaudited condensed consolidated financial statements.

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Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
                 
    Six Months ended June 30  
(Dollars in thousands)   2011     2010  
 
               
Operating Activities
               
Net cash provided by operating activities
  $ 135,267       96,450  
 
           
 
               
Investing Activities
               
Proceeds from sales, maturities and prepayments of investments available-for-sale
    429,256       244,484  
Purchases of investments available-for-sale
    (796,155 )     (469,030 )
Principal collected on loans
    459,488       427,901  
Loans originated or acquired
    (397,174 )     (416,715 )
Net decrease (increase) of non-marketable equity securities
    14,278       (1,729 )
Proceeds from sale of other real estate owned
    17,443       25,722  
Net addition of premises and equipment and other real estate owned
    (7,337 )     (9,003 )
 
           
Net cash used in investment activities
    (280,201 )     (198,370 )
 
           
 
               
Financing Activities
               
Net increase in deposits
    182,897       409,964  
Net decrease in Federal Home Loan Bank advances
    (40,080 )     (260,385 )
Net increase in securities sold under repurchase agreements
    1,900       11,891  
Net decrease in Federal Reserve Bank discount window
          (225,000 )
Net increase (decrease) in federal funds purchased and other borrowed funds
    42,865       (3,610 )
Cash dividends paid
    (18,698 )     (18,697 )
Deficiencies in benefits related to the exercise of stock options
          (4 )
Proceeds from exercise of stock options and other stock issued
          145,654  
 
           
Net cash provided by financing activities
    168,884       59,813  
 
           
 
               
Net increase (decrease) in cash and cash equivalents
    23,950       (42,107 )
Cash and cash equivalents at beginning of period
    105,091       210,575  
 
           
Cash and cash equivalents at end of period
  $ 129,041       168,468  
 
           
 
               
Supplemental Disclosure of Cash Flow Information
               
Cash paid during the period for interest
  $ 23,985       27,262  
Cash paid during the period for income taxes
    3,681       8,061  
Sale and refinancing of other real estate owned
  $ 2,521       6,320  
Other real estate acquired in settlement of loans
    49,570       45,888  
See accompanying notes to unaudited condensed consolidated financial statements.

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Notes to Unaudited Condensed Consolidated Financial Statements
1)   Basis of Presentation
 
    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 Glacier Bancorp, Inc.’s (the “Company”) financial condition as of June 30, 2011, stockholders’ equity and comprehensive income for the six months ended June 30, 2011, the results of operations for the three and six month periods ended June 30, 2011 and 2010, and cash flows for the six months ended June 30, 2011 and 2010. The condensed consolidated statement of financial condition and statement of stockholders’ equity and comprehensive income of the Company as of and for the year ended December 31, 2010 have been derived from the audited consolidated statements of the Company as of that date.
 
    The accompanying 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 for complete financial statements. These 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, 2010. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results anticipated for the year ending December 31, 2011. Certain reclassifications have been made to the 2010 financial statements to conform to the 2011 presentation.
 
    Material estimates that are particularly susceptible to significant change include the determination of the allowance for loan and lease losses (“ALLL” or “allowance”) and the valuations related to investments and real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the ALLL and other real estate valuation estimates, management obtains independent appraisals (new or updated) for significant items. Estimates relating to investments are obtained from independent parties. Estimates relating to business combinations are determined based on internal calculations using significant independent party inputs and independent party valuations.
 
2)   Organizational Structure
 
    The Company is a Montana corporation headquartered in Kalispell, Montana. The Company is a regional multi-bank holding company that provides a full range of banking services to individual and corporate customers in Montana, Idaho, Wyoming, Colorado, Utah and Washington through its bank subsidiaries (collectively referred to hereafter as the “Banks”). The bank subsidiaries are subject to competition from other financial service providers. The bank subsidiaries are also subject to the regulations of certain government agencies and undergo periodic examinations by those regulatory authorities.
 
    As of June 30, 2011, the Company is the parent holding company (“Parent”) for eleven independent wholly-owned community bank subsidiaries: Glacier Bank (“Glacier”), First Security Bank of Missoula (“First Security”), Western Security Bank (“Western”), Valley Bank of Helena (“Valley”), Big Sky Western Bank (“Big Sky”), and First Bank of Montana (“First Bank-MT”), all located in Montana; Mountain West Bank (“Mountain West”) and Citizens Community Bank (“Citizens”) located in Idaho; 1st Bank (“1st Bank”) and First Bank of Wyoming, formerly First National Bank & Trust, (“First Bank-WY”) located in Wyoming; and Bank of the San Juans (“San Juans”) located in Colorado. Effective June 30, 2011, First Bank-WY changed from a national bank charter to a State of Wyoming bank charter. All significant inter-company transactions have been eliminated in consolidation.

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    In 2010, the Company formed a wholly-owned subsidiary, GBCI Other Real Estate (“GORE”), to isolate certain bank foreclosed properties for legal protection and administrative purposes. The foreclosed properties were sold to GORE from bank subsidiaries at fair market value and properties remaining are currently held for sale.
 
    The Company owns seven trust subsidiaries, Glacier Capital Trust II (“Glacier Trust II”), Glacier Capital Trust III (“Glacier Trust III”), Glacier Capital Trust IV (“Glacier Trust IV”), Citizens (ID) Statutory Trust I (“Citizens Trust I”), Bank of the San Juans Bancorporation Trust I (“San Juans Trust I”), First Company Statutory Trust 2001 (“First Co Trust 01”) and First Company Statutory Trust 2003 (“First Co Trust 03”) for the purpose of issuing trust preferred securities. The trust subsidiaries are not consolidated into the Company’s financial statements.
 
    A variable interest entity (“VIE”) exists 1) when either the entity’s total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or 2) the entity has equity investors that cannot make significant decisions about the entity’s operations or that do not absorb their proportionate share of the expected losses or receive the expected returns of the entity. In addition, a VIE must be consolidated by the Company if it is deemed to be the primary beneficiary of the VIE, which is the party involved with the VIE that will absorb a majority of the expected losses, receive a majority of the expected residual returns, or both. The VIEs should be regularly monitored to determine if any reconsideration events have occurred that could cause its primary beneficiary status to change.
 
    The Company has equity investments in Certified Development Entities (“CDE”) which have received allocations of new markets tax credits (“NMTC”). The Company also has equity investments in low-income housing tax credit (“LIHTC”) partnerships. The CDEs and the LIHTC partnerships are VIEs. The underlying activities of the VIEs are community development projects designed primarily to promote community welfare, such as economic rehabilitation and development of low-income areas by providing housing, services, or jobs for residents. The maximum exposure to loss in the 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 CDE (NMTC) and LIHTC partnership investments and determined that the Company is the primary beneficiary of such VIEs and has consolidated the VIEs into the bank subsidiary which holds the direct investment in the VIE. For the CDE (NMTC) and LIHTC investments, the creditors and other beneficial interest holders therein have no recourse to the general credit of the bank subsidiaries. As of June 30, 2011, the Company had investments in VIEs of $39,757,000 and $3,246,000 for the CDE (NMTC) and LIHTC partnerships, respectively. The total assets consolidated into the bank subsidiaries approximated the investments in the VIEs.

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    The following abbreviated organizational chart illustrates the Company’s various relationships as of June 30, 2011:
(FLOW CHART)

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3)   Investment Securities, Available-for-Sale
 
    A comparison of the amortized cost and estimated fair value of the Company’s investment securities designated as available-for-sale is presented below.
                                         
    June 30, 2011  
    Weighted     Amortized     Gross Unrealized     Fair  
(Dollars in thousands)   Yield     Cost     Gains     Losses     Value  
 
                                       
U.S. government and federal agency
                                       
Maturing after one year through five years
    1.62 %   $ 205       5             210  
 
                                       
U.S. government sponsored enterprises
                                       
Maturing after one year through five years
    2.31 %     35,245       793             36,038  
Maturing after five years through ten years
    1.89 %     83                   83  
 
                             
 
    2.31 %     35,328       793             36,121  
 
                             
State and local governments and other issues
                                       
Maturing within one year
    4.10 %     1,147       18       (3 )     1,162  
Maturing after one year through five years
    2.44 %     100,685       1,205       (1 )     101,889  
Maturing after five years through ten years
    2.57 %     68,620       1,001       (7 )     69,614  
Maturing after ten years
    4.88 %     794,825       23,731       (3,630 )     814,926  
 
                             
 
    4.46 %     965,277       25,955       (3,641 )     987,591  
 
                             
Collateralized debt obligations
                                       
Maturing after ten years
    8.03 %     8,938             (2,985 )     5,953  
 
                                       
Residential mortgage-backed securities
    2.29 %     1,734,149       22,070       (1,679 )     1,754,540  
 
                                       
 
                             
Total investment securities
    3.07 %   $ 2,743,897       48,823       (8,305 )     2,784,415  
 
                             
                                         
    December 31, 2010  
    Weighted     Amortized     Gross Unrealized     Fair  
(Dollars in thousands)   Yield     Cost     Gains     Losses     Value  
 
                                       
U.S. government and federal agency
                                       
Maturing after one year through five years
    1.62 %   $ 207       4             211  
 
                                       
U.S. government sponsored enterprises
                                       
Maturing after one year through five years
    2.38 %     40,715       715             41,430  
Maturing after five years through ten years
    1.94 %     84                   84  
Maturing after ten years
    0.73 %     4                   4  
 
                             
 
    2.38 %     40,803       715             41,518  
 
                             
State and local governments and other issues
                                       
Maturing within one year
    4.06 %     1,091       20       (5 )     1,106  
Maturing after one year through five years
    3.70 %     8,341       214       (10 )     8,545  
Maturing after five years through ten years
    3.73 %     18,675       379       (56 )     18,998  
Maturing after ten years
    4.91 %     639,364       5,281       (15,873 )     628,772  
 
                             
 
    4.86 %     667,471       5,894       (15,944 )     657,421  
 
                             
Collateralized debt obligations
                                       
Maturing after ten years
    8.03 %     11,178             (4,583 )     6,595  
 
                                       
Residential mortgage-backed securities
    2.23 %     1,675,319       17,569       (2,786 )     1,690,102  
 
                                       
 
                             
Total investment securities
    3.00 %   $ 2,394,978       24,182       (23,313 )     2,395,847  
 
                             

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    Included in the residential mortgage-backed securities is $55,611,000 and $68,051,000 as of June 30, 2011 and December 31, 2010, respectively, of non-guaranteed private label whole loan mortgage-backed securities of which none of the underlying collateral is “subprime.”
 
    Maturities of securities do not reflect repricing opportunities present in adjustable rate securities, nor do they reflect expected shorter maturities based upon early prepayment of principal. Weighted yields are based on the constant yield method taking into account premium amortization and discount accretion. Weighted yields on tax-exempt investment securities exclude the tax effect.
 
    The cost of each investment sold is determined by specific identification. Gain and loss on sale of investments consists of the following:
                                 
    Three Months     Six Months  
    ended June 30,     ended June 30,  
(Dollars in thousands)   2011     2010     2011     2010  
 
                               
Gross proceeds
  $ 4,074       23,265       8,208       32,323  
Less amortized cost
    (4,665 )     (23,023 )     (8,675 )     (31,767 )
 
                       
Net (loss) gain on sale of investments
  $ (591 )     242       (467 )     556  
 
                       
 
                               
Gross gain on sale of investments
  $ 39       959       223       1,349  
Gross loss on sale of investments
    (630 )     (717 )     (690 )     (793 )
 
                       
Net (loss) gain on sale of investments
  $ (591 )     242       (467 )     556  
 
                       
    Investments with an unrealized loss position at June 30, 2011 are summarized as follows:
                                                 
    Less than 12 Months     12 Months or More     Total  
    Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
(Dollars in thousands)   Value     Loss     Value     Loss     Value     Loss  
 
                                               
State and local governments and other issues
  $ 129,535       (2,546 )     13,671       (1,095 )     143,206       (3,641 )
Collateralized debt obligations
                5,953       (2,985 )     5,953       (2,985 )
Residential mortgage-backed securities
    164,451       (1,289 )     10,930       (390 )     175,381       (1,679 )
 
                                   
Total temporarily impaired securities
  $ 293,986       (3,835 )     30,554       (4,470 )     324,540       (8,305 )
 
                                   
    Investments with an unrealized loss position at December 31, 2010 are summarized as follows:
                                                 
    Less than 12 Months     12 Months or More     Total  
    Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
(Dollars in thousands)   Value     Loss     Value     Loss     Value     Loss  
 
                                               
State and local governments and other issues
  $ 365,164       (14,680 )     13,122       (1,264 )     378,286       (15,944 )
Collateralized debt obligations
                6,595       (4,583 )     6,595       (4,583 )
Residential mortgage-backed securities
    364,925       (1,585 )     19,304       (1,201 )     384,229       (2,786 )
 
                                   
Total temporarily impaired securities
  $ 730,089       (16,265 )     39,021       (7,048 )     769,110       (23,313 )
 
                                   
    The Company assesses individual securities in its investment securities portfolio for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant. An investment is impaired if the fair value of the security is less than its carrying value at the financial statement date. If impairment is determined to be other-than-temporary, an impairment loss is recognized by reducing the amortized cost for the credit loss portion of the impairment with a corresponding charge to earnings of a like amount.

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    For fair value estimates provided by third party vendors, management also considered the models and methodology for appropriate consideration of both observable and unobservable inputs, including appropriately adjusted discount rates and credit spreads for securities with limited or inactive markets, and whether the quoted prices reflect orderly transactions. For certain securities, the Company obtained independent estimates of inputs, including cash flows, in supplement to third party vendor provided information. The Company also reviewed financial statements of select issuers, with follow up discussions with issuers’ management for clarification and verification of information relevant to the Company’s impairment analysis.
 
    In evaluating securities for other-than-temporary impairment losses, management assesses whether the Company intends to sell or if it is more likely-than-not that it will be required to sell impaired securities. In so doing, management considers contractual constraints, liquidity, capital, asset/liability management and securities portfolio objectives. With respect to its impaired securities at June 30, 2011, management determined that it does not intend to sell and that there is no expected requirement to sell any of its impaired securities.
 
    Based on an analysis of its impaired securities as of June 30, 2011, the Company determined that none of such securities had other-than-temporary impairment.
4)   Loans Receivable, Net
 
    The following schedules disclose the recorded investment in loans and ALLL on a portfolio class basis:
                                                 
    Three Months ended June 30, 2011  
            Residential     Commercial     Other     Home     Other  
(Dollars in thousands)   Total     Real Estate     Real Estate     Commercial     Equity     Consumer  
Allowance for loan and lease losses
                                               
Balance at beginning of period
  $ 140,829       17,004       80,098       20,960       14,206       8,561  
Provision for loan losses
    19,150       1,557       9,430       3,969       294       3,900  
Charge-offs
    (21,814 )     (1,388 )     (10,691 )     (5,413 )     (971 )     (3,351 )
Recoveries
    1,630       239       1,048       99       96       148  
 
                                   
Balance at end of period
  $ 139,795       17,412       79,885       19,615       13,625       9,258  
 
                                   
                                                 
    At or for the Six Months ended June 30, 2011  
            Residential     Commercial     Other     Home     Other  
(Dollars in thousands)   Total     Real Estate     Real Estate     Commercial     Equity     Consumer  
Allowance for loan and lease losses
                                               
Balance at beginning of period
  $ 137,107       20,957       76,147       19,932       13,334       6,737  
Provision for loan losses
    38,650       (703 )     23,697       6,607       2,415       6,634  
Charge-offs
    (38,318 )     (3,157 )     (21,319 )     (7,166 )     (2,303 )     (4,373 )
Recoveries
    2,356       315       1,360       242       179       260  
 
                                   
Balance at end of period
  $ 139,795       17,412       79,885       19,615       13,625       9,258  
 
                                   
 
                                               
Allowance for loan and lease losses
                                               
Individually evaluated for impairment
  $ 13,895       1,606       9,431       1,480       216       1,162  
Collectively evaluated for impairment
    125,900       15,806       70,454       18,135       13,409       8,096  
 
                                   
Total allowance for loan and lease losses
  $ 139,795       17,412       79,885       19,615       13,625       9,258  
 
                                   
 
                                               
Loans receivable
                                               
Individually evaluated for impairment
  $ 208,892       24,963       146,544       23,000       9,129       5,256  
Collectively evaluated for impairment
    3,392,919       502,845       1,586,828       634,017       451,379       217,850  
 
                                   
Total loans receivable
  $ 3,601,811       527,808       1,733,372       657,017       460,508       223,106  
 
                                   

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    December 31, 2010  
            Residential     Commercial     Other     Home     Other  
(Dollars in thousands)   Total     Real Estate     Real Estate     Commercial     Equity     Consumer  
Allowance for loan and lease losses
                                               
Individually evaluated for impairment
  $ 16,871       2,793       10,184       2,649       504       741  
Collectively evaluated for impairment
    120,236       18,164       65,963       17,283       12,830       5,996  
 
                                   
Total allowance for loan and lease losses
  $ 137,107       20,957       76,147       19,932       13,334       6,737  
 
                                   
 
                                               
Loans receivable
                                               
Individually evaluated for impairment
  $ 225,052       29,480       165,784       21,358       6,138       2,292  
Collectively evaluated for impairment
    3,524,237       603,397       1,630,719       633,230       476,999       179,892  
 
                                   
Total loans receivable
  $ 3,749,289       632,877       1,796,503       654,588       483,137       182,184  
 
                                   
    Substantially all of the Company’s loan receivables are with customers within the Company’s market areas. Although the Company has a diversified loan portfolio, a substantial portion of its customers’ ability to honor their obligations is dependent upon the economic performance in the Company’s market areas. Net deferred fees, premiums, and discounts are included in the loan receivable balances of $4,508,000 and $6,001,000 at June 30, 2011 and December 31, 2010, respectively.
 
