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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
____________________________________________________________
FORM 10-Q
____________________________________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023
 
☐ 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)
 ____________________________________________________________
Montana81-0519541
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
49 Commons LoopKalispell,Montana59901
(Address of principal executive offices)(Zip Code)
(406)756-4200
(Registrant’s telephone number, including area code)
 ____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueGBCIThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒ Yes    ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   ☐ Yes    ☒  No
The number of shares of Registrant’s common stock outstanding on April 18, 2023 was 110,870,287. No preferred shares are issued or outstanding.



TABLE OF CONTENTS
 

 Page
Part I. Financial Information
Item 1 – Financial Statements




ABBREVIATIONS/ACRONYMS

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







GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
(Dollars in thousands, except per share data)March 31,
2023		December 31,
2022
Assets
Cash on hand and in banks$290,960 300,194 
Interest bearing cash deposits1,238,574 101,801 
Cash and cash equivalents1,529,534 401,995 
Debt securities, available-for-sale5,198,313 5,307,307 
Debt securities, held-to-maturity3,664,393 3,715,052 
Total debt securities8,862,706 9,022,359 
Loans held for sale, at fair value14,461 12,314 
Loans receivable15,518,612 15,246,812 
Allowance for credit losses(186,604)(182,283)
Loans receivable, net15,332,008 15,064,529 
Premises and equipment, net399,740 398,100 
Other real estate owned and foreclosed assets
31 32 
Accrued interest receivable90,642 83,538 
Deferred tax asset172,453 193,187 
Core deposit intangible, net39,152 41,601 
Goodwill985,393 985,393 
Non-marketable equity securities23,414 82,015 
Bank-owned life insurance168,235 169,068 
Other assets184,665 181,244 
Total assets$27,802,434 26,635,375 
Liabilities
Non-interest bearing deposits$7,001,241 7,690,751 
Interest bearing deposits13,147,067 12,915,804 
Securities sold under agreements to repurchase1,191,323 945,916 
Federal Home Loan Bank advances335,000 1,800,000 
FRB Bank Term Funding2,740,000 — 
Other borrowed funds76,185 77,293 
Subordinated debentures132,822 132,782 
Accrued interest payable8,968 4,331 
Other liabilities242,924 225,193 
Total liabilities24,875,530 23,792,070 
Commitments and Contingent Liabilities— — 
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, 234,000,000 shares authorized at
  March 31, 2023 and December 31, 2022, respectively
1,109 1,108 
Paid-in capital2,344,514 2,344,005 
Retained earnings - substantially restricted991,509 966,984 
Accumulated other comprehensive loss(410,228)(468,792)
Total stockholders’ equity2,926,904 2,843,305 
Total liabilities and stockholders’ equity$27,802,434 26,635,375 
Number of common stock shares issued and outstanding110,868,713 110,777,780 
See accompanying notes to unaudited condensed consolidated financial statements.
4


GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months ended
(Dollars in thousands, except per share data)March 31,
2023		March 31,
2022
Interest Income
Investment securities$43,642 38,654 
Residential real estate loans15,838 15,515 
Commercial loans155,682 124,556 
Consumer and other loans16,726 11,791 
Total interest income231,888 190,516 
Interest Expense
Deposits12,545 3,464 
Securities sold under agreements to repurchase4,606 393 
Federal Home Loan Bank advances23,605 12 
FRB Bank Term Funding3,032 — 
Other borrowed funds
496 220 
Subordinated debentures1,412 872 
Total interest expense45,696 4,961 
Net Interest Income186,192 185,555 
Provision for credit losses5,470 7,031 
Net interest income after provision for credit losses180,722 178,524 
Non-Interest Income
Service charges and other fees17,771 17,111 
Miscellaneous loan fees and charges3,967 3,555 
Gain on sale of loans2,400 9,015 
(Loss) gain on sale of debt securities(114)446 
Other income3,871 3,436 
Total non-interest income27,895 33,563 
Non-Interest Expense
Compensation and employee benefits81,477 79,074 
Occupancy and equipment11,665 10,964 
Advertising and promotions4,235 3,232 
Data processing8,109 7,475 
Other real estate owned and foreclosed assets12 — 
Regulatory assessments and insurance4,903 3,055 
Core deposit intangibles amortization2,449 2,664 
Other expenses22,132 23,844 
Total non-interest expense134,982 130,308 
Income Before Income Taxes73,635 81,779 
Federal and state income tax expense12,424 13,984 
Net Income$61,211 67,795 
Basic earnings per share$0.55 0.61 
Diluted earnings per share$0.55 0.61 
Dividends declared per share$0.33 0.33 
Average outstanding shares - basic110,824,648 110,724,655 
Average outstanding shares - diluted110,881,708 110,800,001 


