Glacier Bancorp (GBCI)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x	Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2011

 

¨	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.    x  Yes    ¨  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).    x  Yes    ¨  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		x		Accelerated Filer		¨
Non-Accelerated Filer		¨		Smaller reporting Company		¨

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

The number of shares of Registrant’s common stock outstanding on October 20, 2011 was 71,915,073. No preferred shares are issued or outstanding.

 

 

 

---

Table of Contents

GLACIER BANCORP, INC.

Quarterly Report on Form 10-Q

Index

 

		Page
Part I. Financial Information
Item 1 – Financial Statements
Unaudited Condensed Consolidated Statements of Financial Condition – September  30, 2011 and December 31, 2010			3
Unaudited Condensed Consolidated Statements of Operations – Three and Nine Months ended September  30, 2011 and 2010			4
Unaudited Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income – Year ended December 31, 2010 and Nine Months ended September 30, 2011			5
Unaudited Condensed Consolidated Statements of Cash Flows – Nine Months ended September  30, 2011 and 2010			6
Notes to Unaudited Condensed Consolidated Financial Statements			7
Item  2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3 – Quantitative and Qualitative Disclosure about Market Risk			65
Item 4 – Controls and Procedures			65
Part II. Other Information			66
Item 1 – Legal Proceedings			66
Item 1A – Risk Factors			66
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			72
Item 3 – Defaults upon Senior Securities			73
Item 5 – Other Information			73
Item 6 – Exhibits			73
Signatures			73

 

2

---

Table of Contents

Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Financial Condition

 

(Dollars in thousands, except per share data)		September 30, 2011				December 31, 2010
Assets
Cash on hand and in banks		$	98,151				71,465
Interest bearing cash deposits			35,620				33,626
Cash and cash equivalents			133,771				105,091
Investment securities, available-for-sale			2,935,011				2,395,847
Loans held for sale			67,876				76,213
Loans receivable			3,523,582				3,749,289
Allowance for loan and lease losses			(138,093	)			(137,107	)
Loans receivable, net			3,385,489				3,612,182
Premises and equipment, net			157,734				152,492
Other real estate owned			93,649				73,485
Accrued interest receivable			35,296				30,246
Deferred tax asset			20,572				40,284
Core deposit intangible, net			8,841				10,757
Goodwill			106,100				146,259
Non-marketable equity securities			49,691				65,040
Other assets			48,659				51,391
Total assets		$	7,042,689				6,759,287
Liabilities
Non-interest bearing deposits		$	996,265				855,829
Interest bearing deposits			3,774,263				3,666,073
Federal funds purchased			45,000				—
Securities sold under agreements to repurchase			301,820				249,403
Federal Home Loan Bank advances			889,053				965,141
Other borrowed funds			14,792				20,005
Subordinated debentures			125,239				125,132
Accrued interest payable			5,693				7,245
Other liabilities			39,176				32,255
Total liabilities			6,191,301				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			642,880				643,894
Retained earnings - substantially restricted			168,139				193,063
Accumulated other comprehensive income			39,650				528
Total stockholders’ equity			851,388				838,204
Total liabilities and stockholders’ equity		$	7,042,689				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.

 

3

---

Table of Contents

Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Operations

 