    The following is a summary of activity in the ALLL:
                                 
    Three Months ended June 30,     Six Months ended June 30,  
(Dollars in thousands)   2011     2010     2011     2010  
Balance at beginning of the period
  $ 140,829       143,600       137,107       142,927  
Provision for loan losses
    19,150       17,246       38,650       38,156  
Charge-offs
    (21,814 )     (20,107 )     (38,318 )     (41,584 )
Recoveries
    1,630       926       2,356       2,166  
 
                       
Balance at end of the period
  $ 139,795       141,665       139,795       141,665  
 
                       
    The following schedules disclose the impaired loans by portfolio class of loans:
                                                 
    At or for the Three or Six Months ended June 30, 2011
            Residential   Commercial   Other   Home   Other
(Dollars in thousands)   Total   Real Estate   Real Estate   Commercial   Equity   Consumer
Loans with a specific valuation allowance
                                               
Recorded balance
  $ 52,850       10,326       32,871       5,140       778       3,735  
Unpaid principal balance
    60,659       10,350       40,049       5,621       863       3,776  
Valuation allowance
    13,895       1,606       9,431       1,480       216       1,162  
Average impaired loans — three months
    56,996       7,531       35,989       8,299       1,278       3,899  
Average impaired loans — six months
    59,720       9,178       38,772       7,498       1,096       3,176  
 
                                               
Loans without a specific valuation allowance
                                               
Recorded balance
  $ 156,042       14,637       113,673       17,860       8,351       1,521  
Unpaid principal balance
    185,783       16,614       132,408       25,178       9,367       2,216  
Average impaired loans — three months
    156,821       14,478       116,356       16,293       8,231       1,463  
Average impaired loans — six months
    157,842       15,321       118,053       16,015       7,290       1,163  
 
                                               
Totals
                                               
Recorded balance
  $ 208,892       24,963       146,544       23,000       9,129       5,256  
Unpaid principal balance
    246,442       26,964       172,457       30,799       10,230       5,992  
Valuation allowance
    13,895       1,606       9,431       1,480       216       1,162  
Average impaired loans — three months
    213,817       22,009       152,345       24,592       9,509       5,362  
Average impaired loans — six months
    217,562       24,499       156,825       23,513       8,386       4,339  

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    At or for the Year ended December 31, 2010
            Residential   Commercial   Other   Home   Other
(Dollars in thousands)   Total   Real Estate   Real Estate   Commercial   Equity   Consumer
Loans with a specific valuation allowance
                                               
Recorded balance
  $ 65,170       12,473       44,338       5,898       732       1,729  
Unpaid principal balance
    73,195       12,970       50,614       6,934       945       1,732  
Valuation allowance
    16,871       2,793       10,184       2,649       504       741  
Average impaired loans
    71,192       10,599       51,627       5,773       1,514       1,679  
 
                                               
Loans without a specific valuation allowance
                                               
Recorded balance
  $ 159,882       17,007       121,446       15,460       5,406       563  
Unpaid principal balance
    186,280       20,399       142,141       16,909       6,204       627  
Average impaired loans
    152,364       18,402       109,136       17,412       5,696       1,718  
 
                                               
Totals
                                               
Recorded balance
  $ 225,052       29,480       165,784       21,358       6,138       2,292  
Unpaid principal balance
    259,475       33,369       192,755       23,843       7,149       2,359  
Valuation allowance
    16,871       2,793       10,184       2,649       504       741  
Average impaired loans
    223,556       29,001       160,763       23,185       7,210       3,397  
    The following is a loan portfolio aging analysis on a portfolio class basis:
                                                 
    June 30, 2011  
            Residential     Commercial     Other     Home     Other  
(Dollars in thousands)   Total     Real Estate     Real Estate     Commercial     Equity     Consumer  
Accruing loans 30-59 days or more past due
  $ 30,443       703       18,887       4,510       4,520       1,823  
Accruing loans 60-89 days or more past due
    10,708       2,968       4,427       1,294       1,283       736  
Accruing loans 90 days or more past due
    7,177       1,026       2,780       2,689       437       245  
Non-accual loans
    154,784       14,444       108,833       19,931       8,477       3,099  
 
                                   
Total past due and non-accrual loans
    203,112       19,141       134,927       28,424       14,717       5,903  
 
                                               
Current loans receivable
    3,398,699       508,667       1,598,445       628,593       445,791       217,203  
 
                                   
 
                                               
Total loans receivable
  $ 3,601,811       527,808       1,733,372       657,017       460,508       223,106  
 
                                   
                                                 
    December 31, 2010  
            Residential     Commercial     Other     Home     Other  
(Dollars in thousands)   Total     Real Estate     Real Estate     Commercial     Equity     Consumer  
Accruing loans 30-59 days or more past due
  $ 36,545       13,450       11,399       6,262       3,031       2,403  
Accruing loans 60-89 days or more past due
    8,952       1,494       4,424       1,053       1,642       339  
Accruing loans 90 days or more past due
    4,531       506       731       2,320       910       64  
Non-accual loans
    192,505       23,095       142,334       18,802       5,431       2,843  
 
                                   
Total past due and non-accrual loans
    242,533       38,545       158,888       28,437       11,014       5,649  
 
                                               
Current loans receivable
    3,506,756       594,332       1,637,615       626,151       472,123       176,535  
 
                                   
 
                                               
Total loans receivable
  $ 3,749,289       632,877       1,796,503       654,588       483,137       182,184  
 
                                   
    The Company considers its 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 90 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). Loan impairment is measured in the same manner for each class within the loan portfolio. Interest income recognized on impaired loans for the periods ended June 30, 2011 and December 31, 2010 was not significant.

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5)   Comprehensive Income
 
    The Company’s only component of comprehensive income other than net earnings is the unrealized gain or loss, net of tax, on available-for-sale securities.
                                 
    Three Months     Six Months  
    ended June 30,     ended June 30,  
(Dollars in thousands)   2011     2010     2011     2010  
 
                               
Net earnings
  $ 11,886       13,222       22,171       23,292  
 
                               
Unrealized holding gains arising during the period
    36,154       5,635       39,182       15,588  
Tax expense
    (14,169 )     (2,209 )     (15,355 )     (6,109 )
 
                       
Net after tax
    21,985       3,426       23,827       9,479  
Reclassification adjustment for losses (gains) included in net earnings
    591       (242 )     467       (556 )
Tax (benefit) expense
    (231 )     95       (183 )     218  
 
                       
Net after tax
    360       (147 )     284       (338 )
 
                               
Net unrealized gain on securities
    22,345       3,279       24,111       9,141  
 
                       
 
                               
Total comprehensive income
  $ 34,231       16,501       46,282       32,433  
 
                       
6)   Earnings Per Share
 
    Basic earnings per common share is computed by dividing net earnings 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, using the treasury stock method.
 
    The following schedule contains the data used in the calculation of basic and diluted earnings per share:
                                 
    Three Months     Six Months  
    ended June 30,     ended June 30,  
    2011     2010     2011     2010  
 
                               
Net earnings available to common stockholders, basic and diluted
  $ 11,886,000       13,222,000       22,171,000       23,292,000  
 
                               
Average outstanding shares — basic
    71,915,073       71,913,102       71,915,073       67,363,476  
Add: dilutive stock options
          1,792             901  
 
                       
Average outstanding shares — diluted
    71,915,073       71,914,894       71,915,073       67,364,377  
 
                       
 
                               
Basic earnings per share
  $ 0.17       0.19       0.31       0.35  
 
                       
 
                               
Diluted earnings per share
  $ 0.17       0.19       0.31       0.35  
 
                       
    There were 1,641,528 and 2,285,661 stock options excluded from the diluted average outstanding share calculation for the six months ended June 30, 2011 and 2010, respectively, due to the option exercise price exceeding the market price.

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7)   Fair Value of Financial Instruments
 
    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
    The following is a description of the inputs and valuation methodologies used for financial assets measured at fair value on a recurring basis. There have been no significant changes in the valuation techniques during the period ended June 30, 2011.
    Investment securities: fair value for available-for-sale securities is estimated by obtaining quoted market prices for identical assets, where available. If such prices are not available, fair value is based on independent asset pricing services and models, the inputs of which are market-based or independently sourced market parameters, including but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections, and cash flows. For those securities where greater reliance on unobservable inputs occurs, such securities are classified as Level 3 within the hierarchy.
    The following schedules disclose the major classes of assets measured at fair value on a recurring basis at June 30, 2011 and December 31, 2010.
                                 
    Assets/     Quoted Prices     Significant        
    Liabilities     in Active Markets     Other     Significant  
    Measured at     for Identical     Observable     Unobservable  
    Fair Value     Assets     Inputs     Inputs  
(Dollars in thousands)   6/30/11     (Level 1)     (Level 2)     (Level 3)  
Financial assets
                               
U.S. government and federal agency
  $ 210             210        
U.S. government sponsored enterprises
    36,121             36,121        
State and local governments and other issues
    987,591             987,591        
Collateralized debt obligations
    5,953                   5,953  
Residential mortgage-backed securities
    1,754,540             1,754,341       199  
 
                       
Total financial assets
  $ 2,784,415             2,778,263       6,152  
 
                       

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    Assets/     Quoted Prices     Significant        
    Liabilities     in Active Markets     Other     Significant  
    Measured at     for Identical     Observable     Unobservable  
    Fair Value     Assets     Inputs     Inputs  
(Dollars in thousands)   12/31/10     (Level 1)     (Level 2)     (Level 3)  
Financial assets
                               
U.S. government and federal agency
  $ 211             211        
U.S. government sponsored enterprises
    41,518             41,518        
State and local governments and other issues
    657,421             657,421        
Collateralized debt obligations
    6,595                   6,595  
Residential mortgage-backed securities
    1,690,102             1,689,946       156  
 
                       
Total financial assets
  $ 2,395,847             2,389,096       6,751  
 
                       
    The following schedules reconcile the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six month period ended June 30, 2011 and the year ended December 31, 2010.
                         
    Significant Unobservable Inputs (Level 3)  
            Collateralized     Residential  
            Debt     Mortgage-backed  
(Dollars in thousands)   Total     Obligations     Securities  
Balance as of December 31, 2010
  $ 6,751       6,595       156  
Total unrealized gains included in other comprehensive income
    1,641       1,598       43  
Amortization, accretion and principal payments
    (2,240 )     (2,240 )      
 
                 
Balance as of June 30, 2011
  $ 6,152       5,953       199  
 
                 
                                 
    Significant Unobservable Inputs (Level 3)  
            State and Local     Collateralized     Residential  
            Governments and     Debt     Mortgage-backed  
(Dollars in thousands)   Total     Other Issues     Obligations     Securities  
Balance as of December 31, 2009
  $ 9,988       2,088       6,789       1,111  
Total unrealized gains included in other comprehensive income
    3,381             3,276       105  
Amortization, accretion and principal payments
    (1,510 )           (1,510 )      
Sales, maturities and calls
    (3,020 )           (1,960 )     (1,060 )
Transfers out of Level 3
    (2,088 )     (2,088 )            
 
                       
Balance as of December 31, 2010
  $ 6,751             6,595       156  
 
                       
    The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis. There have been no significant changes in the valuation techniques during the six months ended June 30, 2011.
    Other real estate owned: other real estate owned is carried at the lower of fair value at acquisition date or estimated fair value, less estimated cost to sell. Estimated fair value of other real estate owned is based on appraisals or evaluations. Other real estate owned is classified within Level 3 of the fair value hierarchy.

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    Collateral-dependent impaired loans, net of ALLL: loans included in the Company’s financials for which it is probable that the Company will not collect all principal and interest due according to contractual terms are considered impaired. 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.
    In determining fair values of other real estate owned and the collateral-dependent impaired loan, the Company considers the appraisal or evaluation as the starting point for determining fair value and the Company also considers other factors and events in the environment that may affect the fair value.
    The following schedules disclose the major classes of assets with a recorded change during the period in the condensed consolidated financial statements resulting from re-measuring the assets at fair value on a non-recurring basis at June 30, 2011 and December 31, 2010.
                                 
    Assets/     Quoted Prices     Significant        
    Liabilities     in Active Markets     Other     Significant  
    Measured at     for Identical     Observable     Unobservable  
    Fair Value     Assets     Inputs     Inputs  
(Dollars in thousands)   6/30/11     (Level 1)     (Level 2)     (Level 3)  
Financial assets
                               
Other real estate owned
  $ 13,378                   13,378  
Collateral-dependent impaired loans, net of allowance for loan and lease losses
    37,959                   37,959  
 
                       
Total financial assets
  $ 51,337                   51,337  
 
                       
                                 
    Assets/     Quoted Prices     Significant        
    Liabilities     in Active Markets     Other     Significant  
    Measured at     for Identical     Observable     Unobservable  
    Fair Value     Assets     Inputs     Inputs  
(Dollars in thousands)   12/31/10     (Level 1)     (Level 2)     (Level 3)  
Financial assets
                               
Other real estate owned
  $ 17,492                   17,492  
Collateral-dependent impaired loans, net of allowance for loan and lease losses
    47,283                   47,283  
 
                       
Total financial assets
  $ 64,775                   64,775  
 
                       
    The following is a description of the methods used to estimate the fair value of all other financial instruments recognized at amounts other than fair value.
    Financial Assets
 
    The estimated fair value of cash and cash equivalents and accrued interest receivable is the book value of such financial assets.
    Non-marketable equity securities: fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.
    Loans held for sale: fair value is estimated at book value due to the insignificant time between origination date and sale date.
    Loans receivable, net of ALLL: fair value for loans, net of ALLL, is estimated by discounting the future cash flows using the rates at which similar notes would be written for the same remaining maturities.

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    Financial Liabilities
    The estimated fair value of accrued interest payable is the book value of such financial liabilities.
    Deposits: fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The estimated fair value of demand, NOW, savings, and money market deposits is the book value since rates are regularly adjusted to market rates.
    Advances from FHLB: fair value of advances is estimated based on borrowing rates currently available to the Company for advances with similar terms and maturities.
    Securities sold under agreements to repurchase (“repurchase agreements”), federal funds purchased and other borrowed funds: fair value of term repurchase agreements and other term borrowings is estimated based on current repurchase rates and borrowing rates currently available to the Company for repurchases and borrowings with similar terms and maturities. The estimated fair value for overnight repurchase agreements and other borrowings is book value.
    Subordinated debentures: fair value of the subordinated debt is estimated by discounting the estimated future cash flows using current estimated market rates for subordinated debt issuances with similar characteristics.
    Off-balance sheet financial instruments: commitments to extend credit and letters of credit represent the principal categories of off-balance sheet financial instruments. Rates for these commitments are set at time of loan closing, such that no adjustment is necessary to reflect these commitments at market value. The Company has immaterial off-balance sheet financial instruments.
    The following presents the carrying amounts and estimated fair values of the Company’s financial instruments:
                                 
    June 30, 2011     December 31, 2010  
(Dollars in thousands)   Amount     Fair Value     Amount     Fair Value  
Financial assets
                               
Cash and cash equivalents
  $ 129,041       129,041       105,091       105,091  
Investment securities, available-for-sale
    2,784,415       2,784,415       2,395,847       2,395,847  
Loans held for sale
    35,440       35,440       76,213       76,213  
Loans receivable, net of allowance for loan and lease losses
    3,462,016       3,514,290       3,612,182       3,631,716  
Accrued interest receivable
    35,229       35,229       30,246       30,246  
Non-marketable equity securities
    50,762       50,762       65,040       65,040  
 
                       
Total financial assets
  $ 6,496,903       6,549,177       6,284,619       6,304,153  
 
                       
 
                               
Financial liabilities
                               
Deposits
  $ 4,704,799       4,714,635       4,521,902       4,533,974  
FHLB advances
    925,061       938,708       965,141       974,853  
Repurchase agreements, federal funds purchased and other borrowed funds
    314,102       314,104       269,408       269,414  
Accrued interest payable
    6,261       6,261       7,245       7,245  
Subordinated debentures
    125,203       69,529       125,132       70,404  
 
                       
Total financial liabilities
  $ 6,075,426       6,043,237       5,888,828       5,855,890  
 
                       

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8)   Operating Segment Information
 
    Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance. The Company defines operating segments and evaluates segment performance internally based on individual bank charters, with the exception of GORE. If required, VIEs are consolidated into the operating segment which holds the direct investment in the VIE.
 
    The accounting policies of the individual operating segments are the same as those of the Company. Transactions between operating segments are conducted at fair value, resulting in profits that are eliminated for reporting consolidated results of operations. Intersegment revenues primarily represents interest income on intercompany borrowings, management fees, and data processing fees received by individual banks or the Parent. Intersegment revenues, expenses and assets are eliminated in order to report results in accordance with accounting principles generally accepted in the United States of America. Expenses for centrally provided services are allocated based on the estimated usage of those services.
 