See accompanying notes to unaudited condensed consolidated financial statements.
5



GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
 
 Three Months ended
(Dollars in thousands)March 31,
2023		March 31,
2022
Net Income$61,211 67,795 
Other Comprehensive (Loss) Income, Net of Tax
Available-For-Sale and Transferred Securities:
Unrealized gain (losses) on available-for-sale securities
77,466 (369,724)
Reclassification adjustment for losses (gains) included in net income
31 (678)
Reclassification adjustment for securities transferred from available-for-sale to held-to-maturity
1,881 (782)
Tax effect(20,059)93,798 
Net of tax amount59,319 (277,386)
Cash Flow Hedge:
Unrealized (losses) gains on derivatives used for cash flow hedges
(36)2,967 
Reclassification adjustment for gains included in net income
(974)— 
Tax effect255 (749)
Net of tax amount(755)2,218 
Total other comprehensive income (loss), net of tax
58,564 (275,168)
Total Comprehensive (Loss) Income$119,775 (207,373)

























See accompanying notes to unaudited condensed consolidated financial statements.
6


GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
Three Months ended March 31, 2023 and 2022

(Dollars in thousands, except per share data)Common StockPaid-in CapitalRetained
Earnings-
Substantially Restricted		Accumulated
Other Compre-
hensive (Loss) Income		 
SharesAmountTotal
Balance at January 1, 2022110,687,533 $1,107 2,338,814 810,342 27,359 3,177,622 
Net income— — — 67,795 — 67,795 
Other comprehensive loss— — — — (275,168)(275,168)
Cash dividends declared ($0.33 per share)
— — — (36,648)— (36,648)
Stock issuances under stock incentive plans
75,783 1 (1)— — — 
Stock-based compensation and related taxes
— — 592 — — 592 
Balance at March 31, 2022110,763,316 $1,108 2,339,405 841,489 (247,809)2,934,193 
Balance at January 1, 2023110,777,780 $1,108 2,344,005 966,984 (468,792)2,843,305 
Net income— — — 61,211 — 61,211 
Other comprehensive loss— — — — 58,564 58,564 
Cash dividends declared ($0.33 per share)
— — — (36,686)— (36,686)
Stock issuances under stock incentive plans
90,933 1 (1)— — — 
Stock-based compensation and related taxes
— — 510 — — 510 
Balance at March 31, 2023110,868,713 $1,109 2,344,514 991,509 (410,228)2,926,904 

 

















See accompanying notes to unaudited condensed consolidated financial statements.
7



GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Three Months ended
(Dollars in thousands)March 31,
2023		March 31,
2022
Operating Activities
Net income$61,211 67,795 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses5,470 7,031 
Net amortization of debt securities3,098 10,573 
Net amortization of purchase accounting adjustments
  and deferred loan fees and costs		(554)7,937 
Origination of loans held for sale(79,714)(305,269)
Proceeds from loans held for sale115,825 326,767 
Gain on sale of loans(2,400)(9,015)
Loss (gain) on sale of debt securities114 (446)
Bank-owned life insurance income, net(961)(893)
Stock-based compensation, net of tax benefits1,740 1,774 
Depreciation and amortization of premises and equipment6,812 5,940 
Gain on sale and write-downs of other real estate owned, net(1)— 
Amortization of core deposit intangibles2,449 2,664 
Amortization of investments in variable interest entities5,633 4,689 
Net increase in accrued interest receivable(7,105)(4,794)
Net increase in other assets(4,118)(23,707)
Net increase (decrease) in accrued interest payable4,637 (125)
Net decrease in other liabilities(13,957)(12,563)
Net cash provided by operating activities98,179 78,358 
Investing Activities
Sales of available-for-sale debt securities29,972 — 
Maturities, prepayments and calls of available-for-sale debt securities153,048 394,802 
Purchases of available-for-sale debt securities— (348,330)
Maturities, prepayments and calls of held-to-maturity debt securities50,918 32,048 
Purchases of held-to-maturity debt securities— (201,742)
Principal collected on loans750,400 1,557,786 
Loan originations(1,059,597)(1,868,784)
Net additions to premises and equipment(8,161)(3,864)
Proceeds from sale of other real estate owned10 20 
Proceeds from redemption of non-marketable equity securities559,201 16,036 
Purchases of non-marketable equity securities(500,600)(19,200)
Proceeds from bank-owned life insurance1,787 1,303 
Investments in variable interest entities(6,844)(16,358)
Net cash used in investing activities(29,866)(456,283)