		Three Months ended September 30,								Nine Months ended September 30,
(Dollars in thousands, except per share data)		2011				2010				2011				2010
Interest Income
Residential real estate loans		$	7,990				11,367				24,862				34,621
Commercial loans			32,585				35,734				98,620				109,409
Consumer and other loans			10,224				10,599				30,885				31,959
Investment securities, available-for-sale			20,634				14,403				57,001				43,330
Total interest income			71,433				72,103				211,368				219,319
Interest Expense
Deposits			6,218				9,142				19,890				27,695
Securities sold under agreements to repurchase			357				412				1,033				1,227
Federal Home Loan Bank advances			3,491				2,318				9,132				7,083
Federal funds purchased and other borrowed funds			60				26				155				242
Subordinated debentures			1,171				1,683				4,087				4,967
Total interest expense			11,297				13,581				34,297				41,214
Net Interest Income			60,136				58,522				177,071				178,105
Provision for loan losses			17,175				19,162				55,825				57,318
Net interest income after provision for loan losses			42,961				39,360				121,246				120,787
Non-Interest Income
Service charges and other fees			11,563				11,956				33,101				32,117
Miscellaneous loan fees and charges			973				1,266				2,878				3,651
Gain on sale of loans			5,121				7,367				14,106				17,391
Gain on sale of investments			813				2,041				346				2,597
Other income			2,466				1,355				5,751				5,830
Total non-interest income			20,936				23,985				56,182				61,586
Non-Interest Expense
Compensation, employee benefits and related expense			21,607				22,235				64,380				65,243
Occupancy and equipment expense			6,027				6,034				17,709				17,970
Advertising and promotions			1,762				1,912				4,881				5,148
Outsourced data processing expense			740				750				2,304				2,205
Other real estate owned expense			7,198				9,655				14,359				19,346
Federal Deposit Insurance Corporation premiums			1,638				2,633				6,159				6,998
Core deposit intangibles amortization			599				801				1,916				2,422
Goodwill impairment charge			40,159				—				40,159				—
Other expense			8,568				7,995				25,127				22,880
Total non-interest expense			88,298				52,015				176,994				142,212
(Loss) Earnings Before Income Taxes			(24,401	)			11,330				434				40,161
Federal and state income tax (benefit) expense			(5,353	)			1,885				(2,689	)			7,424
Net (Loss) Earnings		$	(19,048	)			9,445				3,123				32,737
Basic (loss) earnings per share		$	(0.27	)			0.13				0.04				0.48
Diluted (loss) earnings per share		$	(0.27	)			0.13				0.04				0.48
Dividends declared per share		$	0.13				0.13				0.39				0.39
Average outstanding shares - basic			71,915,073				71,915,073				71,915,073				68,897,348
Average outstanding shares - diluted			71,915,073				71,915,073				71,915,073				68,899,228

See accompanying notes to unaudited condensed consolidated financial statements.

 

4

---

Table of Contents

Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

and Comprehensive Income

Year ended December 31, 2010 and Nine Months ended September 30, 2011

 

		Common Stock								Paid-in Capital				Retained Earnings Substantially Restricted				Accumulated Other Comp- rehensive (Loss) Income				Total Stock- holders’ Equity
(Dollars in thousands, except per share data)		Shares				Amount
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			—				—				—				3,123				—				3,123
Unrealized gain on securities, net of reclassification adjustment and taxes			—				—				—				—				39,122				39,122
Total comprehensive income																							42,245
Cash dividends declared ($0.39 per share)			—				—				—				(28,047	)			—				(28,047	)
Stock based compensation and related taxes			—				—				(1,014	)			—				—				(1,014	)
Balance at September 30, 2011			71,915,073			$	719				642,880				168,139				39,650				851,388

See accompanying notes to unaudited condensed consolidated financial statements.

 

5

---

Table of Contents

Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

 

		Nine Months ended September 30
(Dollars in thousands)		2011				2010
Operating Activities
Net cash provided by operating activities		$	158,495				98,834
Investing Activities
Proceeds from sales, maturities and prepayments of investment securities, available-for-sale			670,810				438,937
Purchases of investment securities, available-for-sale			(1,171,083	)			(734,807	)
Principal collected on loans			678,236				660,277
Loans originated or acquired			(577,733	)			(610,214	)
Net decrease (increase) of non-marketable equity securities			15,357				(1,819	)
Proceeds from sale of other real estate owned			31,356				36,713
Net addition of premises and equipment and other real estate owned			(13,560	)			(10,943	)
Net cash used in investment activities			(366,617	)			(221,856	)
Financing Activities
Net increase in deposits			248,626				317,689
Net increase in securities sold under agreements to repurchase			52,417				25,103
Net decrease in Federal Home Loan Bank advances			(76,088	)			(211,183	)
Net decrease in Federal Reserve Bank discount window			—				(225,000	)
Net increase in federal funds purchased and other borrowed funds			39,894				3,749
Cash dividends paid			(28,047	)			(28,047	)
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			236,802				27,961
Net increase (decrease) in cash and cash equivalents			28,680				(95,061	)
Cash and cash equivalents at beginning of period			105,091				210,575
Cash and cash equivalents at end of period		$	133,771				115,514
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest		$	35,850				41,392
Cash paid during the period for income taxes			6,319				9,371
Sale and refinancing of other real estate owned			4,333				9,637
Other real estate acquired in settlement of loans			64,478				67,343

See accompanying notes to unaudited condensed consolidated financial statements.