    The following schedules provide selected financial data for the Company’s operating segments:
                                                                 
    At or for the Three Months ended June 30, 2011  
            Mountain     First                                     First Bank-  
(Dollars in thousands)   Glacier     West     Security     Western     1st Bank     Valley     Big Sky     WY  
 
                                                               
External revenues
  $ 17,936       17,682       13,510       8,851       8,089       5,471       4,753       3,850  
Intersegment revenues
    74       97       19       24       9       67       4       29  
Expenses
    (16,198 )     (19,764 )     (10,059 )     (6,356 )     (6,119 )     (3,751 )     (3,740 )     (2,980 )
 
                                               
Net earnings (loss)
  $ 1,812       (1,985 )     3,470       2,519       1,979       1,787       1,017       899  
 
                                               
Total assets
  $ 1,379,298       1,152,583       1,082,737       778,081       756,704       411,619       373,530       373,014  
 
                                               
                                                         
            First Bank-     San                          
    Citizens     MT     Juans     GORE     Parent     Eliminations     Consolidated  
External revenues
  $ 3,704       2,544       2,610       219       194             89,413  
Intersegment revenues
    12       39       42             16,473       (16,889 )      
Expenses
    (2,980 )     (1,639 )     (2,393 )     (801 )     (4,806 )     4,059       (77,527 )
 
                                         
Net earnings (loss)
  $ 736       944       259       (582 )     11,861       (12,830 )     11,886  
 
                                         
Total assets
  $ 317,280       243,141       226,032       20,318       1,009,907       (1,145,924 )     6,978,320  
 
                                         
                                                                 
    At or for the Three Months ended June 30, 2010  
            Mountain     First                                     First Bank-  
(Dollars in thousands)   Glacier     West     Security     Western     1st Bank     Valley     Big Sky     WY  
External revenues
  $ 18,969       22,183       13,097       8,811       7,753       5,798       5,099       3,659  
Intersegment revenues
    48       19       20       123       30       40       1       14  
Expenses
    (16,407 )     (21,759 )     (10,057 )     (6,686 )     (6,919 )     (3,921 )     (4,397 )     (3,180 )
 
                                                             
 
                                               
Net earnings (loss)
  $ 2,610       443       3,060       2,248       864       1,917       703       493  
 
                                               
Total assets
  $ 1,320,555       1,200,382       932,179       610,208       644,877       368,321       366,439       295,164  
 
                                               
                                                         
            First Bank-     San                          
    Citizens     MT     Juans     GORE     Parent     Eliminations     Consolidated  
External revenues
  $ 4,608       2,472       2,688       43       56             95,236  
Intersegment revenues
    28       32       24             17,885       (18,264 )      
Expenses
    (3,842 )     (1,705 )     (2,135 )     (268 )     (4,719 )     3,981       (82,014 )
 
                                         
Net earnings (loss)
  $ 794       799       577       (225 )     13,222       (14,283 )     13,222  
 
                                         
Total assets
  $ 271,190       193,806       204,815       19,856       985,895       (1,118,851 )     6,294,836  
 
                                         

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    At or for the Six Months ended June 30, 2011  
            Mountain     First                                     First Bank-  
(Dollars in thousands)   Glacier     West     Security     Western     1st Bank     Valley     Big Sky     WY  
 
                                                               
External revenues
  $ 35,270       35,151       26,167       17,045       15,702       10,440       9,494       7,111  
Intersegment revenues
    140       239       39       79       12       126       7       64  
Expenses
    (31,239 )     (38,273 )     (20,773 )     (12,661 )     (12,634 )     (7,244 )     (7,522 )     (5,733 )
 
                                               
Net earnings (loss)
  $ 4,171       (2,883 )     5,433       4,463       3,080       3,322       1,979       1,442  
 
                                               
Total assets
  $ 1,379,298       1,152,583       1,082,737       778,081       756,704       411,619       373,530       373,014  
 
                                               
                                                         
            First Bank-     San                             Total  
    Citizens     MT     Juans     GORE     Parent     Eliminations     Consolidated  
External revenues
  $ 7,860       4,858       5,239       249       595             175,181  
Intersegment revenues
    30       74       86             31,159       (32,055 )      
Expenses
    (6,563 )     (3,120 )     (4,603 )     (1,125 )     (9,668 )     8,148       (153,010 )
 
                                         
Net earnings (loss)
  $ 1,327       1,812       722       (876 )     22,086       (23,907 )     22,171  
 
                                         
Total assets
  $ 317,280       243,141       226,032       20,318       1,009,907       (1,145,924 )     6,978,320  
 
                                         
                                                                 
    At or for the Six Months ended June 30, 2010  
            Mountain     First                                     First Bank-  
(Dollars in thousands)   Glacier     West     Security     Western     1st Bank     Valley     Big Sky     WY  
 
                                                               
External revenues
  $ 37,704       41,133       25,653       16,939       15,729       10,890       9,935       7,699  
Intersegment revenues
    96       38       38       255       121       76       1       22  
Expenses
    (34,142 )     (40,243 )     (20,217 )     (13,003 )     (13,420 )     (7,552 )     (8,901 )     (6,856 )
 
                                               
Net earnings (loss)
  $ 3,658       928       5,474       4,191       2,430       3,414       1,035       865  
 
                                               
Total assets
  $ 1,320,555       1,200,382       932,179       610,208       644,877       368,321       366,439       295,164  
 
                                               
                                                         
            First Bank-     San                             Total  
    Citizens     MT     Juans     GORE     Parent     Eliminations     Consolidated  
External revenues
  $ 8,756       4,892       5,325       43       119             184,817  
Intersegment revenues
    28       82       24             32,521       (33,302 )      
Expenses
    (7,412 )     (3,396 )     (4,596 )     (268 )     (9,348 )     7,829       (161,525 )
 
                                         
Net earnings (loss)
  $ 1,372       1,578       753       (225 )     23,292       (25,473 )     23,292  
 
                                         
Total assets
  $ 271,190       193,806       204,815       19,856       985,895       (1,118,851 )     6,294,836  
 
                                         
9)   Impact of Recent Authoritative Accounting Guidance
 
    The Accounting Standards Codification is FASB’s officially recognized source of authoritative U.S. generally accepted accounting principles (“GAAP”) applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of the federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative.
    In June 2011, FASB issued an amendment to FASB ASC Topic 220, Comprehensive Income. The amendments in this Update provide an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. The amendments are effective retrospectively during interim and annual periods beginning after December 15, 2011. The Company is currently evaluating the impact of the adoption of this amendment, but does not expect it to have a material effect on the Company’s financial position or results of operations.

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    In May 2011, FASB issued an amendment to FASB ASC Topic 820, Fair Value Measurement. The amendments in this Update were to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. The amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments are effective prospectively during interim and annual periods beginning after December 15, 2011. The Company is currently evaluating the impact of the adoption of this amendment, but does not expect it to have a material effect on the Company’s financial position or results of operations.
    In April 2011, FASB issued an amendment to FASB ASC Topic 310, Receivables. The amendments in this Update provide additional guidance or clarification regarding a creditor’s determination of whether a restructuring is a troubled debt restructuring. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist 1) the restructuring constitutes a concession 2) the debtor is experiencing financial difficulties. The amendment provides further guidance as to when the creditor has granted a concession and the debtor is experiencing financial difficulties. The amendments in this Update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. An entity should disclose the information relating to troubled debt restructurings which was deferred in January 2011 by Accounting Standards Update No. 2011-01, Topic 310, Receivables (Topic 310), for interim and annual periods beginning on or after June 15, 2011. The Company is currently evaluating the impact of the adoption of this amendment, but does not expect it to have a material effect on the Company’s financial position or results of operations.
    In December 2010, FASB issued an amendment to FASB ASC Topic 805, Business Combinations. The amendments in this Update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company has evaluated the impact of the adoption of this amendment and determined there was not a material effect on the Company’s financial position or results of operations.
    In December 2010, FASB issued an amendment to FASB ASC Topic 350, Intangibles — Goodwill and Other. The amendments in this Update affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in this Update modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company has evaluated the impact of the adoption of this amendment and determined there was not a material effect on the Company’s financial position or results of operations.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations in the forward-looking statements, including those set forth in this Form 10-Q:
    the risks associated with lending and potential adverse changes of the credit quality of loans in the Company’s portfolio, including as a result of declines in the housing and real estate markets in its geographic areas;
 
    increased loan delinquency rates;
 
    the risks presented by a continued economic downturn, which could adversely affect credit quality, loan collateral values, other real estate owned values, investment values, liquidity and capital levels, dividends and loan originations;
 
    changes in market interest rates, which could adversely affect the Company’s net interest income and profitability;
 
    legislative or regulatory changes 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 integration of acquisitions;
 
    the goodwill we have recorded in connection with acquisitions could become impaired, which may have an adverse impact on our earnings and capital;
 
    reduced demand for banking products and services;
 
    the risks presented by public stock market volatility, which could adversely affect the market price of our common stock and our ability to raise additional capital in the future;
 
    competition from other financial services companies in our markets;
 
    loss of services from the senior management team; and
 
    the Company’s success in managing risks involved in the foregoing.
Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in Risk Factors in Item 1A. 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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Financial Condition Analysis
Assets
The following table summarizes the asset balances as of the dates indicated, and the amount of change from December 31, 2010 and June 30, 2010:
                                         
                            $ Change from     $ Change from  
    June 30,     December 31,     June 30,     December 31,     June 30,  
(Unaudited — Dollars in thousands)   2011     2010     2010     2010     2010  
 
                                       
Cash on hand and in banks
  $ 94,890       71,465       95,603       23,425       (713 )
Investment securities, interest bearing cash deposits and federal funds sold
    2,818,566       2,429,473       1,751,188       389,093       1,067,378  
Loans receivable
                                       
Residential real estate
    527,808       632,877       691,079       (105,069 )     (163,271 )
Commercial
    2,390,388       2,451,091       2,570,140       (60,703 )     (179,752 )
Consumer and other
    683,615       665,321       697,743       18,294       (14,128 )
 
                             
Loans receivable, gross
    3,601,811       3,749,289       3,958,962       (147,478 )     (357,151 )
Allowance for loan and lease losses
    (139,795 )     (137,107 )     (141,665 )     (2,688 )     1,870  
 
                             
Loans receivable, net
    3,462,016       3,612,182       3,817,297       (150,166 )     (355,281 )
 
                             
Other assets
    602,848       646,167       630,748       (43,319 )     (27,900 )
 
                             
Total assets
  $ 6,978,320       6,759,287       6,294,836       219,033       683,484  
 
                             
Total assets at June 30, 2011 were $6.978 billion, which was $219 million, or 3 percent, greater than total assets of $6.759 billion at December 31, 2010 and $683 million, or 11 percent, greater than total assets of $6.295 billion at June 30, 2010.
Investment securities, including interest bearing deposits and federal funds sold, increased $90 million, or 3 percent, from March 31, 2011 and increased $1.067 billion, or 61 percent, from June 30, 2010. Since the second half of 2009, the Company has purchased investment securities with short weighted-average-lives to offset the lack of loan growth and leverage the balance sheet to create incremental yield without taking long-term interest rate risk. During the second quarter of 2011, the Company slowed its investment security purchases. Excluding the increase in interest bearing cash deposits and unrealized gain on investment securities, the growth in the investment securities portfolio nearly matched the decrease in the loan portfolio. Investment securities represent 40 percent of total assets at June 30, 2011 versus 39 percent of total assets at March 31, 2011, 36 percent at December 31, 2010 and 28 percent at June 30, 2010. The asset mix may continue to shift to investment securities, but at a slower pace as the Company purchases investment securities to match potential loan declines.
At June 30, 2011, gross loans were $3.602 billion, a decrease of $147 million, or 4 percent, from the gross loans of $3.749 billion at December 31, 2010. Excluding net charge-offs of $36.0 million and loans transferred to other real estate of $49.6 million, loans decreased $61.9 million, or 2 percent, from December 31, 2010. During the past twelve months, the loan portfolio decreased $357 million, or 9 percent, over loans receivable of $3.959 billion at June 30, 2010. The largest decrease in dollars was in commercial loans which decreased $180 million, or 7 percent, from June 30, 2010. The largest decrease in percentage was in real estate loans which decreased $163 million, or 24 percent, from June 30, 2010. The continued downturn in the economy and resulting lack of loan demand were the primary reasons for the loan decreases. A positive movement during the second quarter of 2011 was the slowing of the loan balance decline which was $45.2 million, or 5 percent annualized, for the quarter and the smallest decrease since the first quarter of 2010. Excluding net charge-offs of $20.2 million and loans transferred to other real estate of $32.3 million, loans increased $7.3 million.

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Liabilities
The following table summarizes the liability balances as of the dates indicated, and the amount of change from December 31, 2010 and June 30, 2010:
                                         
                            $ Change from     $ Change from  
    June 30,     December 31,     June 30,     December 31,     June 30,  
(Unaudited — Dollars in thousands)   2011     2010     2010     2010     2010  
Non-interest bearing deposits
  $ 916,887       855,829       852,121       61,058       64,766  
Interest bearing deposits
    3,787,912       3,666,073       3,657,995       121,839       129,917  
FHLB advances
    925,061       965,141       529,982       (40,080 )     395,079  
Repurchase agreements, federal funds purchased and other borrowed funds
    314,102       269,408       234,460       44,694       79,642  
Other liabilities
    44,383       39,500       49,470       4,883       (5,087 )
Subordinated debentures
    125,203       125,132       125,060       71       143  
 
                             
Total liabilities
  $ 6,113,548       5,921,083       5,449,088       192,465       664,460  
 
                             
As of June 30, 2011, non-interest bearing deposits of $917 million increased $61 million, or 7 percent, since December 31, 2010 and increased $65 million, or 8 percent, since June 30, 2010. During the second quarter of 2011, deposits increased $28.6 million, or 13 percent on an annualized basis. The increase in non-interest bearing deposits from the prior year end and a year ago was driven by the continued growth in the number of personal and business customers, as well as existing customers retaining cash deposits because of the uncertainty in the current economic environment and for liquidity purposes. Interest bearing deposits of $3.788 billion at June 30, 2011 included $232 million of reciprocal deposits (e.g., Certificate of Deposit Account Registry System deposits). Interest bearing deposits increased $122 million, or 3 percent, from the prior year end and included a $113 million increase in wholesale deposits including reciprocal deposits.
To fund the investment security growth, the Company’s level of borrowings has increased as needed to supplement the growth in deposits. Federal Home Loan Bank advances decreased $40 million, or 4 percent, from December 31, 2010; however, advances increased $395 million, or 75 percent, from June 30, 2010. Repurchase agreements and other borrowed funds were $314 million at June 30, 2011, an increase of $44.7 million, or 17 percent, from December 31, 2010 and an increase of $79.6 million, or 34 percent, from June 30, 2010.
Stockholders’ Equity
The following table summarizes the stockholders’ equity balances as of the dates indicated, and the amount of change from December 31, 2010 and June 30, 2010:
                                         
                          $ Change from     $ Change from  
  June 30,     December 31,     June 30,     December 31,     June 30,  
Unaudited — Dollars in thousands, except per share data)   2011     2010     2010     2010     2010  
Common equity
  $ 840,133       837,676       836,955       2,457       3,178  
Accumulated other comprehensive income
    24,639       528       8,793       24,111       15,846  
 
                             
Total stockholders’ equity
    864,772       838,204       845,748       26,568       19,024  
Goodwill and core deposit intangible, net
    (155,699 )     (157,016 )     (158,575 )     1,317       2,876  
 
                             
Tangible stockholders’ equity
  $ 709,073       681,188       687,173       27,885       21,900  
 
                             
Stockholders’ equity to total assets
    12.39 %     12.40 %     13.44 %                
Tangible stockholders’ equity to total tangible assets
    10.39 %     10.32 %     11.20 %                
Book value per common share
  $ 12.02       11.66       11.76       0.36       0.26  
Tangible book value per common share
  $ 9.86       9.47       9.56       0.39       0.30  
Market price per share at end of period
  $ 13.48       15.11       14.67       (1.63 )     (1.19 )

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Total stockholders’ equity and book value per share increased $26.6 million and $0.36 per share from the prior year end and $19.0 million and $0.26 per share from a year ago, respectively. The increases came primarily from accumulated other comprehensive income representing net unrealized gains or losses (net of tax) on the investment securities portfolio. Tangible stockholders’ equity increased $21.9 million, or $0.30 per share since June 30, 2010 resulting in tangible stockholders’ equity to tangible assets of 10.39 percent and tangible book value per share of $9.86 as of June 30, 2011.
On June 29, 2011, the Company’s Board of Directors declared a cash dividend of $0.13 per share, payable July 21, 2011 to shareholders of record on July 12, 2011. Future cash dividends will depend on a variety of factors, including net income, capital, asset quality and general economic conditions.
Results of Operations — The Three Months ended June 30, 2011
Compared to the Three Months ended March 31, 2011 and June 30, 2010
Performance Summary
                         
    Three Months ended
(Unaudited — Dollars in thousands,   June 30,   March 31,   June 30,
except per share data)   2011   2011   2010
Net earnings
  $ 11,886       10,285       13,222  
Diluted earnings per share
  $ 0.17       0.14       0.19  
Return on average assets (annualized)
    0.69 %     0.62 %     0.85 %
Return on average equity (annualized)
    5.54 %     4.95 %     6.25 %
The Company reported net earnings of $11.9 million for the second quarter of 2011, a decrease of $1.3 million, or 10 percent, from the $13.2 million for the second quarter of 2010. The diluted earnings per share of $0.17 for the current quarter represented an 11 percent decrease from the diluted earnings per share of $0.19 for the same quarter of 2010. Included in the current quarter earnings per share was a $360 thousand loss from the sale of investment securities. The prior year second quarter earnings per share included $0.02 attributable to the $1.1 million non-recurring gain from the sale of Mountain West’s merchant card servicing portfolio and the $147 thousand gain from the sale of investment securities. Annualized return on average assets and return on average equity for the current quarter were 0.69 percent and 5.54 percent, respectively, which compares with the prior year second quarter annualized returns of 0.85 percent and 6.25 percent, respectively.
During the second quarter of 2011, nine bank subsidiaries redeemed their membership stock in their respective Federal Reserve Bank. As of June 30, 2011, the FDIC is the primary regulator for each of the eleven bank subsidiaries. This consistency should streamline the Company’s regulatory process and achieve efficiencies throughout the bank subsidiaries.