See accompanying notes to unaudited condensed consolidated financial statements.
8


GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
 Three Months ended
(Dollars in thousands)March 31,
2023		March 31,
2022
Financing Activities
Net (decrease) increase in deposits$(458,062)360,893 
Net (decrease) increase in securities sold under agreements to repurchase245,407 (62,315)
Net increase (decrease) in short-term Federal Home Loan Bank advances(1,465,000)80,000 
Proceeds from long-term FRB Bank Term Funding advances2,740,000 — 
Net (decrease) increase in other borrowed funds(1,108)11,132 
Cash dividends paid(292)(11,295)
Tax withholding payments for stock-based compensation(1,719)(1,371)
Net cash provided by financing activities1,059,226 377,044 
Net (decrease) increase in cash, cash equivalents and restricted cash1,127,539 (881)
Cash, cash equivalents and restricted cash at beginning of period401,995 437,686 
Cash, cash equivalents and restricted cash at end of period$1,529,534 436,805 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest$41,059 5,087 
Cash paid during the period for income taxes— 1,229 
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Transfer of debt securities from available-for-sale to held-to-maturity$— 2,154,475 
Transfer of loans to other real estate owned8 45 
Right-of-use assets obtained in exchange for new lease liabilities276 2,291 
Dividends declared during the period but not paid36,686 36,643 























See accompanying notes to unaudited condensed consolidated financial statements.
9


GLACIER BANCORP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1. Nature of Operations and Summary of Significant Accounting Policies

General
Glacier Bancorp, Inc. (“Company”) is a Montana corporation headquartered in Kalispell, Montana. The Company provides a full range of banking services to individuals and businesses in Montana, Idaho, Utah, Washington, Wyoming, Colorado, Arizona and Nevada through its wholly-owned bank subsidiary, Glacier Bank (“Bank”). The Company offers a wide range of banking products and services, including: 1) retail banking; 2) business banking; 3) real estate, commercial, agriculture and consumer loans; and 4) mortgage origination and loan servicing. The Company serves individuals, small to medium-sized businesses, community organizations and public entities.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal recurring nature. These interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements and they should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results anticipated for the year ending December 31, 2023. The condensed consolidated statement of financial condition of the Company as of December 31, 2022 has been derived from the audited consolidated statements of the Company as of that date.

The Company is a defendant in legal proceedings arising in the normal course of business. In the opinion of management, the disposition of pending litigation will not have a material affect on the Company’s consolidated financial position, results of operations or liquidity.

Material estimates that are particularly susceptible to significant change include: 1) the determination of the allowance for credit losses (“ACL” or “allowance”) on loans; 2) the valuation of debt securities; 3) the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans; and 4) the evaluation of goodwill impairment. For the determination of the ACL on loans and real estate valuation estimates, management obtains independent appraisals (new or updated) for significant items. Estimates relating to the investment valuations are obtained from independent third parties. Estimates relating to the evaluation of goodwill for impairment are determined based on internal calculations using independent party inputs.

Principles of Consolidation
The consolidated financial statements of the Company include the parent holding company and the Bank, which consists of seventeen bank divisions and a corporate division. The corporate division includes the Bank’s investment portfolio, wholesale borrowings and other centralized functions. The Bank divisions operate under separate names, management teams and advisory directors. The Company considers the Bank to be its sole operating segment as the Bank 1) engages in similar bank business activity from which it earns revenues and incurs expenses; 2) the operating results of the Bank are regularly reviewed by the Chief Executive Officer (“CEO”) (i.e., the chief operating decision maker) who makes decisions about resources to be allocated to the Bank; and 3) financial information is available for the Bank. All significant inter-company transactions have been eliminated in consolidation.

The Bank has subsidiary interests in variable interest entities (“VIE”) for which the Bank has both the power to direct the VIE’s significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could potentially be significant to the VIE. These subsidiary interests are included in the Company’s consolidated financial statements. The Bank also has subsidiary interests in VIEs for which the Bank does not have a controlling financial interest and is not the primary beneficiary. These subsidiary interests are not included in the Company’s consolidated financial statements. For additional information on the Bank’s interest in VIEs, see Note 7.

The parent holding company owns non-bank subsidiaries that have issued trust preferred securities. The trust subsidiaries are not included in the Company’s consolidated financial statements. The Company's investments in the trust subsidiaries are included in other assets on the Company's statements of financial condition.