 

6

---

Table of Contents

Notes to Unaudited Condensed Consolidated Financial Statements

 

1)

Nature of Operations and Summary of Significant Accounting Policies

General

Glacier Bancorp, Inc. (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.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s financial condition as of September 30, 2011, stockholders’ equity and comprehensive income for the nine months ended September 30, 2011, the results of operations for the three and nine month periods ended September 30, 2011 and 2010, and cash flows for the nine months ended September 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 nine months ended September 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: 1) the determination of the allowance for loan and lease losses (“ALLL” or “allowance”), 2) the valuations related to investments and real estate acquired in connection with foreclosures or in satisfaction of loans, and 3) the evaluation of goodwill impairment. 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 the evaluation of goodwill impairment are determined based on independent party valuations and internal calculations using significant independent party inputs.

Principles of Consolidation

As of September 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 Wyoming bank charter. All significant inter-company transactions have been eliminated in consolidation.

 

7

---

Table of Contents

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.

The following abbreviated organizational chart illustrates the Company’s various relationships as of September 30, 2011:

 

Glacier Bancorp, Inc.       (Parent Holding Company)

Glacier Bank     (MT Community Bank)

Mountain West Bank     (ID Community Bank)

First Security Bank of Missoula     (MT Community Bank)

Western Security Bank     (MT Community Bank)

1st Bank     (WY Community Bank)

Valley Bank of Helena     (MT Community Bank)

Big Sky Western Bank     (MT Community Bank)

First Bank of Wyoming     (WY Community Bank)

Citizens Community Bank     (ID Community Bank)

First Bank of Montana     (MT Community Bank)

Bank of the San Juans     (CO Community Bank)

GBCI Other     Real Estate

Glacier Capital Trust II

Glacier Capital Trust III

Glacier Capital Trust IV

Citizens (ID) Statutory     Trust I

San Juans Trust I

First Company           Statutory Trust 2001

First Company           Statutory Trust 2003

Variable Interest Entities

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 are regularly monitored to determine if any reconsideration events have occurred that could cause its primary beneficiary status to change.

 

8

---

Table of Contents

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 investment and determined that the Company continues to be the primary beneficiary of such VIEs. As the primary beneficiary of these VIEs, the entities’ assets, liabilities, and results of operations are included in the Company’s consolidated financial statements. The following table summarizes the carrying amounts of the entities’ assets and liabilities included in the Company’s consolidated financial statements at September 30, 2011 and December 31, 2010:

 

 

		September 30, 2011								December 31, 2010
(Dollars in thousands)		CDE (NMTC)				LIHTC				CDE (NMTC)				LIHTC
Assets
Loans receivable		$	30,634				—				29,239				—
Premises and equipment, net			—				15,015				—				9,637
Accrued interest receivable			112				—				112				—
Other assets			1,365				127				1,369				102
Total assets		$	32,111				15,142				30,720				9,739
Liabilities
Other borrowed funds		$	4,629				3,306				4,629				1,617
Accrued interest payable			4				2				2				9
Other liabilities			56				334				81				289
Total liabilities		$	4,689				3,642				4,712				1,915

Amounts presented in the table above are adjusted for intercompany eliminations. All assets presented can be used only to settle obligations of the consolidated VIEs and all liabilities presented consist of liabilities for which creditors and other beneficial interest holders therein have no recourse to the general credit of the Company.

Impact of Recent Authoritative Accounting Guidance

The Accounting Standards Codification^TM (“ASC”) is the Financial Accounting Standards Board’s (“FASB”) 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 September 2011, FASB issued amendments to FASB ASC Topic 350, Intangibles—Goodwill and Other. The amendments provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If the entity concludes it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The amendments are effective prospectively during interim and annual periods beginning after December 15, 2011 and early adoption is permitted. 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.

 

9

---

Table of Contents

In June 2011, FASB issued amendments to FASB ASC Topic 220, Comprehensive Income. The amendments 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.

 

In May 2011, FASB issued amendments to FASB ASC Topic 820, Fair Value Measurement. The amendments 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 amendments to FASB ASC Topic 310, Receivables. The amendments 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, and 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 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 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 amendments to FASB ASC Topic 805, Business Combinations. The amendments 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.

 

10

---

Table of Contents

In December 2010, FASB issued amendments to FASB ASC Topic 350, Intangibles – Goodwill and Other. The amendments 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 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.

 

2)

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.