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Revenue Summary
The following tables summarize revenue for the periods indicated, including the amount and percentage change from March 31, 2011 and June 30, 2010:
                         
    Three Months ended  
    June 30,     March 31,     June 30,  
(Unaudited — Dollars in thousands)   2011     2011     2010  
Net interest income
                       
Interest income
  $ 71,562       68,373       73,818  
Interest expense
    11,331       11,669       13,749  
 
                 
Total net interest income
    60,231       56,704       60,069  
Non-interest income
                       
Service charges, loan fees, and other fees
    12,258       11,185       11,900  
Gain on sale of loans
    4,291       4,694       6,133  
(Loss) gain on sale of investments
    (591 )     124       242  
Other income
    1,893       1,392       3,143  
 
                 
Total non-interest income
    17,851       17,395       21,418  
 
                 
 
  $ 78,082       74,099       81,487  
 
                 
Net interest margin (tax-equivalent)
    4.01 %     3.91 %     4.35 %
 
                 
                                 
    $ Change from     $ Change from     % Change from     % Change from  
    March 31,     June 30,     March 31,     June 30,  
(Unaudited — Dollars in thousands)   2011     2010     2011     2010  
Net interest income
                               
Interest income
  $ 3,189     $ (2,256 )     5 %     -3 %
Interest expense
    (338 )     (2,418 )     -3 %     -18 %
 
                           
Total net interest income
    3,527       162       6 %     0 %
Non-interest income
                               
Service charges, loan fees, and other fees
    1,073       358       10 %     3 %
Gain on sale of loans
    (403 )     (1,842 )     -9 %     -30 %
(Loss) gain on sale of investments
    (715 )     (833 )     -577 %     -344 %
Other income
    501       (1,250 )     36 %     -40 %
 
                           
Total non-interest income
    456       (3,567 )     3 %     -17 %
 
                           
 
  $ 3,983     $ (3,405 )     5 %     -4 %
 
                           
Net Interest Income
The current quarter net interest income of $60.2 million increased $3.5 million from the prior quarter primarily the result of an increase in interest income. Net interest income for the current quarter increased by $162 thousand from the same quarter last year with the reduction in interest expense about the same as the reduction in interest income. The current quarter net interest margin as a percentage of earning assets, on a tax-equivalent basis, of 4.01 percent was an increase of 10 basis points from the prior quarter and a decrease of 34 basis points from the second quarter of 2010. The current quarter net interest margin figure included a 3 basis points reduction from the reversal of interest on non-accrual loans.

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The current quarter interest income included $7.1 million of premium amortization (net of discount accretion) on Collateralized Mortgage Obligations (“CMO”), such amount a decrease of $2.6 million over the prior quarter premium amortization and an increase of $4.1 million over the prior year second quarter premium amortization. The reduction in premium amortization during the current quarter is the primary reason for the increase in interest income. The premium amortization in the current quarter accounted for a 44 basis point reduction to the net interest margin compared to a 20 basis point reduction to the net interest margin for the prior year second quarter. The decrease in interest income from the prior year second quarter resulted from the increase in premium amortization (as interest rates declined) coupled with the reduction in loan balances, the combination of which put further pressure on earning assets. Interest income continues to reflect the Company’s purchase of a significant amount of investment securities over the course of several quarters at lower yields than the loans they replaced. Interest expense decreased in the current quarter as the Company’s bank subsidiaries continued to aggressively manage their cost of funds, most notably deposits. The funding cost for the current quarter was 89 basis points compared to 96 basis points for the prior quarter and 121 basis points for the prior year second quarter.
Non-interest Income
Non-interest income for the current quarter totaled $17.9 million, an increase of $456 thousand over the prior quarter and a decrease of $3.6 million over the same quarter last year. Service charge fee income of $12.3 million increased $1.1 million, or 10 percent, during the quarter primarily from miscellaneous deposit fees which increased as the number of deposit accounts increased. Gain on sale of loans decreased $403 thousand, or 9 percent, over the prior quarter and decreased $1.8 million, or 30 percent, over the same quarter last year. Although the purchase volume of residential loans has stabilized, there has been a significant slowdown in refinance activity which has contributed to the decrease in gain on sale of loans. Loss on the sale of investment securities was $591 thousand for the current quarter compared to a gain of $124 thousand on the sale of investment securities in the prior quarter and a gain of $242 thousand in the prior year second quarter. Other income of $1.9 million for the current quarter was an increase of $501 thousand from the prior quarter, such increase including $697 thousand from the other real estate owned operating revenue and gain on sale of other real estate owned. Other income decreased $1.3 million from the prior year second quarter, mainly due to the $1.8 million gain ($1.1 million after-tax) on the sale of Mountain West’s merchant card servicing portfolio.

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Non-interest Expense
The following tables summarize non-interest expense for the periods indicated, including the amount and percentage change from March 31, 2011 and June 30, 2010:
                         
    Three Months ended  
    June 30,     March 31,     June 30,  
(Unaudited — Dollars in thousands)   2011     2011     2010  
Compensation, employee benefits and related expense
  $ 21,170       21,603       21,652  
Occupancy and equipment expense
    5,728       5,954       5,988  
Advertising and promotions
    1,635       1,484       1,644  
Outsourced data processing expense
    791       773       761  
Core deposit intangibles amortization
    590       727       801  
Other real estate owned expense
    5,062       2,099       7,373  
Federal Deposit Insurance Corporation premiums
    2,197       2,324       2,165  
Other expense
    9,047       7,512       7,852  
 
                 
Total non-interest expense
  $ 46,220       42,476       48,236  
 
                 
                                 
    $ Change from     $ Change from     % Change from     % Change from  
    March 31,     June 30,     March 31,     June 30,  
(Unaudited — Dollars in thousands)   2011     2010     2011     2010  
Compensation, employee benefits and related expense
  $ (433 )   $ (482 )     -2 %     -2 %
Occupancy and equipment expense
    (226 )     (260 )     -4 %     -4 %
Advertising and promotions
    151       (9 )     10 %     -1 %
Outsourced data processing expense
    18       30       2 %     4 %
Core deposit intangibles amortization
    (137 )     (211 )     -19 %     -26 %
Other real estate owned expense
    2,963       (2,311 )     141 %     -31 %
Federal Deposit Insurance Corporation premiums
    (127 )     32       -5 %     1 %
Other expense
    1,535       1,195       20 %     15 %
 
                           
Total non-interest expense
  $ 3,744     $ (2,016 )     9 %     -4 %
 
                           
Non-interest expense of $46.2 million for the quarter increased by $3.7 million, or 9 percent, from the prior quarter. However, there was a $2.0 million decrease, or 4 percent, from the prior year second quarter. Other real estate owned expense increased $3.0 million, or 141 percent, from the prior quarter and decreased $2.3 million, or 31 percent, from the prior year second quarter. The current quarter other real estate owned expense of $5.1 million included $1.8 million of operating expense, $1.6 million of fair value write-downs, and $1.7 million of loss on sale of other real estate owned. Operating expenses relating to other real estate owned included general administrative expenses such as maintenance costs, property taxes, insurance expense, and were higher in the current quarter compared to the prior quarter as a result of seasonal fluctuations.
Excluding other real estate owned expense, the Company and its bank subsidiaries continue to effectively manage and reduce other operating expenses. Compensation and employee benefits decreased by $433 thousand, or 2 percent, from the prior quarter and decreased $482 thousand, or 2 percent, from the prior year second quarter. Occupancy and equipment expense decreased $226 thousand, or 4 percent, from the prior quarter and decreased $260 thousand, or 4 percent, from the same quarter last year. Other expense, a good deal of which was out of the Banks’ control, increased $1.5 million, or 20 percent, from the prior quarter and increased $1.2 million, or 15 percent, from the same quarter last year. Such increases were in several categories including debit card expense, legal expense, and expense associated with new market tax credit investments.

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Efficiency Ratio
The efficiency ratio for the current quarter was 50 percent compared to 49 percent for the prior year second quarter. The higher efficiency ratio was primarily the result of a decrease in gains on sale of loans as the refinance activity continued to slow.
Provision for Loan Losses
                                         
                            Accruing    
                            Loans 30-89   Non-Performing
    Provision           ALLL   Days Past Due   Assets to
(Unaudited —   for Loan   Net   as a Percent   as a Percent of   Total Subsidiary
Dollars in thousands)   Losses   Charge-Offs   of Loans   Loans   Assets
Q2 2011
  $ 19,150       20,184       3.88 %     1.14 %     3.68 %
Q1 2011
    19,500       15,778       3.86 %     1.44 %     3.78 %
Q4 2010
    27,375       24,525       3.66 %     1.21 %     3.91 %
Q3 2010
    19,162       26,570       3.47 %     1.06 %     4.03 %
Q2 2010
    17,246       19,181       3.58 %     0.92 %     4.01 %
Q1 2010
    20,910       20,237       3.58 %     1.53 %     4.19 %
Q4 2009
    36,713       19,116       3.52 %     2.15 %     4.13 %
Q3 2009
    47,050       19,094       3.14 %     1.09 %     4.10 %
The current quarter provision for loan loss expense was $19.2 million, a decrease of $350 thousand from the prior quarter and an increase of $1.9 million from the second quarter in 2010. Net charged-off loans for the current quarter were $20.2 million compared to $15.8 million for the prior quarter and $19.2 million for the second quarter in 2010.
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 in “Additional Management’s Discussion and Analysis” — Allowance for Loan and Lease Losses.
Results of Operations — The Six Months ended June 30, 2011
Compared to the Six Months ended June 30, 2010
Performance Summary
                 
    Six Months ended
(Unaudited — Dollars in thousands,   June 30,   June 30,
except per share data)   2011   2010
 
               
Net earnings
  $ 22,171       23,292  
Diluted earnings per share
  $ 0.31       0.35  
Return on average assets (annualized)
    0.66 %     0.76 %
Return on average equity (annualized)
    5.25 %     6.02 %
Net earnings for the six months ended June 30, 2011 were $22.2 million, which was a decrease of $1.1 million, or 5 percent, over the prior year first six months. Diluted earnings per share of $0.31 was a decrease of 11 percent over $0.35 earned in the first half of 2010.

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Revenue Summary
The following table summarizes revenue for the periods indicated, including the amount and percentage change from June 30, 2010:
                                 
    Six Months ended              
    June 30,     June 30,              
(Unaudited — Dollars in thousands)   2011     2010     $ Change     % Change  
Net interest income
                               
Interest income
  $ 139,935     $ 147,216     $ (7,281 )     -5 %
Interest expense
    23,000       27,633       (4,633 )     -17 %
 
                         
Total net interest income
    116,935       119,583       (2,648 )     -2 %
 
                               
Non-interest income
                               
Service charges, loan fees, and other fees
    23,443       22,546       897       4 %
Gain on sale of loans
    8,985       10,024       (1,039 )     -10 %
(Loss) gain on sale of investments
    (467 )     556       (1,023 )     -184 %
Other income
    3,285       4,475       (1,190 )     -27 %
 
                         
Total non-interest income
    35,246       37,601       (2,355 )     -6 %
 
                         
 
                               
 
  $ 152,181     $ 157,184     $ (5,003 )     -3 %
 
                         
 
                               
Net interest margin (tax-equivalent)
    3.96 %     4.39 %                
 
                           
Net Interest Income
Net interest income for the six month period decreased $2.6 million, or 2 percent, over the same period last year as total interest income decreased $7.3 million, or 5 percent, while total interest expense decreased $4.6 million, or 17 percent. The decrease in interest income from the prior year six month period resulted from an increase of $11.7 million in premium amortization on CMOs, which was partially offset by the increased volume of earning assets. The decrease in interest expense of $4.6 million, or 17 percent, was primarily attributable to the rate decreases on interest bearing deposits and lower cost borrowings. The net interest margin as a percentage of earning assets, on a tax equivalent basis, decreased 43 basis points from 4.39 percent for the first half of 2010 to 3.96 percent for the first half of 2011, such decrease attributable to a lower yield and volume of loans coupled with an increase in lower yielding investment securities.
Non-interest Income
Non-interest income of $35.2 million for the first half of 2011 decreased $2.4 million over the same period in 2010. Fee income increased $897 thousand, or 4 percent, compared to the prior year same period, such increase primarily the result of an increase of $1.6 million in debit card income. Gain on sale of loans decreased $1.0 million, or 10 percent, from the first half of 2010 due to a significant reduction in refinance activity. Other income decreased $1.2 million over the same period in 2010 of which $1.8 million ($1.1 million after-tax) relates to the prior year sale of Mountain West’s merchant card servicing portfolio.

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Non-interest Expense
The following table summarizes non-interest expense for the periods indicated, including the amount and percentage change from June 30, 2010:
                                 
    Six Months ended              
    June 30,     June 30,              
(Unaudited — Dollars in thousands)   2011     2010     $ Change     % Change  
 
                               
Compensation, employee benefits and related expense
  $ 42,773     $ 43,008     $ (235 )     -1 %
Occupancy and equipment expense
    11,682       11,936       (254 )     -2 %
Advertising and promotions
    3,119       3,236       (117 )     -4 %
Outsourced data processing expense
    1,564       1,455       109       7 %
Core deposit intangibles amortization
    1,317       1,621       (304 )     -19 %
Other real estate owned expense
    7,161       9,691       (2,530 )     -26 %
Federal Deposit Insurance Corporation premiums
    4,521       4,365       156       4 %
Other expense
    16,559       14,885       1,674       11 %
 
                         
Total non-interest expense
  $ 88,696     $ 90,197     $ (1,501 )     -2 %
 
                         
Non-interest expense for the first six months of 2011 decreased by $1.5 million, or 2 percent, from the same period in 2010. Compensation and employee benefits decreased $235 thousand, or 1 percent, and occupancy and equipment expense decreased $254 thousand, or 2 percent, from the prior year same period. Other real estate owned expense of $7.2 million decreased $2.5 million, or 26 percent, from the prior year period. The other real estate owned expense for the first half of 2011 included $2.7 million of operating expenses, $2.4 million of fair value write-downs, and $2.1 million of loss on sale of other real estate owned. Other expense increased $1.7 million, or 11 percent, from the prior year period. Other expense was higher due to an increase of $960 thousand from debit card expense.
Efficiency Ratio
The efficiency ratio for the first six months of 2011 was 51 percent compared to 49 percent for the prior year same period. The increase in the efficiency ratio resulted from the continuing pressure on net interest income in the current low interest rate environment and decreases in non-interest income.
Provision for Loan Losses
The provision for loan loss expense was $38.7 million for 2011, an increase of $494 thousand, or 1 percent, from the same period in 2010. Net charged-off loans during the first half of 2011 was $36.0 million, a decrease of $3.5 million from the same period in 2010.

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Additional Management’s Discussion and Analysis
Loan Portfolio
The following unaudited tables summarize selected information by regulatory classification on the Company’s loan portfolio.
                                         
    Loans Receivable by Bank     % Change     % Change  
    Balance     Balance     Balance     from     from  
(Dollars in thousands)   6/30/11     12/31/10     6/30/10     12/31/10     6/30/10  
Glacier
  $ 813,948       866,097       893,809       -6 %     -9 %
Mountain West
    732,725       821,135       916,582       -11 %     -20 %
First Security
    578,166       571,925       577,795       1 %     0 %
Western
    278,724       305,977       316,893       -9 %     -12 %
1st Bank
    256,302       266,505       283,825       -4 %     -10 %
Valley
    187,599       183,003       194,521       3 %     -4 %
Big Sky
    237,993       249,593       266,540       -5 %     -11 %
First Bank-WY
    138,295       143,224       152,970       -3 %     -10 %
Citizens
    160,700       168,972       168,406       -5 %     -5 %
First Bank-MT
    118,928       109,310       116,920       9 %     2 %
San Juans
    137,684       143,574       147,721       -4 %     -7 %
Less eliminations
    (3,813 )     (3,813 )     (3,813 )     0 %     0 %
Less loans held for sale
    (35,440 )     (76,213 )     (73,207 )     -53 %     -52 %
 
                                 
Total
  $ 3,601,811       3,749,289       3,958,962       -4 %     -9 %
 
                                 
                                         
    Land, Lot and Other Construction Loans by Bank     % Change     % Change  
    Balance     Balance     Balance     from     from  
(Dollars in thousands)   6/30/11     12/31/10     6/30/10     12/31/10     6/30/10  
Glacier
  $ 114,110       148,319       150,723       -23 %     -24 %
Mountain West
    108,700       147,991       190,060       -27 %     -43 %
First Security
    52,822       72,409       78,218       -27 %     -32 %
Western
    24,717       29,535       31,056       -16 %     -20 %
1st Bank
    29,355       29,714       30,800       -1 %     -5 %
Valley
    16,641       12,816       13,622       30 %     22 %
Big Sky
    48,303       53,648       64,739       -10 %     -25 %
First Bank-WY
    8,359       12,341       13,184       -32 %     -37 %
Citizens
    8,939       12,187       13,034       -27 %     -31 %
First Bank-MT
    790       830       808       -5 %     -2 %
San Juans
    25,748       30,187       32,286       -15 %     -20 %
 
                                 
Total
  $ 438,484       549,977       618,530       -20 %     -29 %
 
                                 