10


Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash held as demand deposits at various banks and the Federal Reserve Bank (“FRB”), interest bearing deposits, federal funds sold, and liquid investments with original maturities of three months or less. The Bank is required to maintain an average reserve balance with either the FRB or in the form of cash on hand. The required reserve balance at March 31, 2023 was $0.

Debt Securities
Debt securities for which the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. Debt securities held primarily for the purpose of selling in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses included in income. Debt securities not classified as held-to-maturity or trading are classified as available-for-sale and are reported at fair value with unrealized gains and losses, net of income taxes, as a separate component of other comprehensive income (“OCI”). Premiums and discounts on debt securities are amortized or accreted into income using a method that approximates the interest method. The objective of the interest method is to calculate periodic interest income at a constant effective yield. The Company does not have any debt securities classified as trading securities. When the Company acquires another entity, it records the debt securities at fair value.

The Company reviews and analyzes the various risks that may be present within the investment portfolio on an ongoing basis, including market risk, credit risk and liquidity risk. Market risk is the risk to an entity’s financial condition resulting from adverse changes in the value of its holdings arising from movements in interest rates, foreign exchange rates, equity prices or commodity prices. The Company assesses the market risk of individual debt securities as well as the investment portfolio as a whole. Credit risk, broadly defined, is the risk that an issuer or counterparty will fail to perform on an obligation. The credit rating of a security is considered the primary credit quality indicator for debt securities. Liquidity risk refers to the risk that a security will not have an active and efficient market in which the security can be sold.

A debt security is investment grade if the issuer has adequate capacity to meet its commitment over the expected life of the investment, i.e., the risk of default is low and full and timely repayment of interest and principal is expected. To determine investment grade status for debt securities, the Company conducts due diligence of the creditworthiness of the issuer or counterparty prior to acquisition and ongoing thereafter consistent with the risk characteristics of the security and the overall risk of the investment portfolio. Credit quality due diligence takes into account the extent to which a security is guaranteed by the U.S. government and other agencies of the U.S. government. The depth of the due diligence is based on the complexity of the structure, the size of the security, and takes into account material positions and specific groups of securities or stratifications for analysis and review of similar risk positions. The due diligence includes consideration of payment performance, collateral adequacy, internal analyses, third party research and analytics, external credit ratings and default statistics.

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

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


11


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

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

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

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

Loans Held for Sale
Loans held for sale generally consist of long-term, fixed rate, conforming, single-family residential real estate loans intended to be sold on the secondary market. Loans held for sale are recorded at fair value and may or may not be sold with servicing rights released. Changes in fair value are recognized in non-interest income. Fair value elections are made at the time of origination based on the Company’s fair value election policy.

Loans Receivable
The Company’s loan segments or classes are based on the purpose of the loan and consist of residential real estate, commercial real estate, other commercial, home equity, and other consumer loans. Loans that are intended at origination to be held-to-maturity are reported at the unpaid principal balance less net charge-offs and adjusted for deferred fees and costs on originated loans and unamortized premiums or discounts on acquired loans. Interest income is accrued on the unpaid principal balance. Fees and costs on originated loans and premiums or discounts on acquired loans are deferred and subsequently amortized or accreted as a yield adjustment over the expected life of the loan utilizing the interest or straight-line methods. The interest method is utilized for loans with scheduled payment terms and the objective is to calculate periodic interest income at a constant effective yield. The straight-line method is utilized for revolving lines of credit or loans with no scheduled payment terms. When a loan is paid off prior to maturity, the remaining unamortized fees and costs on originated loans and unamortized premiums or discounts on acquired loans are immediately recognized as interest income.

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

12


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

For additional information relating to loans, see Note 3.

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

The allowance is increased for estimated credit losses which are recorded as expense. The portion of loans and overdraft balances determined by management to be uncollectable are charged-off as a reduction to the allowance and recoveries of amounts previously charged-off increase the allowance. The Company’s charge-off policy is consistent with bank regulatory standards. Consumer loans generally are charged-off when the loan becomes over 120 days delinquent. Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned (“OREO”) until such time as it is sold.

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

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

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

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

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


13


Home Equity.  Home equity loans consist of junior lien mortgages and first and junior lien lines of credit (revolving open-end and amortizing closed-end) secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans is impacted by economic conditions within the Company’s market areas that affect the value of the residential property securing the loans and affect the borrowers' personal incomes. Mitigating risk factors for this loan segment are a large number of borrowers, geographic dispersion of market areas and the loans are originated for terms that range from 10 to 15 years.