 

 

		September 30, 2011
(Dollars in thousands)		Weighted Yield				Amortized Cost				Gross Unrealized								Fair Value
										Gains				Losses
U.S. government and federal agency
Maturing after one year through five years			1.62	%		$	205				4				—				209
U.S. government sponsored enterprises
Maturing within one year			1.71	%			4,410				44				—				4,454
Maturing after one year through five years			2.39	%			28,688				820				—				29,508
Maturing after five years through ten years			1.90	%			81				—				—				81
			2.29	%			33,179				864				—				34,043
State and local governments and other issues
Maturing within one year			3.27	%			750				4				—				754
Maturing after one year through five years			2.34	%			126,006				2,353				(986	)			127,373
Maturing after five years through ten years			2.68	%			59,301				1,634				(28	)			60,907
Maturing after ten years			4.86	%			793,861				53,905				(642	)			847,124
			4.40	%			979,918				57,896				(1,656	)			1,036,158
Collateralized debt obligations
Maturing after ten years			8.03	%			8,937				—				(2,487	)			6,450
Residential mortgage-backed securities			1.87	%			1,847,569				14,509				(3,927	)			1,858,151
Total investment securities			2.76	%		$	2,869,808				73,273				(8,070	)			2,935,011

 

11

---

Table of Contents

 

		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

Included in residential mortgage-backed securities is $52,912,000 and $68,051,000 as of September 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 benefit.

The cost of each investment sold is determined by specific identification. Gain on sale of investments consists of the following:

 

 

		Three Months ended September 30,								Nine Months ended September 30,
(Dollars in thousands)		2011				2010				2011				2010
Gross proceeds		$	10,708				62,779				18,916				95,102
Less amortized cost			(9,895	)			(60,738	)			(18,570	)			(92,505	)
Net gain on sale of investments		$	813				2,041				346				2,597
Gross gain on sale of investments		$	825				2,041				1,048				3,390
Gross loss on sale of investments			(12	)			—				(702	)			(793	)
Net gain on sale of investments		$	813				2,041				346				2,597

 

12

---

Table of Contents

Investments with an unrealized loss position are summarized as follows:

 

		September 30, 2011
		Less than 12 Months								12 Months or More								Total
(Dollars in thousands)		Fair Value				Unrealized Loss				Fair Value				Unrealized Loss				Fair Value				Unrealized Loss
State and local governments and other issues		$	34,438				(1,033	)			17,814				(623	)			52,252				(1,656	)
Collateralized debt obligations			—				—				6,450				(2,487	)			6,450				(2,487	)
Residential mortgage-backed securities			528,985				(3,500	)			9,521				(427	)			538,506				(3,927	)
Total temporarily impaired securities		$	563,423				(4,533	)			33,785				(3,537	)			597,208				(8,070	)

 

		December 31, 2010
		Less than 12 Months								12 Months or More								Total
(Dollars in thousands)		Fair Value				Unrealized Loss				Fair Value				Unrealized Loss				Fair Value				Unrealized 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.

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 September 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 September 30, 2011, the Company determined that none of such securities had other-than-temporary impairment.

 

13

---

Table of Contents

3)

Loans Receivable, Net

The following schedules disclose the recorded investment in loans and ALLL on a portfolio class basis:

 

		Three Months ended September 30, 2011
(Dollars in thousands)		Total				Residential Real Estate				Commercial Real Estate				Other Commercial				Home Equity				Other Consumer
Allowance for loan and lease losses
Balance at beginning of period		$	139,795				17,412				79,885				19,615				13,625				9,258
Provision for loan losses			17,175				2,846				9,729				2,399				1,444				757
Charge-offs			(19,980	)			(1,030	)			(14,531	)			(1,557	)			(1,448	)			(1,414	)
Recoveries			1,103				35				607				166				225				70
Balance at end of period		$	138,093				19,263				75,690				20,623				13,846				8,671

 

		At or for the Nine Months ended September 30, 2011
(Dollars in thousands)		Total				Residential Real Estate				Commercial Real Estate				Other Commercial				Home Equity				Other 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			55,825				2,143				33,426				9,006				3,859				7,391
Charge-offs			(58,298	)			(4,187	)			(35,850	)			(8,723	)			(3,751	)			(5,787	)
Recoveries			3,459				350				1,967				408				404				330
Balance at end of period		$	138,093				19,263				75,690				20,623				13,846				8,671
Allowance for loan and lease losses
Individually evaluated for impairment		$	14,946				2,223				7,617				3,738				488				880
Collectively evaluated for impairment			123,147				17,040				68,073				16,885				13,358				7,791
Total allowance for loan and lease losses		$	138,093				19,263				75,690				20,623				13,846				8,671
Loans receivable
Individually evaluated for impairment		$	267,926				27,348				176,747				46,287				11,391				6,153
Collectively evaluated for impairment			3,255,656				491,438				1,526,364				587,346				439,842				210,666
Total loans receivable		$	3,523,582				518,786				1,703,111				633,633				451,233				216,819

 

		December 31, 2010
(Dollars in thousands)		Total				Residential Real Estate				Commercial Real Estate				Other Commercial				Home Equity				Other Consumer
Allowance for loan and lease losses
Individually evaluated for impairment		$	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 of $3,299,000 and $6,001,000 are included in the loans receivable balance at September 30, 2011 and December 31, 2010, respectively.