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    Land, Lot and Other Construction Loans by Bank, by Type at 6/30/11  
            Consumer             Developed     Commercial        
    Land     Land or     Unimproved     Lots for     Developed     Other  
(Dollars in thousands)   Development     Lot     Land     Operative Builders     Lot     Construction  
Glacier
  $ 47,801       24,843       26,313       8,332       5,239       1,582  
Mountain West
    22,324       53,934       8,351       12,742       4,002       7,347  
First Security
    24,200       6,487       16,466       3,549       493       1,627  
Western
    9,973       4,580       3,138       538       1,746       4,742  
1st Bank
    6,526       8,653       3,248       269       1,519       9,140  
Valley
    3,357       4,907       1,290             3,394       3,693  
Big Sky
    14,918       14,093       9,783       975       2,554       5,980  
First Bank-WY
    1,848       3,634       1,176       526       596       579  
Citizens
    1,979       873       2,210       45       679       3,153  
First Bank-MT
          73       658             59        
San Juans
    1,613       14,178       1,964             7,300       693  
 
                                   
Total
  $ 134,539       136,255       74,597       26,976       27,581       38,536  
 
                                   
                                                         
                                            Custom &        
    Residential Construction Loans by Bank, by Type     % Change     % Change     Owner     Pre-Sold  
    Balance     Balance     Balance     from     from     Occupied     & Spec  
(Dollars in thousands)   6/30/11     12/31/10     6/30/10     12/31/10     6/30/10     6/30/11     6/30/11  
Glacier
  $ 33,429       34,526       45,722       -3 %     -27 %   $ 5,445       27,984  
Mountain West
    15,625       21,375       23,997       -27 %     -35 %     5,762       9,863  
First Security
    8,503       10,123       14,600       -16 %     -42 %     3,755       4,748  
Western
    1,392       1,350       1,795       3 %     -22 %     763       629  
1st Bank
    3,692       6,611       12,272       -44 %     -70 %     2,015       1,677  
Valley
    3,038       4,950       5,595       -39 %     -46 %     2,087       951  
Big Sky
    11,170       11,004       16,875       2 %     -34 %     640       10,530  
First Bank-WY
    2,052       1,958       2,607       5 %     -21 %     2,052        
Citizens
    8,557       9,441       10,994       -9 %     -22 %     4,137       4,420  
First Bank-MT
    290       502       178       -42 %     63 %     70       220  
San Juans
    5,368       7,018       7,095       -24 %     -24 %     5,368        
 
                                             
Total
  $ 93,116       108,858       141,730       -14 %     -34 %   $ 32,094       61,022  
 
                                             
                                                         
    Single Family Residential Loans by Bank, by Type     % Change     % Change     1st     Junior  
    Balance     Balance     Balance     from     from     Lien     Lien  
(Dollars in thousands)   6/30/11     12/31/10     6/30/10     12/31/10     6/30/10     6/30/11     6/30/11  
Glacier
  $ 169,244       187,683       187,625       -10 %     -10 %   $ 148,915       20,329  
Mountain West
    253,558       282,429       296,102       -10 %     -14 %     217,038       36,520  
First Security
    88,378       92,011       86,963       -4 %     2 %     74,419       13,959  
Western
    34,870       42,070       47,532       -17 %     -27 %     32,813       2,057  
1st Bank
    55,621       59,337       59,292       -6 %     -6 %     51,103       4,518  
Valley
    56,795       60,085       66,055       -5 %     -14 %     46,739       10,056  
Big Sky
    29,131       32,496       32,216       -10 %     -10 %     26,193       2,938  
First Bank-WY
    14,772       13,948       15,080       6 %     -2 %     11,495       3,277  
Citizens
    16,454       19,885       20,039       -17 %     -18 %     15,111       1,343  
First Bank-MT
    8,435       8,618       9,818       -2 %     -14 %     7,388       1,047  
San Juans
    30,036       29,124       30,153       3 %     0 %     28,736       1,300  
 
                                             
Total
  $ 757,294       827,686       850,875       -9 %     -11 %   $ 659,950       97,344  
 
                                             

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    Commercial Real Estate Loans by Bank, by Type     % Change     % Change     Owner     Non-Owner  
    Balance     Balance     Balance     from     from     Occupied     Occupied  
(Dollars in thousands)   6/30/11     12/31/10     6/30/10     12/31/10     6/30/10     6/30/11     6/30/11  
Glacier
  $ 220,863       224,215       230,976       -1 %     -4 %   $ 113,215       107,648  
Mountain West
    199,894       206,732       222,414       -3 %     -10 %     120,250       79,644  
First Security
    255,332       227,662       221,257       12 %     15 %     177,512       77,820  
Western
    104,072       103,443       105,377       1 %     -1 %     58,388       45,684  
1st Bank
    55,065       58,353       64,158       -6 %     -14 %     39,284       15,781  
Valley
    53,846       50,325       51,239       7 %     5 %     33,513       20,333  
Big Sky
    85,835       88,135       86,114       -3 %     0 %     54,379       31,456  
First Bank-WY
    25,392       27,609       28,808       -8 %     -12 %     18,834       6,558  
Citizens
    59,258       61,737       58,507       -4 %     1 %     36,827       22,431  
First Bank-MT
    17,513       17,492       17,254       0 %     2 %     10,307       7,206  
San Juans
    50,974       50,066       52,423       2 %     -3 %     28,861       22,113  
 
                                             
Total
  $ 1,128,044       1,115,769       1,138,527       1 %     -1 %   $ 691,370       436,674  
 
                                             
                                                         
    Consumer Loans by Bank, by Type     % Change     % Change     Home Equity     Other  
    Balance     Balance     Balance     from     from     Line of Credit     Consumer  
(Dollars in thousands)   6/30/11     12/31/10     6/30/10     12/31/10     6/30/10     6/30/11     6/30/11  
Glacier
  $ 142,268       150,082       158,088       -5 %     -10 %   $ 128,613       13,655  
Mountain West
    66,645       70,304       72,284       -5 %     -8 %     58,666       7,979  
First Security
    68,897       71,677       77,140       -4 %     -11 %     44,763       24,134  
Western
    41,211       43,081       46,001       -4 %     -10 %     28,942       12,269  
1st Bank
    37,484       40,021       41,985       -6 %     -11 %     15,212       22,272  
Valley
    23,721       23,745       24,445       0 %     -3 %     14,612       9,109  
Big Sky
    27,543       27,733       28,475       -1 %     -3 %     24,149       3,394  
First Bank-WY
    23,159       24,217       26,263       -4 %     -12 %     13,617       9,542  
Citizens
    28,720       29,040       30,613       -1 %     -6 %     23,340       5,380  
First Bank-MT
    7,792       8,005       7,834       -3 %     -1 %     3,832       3,960  
San Juans
    13,991       14,848       14,463       -6 %     -3 %     13,118       873  
 
                                             
Total
  $ 481,431       502,753       527,591       -4 %     -9 %   $ 368,864       112,567  
 
                                             

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Non-performing Assets
The following table summarizes information regarding non-performing assets at the dates indicated:
                         
    At or for the Six     At or for the     At or for the Six  
    Months ended     Year ended     Months ended  
(Unaudited — Dollars in thousands)   June 30, 2011     December 31, 2010     June 30, 2010  
Non-accrual loans
                       
Residential real estate
  $ 14,444       23,095       24,075  
Commercial
    128,764       161,136       160,058  
Consumer and other
    11,576       8,274       6,205  
 
                 
Total
    154,784       192,505       190,338  
 
                       
Accruing loans 90 days or more past due
                       
Residential real estate
    1,026       506       885  
Commercial
    5,469       3,051       1,953  
Consumer and other
    682       974       192  
 
                 
Total
    7,177       4,531       3,030  
 
                       
Other real estate owned
    99,585       73,485       64,419  
 
                 
 
                       
Total non-performing assets
  $ 261,546       270,521       257,787  
 
                 
 
                       
Non-performing assets as a percentage of subsidiary assets
    3.68 %     3.91 %     4.01 %
 
                       
Allowance for loan and lease losses as a percentage of non-performing loans
    86 %     70 %     55 %
 
                       
Accruing loans 30-89 days past due
  $ 41,151       45,497       36,487  
 
                       
Interest income 1
  $ 4,298       10,987       5,463  
 
1   Amounts represent estimated interest income that would have been recognized on loans accounted for on a non-accrual basis as of the end of each period had such loans performed pursuant to contractual terms.

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The following tables summarize selected information identified by regulatory classification on the Company’s loan portfolio.
                                                 
                            Non-     Accruing     Other  
    Non-performing Assets, by Loan Type     Accruing     Loans 90 Days     Real Estate  
    Balance     Balance     Balance     Loans     or More Past Due     Owned  
(Dollars in thousands)   6/30/11     12/31/10     6/30/10     6/30/11     6/30/11     6/30/11  
Custom and owner occupied construction
  $ 2,979       2,575       2,448       1,192             1,787  
Pre-sold and spec construction
    17,941       16,071       21,486       9,556       294       8,091  
Land development
    80,685       83,989       84,632       41,171       1,199       38,315  
Consumer land or lots
    12,693       12,543       12,475       6,418       673       5,602  
Unimproved land
    43,215       44,116       36,211       20,087       2,097       21,031  
Developed lots for operative builders
    6,731       7,429       9,788       2,052             4,679  
Commercial lots
    2,353       3,110       1,481       255             2,098  
Other construction
    4,582       3,837       3,485       4,582              
Commercial real estate
    29,801       36,978       35,354       21,580       560       7,661  
Commercial and industrial
    13,262       13,127       11,645       11,756       525       981  
Agriculture loans
    7,159       5,253       5,744       6,642       112       405  
1-4 family
    33,999       34,791       26,648       24,343       1,502       8,154  
Home equity lines of credit
    5,764       4,805       5,453       5,008       170       586  
Consumer
    382       446       651       142       45       195  
Other
          1,451       286                    
 
                                   
Total
  $ 261,546       270,521       257,787       154,784       7,177       99,585  
 
                                   
 
                                               
                                                 
                                    Non-Accrual &        
    Accruing 30-89 Days Delinquent Loans and     Accruing     Accruing Loans     Other  
    Non-Performing Assets, by Bank     30-89 Days     90 Days or     Real Estate  
    Balance     Balance     Balance     Past Due     More Past Due     Owned  
(Dollars in thousands)   6/30/11     12/31/10     6/30/10     6/30/11     6/30/11     6/30/11  
Glacier
  $ 70,628       75,869       75,527       8,879       51,250       10,499  
Mountain West
    75,237       83,872       68,613       13,447       35,286       26,504  
First Security
    62,172       59,770       57,039       9,606       37,618       14,948  
Western
    9,026       11,237       5,757       459       727       7,840  
1st Bank
    18,315       16,686       19,833       2,681       8,823       6,811  
Valley
    2,019       1,900       2,131       492       1,135       392  
Big Sky
    22,947       21,739       26,854       1,327       13,004       8,616  
First Bank-WY
    9,252       9,901       10,135       1,133       6,837       1,282  
Citizens
    8,160       8,000       5,625       2,853       3,678       1,629  
First Bank-MT
    106       553       554       57       49        
San Juans
    6,165       6,549       3,902       217       3,554       2,394  
GORE
    18,670       19,942       18,304                   18,670  
 
                                   
Total
  $ 302,697       316,018       294,274       41,151       161,961       99,585  
 
                                   
Non-performing assets as a percentage of total subsidiary assets at June 30, 2011 were 3.68 percent, down from 3.91 percent as of the prior year end, and down from 4.01 percent a year ago. Included in the non-performing assets are non-performing loans which have decreased $23.0 million, or 12 percent, from the prior quarter. In addition to the decrease in non-performing loans, early stage delinquencies (accruing 30-89 days past due) of $41.2 million at June 30, 2011 decreased from the prior quarter early stage delinquencies of $52.4 million and the prior year end of $45.5 million. The Company has continued to work diligently on its non-performing loans while maintaining an adequate allowance for loan losses and this was reflected in the credit quality ratios which have improved during the second quarter of 2011.

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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, the Company believes the value of the underlying real estate collateral is adequate to minimize significant charge-offs or loss to the Company. Each bank subsidiary evaluates the level of its non-performing assets, the values of the underlying real estate and other collateral, and related trends in net charge-offs in determining the adequacy of the ALLL. Through pro-active credit administration, the Banks work closely with borrowers to seek favorable resolution to the extent possible, thereby attempting to minimize net charge-offs or losses to the Company.
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 are applied to the outstanding principal balance if doubt remains as to the ultimate collectability of the loan. Interest accruals are not resumed on partially charged-off impaired loans. For other loans on non-accrual, interest accruals are resumed on such loans only when 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.
For non-performing construction loans involving residential structures, the percentage of completion exceeds 95 percent at June 30, 2011. For construction loans involving commercial structures, the percentage of completion ranges from projects not started to projects completed at June 30, 2011. 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.
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 90 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). The Company measures impairment on a loan-by-loan basis. 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. At the time a loan is identified as impaired, it is measured for impairment and thereafter reviewed and measured on at least a quarterly basis for additional impairment.

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The amount of the impairment is measured 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 troubled debt restructuring is based on the original contractual rate.
When the ultimate collectability of the total principal of an impaired loan is in doubt and designated as non-accrual, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal on an impaired loan is not in doubt, contractual interest is generally credited to interest income when received under the cash basis method. Impaired loans were $208.9 million and $225.1 million as of June 30, 2011 and December 31, 2010, respectively. The ALLL includes valuation allowances of $13.9 million and $16.9 million specific to impaired loans as of June 30, 2011 and December 31, 2010, respectively. Of the total impaired loans at June 30, 2011, there were 36 commercial real estate and other commercial loans, each exceeding $1 million, such loans aggregating $104.1 million, or 50 percent, of the impaired loans. The 36 loans were collateralized by 164 percent of the loan value, the majority of which had appraisals (new or updated) in the previous twelve months, such appraisals reviewed at least quarterly taking into account current market conditions. Of the total impaired loans at June 30, 2011, there were 224 loans aggregating $131.4 million, or 63 percent, whereby the borrowers had more than one impaired loan. The amount of impaired loans that have had partial charge-offs during the year for which the Company continues to have concern about the collectability of the remaining loan balance was $24.5 million. Of these loans, there were charge-offs of $15.0 million during the first half of 2011.
Appraisals and Evaluations. 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 (new or updated) of the underlying property value. The Company reviews appraisals or evaluations, giving consideration to the highest and best use of the collateral, with values reduced by discounts to consider lack of marketability and estimated cost to sell. 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 an impaired loan’s value may occur.
In deciding whether to obtain a new or updated appraisal or evaluation, the Company considers the impact of the following factors and environmental events:
    passage of time;
 
    improvements to, or lack of maintenance of, the collateral property;
 
    stressed and volatile economic conditions, including market values;
 
    changes in the performance, risk profile, size and complexity of the credit exposure;
 
    limited or specific use collateral property;
 
    high loan-to-value credit exposures;
 
    changes in the adequacy of the collateral protections, including loan covenants and financially responsible guarantors;
 
    competing properties in the market area;
 
    changes in zoning and environmental contamination;
 
    the nature of subsequent transactions (e.g., modification, restructuring, refinancing); and
 
    the availability of alternative financing sources.

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The Company also takes into account (1) the Company’s experience with whether the appraised values of impaired collateral-dependent loans are actually realized, and (2) the timing of cash flows expected to be received from the underlying collateral to the extent such timing is significantly different than anticipated in the most recent appraisal.
The Company generally obtains new or updated appraisals or evaluations annually for collateral underlying impaired loans. For collateral-dependent loans for which the appraisal of the underlying collateral is more than twelve months old, the Company updates collateral valuations through procedures that include obtaining current inspections of the collateral property, broker price opinions, comprehensive market analyses and current data for conditions and assumptions (e.g., discounts, comparable sales and trends) underlying the appraisals’ valuation techniques. The Company’s impairment/valuation procedures take into account new and updated appraisals on similar properties in the same area in order to capture current market valuation changes, unfavorable and favorable.
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 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.
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 multiple loan strategy when restructuring loans regardless of whether or not the notes are TDR loans. The Company’s TDR loans are considered impaired loans of which the majority are designated as non-accrual. The Company does not have any commercial TDR loans as of June 30, 2011 that have repayment dates extended at or near the original maturity date for which the Company has not classified as impaired. The Company had TDR loans of $74.6 million as of June 30, 2011 of which $38.9 million were on non-accrual status. The Company has TDR loans of $15.9 million that are in non-accrual status or that have had partial charge-offs during the year, the borrowers of which continue to have $33.1 million in other loans that are on accrual status.
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 troubled debt restructurings, 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.