 

14

---

Table of Contents

The following is a summary of activity in the ALLL:

 

		Three Months ended September 30,								Nine Months ended September 30,
(Dollars in thousands)		2011				2010				2011				2010
Balance at beginning of the period		$	139,795				141,665				137,107				142,927
Provision for loan losses			17,175				19,162				55,825				57,318
Charge-offs			(19,980	)			(27,284	)			(58,298	)			(68,868	)
Recoveries			1,103				714				3,459				2,880
Balance at end of the period		$	138,093				134,257				138,093				134,257

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 ninety days or more past due) and accruing loans under ninety days past due where it is probable payments will not be received according to the loan agreement (e.g., troubled debt restructuring). 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 September 30, 2011 and December 31, 2010 was not significant.

The following schedules disclose the impaired loans by portfolio class of loans:

 

		At or for the Three or Nine Months ended September 30, 2011
(Dollars in thousands)		Total				Residential Real Estate				Commercial Real Estate				Other Commercial				Home Equity				Other Consumer
Loans with a specific valuation allowance
Recorded balance		$	77,478				13,001				37,739				22,393				1,915				2,430
Unpaid principal balance			86,044				13,077				45,779				22,620				2,138				2,430
Valuation allowance			14,946				2,223				7,617				3,738				488				880
Average impaired loans - three months			65,164				11,664				35,305				13,767				1,346				3,082
Average impaired loans - nine months			64,159				10,134				38,513				11,222				1,301				2,989
Loans without a specific valuation allowance
Recorded balance		$	190,448				14,347				139,008				23,894				9,476				3,723
Unpaid principal balance			223,083				16,043				160,583				31,423				10,949				4,085
Average impaired loans - three months			173,246				14,492				126,341				20,877				8,914				2,622
Average impaired loans - nine months			165,993				15,077				123,292				17,985				7,836				1,803
Totals
Recorded balance		$	267,926				27,348				176,747				46,287				11,391				6,153
Unpaid principal balance			309,127				29,120				206,362				54,043				13,087				6,515
Valuation allowance			14,946				2,223				7,617				3,738				488				880
Average impaired loans - three months			238,410				26,156				161,646				34,644				10,260				5,704
Average impaired loans - nine months			230,152				25,211				161,805				29,207				9,137				4,792

 

15

---

Table of Contents

		At or for the Year ended December 31, 2010
(Dollars in thousands)		Total				Residential Real Estate				Commercial Real Estate				Other Commercial				Home Equity				Other 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:

 

		September 30, 2011
(Dollars in thousands)		Total				Residential Real Estate				Commercial Real Estate				Other Commercial				Home Equity				Other Consumer
Accruing loans 30-59 days past due		$	13,236				893				6,290				2,734				1,373				1,946
Accruing loans 60-89 days past due			7,894				1,515				3,645				1,688				617				429
Accruing loans 90 days or more past due			4,002				1,143				692				2,063				87				17
Non-accual loans			151,753				13,764				104,083				22,101				10,462				1,343
Total past due and non-accrual loans			176,885				17,315				114,710				28,586				12,539				3,735
Current loans receivable			3,346,697				501,471				1,588,401				605,047				438,694				213,084
Total loans receivable		$	3,523,582				518,786				1,703,111				633,633				451,233				216,819
		December 31, 2010
(Dollars in thousands)		Total				Residential Real Estate				Commercial Real Estate				Other Commercial				Home Equity				Other Consumer
Accruing loans 30-59 days past due		$	36,545				13,450				11,399				6,262				3,031				2,403
Accruing loans 60-89 days 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

 

16

---

Table of Contents

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. A TDR loan is considered an impaired loan and a specific valuation allowance is established when the fair value of the collateral-dependent loan or present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate based on the original contractual rate) is lower than the carrying value of the impaired loan. The Company made the following types of loan modifications, some of which were considered a TDR:

 

•

Reduction of the stated interest rate for the remaining term of the debt;

 

•

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

 

•

Reduction of the face amount of the debt as stated in the debt agreements.

The following is a summary of the TDRs that have occurred during the periods presented and the TDRs that occurred within the previous twelve months that subsequently defaulted during the periods presented on a portfolio class basis:

 

		Three Months ended September 30, 2011
(Dollars in thousands)		Total				Residential Real Estate				Commercial Real Estate				Other Commercial				Home Equity				Other Consumer
Troubled debt restructurings
Number of loans			76				5				25				34				8				4
Pre-modification outstanding balance		$	28,544				2,861				19,033				3,844				1,397				1,409
Post-modification outstanding balance		$	26,879				2,702				17,533				3,831				1,399				1,414
Troubled debt restructurings that subsequently defaulted
Number of loans			37				4				13				16				3				1
Recorded balance		$	26,700				934				20,630				2,686				2,351				99
		Nine Months ended September 30, 2011
(Dollars in thousands)		Total				Residential Real Estate				Commercial Real Estate				Other Commercial				Home Equity				Other Consumer
Troubled debt restructurings
Number of loans			246				15				84				117				14				16
Pre-modification outstanding balance		$	112,748				11,896				77,025				15,312				4,372				4,143
Post-modification outstanding balance		$	110,111				11,737				75,178				15,269				4,374				3,553
Troubled debt restructurings that subsequently defaulted
Number of loans			65				7				27				21				9				1
Recorded balance		$	56,831				1,828				47,520				3,038				4,346				99

The majority of TDRs occurring in each loan class was a result of extensions of the maturity date and in total accounted for approximately 67 percent of the TDRs. For commercial real estate, the class with the largest amount of TDRs, approximately 63 percent were extensions of the maturity date, 10 percent were reductions in the interest rate, and 19 percent were a combination of extensions of the maturity date, reductions in the interest rate or reductions in the loan balance.

In addition to the TDRs that occurred during the periods provided in the preceding tables, the Company had TDRs with pre-modification loan balances of $20,745,000 and $79,703,000 for the three and nine months ended September 30, 2011, respectively, for which other real estate owned was received in full or partial satisfaction of the loans. The majority of such TDRs were in commercial real estate.

 

17

---

Table of Contents

As a result of adopting the FASB amendment relating to TDRs during the third quarter of 2011, the Company reassessed all loan restructurings that occurred during the first six months of 2011 for potential identification as TDRs. With respect to loan restructurings occurring in the first six months of 2011, the Company newly identified $74,557,000 as TDRs all of which are considered impaired as of September 30, 2011. Of these newly identified TDRs, $53,319,000 were not previously identified as impaired loans; such loans had a valuation allowance of $3,221,000 as of September 30, 2011. The remaining $21,238,000 of newly identified TDRs were previously considered to be impaired and the Company continues to allocate a specific valuation allowance.

 

4)

Goodwill

The changes in the carrying amount of goodwill and accumulated impairment charge are as follows:

 

		At or for the Three or Nine Months ended September  30,
(Unaudited - Dollars in thousands)		2011				2010
Net carrying value at beginning of period		$	146,259				146,259
Impairment charge			(40,159	)			—
Net carrying value at end of period			106,100				146,259
Gross carrying value			146,259				146,259
Accumulated impairment charge			(40,159	)			—
Net carrying value		$	106,100				146,259

The Company tests goodwill for impairment at the bank subsidiary level annually during the third quarter. In addition, goodwill of a subsidiary is tested for impairment between annual tests if an event occurs or circumstances change that would more-likely-than not reduce the fair value of a bank subsidiary below its carrying amount. Due to high levels of volatility and dislocation in bank stock prices nationwide during the third quarter 2011, as well as the Company’s internal evaluation process, the Company engaged an independent valuation firm to determine the implied fair value of Mountain West Bank and 1st Bank. These two bank subsidiaries were selected because of Mountain West’s losses and decline in credit quality and 1st Bank’s significant amount of goodwill relative to its total assets. The implied fair value of these bank subsidiaries was estimated using the quoted market prices of other banks, discounted cash flows and inputs from comparable transactions. As a result of the evaluation, the Company determined the goodwill of $23,159,000 ($15,613,000 after-tax) at Mountain West was fully impaired and the goodwill of $41,718,000 at 1st Bank was partially impaired by $17,000,000. The remaining goodwill of $81,382,000 at the other bank subsidiaries was not determined to be impaired at September 30, 2011.

 

18

---

Table of Contents

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.