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Other Real Estate Owned. Property acquired by foreclosure or deed-in-lieu of foreclosure is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated selling cost. Fair value is determined as the amount that could be reasonably expected in a current sale between a willing buyer and a willing seller in an orderly transaction between market participants at the measurement date. If the fair value of the asset, less estimated selling cost, is less than the cost of the property, a loss is recognized in other expenses and the asset carrying value is reduced. Gain or loss on disposition of real estate owned is recorded in non-interest income or non-interest expense, respectively. In determining the fair value of the properties on the date of transfer and any subsequent estimated losses of net realizable value, the fair value of other real estate acquired by foreclosure or deed-in-lieu of foreclosure is determined primarily based upon appraisal or evaluation of the underlying property value. The loan book value prior to the acquisition and transfer of the loan into other real estate owned during 2011 was $59.0 million of which $13.8 million was residential real estate, $40.7 million was commercial real estate, and $4.5 million was consumer loans. The loan collateral acquired in foreclosure during 2011 was $49.6 million of which $9.7 million was residential real estate, $37.2 million was commercial real estate, and $2.7 million was consumer loans. The following table sets forth the changes in other real estate owned for the periods ended June 30, 2011 and December 31, 2010:
                 
    Six Months ended     Year ended  
    June 30,     December 31,  
(Unaudited — Dollars in thousands)   2011     2010  
 
               
Balance at beginning of period
  $ 73,485       57,320  
Additions
    49,570       72,572  
Capital improvements
    321       273  
Write-downs
    (2,351 )     (10,429 )
Sales
    (21,440 )     (46,251 )
 
           
Balance at end of period
    99,585       73,485  
 
           
Interest Reserves
Interest reserves are used to periodically advance loan funds to pay interest charges on the outstanding balance of the related loan. As with any extension of credit, the decision to establish a loan-funded interest reserve upon origination of construction loans, including residential construction and land, lot and other construction loans, is based on prudent underwriting, including the feasibility of the project, expected cash flow, creditworthiness of the borrower and guarantors, and the protection provided by the real estate and other underlying collateral. Interest reserves provide an effective means for addressing the cash flow characteristics of construction loans. In response to the downturn in the housing market and potential impact upon construction lending, the Company discourages the creation or continued use of interest reserves.
The Company’s loan policy and credit administration practices establish standards and limits for all extensions of credit that are secured by interests in or liens on real estate, or made for the purpose of financing the construction of real property or other improvements. Ongoing monitoring and review of the loan portfolio is based on current information, including: the borrowers’ and guarantors’ creditworthiness, value of the real estate and other collateral, the project’s performance against projections, and monthly inspections by employees or external parties until the real estate project is complete.
Interest reserves are advanced provided the related construction loan is performing as expected. Loans with interest reserves may be extended, renewed or restructured only when the related loan continues to perform as expected and meets the prudent underwriting standards identified above. Such renewals, extension or restructuring are not permitted in order to keep the related loan current.
In monitoring the performance and credit quality of a construction loan, the Company assesses the adequacy of any remaining interest reserve, and whether the use of an interest reserve remains appropriate in the presence of emerging weakness and associated risks in the construction loan.

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The ongoing accrual and recognition of uncollected interest as income continues only when facts and circumstances continue to reasonably support the contractual payment of principal or interest. Loans are typically designated as non-accrual when the collection of the contractual principal or interest is unlikely and has remained unpaid for ninety days or more. For such loans, the accrual of interest and its capitalization into the loan balance will be discontinued.
The Company had $98.4 million and $141.1 million in loans with interest reserves with remaining reserves of $568 thousand and $879 thousand as of June 30, 2011 and December 31, 2010, respectively.
Allowance for Loan and Lease Losses
Determining the adequacy of the ALLL involves a high degree of judgment and is inevitably imprecise as the risk of loss is difficult to quantify. The ALLL methodology is designed to reasonably estimate the probable loan and lease losses within each bank subsidiary’s loan and lease portfolios. Accordingly, the ALLL is maintained within a range of estimated losses. The determination of the ALLL, 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 and lease portfolios, economic conditions nationally and in the local markets in which the community bank subsidiaries operate, changes in collateral values, delinquencies, non-performing assets and net charge-offs.
Although the Company and Banks continue 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 and lease portfolios may adversely affect the credit risk and potential for loss to the Company.
The ALLL evaluation is well documented and approved by each bank subsidiary’s Board of Directors and reviewed by the Parent’s Board of Directors. In addition, the policy and procedures for determining the balance of the ALLL are reviewed annually by each bank subsidiary’s Board of Directors, the Parent’s Board of Directors, the internal audit department, independent credit reviewers and state and federal bank regulatory agencies.
At the end of each quarter, each of the community bank subsidiaries analyzes its loan and lease portfolio and maintain an ALLL at a level that is appropriate and determined in accordance with accounting principles generally accepted in the United States of America. The allowance consists of a specific allocation component and a general allocation component. The specific allocation 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 allocation component relates to probable credit losses inherent in the balance of the loan portfolio based on prior loss experience, adjusted for changes in trends and conditions of qualitative or environmental factors.
When applied to each bank subsidiary’s historical loss experience, the 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.
Management of each bank subsidiary exercises significant judgment when evaluating the effect of applicable qualitative or environmental factors on each bank subsidiary’s historical loss experience for loans not identified as impaired. Quantification of the impact upon each bank subsidiary’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 Bank’s unimpaired loan portfolio as of each evaluation date. Bank management 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.

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The Company is committed to a conservative management of the credit risk within the loan and lease portfolios, including the early recognition of problem loans. The Company’s credit risk management includes stringent credit policies, individual loan approval limits, limits on concentrations of credit, and committee approval of larger loan requests. Management practices also include regular internal and external credit examinations, identification and review of individual loans and leases experiencing deterioration of credit quality, procedures for the collection of non-performing assets, quarterly monitoring of the loan and lease portfolios, semi-annual review of loans by industry, and periodic stress testing of the loans secured by real estate.
The Company’s model of eleven independent wholly-owned community banks, each with its own loan committee, chief credit officer and Board of Directors, provides substantial local oversight to the lending and credit management function. Unlike a traditional, single-bank holding company, the Company’s decentralized business model affords multiple reviews of larger loans before credit is extended, a significant benefit in mitigating and managing the Company’s credit risk. The geographic dispersion of the market areas in which the Company and the community bank subsidiaries operate further mitigates the risk of credit loss. While this process is intended to limit credit exposure, there can be no assurance that further problem credits will not arise and additional loan losses incurred, particularly in periods of rapid economic downturns.
The primary responsibility for credit risk assessment and identification of problem loans rests with the loan officer of the account. This continuous process, utilizing each of the Banks’ internal credit risk rating process, is necessary to support management’s evaluation of the ALLL adequacy. An independent loan review function verifying credit risk ratings evaluates the loan officer and management’s evaluation of the loan portfolio credit quality. The loan review function also assesses the evaluation process and provides an independent analysis of the adequacy of the ALLL.
The Company considers the ALLL balance of $140 million adequate to cover inherent losses in the loan and lease portfolios as of June 30, 2011. However, 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 and lease portfolios applying management’s judgment about then current factors, including economic and regulatory developments, will not require significant changes in the ALLL. Under such circumstances, this could result in enhanced provisions for loan losses. See additional risk factors in “Part II, ITEM 1A. Risk Factors.”
The following table summarizes the allocation of the ALLL:
                                                 
    June 30, 2011     December 31, 2010     June 30, 2010  
    Allowance     Percent     Allowance     Percent     Allowance     Percent  
  for Loan and     of Loans in     for Loan and     of Loans in     for Loan and     of Loans in  
(Unaudited — Dollars in thousands)   Lease Losses     Category     Lease Losses     Category     Lease Losses     Category  
 
                                               
Residential real estate
  $ 17,412       14.7 %     20,957       16.9 %     12,400       17.4 %
Commercial real estate
    79,885       48.1 %     76,147       47.9 %     64,466       47.5 %
Other commercial
    19,615       18.2 %     19,932       17.4 %     41,884       17.5 %
Home equity
    13,625       12.8 %     13,334       12.9 %     13,490       12.9 %
Other consumer
    9,258       6.2 %     6,737       4.9 %     9,425       4.7 %
 
                                   
Totals
  $ 139,795       100.0 %     137,107       100.0 %     141,665       100.0 %
 
                                   

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The following table summarizes the ALLL experience at the dates indicated:
                         
    Six Months ended     Year ended     Six Months ended  
    June 30,     December 31,     June 30,  
(Unaudited — Dollars in thousands)   2011     2010     2010  
 
                       
Balance at beginning of period
  $ 137,107       142,927       142,927  
Charge-offs
                       
Residential real estate
    (3,157 )     (16,575 )     (8,864 )
Commercial loans
    (28,485 )     (69,595 )     (28,935 )
Consumer and other loans
    (6,676 )     (7,780 )     (3,785 )
 
                 
Total charge-offs
    (38,318 )     (93,950 )     (41,584 )
 
                 
 
                       
Recoveries
                       
Residential real estate
    315       749       333  
Commercial loans
    1,602       2,203       1,627  
Consumer and other loans
    439       485       206  
 
                 
Total recoveries
    2,356       3,437       2,166  
 
                 
 
                       
Charge-offs, net of recoveries
    (35,962 )     (90,513 )     (39,418 )
Provision for loan losses
    38,650       84,693       38,156  
 
                 
Balance at end of period
  $ 139,795       137,107       141,665  
 
                 
Allowance for loan and lease losses as a percentage of total loan and leases
    3.88 %     3.66 %     3.58 %
 
                       
Net charge-offs as a percentage of total loans
    1.00 %     2.41 %     1.00 %
The following tables summarize the ALLL experience at the dates indicated, including identification by regulatory classification:
                                                 
                                    Provision for        
                            Provision for     the Year-to-Date     ALLL  
    Allowance for Loan and Lease Losses     Year-to-Date     Ended 6/30/11     as a Percent  
    Balance     Balance     Balance     Ended     Over Net     of Loans  
(Dollars in thousands)   6/30/11     12/31/10     6/30/10     6/30/11     Charge-Offs     6/30/11  
Glacier
  $ 37,321       34,701       37,817       12,550       1.3       4.59 %
Mountain West
    35,372       35,064       30,832       16,000       1.0       4.83 %
First Security
    21,362       19,046       20,252       5,600       1.7       3.69 %
Western
    7,543       7,606       8,707       550       0.9       2.71 %
1st Bank
    9,278       10,467       11,351       1,450       0.5       3.62 %
Valley
    4,494       4,651       4,707                   2.40 %
Big Sky
    9,351       9,963       11,511       1,300       0.7       3.93 %
First Bank-WY
    2,408       2,527       2,565       100       0.5       1.74 %
Citizens
    5,343       5,502       6,120       900       0.8       3.32 %
First Bank-MT
    3,012       3,020       3,067                   2.53 %
San Juans
    4,311       4,560       4,736       200       0.4       3.13 %
 
                                       
Total
  $ 139,795       137,107       141,665       38,650       1.1       3.88 %
 
                                       

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    Net Charge-Offs, Year-to-Date Period Ending, By Bank              
    Balance     Balance     Balance     Charge-Offs     Recoveries  
(Dollars in thousands)   6/30/11     12/31/10     6/30/10     6/30/11     6/30/11  
Glacier
  $ 9,930       24,327       16,461       10,749       819  
Mountain West
    15,692       47,487       16,219       16,261       569  
First Security
    3,284       7,296       2,390       3,596       312  
Western
    613       2,106       605       748       135  
1st Bank
    2,639       2,578       994       3,005       366  
Valley
    157       216       110       168       11  
Big Sky
    1,912       4,048       1,925       1,977       65  
First Bank-WY
    219       605       355       235       16  
Citizens
    1,059       1,363       245       1,120       61  
First Bank-MT
    8       149       102       10       2  
San Juans
    449       338       12       449        
 
                             
Total
  $ 35,962       90,513       39,418       38,318       2,356  
 
                             
                                         
    Net Charge-Offs (Recoveries), Year-to-Date              
    Period Ending, By Loan Type              
    Balance     Balance     Balance     Charge-Offs     Recoveries  
(Dollars in thousands)   6/30/11     12/31/10     6/30/10     6/30/11     6/30/11  
Residential construction
  $ 3,254       7,147       4,228       3,349       95  
Land, lot and other construction
    16,979       51,580       21,077       18,120       1,141  
Commercial real estate
    2,970       10,181       3,267       3,155       185  
Commercial and industrial
    6,237       5,612       3,192       6,456       219  
1-4 family
    4,981       9,897       4,998       5,333       352  
Home equity lines of credit
    1,262       4,496       2,302       1,407       145  
Consumer
    245       951       393       442       197  
Other
    34       649       (39 )     56       22  
 
                             
Total
  $ 35,962       90,513       39,418       38,318       2,356  
 
                             
The allowance determined by each of the eleven community bank subsidiaries is combined together into a single allowance for the Company. As of June 30, 2011, December 31, 2010 and June 30, 2010, the Company’s allowance consisted of the following components:
                         
    June 30,     December 31,     June 30,  
(Unaudited — Dollars in thousands)   2011     2010     2010  
 
                       
Specific allocation
  $ 13,895       16,871       17,036  
General allocation
    125,900       120,236       124,629  
 
                 
Total allowance
  $ 139,795       137,107       141,665  
 
                 
Each of the Bank’s ALLL is considered adequate to absorb losses from any class of its loan and lease portfolio. For the six months ended June 30, 2011 and throughout 2010, the Company believes the allowance is commensurate with the risk in the Company’s loan and lease portfolio and is directionally consistent with the change in the quality of the Company’s loan and lease portfolio as determined at each bank subsidiary.

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In total, the ALLL has decreased $1.9 million, or 1.3 percent, from a year ago. The ALLL of $139.8 million is 3.88 percent of total loans outstanding at June 30, 2011, up from 3.66 percent of total loans at year end 2010, and up from 3.58 percent of total loans at prior year second quarter end. While the overall amount of the ALLL has decreased from a year ago, the increase in the ALLL as a percentage of loans is the result of a continuing overall upward increase in the bank subsidiary’s historical loss experience adjusted for environmental factors. The upward increase in historical loss experience is the primary reason for the $1.3 million increase in the general allocation of the Company’s allowance despite the decrease of $357.2 million, or 9 percent, in total loans at June 30, 2011 compared to the prior year second quarter end.
During the second quarter of 2011, the overall total of the ALLL decreased by $1.0 million, the net result of a $1.5 million decrease in the specific allocation and a $473 thousand increase in the general allocation of the allowance. The increase in the general allocation during the current quarter is due to an increase in the bank subsidiaries’ overall historical loss experience during the quarter although total loans decreased by $45.2 million during the quarter.
Presented below are select aggregated statistics that were considered when determining the adequacy of the Company’s ALLL at June 30, 2011:
     Positive trends
    Net charge-offs of construction loans were $9.9 million, or 49 percent, of the $20.2 million of net charge-offs during the current quarter compared to net charge-offs of construction loans of $10.3 million, or 66 percent, of the $15.8 million of net charge-offs in the prior quarter.
 
    Non-accrual construction loans (i.e., residential construction and land, lot and other construction) were $85.3 million, or 55 percent, of the $154.8 million of non-accrual loans at June 30, 2011, a reduction of $13.3 million during the current quarter. Non-accrual construction loans at March 31, 2011 accounted for 55 percent of the $178.4 million of non-accrual loans.
 
    Non-performing loans as a percent of total loans at June 30, 2011 decreased to 4.50 percent as compared to 5.07 percent at March 31, 2011 and 5.26 percent at December 31, 2010.
 
    Early stage delinquencies (accruing loans 30-89 days past due) decreased to $41.2 million at June 30, 2011 from $52.4 million at March 31, 2011.
     Negative trends
    Charge-offs, net of recoveries, in the second quarter of 2011 were $20.2 million, an increase of $4.4 million from the prior quarter.
 
    Impaired loans as a percentage of total loans were 6 percent at June 30, 2011, the same percentage at March 31, 2011.
The eleven bank subsidiaries provide commercial services to individuals, small to medium size businesses, community organizations and public entities from 105 locations, including 96 branches, across Montana, Idaho, Wyoming, Colorado, Utah, and Washington. The Rocky Mountain areas in which the bank subsidiaries operate 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 each of the bank subsidiaries.

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Though stabilizing, the soft economic conditions during much of 2010 continued in the first half of 2011, including declining sales of existing real property (e.g., single family residential, multi-family, commercial buildings and land), an increase in existing inventory of real property, increase in real property delinquencies and foreclosures, and corresponding decrease in absorption rates, and lower values of real property that collateralize most of the Company’s loan and lease portfolios, among other factors. While the national unemployment rate increased steadily from 7.4 percent at the start of 2009 to 10.0 percent at year end 2009, dropping to 9.4 percent at year end 2010 and 9.2 percent at June 30, 2011, the unemployment rates for the states in which the community bank subsidiaries conduct operations were significantly lower throughout this time period compared to the national unemployment rate. Agricultural price declines in livestock and grain in 2009 have recovered significantly. Concurrently, prices for oil have held strong, while prices for natural gas remain below the exceptionally high price levels of 2008. The decline in the cost of living, as reflected in CPI measures, helped buffer the general softening of the economy nationally, regionally and locally, and the impact of lower real property values. The tourism industry and related lodging continues to be a source of strength for those banks whose market areas have national parks and similar recreational areas in the market areas served. Such changes affected the bank subsidiaries in distinctly different ways as each bank has its own geographic area and local economy influences over both a short-term and long-term horizon.
The specific allocation of $13.9 million pertains to total impaired loans of $208.9 million. Included in the impaired loans is $156.0 million of loans which have no specific allowance allocation since the fair value of collateral-dependent loans or the present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate) is higher than the carrying value of such impaired loans. In determining the need for a specific allowance allocation on impaired loans, the effects of decreases in the fair value of the underlying collateral were considered.
In evaluating the need for a specific or general allocation for impaired and unimpaired loans, respectively, within the Company’s construction loan portfolio, 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 new or updated appraisals or evaluations 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 are 15 percent of the Company’s total loan portfolio and account for 55 percent of the Company’s non-accrual loans at June 30, 2011. Collateral securing construction loans includes residential buildings (e.g., single/multi-family and condominiums), commercial buildings, and associated land (multi-acre parcels and individual lots, with and without shorelines). Outstanding balances are centered in Western Montana and Northern Idaho, as well as Boise and Sun Valley, Idaho. None of the individual bank subsidiaries have a concentration of construction loans exceeding 5 percent of the Company’s total loan portfolio.
As identified below, the following four bank subsidiaries had non-accrual construction loans that aggregated 5 percent or more of the Company’s $85.3 million of non-accrual construction loans at June 30, 2011. During the current quarter, non-accrual construction loans decreased $13.3 million, or 13 percent, from $98.6 million at March 31, 2011. Also identified below are the principal areas of the bank subsidiaries’ operations in which the collateral properties of such non-accrual construction loans are located:
         
Glacier
  34 percent   Western Montana
Mountain West
  28 percent   Northern Idaho and Boise and Sun Valley, Idaho
First Security
  22 percent   Western Montana
Big Sky
  11 percent   Western Montana