 

(Dollars in thousands)		Three Months ended September 30,								Nine Months ended September 30,
		2011				2010				2011				2010
Net (loss) earnings		$	(19,048	)			9,445				3,123				32,737
Unrealized holding gains arising during the period			25,498				14,620				64,680				30,208
Tax expense			(9,993	)			(5,730	)			(25,348	)			(11,839	)
Net after tax			15,505				8,890				39,332				18,369
Reclassification adjustment for gains included in net (loss) earnings			(813	)			(2,041	)			(346	)			(2,597	)
Tax expense			319				800				136				1,018
Net after tax			(494	)			(1,241	)			(210	)			(1,579	)
Net unrealized gain on securities			15,011				7,649				39,122				16,790
Total comprehensive (loss) income		$	(4,037	)			17,094				42,245				49,527

 

6)

Earnings Per Share

Basic (loss) earnings per common share is computed by dividing net (loss) earnings by the weighted average number of shares of common stock outstanding during the period presented. Diluted (loss) 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 (loss) earnings per share:

 

		Three Months ended September 30,								Nine Months ended September 30,
		2011				2010				2011				2010
Net (loss) earnings available to common stockholders, basic and diluted		$	(19,048,000	)			9,445,000				3,123,000				32,737,000
Average outstanding shares - basic			71,915,073				71,915,073				71,915,073				68,897,348
Add: dilutive stock options			—				—				—				1,880
Average outstanding shares - diluted			71,915,073				71,915,073				71,915,073				68,899,228
Basic (loss) earnings per share		$	(0.27	)			0.13				0.04				0.48
Diluted (loss) earnings per share		$	(0.27	)			0.13				0.04				0.48

There were 1,597,959 and 2,309,410 stock options excluded from the diluted average outstanding share calculation for the nine months ended September 30, 2011 and 2010, respectively, due to the option exercise price exceeding the market price.

 

19

---

Table of Contents

7)

Fair Value of Assets and Liabilities

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

 

Level 1		Quoted prices in active markets for identical assets or liabilities
Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis. There have been no significant changes in the valuation techniques during the nine months ended September 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:

 

		September 30, 2011
(Dollars in thousands)		Assets/ Liabilities Measured at Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Investment securities, available-for-sale
U.S. government and federal agency		$	209				—				209				—
U.S. government sponsored enterprises			34,043				—				34,043				—
State and local governments and other issues			1,036,158				—				1,036,158				—
Collateralized debt obligations			6,450				—				—				6,450
Residential mortgage-backed securities			1,858,151				—				1,858,079				72
Total assets measured at fair value on a recurring basis		$	2,935,011				—				2,928,489				6,522

 

20

---

Table of Contents

		December 31, 2010
(Dollars in thousands)		Assets/ Liabilities Measured at Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Investment securities, available-for-sale
U.S. government and federal agency		$	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 assets measured at fair value on a recurring basis		$	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 nine month period ended September 30, 2011 and the year ended December 31, 2010:

 

		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)		Total				Collateralized Debt Obligations				Residential Mortgage-backed Securities
Balance as of December 31, 2010		$	6,751				6,595				156
Total unrealized gains (losses) included in other comprehensive income			2,011				2,095				(84	)
Amortization, accretion and principal payments			(2,240	)			(2,240	)			—
Balance as of September 30, 2011		$	6,522				6,450				72

 

		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)		Total				State and Local Governments and Other Issues				Collateralized Debt Obligations				Residential Mortgage-backed 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 nine months ended September 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.

 

21

---

Table of Contents

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 loans, the Company considers the appraisal or evaluation as the starting point for determining fair value. The Company also considers other factors and events in the environment that may affect the fair value.

Goodwill: Goodwill is evaluated for impairment at the bank subsidiary level at least annually. As a result of a goodwill impairment assessment performed by an independent valuation firm for two of the Company’s bank subsidiaries, Mountain West and 1st Bank, a goodwill impairment charge was recorded during the third quarter of 2011. The key inputs used to determine the implied fair value of such bank subsidiaries and the corresponding amount of the impairment charge included quoted market prices of other banks, discounted cash flows and inputs from comparable transactions. These inputs are classified within Level 3 of the fair value hierarchy.