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Residential non-accrual construction loans are 13 percent of the total construction loans on non-accrual status as of June 30, 2011. Unimproved land and land development loans collectively account for the bulk of the non-accrual commercial construction loans at each of the four bank subsidiaries. With locations and operations in the contiguous northern Rocky Mountain states of Idaho and Montana, the geography and economies of each of the four bank subsidiaries are predominantly tied to real estate development given the sprawling abundance of timbered valleys and mountainous terrain with significant lakes, streams and watershed areas. Consistent with the general economic downturn, the market for upscale primary, secondary and other housing as well as the associated construction and building industries have stalled after years of significant growth. 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 construction loan and other segments of the total loan portfolio.
Other-Than-Temporary Impairment on Securities Accounting Policy and Analysis
The Company views the determination of whether an investment security is temporarily or other-than-temporarily impaired as a critical accounting policy, as the estimate is susceptible to significant change from period to period because it requires management to make significant judgments, assumptions and estimates in the preparation of its consolidated financial statements. The Company assesses individual securities in its investment securities portfolio for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant. An investment is impaired if the fair value of the security is less than its carrying value at the financial statement date. If impairment is determined to be other-than-temporary, an impairment loss is recognized by reducing the amortized cost for the credit loss portion of the impairment with a corresponding charge to earnings for a like amount.
For fair value estimates provided by third party vendors, management also considered the models and methodology for appropriate consideration of both observable and unobservable inputs, including appropriately adjusted discount rates and credit spreads for securities with limited or inactive markets, and whether the quoted prices reflect orderly transactions. For certain securities, the Company obtained independent estimates of inputs, including cash flows, in supplement to third party vendor provided information. The Company also reviewed financial statements of select issuers, with follow up discussions with issuers’ management for clarification and verification of information relevant to the Company’s impairment analysis.
Non-marketable equity securities owned at June 30, 2011 primarily consisted of stock issued by the FHLB of Seattle and Topeka, such shares measured at cost in recognition of the transferability restrictions imposed by the issuers. Other non-marketable equity securities include Federal Reserve Bank, Federal Agriculture Mortgage Corporation and Bankers’ Bank of the West Bancorporation, Inc.
With respect to FHLB stock, the Company evaluates such stock for other-than-temporary impairment. Such evaluation takes into consideration 1) FHLB deficiency, if any, in meeting applicable regulatory capital targets, including risk-based capital requirements, 2) the significance of any decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the time period for any such decline, 3) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, 4) the impact of legislative and regulatory changes on the FHLB, and 5) the liquidity position of the FHLB.
Based on the analysis of its impaired non-marketable equity securities as of June 30, 2011, the Company determined that none of such securities had other-than-temporary impairment.
The Company believes that macroeconomic conditions occurring during the first six months of 2011 and in 2010 have unfavorably impacted the fair value of certain debt securities in its investment portfolio. For debt securities with limited or inactive markets, the impact of these macroeconomic conditions upon fair value estimates includes higher risk-adjusted discount rates and downgrades in credit ratings provided by nationally recognized credit rating agencies, (e.g., Moody’s, S&P, Fitch, and DBRS).

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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.
As of June 30, 2011, there were 225 investments in an unrealized loss position, of which, state and local government securities have the largest unrealized loss. The fair value of the residential mortgage-backed securities in an unrealized loss position, which have underlying collateral consisting of U.S. government sponsored enterprise guaranteed mortgages and non-guaranteed private label whole loan mortgages, were $175.4 million at June 30, 2011 of which $114.2 million was purchased during 2011, the remainder of which had a fair market value of $61.2 million at June 30, 2011. For such securities purchased in 2011, there has been an unrealized loss of $285 thousand since purchase. Of the remaining residential mortgage-backed securities in a loss position, the unrealized loss increased from 0.5 percent of fair value at December 31, 2010 to 2.3 percent of fair value at June 30, 2011. The fair value of Collateralized Debt Obligation (“CDO”) securities in an unrealized loss position is $6.0 million, with unrealized losses of $3.0 million at June 30, 2011 and the unrealized loss decreased from 69.5 percent of fair value at December 31, 2010 to 50.1 percent of fair value at June 30, 2011. The fair value of state and local government securities in an unrealized loss position were $143.2 million at June 30, 2011 of which $8.1 million was purchased during 2011, the remainder of which had a fair market value of $135.1 million at June 30, 2011. For the state and local government securities purchased in 2011, there has been an unrealized loss of $76 thousand since purchase. Of the remaining state and local government securities in a loss position, the unrealized loss decreased from 6.6 percent of fair value at December 31, 2010 to 2.6 percent of fair value at June 30, 2011. With respect to severity, the following table provides the number of securities and amount of unrealized loss in the various ranges of unrealized loss as a percent of book value.
                 
            Number of  
    Unrealized     Debt  
(Dollars in thousands)   Loss     Securities  
 
               
Greater than 40.0%
  $        
30.1% to 40.0%
    (2,985 )     6  
20.1% to 30.0%
           
15.1% to 20.0%
    (412 )     2  
10.1% to 15.0%
    (1,125 )     4  
5.1% to 10.0%
    (593 )     5  
0.1% to 5.0%
    (3,190 )     208  
 
           
Total
  $ (8,305 )     225  
 
           

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With respect to the duration of the impaired debt securities, the Company identified 29 which have been continuously impaired for the twelve months ending June 30, 2011. The valuation history of such securities in the prior year(s) was also reviewed to determine the number of months in prior year(s) in which the identified securities was in an unrealized loss position. Of the 29 securities, 15 are state and local tax-exempt securities with an unrealized loss of $1.1 million, the most notable of which had an unrealized loss of $385 thousand. Of the 29 securities, 6 are identical CDO securities with an aggregate unrealized loss of $3.0 million, the most notable of which had an unrealized loss of $746 thousand.
With respect to the CDO securities, each is in the form of a pooled trust preferred structure of which the Company owns a portion of the Senior Notes tranche. All of the assets underlying the pooled trust preferred structure are capital securities issued by trust subsidiaries of holding companies of banks and thrifts. Since December 31, 2009, the Senior Notes have been rated “A3” by Moody’s. The Senior Notes have also been rated as of June 30, 2011 by Fitch as “BBB,” such rating effective September 21, 2010. Prior to such downgrade, Fitch had rated the Senior Notes as “A.” As of June 30, 2011, 10 of the 26 trust subsidiaries compared to 9 of the 26 trust subsidiaries at December 31, 2010 were treated by the Trustee as in default, either because of an actual default or elective deferral of interest payments on their respective obligations. As of the end of the third and second quarters of 2010, 8 of the 26 trust subsidiaries were treated by the Trustee as in default on their respective obligations underlying the CDO structure. As of the end of the first quarter of 2010 and the fourth quarter of 2009, 6 of the 26 trust subsidiaries were treated as in default compared to 3 of the 26 trust subsidiaries treated as in default on their respective obligations as of the end of the first three quarters of 2009. In accordance with the prospectus for the CDO structure, the priority of payments favors holders of the Senior Notes over holders of the Mezzanine Notes and Income Notes. Though the maturity of the CDO structure is June 15, 2031, 40.4 percent of the outstanding principle of the Senior Notes has been prepaid through June 30, 2011. More specifically, at any time the Senior Notes are outstanding, if either the Senior Principle or Senior Interest Coverage Tests (the “Senior Coverage Tests”) are not satisfied as of a calculation date, then funds that would have otherwise been used to make payments on the Mezzanine Notes or Income Notes shall instead be applied as principle prepayments on the Senior Notes. For the first half of 2011 and the preceding five quarters, the Senior Principle Coverage Test was below its threshold level, while the Senior Interest Coverage Test exceeded its threshold level. The Senior Coverage Tests exceeded the threshold levels for each of the first three quarters of 2009. In its assessment of the Senior Notes for potential other-than-temporary impairment, the Company evaluated the underlying issuers and engaged a third party vendor to stress test the performance of the underlying capital securities and related obligors. Such stress testing has been performed as of the second and first quarters of 2011 and at the end of each quarter of 2010 and 2009. In each instance of stress testing, the results reflect no credit loss for the Senior Notes. In evaluating such results, the Company reviewed with the third party vendor the stress test assumptions and concurred with the analyses in concluding that the impairment at June 30, 2011 and at the end of each of the prior quarters of 2011, 2010 and 2009 was temporary, and not other-than-temporary.
Of the 29 securities temporarily impaired continuously for the six months ended June 30, 2011, 5 are non-guaranteed private label whole loan mortgages with an aggregate unrealized loss of $390 thousand, the most notable of which had an unrealized loss of $318 thousand. Of the 5 non- guaranteed private label whole loan mortgages, 3 are collateralized by 30-year fixed rate residential mortgages considered to be “Prime” and 2 are collateralized by 30-year fixed rate residential mortgages considered to be “ALT — A.” Moreover, none of the underlying mortgage collateral is considered “subprime.”

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The Company engages a third-party to perform detailed analysis for other-than-temporary impairment of such securities. Such analysis takes into consideration original and current data for the tranche and CMO structure, the non-guaranteed classification of each CMO tranche, current and deal inception credit ratings, credit support (protection) afforded the tranche through the subordination of other tranches in the CMO structure, the nature of the collateral (e.g., Prime or Alt-A) underlying each CMO tranche, and realized cash flows since purchase. When available, the collateral loss estimates are compared against loss estimates obtained from the credit rating agencies for the CMO structure and the resulting impact upon the tranche.
The analysis includes performance projections based upon cash flow assumptions designed to assess risk by capturing key performance data and trends such as delinquencies, severity of defaults, severity of collateral loss, and a range of prepayment speeds taking into account both voluntary (“CRR”) and involuntary (“CDR”) payments and the seniority of the CMO tranche within the CMO deal. The projected cash flows incorporate a range of macroeconomic trends, including for example, interest rates, gross domestic product and employment, as well as home price appreciation/depreciation (“HPA”) and geographic affordability (“Geo Aff”).
HPA is a primary driver of credit performance in addition to loan characteristics. Negative HPA refers to declining house price appreciation (i.e., depreciation in essence). HPA scenarios are performed at loan-level capturing characteristics such as loan-to-value, credit scores (e.g., FICO), loan type, occupancy, purpose, and geography. Geo Aff is also a house price appreciation scenario and such refers to house price affordability levels by geography (relative to income). Prior to performing any HPA or Geo Aff-based analysis, significant fine-tuning adjustments are made to factor in the current state of the housing market. Tuning adjustments include delinquency roll rates, cure rates, voluntary prepayments, loan-to-values, and credit scores. Additionally, other factors used in the analyses are updated for current market conditions and trends, including loss severities and collateral loss estimates provided by the credit rating agencies for the CMO structures.
Based on the analysis of its impaired debt securities as of June 30, 2011, the Company determined that none of such securities had other-than-temporary impairment.
Federal and State Income Taxes
Income tax expense for the six months ended June 30, 2011 and 2010 was $2.7 million and $5.5 million, respectively. The Company’s effective tax rate for the six months ended June 30, 2011 and 2010 was 10.7 percent and 19.2 percent, respectively. The primary reason for the low effective rate is the amount of tax-exempt investment income and federal tax credits. The tax-exempt income was $14.6 million and $11.4 million for the six months ended June 30, 2011 and 2010, respectively. The federal tax credit benefits were $1.8 million and $1.5 million for the six months ended June 30, 2011 and 2010, respectively.
The Company has equity investments in Certified Development Entities which have received allocations of new markets tax credits (“NMTC”). Administered by the Community Development Financial Institutions Fund of the U.S. Department of the Treasury, the NMTC program is aimed at stimulating economic and community development and job creation in low-income communities. The federal income tax credits received are claimed over a seven-year credit allowance period. The Company also has equity investments in low-income housing tax credits which are indirect federal subsidies used to finance the development of affordable rental housing for low-income households. The federal income tax credits received are claimed over a ten-year credit allowance period. The Company has investments in Qualified Zone Academy and Qualified School Construction bonds whereby the Company receives quarterly federal income tax credits in lieu of taxable interest income until the bonds mature. The federal income tax credits on these bonds are subject to federal and state income tax.

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Following is a list of expected federal income tax credits to be received in the years indicated.
                                 
    New     Low-Income     Investment        
Years ended   Markets     Housing     Securities        
(Dollars in thousands)   Tax Credits     Tax Credits     Tax Credits     Total  
2011
  $ 2,000       1,176       953       4,129  
2012
    2,306       1,270       939       4,515  
2013
    2,400       1,270       921       4,591  
2014
    2,400       1,270       899       4,569  
2015
    2,400       1,174       875       4,449  
Thereafter
    564       5,379       5,263       11,206  
 
                       
 
  $ 12,070       11,539       9,850       33,459  
 
                       
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 yield; 2) the total dollar amount of interest expense on interest-bearing liabilities and the average rate; 3) net interest and dividend income and interest rate spread; and 4) net interest margin and net interest margin tax-equivalent; and 5) return on average assets and return on average equity. Non-accrual loans are included in the average balance of the loans.

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    Three Months ended 6/30/11     Six Months ended 6/30/11  
                    Average                     Average  
    Average     Interest &     Yield/     Average     Interest &     Yield/  
(Dollars in thousands)   Balance     Dividends     Rate     Balance     Dividends     Rate  
Assets
                                               
Residential real estate loans
  $ 560,851       8,156       5.82 %   $ 581,133       16,872       5.81 %
Commercial loans
    2,397,668       32,977       5.52 %     2,404,717       66,035       5.54 %
Consumer and other loans
    687,823       10,211       5.95 %     694,996       20,661       6.00 %
 
                                       
Total loans and loans held for sale
    3,646,342       51,344       5.65 %     3,680,846       103,568       5.67 %
Tax-exempt investment securities 1
    690,928       7,803       4.52 %     637,711       14,582       4.57 %
Taxable investment securities 2
    2,073,388       12,415       2.39 %     2,005,231       21,785       2.17 %
 
                                       
Total earning assets
    6,410,658       71,562       4.48 %     6,323,788       139,935       4.46 %
 
                                       
Goodwill and intangibles
    156,035                       156,367                  
Non-earning assets
    317,477                       301,146                  
 
                                           
Total assets
  $ 6,884,170                     $ 6,781,301                  
 
                                           
 
                                               
Liabilities
                                               
NOW accounts
  $ 778,930       541       0.28 %   $ 763,579       1,066       0.28 %
Savings accounts
    386,925       146       0.15 %     380,514       294       0.16 %
Money market deposit accounts
    866,453       978       0.45 %     872,389       2,083       0.48 %
Certificate accounts
    1,066,891       4,167       1.57 %     1,074,445       8,651       1.62 %
Wholesale deposits 3
    644,096       752       0.47 %     590,848       1,578       0.54 %
FHLB advances
    972,850       3,093       1.28 %     959,995       5,641       1.18 %
Securities sold under agreements to repurchase and other borrowed funds
    393,040       1,654       1.69 %     390,066       3,687       1.91 %
 
                                       
Total interest bearing liabilities
    5,109,185       11,331       0.89 %     5,031,836       23,000       0.92 %
 
                                       
Non-interest bearing deposits
    889,767                       870,938                  
Other liabilities
    25,089                       27,251                  
 
                                           
Total liabilities
    6,024,041                       5,930,025                  
 
                                           
 
                                               
Stockholders’ Equity
                                               
Common stock
    719                       719                  
Paid-in capital
    642,877                       643,404                  
Retained earnings
    201,420                       200,532                  
Accumulated other comprehensive income
    15,113                       6,621                  
 
                                           
Total stockholders’ equity
    860,129                       851,276                  
 
                                           
Total liabilities and stockholders’ equity
  $ 6,884,170                     $ 6,781,301                  
 
                                           
Net Interest Income
          $ 60,231                     $ 116,935          
 
                                           
Net Interest Spread
                    3.59 %                     3.54 %
Net Interest Margin
                    3.77 %                     3.73 %
Net Interest Margin (tax-equivalent)
                    4.01 %                     3.96 %
 
1   Excludes tax effect of $3,455,000 and $6,456,000 on tax-exempt investment security income for the three and six months ended June 30, 2011, respectively.
 
2   Excludes tax effect of $392,000 and $784,000 on investment security tax credits for the three and six months ended June 30, 2011, respectively.
 
3   Wholesale deposits include brokered deposits classified as NOW, money market demand, and CDs.

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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.
                         
    Six Months ended June 30,  
            2011 vs. 2010          
    Increase (Decrease) Due to:  
(Dollars in thousands)   Volume     Rate     Net  
Interest income
                       
Residential real estate loans
  $ (5,831 )     (551 )     (6,382 )
Commercial loans
    (5,287 )     (2,353 )     (7,640 )
Consumer and other loans
    45       (744 )     (699 )
Investment securities
    15,908       (8,468 )     7,440  
 
                 
Total interest income
    4,835       (12,116 )     (7,281 )
 
                       
Interest expense
                       
NOW accounts
    95       (435 )     (340 )
Savings accounts
    51       (150 )     (99 )
Money market demand accounts
    202       (2,043 )     (1,841 )
Certificate accounts
    (20 )     (1,923 )     (1,943 )
Wholesale deposits
    469       (1,127 )     (658 )
FHLB advances
    1,609       (733 )     876  
Repurchase agreements and other borrowed funds
    (401 )     (227 )     (628 )
 
                 
Total interest expense
    2,005       (6,638 )     (4,633 )
 
                 
 
                       
Net interest income
  $ 2,830       (5,478 )     (2,648 )
 
                 
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.
 
  3.   Balancing the benefits between providing for adequate liquidity to mitigate potential adverse events and the cost of that liquidity.

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The Banks’ primary sources of funds are customer deposits, receipts of principal and interest payments on loans and investment securities, proceeds from sale of loans and securities, short and long-term borrowings. In addition, the Company maintains liquidity capacity through secured and unsecured borrowing programs, wholesale deposit relationships, and unencumbered securities. The following table identifies certain liquidity sources and capacity available to the Company at June 30, 2011:
         
    June 30,  
(Dollars in thousands)   2011  
FHLB advances
       
Borrowing capacity
  $ 1,102,589  
Amount utilized
    (925,061 )
 
     
Amount available
  $ 177,528  
 
     
 
       
FRB discount window
       
Borrowing capacity
  $ 265,517  
Amount utilized
     
 
     
Amount available
  $ 265,517  
 
     
 
       
Unsecured lines of credit available
  $ 135,760  
 
     
 
       
Unencumbered securities
       
U.S. government and federal agency
  $  
U.S. government sponsored enterprises
    4,834  
State and local governments and other issues
    899,423  
Collateralized debt obligations
    5,953  
Residential mortgage-backed securities
    860,807  
 
     
Total unencumbered securities
  $ 1,771,017  
 
     
The Company and each of the bank subsidiaries has a wide range of versatility in managing the liquidity and asset/liability mix across each of the bank subsidiaries as well as the Company as a whole. Asset liability committees (“ALCO”) are maintained at the Parent and bank subsidiary levels with the ALCO committees meeting 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.
Capital Resources
Maintaining capital strength continues to be a long-term objective. Abundant capital is necessary to sustain growth, provide protection against unanticipated declines in asset values, and to safeguard the funds of depositors. Capital also is a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities. Stockholders’ equity increased $26.6 million from year end 2010, or 3 percent, the net result of earnings of $22.2 million, an increase of $24.1 million in unrealized gains on available-for-sale securities, less cash dividend payments of $18.7 million.

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The Federal Reserve Board has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company. Each bank subsidiary was considered well capitalized by their respective regulator as of June 30, 2011 and December 31, 2010. There are no conditions or events since quarter end that management believes have changed the Company’s or bank subsidiaries’ risk-based capital category. The following table illustrates the Federal Reserve Board’s capital adequacy guidelines and the Company’s compliance with those guidelines as of June 30, 2011.
                         
    Tier 1 (Core)     Tier 2 (Total)     Leverage  
(Dollars in thousands)   Capital     Capital     Capital  
Total stockholders’ equity
  $ 864,772       864,772       864,772  
Less:
                       
Goodwill and intangibles
    (153,925 )     (153,925 )     (153,925 )
Net unrealized gain on AFS debt securities
    (24,639 )     (24,639 )     (24,639 )
Other adjustments
    (73 )     (73 )     (73 )
Plus:
                       
Allowance for loan and lease losses
          55,949        
Subordinated debentures
    124,500       124,500       124,500  
Other adjustments
          4        
 
                 
Regulatory capital
  $ 810,635       866,588       810,635  
 
                 
 
                       
Risk weighted assets
  $ 4,391,984       4,391,984          
 
                   
 
                       
Total adjusted average assets
                  $ 6,730,172  
 
                     
 
                       
Capital as % of risk weighted assets
    18.46 %     19.73 %     12.04 %
 
                     
Regulatory “well capitalized” requirement
    6.00 %     10.00 %        
 
                   
Excess over “well capitalized” requirement
    12.46 %     9.73 %        
 
                   
Dividend payments were $0.26 per share for the six months ended June 30, 2011. The payment of dividends is subject to government regulation in that regulatory authorities may prohibit banks and bank holding companies from paying dividends that would constitute an unsafe or unsound banking practice. Additionally, current guidance from the Federal Reserve provides, among other things, that dividends per share on the Company’s common stock generally should not exceed earnings per share, measured over the previous four fiscal quarters.
In addition to the primary and safeguard liquidity sources available, the Company has the capacity to issue 117,187,500 shares of common stock of which 71,915,073 has been issued as of June 30, 2011. The Company’s capacity to issue additional shares has been demonstrated with the most recent stock issuances in 2010 and 2008, although no assurances can be made that future stock issuances would be as successful. The Company also has the capacity to issue 1,000,000 shares of preferred shares of which none are currently issued.
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 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, FRB borrowings, federal funds purchased, wholesale deposits, and wholesale repurchase agreements. FHLB advances and certain other short-term borrowings may be extended 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.

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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 Six     At or for the  
    Months ended     Year ended  
(Dollars in thousands)   June 30, 2011     December 31, 2010  
FHLB advances
               
Amount outstanding at end of period
  $ 628,000       761,064  
Weighted interest rate on outstanding amount
    0.62 %     0.32 %
Maximum outstanding at any month-end
  $ 877,017       773,076  
Average balance
  $ 752,402       488,044  
Weighted average interest rate
    0.57 %     0.39 %
 
               
Repurchase agreements
               
Amount outstanding at end of period
  $ 251,303       249,403  
Weighted interest rate on outstanding amount
    0.55 %     0.63 %
Maximum outstanding at any month-end
  $ 251,303       252,083  
Average balance
  $ 237,542       227,202  
Weighted average interest rate
    0.58 %     0.71 %
Commitments
In the normal course of business, there are various outstanding commitments to extend credit, such as letters of credit and un-advanced loan commitments, which are not reflected in the accompanying condensed consolidated financial statements. Management does not anticipate any material losses as a result of these transactions. The Company has outstanding debt maturities, the largest aggregate amount of which are FHLB advances.
Effect of inflation and changing prices
Generally accepted accounting principles often require 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 and each bank subsidiary are monetary in nature; therefore, interest rates generally have a more significant impact on a company’s performance than does the effect of inflation.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
The Company believes that there have not been any material changes in information about the Company’s market risk than was provided in the Form 10-K report for the year ended December 31, 2010.
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 our disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(c)) as of the date of this quarterly report. 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.

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Changes in Internal Controls
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the second quarter 2011, 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
There are no pending material legal proceedings to which the registrant or its subsidiaries are a party.
ITEM 1A. Risk Factors
The Company and its eleven independent wholly-owned community bank subsidiaries are exposed to certain risks. The following is a discussion of the most significant risks and uncertainties that may affect the Company’s business, financial condition and future results.
The continued challenging economic environment could have a material adverse effect on the Company’s future results of operations or market price of stock.
The national economy, and the financial services sector in particular, are still facing significant challenges. Substantially all of the Company’s loans are to businesses and individuals in Montana, Idaho, Wyoming, Utah, Colorado and Washington, markets facing many of the same challenges as the national economy, including elevated unemployment and declines in commercial and residential real estate. Although some economic indicators are improving both nationally and in the Company’s markets, unemployment remains high and there remains substantial uncertainty regarding when and how strongly a sustained economic recovery will occur. The inability of borrowers to repay loans can erode earnings by reducing net interest income and by requiring the Company to add to its allowance for loan and lease losses. While the Company cannot accurately predict how long these conditions may exist, the challenging economy could continue to present risks for some time for the industry and Company. A further deterioration in economic conditions in the nation as a whole or in the Company’s markets could result in the following consequences, any of which could have an adverse impact, which may be material, on the Company’s business, financial condition, results of operations and prospects, and could also cause the market price of the Company’s stock to decline:
    loan delinquencies may increase further;
 
    problem assets and foreclosures may increase further;
 
    collateral for loans made may decline further in value, in turn reducing customers’ borrowing power, reducing the value of assets and collateral associated with existing loans and increasing the potential severity of loss in the event of loan defaults;
 
    demand for banking products and services may decline; and
 
    low cost or non-interest bearing deposits may decrease.

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The allowance for loan and lease losses may not be adequate to cover actual loan losses, which could adversely affect earnings.
The Company maintains an ALLL in an amount that it believes is adequate to provide for losses in the loan portfolio. While the Company strives to carefully manage and monitor credit quality and to identify loans that may become non-performing, at any time there are loans included in the portfolio that will result in losses, but that have not been identified as non-performing or potential problem loans. By closely monitoring credit quality, the Company attempts to identify deteriorating loans before they become non-performing assets and adjust the ALLL accordingly. However, because future events are uncertain, and if difficult economic conditions continue or worsen, there may be loans that deteriorate to a non-performing status in an accelerated time frame. As a result, future additions to the ALLL may be necessary. Because the loan portfolio contains a number of loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in non-performing loans, requiring an increase to the ALLL. Additionally, future significant additions to the ALLL may be required based on changes in the mix of loans comprising the portfolio, changes in the financial condition of borrowers, which may result from changes in economic conditions, or changes in the assumptions used in determining the ALLL. Additionally, federal banking regulators, as an integral part of their supervisory function, periodically review the Company’s loan portfolio and the adequacy of the ALLL. These regulatory agencies may require the Company to recognize further loan loss provisions or charge-offs based upon their judgments, which may be different from the Company’s judgments. Any increase in the ALLL would have an adverse effect, which could be material, on the Company’s financial condition and results of operations.
The Company has a high concentration of loans secured by real estate, so any further deterioration in the real estate markets could require material increases in ALLL and adversely affect the Company’s financial condition and results of operations.
The Company has a high degree of concentration in loans secured by real estate. A sluggish recovery, or a continuation of the downturn in the economic conditions or real estate values of the Company’s market areas, could adversely impact borrowers’ ability to repay loans secured by real estate and the value of real estate collateral, thereby increasing the credit risk associated with the loan portfolio. The Company’s ability to recover on these loans by selling or disposing of the underlying real estate collateral is adversely impacted by declining real estate values, which increases the likelihood that the Company will suffer losses on defaulted loans secured by real estate beyond the amounts provided for in the ALLL. This, in turn, could require material increases in the ALLL which would adversely affect the Company’s financial condition and results of operations, perhaps materially.
There can be no assurance the Company will be able to continue paying dividends on the common stock at recent levels.
The ability to pay dividends on the Company’s common stock depends on a variety of factors. The Company paid dividends of $0.13 per share in each quarter of 2010 and the first two quarters of 2011. There can be no assurance that the Company will be able to continue paying quarterly dividends commensurate with recent levels. In that regard, the Federal Reserve now is requiring the Company to provide prior written notice and related information for staff review before declaring or paying dividends. In addition, current guidance from the Federal Reserve provides, among other things, that dividends per share generally should not exceed earnings per share. As a result, future dividends will depend on sufficient earnings to support them. Furthermore, the Company’s ability to pay dividends depends on the amount of dividends paid to the Company by its subsidiaries, which is also subject to government regulation, oversight and review. In addition, the ability of some of the bank subsidiaries to pay dividends to the Company is subject to prior regulatory approval.

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The Company may not be able to continue to grow organically or through acquisitions.
Historically, the Company has expanded through a combination of organic growth and acquisitions. If market and regulatory conditions remain challenging, the Company may be unable to grow organically or successfully complete potential future acquisitions. In particular, while the Company intends to focus any near-term acquisition efforts on FDIC-assisted transactions within its existing market areas, there can be no assurance that such opportunities will become available on terms that are acceptable to the Company. Furthermore, there can be no assurance that the Company can successfully complete such transactions, since they are subject to a formal bid process and regulatory review and approval.
The FDIC has increased insurance premiums to rebuild and maintain the federal deposit insurance fund and there may be additional future premium increases and special assessments.
In 2009, the FDIC imposed a special deposit insurance assessment of five basis points on all insured institutions, and also required insured institutions to prepay estimated quarterly risk-based assessments through 2012.
The Dodd-Frank Act established 1.35 percent as the minimum deposit insurance fund reserve ratio. The FDIC has determined that the fund reserve ratio should be 2.0 percent and has adopted a plan under which it will meet the statutory minimum fund reserve ratio of 1.35 percent by the statutory deadline of September 30, 2020. The Dodd-Frank Act requires the FDIC to offset the effect on institutions with assets less than $10 billion of the increase in the statutory minimum fund reserve ratio to 1.35 percent from the former statutory minimum of 1.15 percent. The FDIC has not announced how it will implement this offset or how larger institutions will be affected by it.
Despite the FDIC’s actions to restore the deposit insurance fund, the fund will suffer additional losses in the future due to failures of insured institutions. There can be no assurance that there will not be additional significant deposit insurance premium increases, special assessments or prepayments in order to restore the insurance fund’s reserve ratio. Any significant premium increases or special assessments could have a material adverse effect on the Company’s financial condition and results of operations.
The Company’s loan portfolio mix increases the exposure to credit risks tied to deteriorating conditions.
The loan portfolio contains a high percentage of commercial, commercial real estate, real estate acquisition and development loans in relation to the total loans and total assets. These types of loans have historically been viewed as having more risk of default than residential real estate loans or certain other types of loans or investments. In fact, the FDIC has issued pronouncements alerting banks of its concern about banks with a heavy concentration of commercial real estate loans. These types of loans also typically are larger than residential real estate loans and other commercial loans. Because the Company’s loan portfolio contains a significant number of commercial and commercial real estate loans with relatively large balances, the deterioration of one or more of these loans may cause a significant increase in non-performing loans. An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses, or an increase in loan charge-offs, which could have a material adverse impact on results of operations and financial condition.

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Non-performing assets have increased and could continue to increase, which could adversely affect the Company’s results of operations and financial condition.
Non-performing assets (which include foreclosed real estate) adversely affect the Company’s net income and financial condition in various ways. The Company does not record interest income on non-accrual loans or other real estate owned, thereby adversely affecting its income. When the Company takes collateral in foreclosures and similar proceedings, it is required to mark the related asset to the then fair market value of the collateral, less estimated cost to sell, which may result in a charge-off of the value of the asset and lead the Company to increase the provision for loan losses. An increase in the level of non-performing assets also increases the Company’s risk profile and may impact the capital levels its regulators believe are appropriate in light of such risks. Continued decreases in the value of these assets, or the underlying collateral, or in these borrowers’ performance or financial condition, whether or not due to economic and market conditions beyond the Company’s control, could adversely affect the Company’s business, results of operations and financial condition, perhaps materially. In addition to the carrying costs to maintain other real estate owned, the resolution of non-performing assets increases the Company’s loan administration costs generally, and requires significant commitments of time from management and the Company’s directors, which reduces the time they have to focus on growing the Company’s business. There can be no assurance that the Company will not experience further increases in non-performing assets in the future.
A decline in the fair value of the Company’s investment portfolio could adversely affect earnings.
The fair value of the Company’s investment securities could decline as a result of factors including changes in market interest rates, credit quality and ratings, lack of market liquidity and other economic conditions. Investment securities are impaired if the fair value of the security is less than the carrying value. When a security is impaired, the Company determines whether impairment is temporary or other-than-temporary. If an impairment is determined to be other-than temporary, an impairment loss is recognized by reducing the amortized cost only for the credit loss associated with an other-than-temporary loss with a corresponding charge to earnings for a like amount. Any such impairment charge would have an adverse effect, which could be material, on the Company’s results of operations and financial condition.
Fluctuating interest rates can adversely affect profitability.
The Company’s profitability is dependent to a large extent upon net interest income, which is the difference (or “spread”) between the interest earned on loans, securities and other interest-earning assets and interest paid on deposits, borrowings, and other interest-bearing liabilities. Because of the differences in maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect the Company’s interest rate spread, and, in turn, profitability. The Company seeks to manage its interest rate risk within well established guidelines. Generally, the Company seeks an asset and liability structure that insulates net interest income from large deviations attributable to changes in market rates. However, the Company’s structures and practices to manage interest rate risk may not be effective in a highly volatile rate environment.

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If the goodwill recorded in connection with acquisitions becomes impaired, it could have an adverse impact on earnings and capital.
Accounting standards require that the Company account for acquisitions using the acquisition method of accounting. Under acquisition accounting, if the purchase price of an acquired company exceeds the fair value of its net assets, the excess is carried on the acquirer’s balance sheet as goodwill. In accordance with generally accepted accounting principles in the United States of America, goodwill is not amortized but rather is evaluated for impairment on an annual basis or more frequently if events or circumstances indicate that a potential impairment exists. Although the Company has not incurred an impairment of goodwill, there can be no assurance that future evaluations of goodwill will not result in findings of impairment and write-downs, which could be material. An impairment of goodwill could have a material adverse effect on the Company’s business, financial condition and results of operations. Furthermore, an impairment of goodwill could subject the Company to regulatory limitations, including the ability to pay dividends on common stock.
Growth through future acquisitions could, in some circumstances, adversely affect profitability or other performance measures.
The Company has in recent years acquired other financial institutions. The Company may in the future engage in selected acquisitions of additional financial institutions, including transactions that may receive assistance from the FDIC, although there can be no assurance that the Company will be able to successfully complete any such transactions. There are risks associated with any such acquisitions that could adversely affect profitability and other performance measures. These risks include, among other things, incorrectly assessing the asset quality of a financial institution being acquired, encountering greater than anticipated cost of integrating acquired businesses into the Company’s operations, and being unable to profitably deploy funds acquired in an acquisition. The Company cannot provide any assurance as to the extent to which the Company can continue to grow through acquisitions or the impact of such acquisitions on the Company’s operating results or financial condition.
The Company anticipates that it might issue capital stock in connection with future acquisitions. Acquisitions and related issuances of stock may have a dilutive effect on earnings per share and the percentage ownership of current shareholders.
A tightening of the credit markets may make it difficult to obtain adequate funding for loan growth, which could adversely affect earnings.
A tightening of the credit markets and the inability to obtain or retain adequate funds for continued loan growth at an acceptable cost may negatively affect the Company’s asset growth and liquidity position and, therefore, earnings capability. In addition to core deposit growth, maturity of investment securities and loan payments, the Company also relies on alternative funding sources through correspondent banking, and borrowing lines with the FRB and FHLB to fund loans. In the event the current economic downturn continues, particularly in the housing market, these resources could be negatively affected, both as to price and availability, which would limit an