The following schedules disclose the major classes of assets with a recorded change during the period resulting from re-measuring the assets at fair value on a non-recurring basis:

 

		September 30, 2011
(Dollars in thousands)		Assets/ Liabilities Measured at Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Other real estate owned		$	26,634				—				—				26,634
Collateral-dependent impaired loans, net of allowance for loan and lease losses			57,398				—				—				57,398
Goodwill			24,718				—				—				24,718
Total assets measured at fair value on a non-recurring basis with a recorded change		$	108,750				—				—				108,750

 

		December 31, 2010
(Dollars in thousands)		Assets/ Liabilities Measured at Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Other real estate owned		$	17,492				—				—				17,492
Collateral-dependent impaired loans, net of allowance for loan and lease losses			47,283				—				—				47,283
Total assets measured at fair value on a non-recurring basis with a recorded change		$	64,775				—				—				64,775

 

22

---

Table of Contents

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

Assets

Cash and cash equivalents and accrued interest receivable: fair value is estimated at 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 is estimated by discounting the future cash flows using the rates at which similar notes would be written for the same remaining maturities.

Liabilities

Accrued interest payable: fair value is estimated at 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 Federal Home Loan Bank (“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, federal funds purchased 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.

 

23

---

Table of Contents

The following presents the carrying amounts and estimated fair values of the Company’s financial instruments:

 

		September 30, 2011								December 31, 2010
(Dollars in thousands)		Amount				Fair Value				Amount				Fair Value
Financial assets
Cash and cash equivalents		$	133,771				133,771				105,091				105,091
Investment securities, available-for-sale			2,935,011				2,935,011				2,395,847				2,395,847
Loans held for sale			67,876				67,876				76,213				76,213
Loans receivable, net of allowance for loan and lease losses			3,385,489				3,468,786				3,612,182				3,631,716
Accrued interest receivable			35,296				35,296				30,246				30,246
Non-marketable equity securities			49,691				49,691				65,040				65,040
Total financial assets		$	6,607,134				6,690,431				6,284,619				6,304,153
Financial liabilities
Deposits		$	4,770,528				4,780,467				4,521,902				4,533,974
FHLB advances			889,053				920,108				965,141				974,853
Repurchase agreements, federal funds purchased and other borrowed funds			361,612				361,620				269,408				269,414
Subordinated debentures			125,239				63,173				125,132				70,404
Accrued interest payable			5,693				5,693				7,245				7,245
Total financial liabilities		$	6,152,125				6,131,061				5,888,828				5,855,890

 

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’s operating segments include each of the individual bank subsidiaries, GORE and the Parent.

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.

 

24

---

Table of Contents

The following schedules provide selected financial data for the Company’s operating segments:

 

		At or for the Three Months ended September 30, 2011
(Dollars in thousands)		Glacier				Mountain West				First Security				Western				1st Bank				Valley				Big Sky				First Bank- WY
External revenues		$	18,283				17,311				13,733				9,156				8,085				5,521				4,796				4,337
Intersegment revenues			69				139				19				13				20				87				9				14
Expenses			(14,042	)			(36,942	)			(10,465	)			(6,105	)			(23,234	)			(3,686	)			(4,128	)			(3,234	)
Net earnings (loss)		$	4,310				(19,492	)			3,287				3,064				(15,129	)			1,922				677				1,117
Total assets		$	1,363,055				1,085,135				1,093,500				798,825				770,887				437,756				384,173				376,854
		Citizens				First Bank- MT				San Juans				GORE				Parent				Eliminations and Other								Consolidated
External revenues		$	4,607				2,679				2,771				390				672				28								92,369
Intersegment revenues			—				11				35				—				(15,338	)			14,922								—
Expenses			(3,403	)			(1,626	)			(2,647	)			(1,052	)			(4,677	)			3,824								(111,417	)
Net earnings (loss)		$	1,204				1,064				159				(662	)			(19,343	)			18,774								(19,048	)
Total assets		$	346,265				251,718				235,862				12,182				996,556				(1,110,079	)							7,042,689

 

		At or for the Three Months ended September 30, 2010
(Dollars in thousands)		Glacier				Mountain West				First Security				Western				1st Bank				Valley				Big Sky				First Bank- WY
External revenues		$	18,988				21,498				13,871				9,075				8,134				5,715				4,983				3,824
Intersegment revenues			218				197				41				130				81				165				—				21
Expenses			(15,326	)			(25,208	)			(11,549	)			(7,212	)			(6,782	)			(3,951	)			(4,444	)			(3,214	)
Net earnings (loss)		$	3,880				(3,513	)			2,363				1,993				1,433				1,929				539				631
Total assets		$	1,332,594				1,177,317				948,692				682,635				655,334				341,219				365,254				305,353