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

The allowance is impacted by loan volumes, delinquency status, credit ratings, historical loss experiences, estimated prepayment speeds, weighted average lives and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance has two basic components: 1) individual loans that do not share similar risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and 2) the expected credit losses for pools of loans that share similar risk characteristics.

Loans that do not Share Similar Risk Characteristics with Other Loans. For a loan that does not share similar risk characteristics with other loans, expected credit loss is measured based on the net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, the expected credit loss is equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan fees and costs), except when the loan is collateral-dependent, that is, when foreclosure is probable or the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral. The Company has determined that non-accrual loans do not share similar risk characteristics with other loans and these loans are individually evaluated for estimated allowance for credit losses. The Company, through its credit monitoring process, may also identify other loans that do not share similar risk characteristics and individually evaluate such loans. The starting point for determining the fair value of collateral is to obtain external appraisals or evaluations (new or updated). The valuation techniques used in preparing appraisals or evaluations (new or updated) include the cost approach, income approach, sales comparison approach, or a combination of the preceding valuation techniques. The Company’s credit department reviews appraisals, giving consideration to the highest and best use of the collateral. The appraisals or evaluations (new or updated) are reviewed at least quarterly and more frequently based on current market conditions, including deterioration in a borrower’s financial condition and when property values may be subject to significant volatility. Adjustments may be made to the fair value of the collateral after review and acceptance of the collateral appraisal or evaluation (new or updated).

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

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•lending policies and procedures;
•international, national, regional and local economic business conditions, developments, or environmental conditions that affect the collectability of the portfolio, including the condition of various markets;
•the nature and volume of the loan portfolio including the terms of the loans;
•the experience, ability, and depth of the lending management and other relevant staff;
•the volume and severity of past due and adversely classified or graded loans and the volume of non-accrual loans;
•the quality of our loan review system;
•the value of underlying collateral for collateralized loans;
•the existence and effect of any concentrations of credit, and changes in the level of concentrations; and
•the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.

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

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

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

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

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


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Restructured Loans
On January 1, 2023, the Company adopted FASB ASU 2022-02, Financial Instruments - Credit Losses, Troubled Debt Restructurings and Vintage Disclosures, which eliminated the accounting guidance for TDRs by creditors in Accounting Standard Codification (ASC) Subtopic 310-40, and enhanced the disclosure requirements for certain loan refinancing and restructures by creditors when a borrower is experiencing financial difficulty. The company identifies modifications to borrowers experiencing financial difficulty (“MBFD”) as a loan that has been modified for the borrower that is experiencing financial difficulties. The Company considers some of the indicators that a borrower is experiencing financial difficulty to be: currently in payment default on any of their debt, declaring bankruptcy, going concern, borrower’s securities have been delisted, and other indicators of inability to meet obligations. This list does not include all potential indicators of a borrower’s financial difficulties. The allowance for credit losses on a loans that are considered MBFD’s are measured using the same method as all other loans held for investment.

Prior to the adoption of this guidance, restructured loans were considered to be 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 have not otherwise considered. The allowance for credit losses on a TDR were measured using the same method as all other loans held for investment.

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

Provision for Credit Losses
The Company recognizes provision for credit losses on the allowance for off-balance sheet credit exposures (e.g., unfunded loan commitments) together with provision for credit losses on the loan portfolio in the income statement line item provision for credit losses.
The following table presents the provision for credit losses on the loan portfolio and off-balance sheet exposures:
Three Months ended
(Dollars in thousands)March 31,
2023		March 31,
2022
Provision for credit loss loans$6,260 4,344 
Provision for credit loss unfunded(790)2,687 
Total provision for credit losses$5,470 7,031 

There was no provision for credit losses on debt securities for the three months ended March 31, 2023, and 2022, respectively.

Premises and Equipment
Premises and equipment are accounted for at cost less depreciation. Depreciation is computed on a straight-line method over the estimated useful lives or the term of the related lease. The estimated useful life for office buildings is 15 to 40 years and the estimated useful life for furniture, fixtures, and equipment is 3 to 10 years. Interest is capitalized for any significant building projects.

Leases
The Company leases certain land, premises and equipment from third parties. A lessee lease is classified as an operating lease unless it meets certain criteria (e.g., lease contains option to purchase that Company is reasonably certain to exercise), in which case it is classified as a finance lease. Operating leases are included in net premises and equipment and other liabilities on the Company’s statements of financial condition and lease expense for lease payments is recognized on a straight-line basis over the lease term. Finance leases are included in net premises and equipment and other borrowed funds on the Company’s statements of financial condition. Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. An ROU asset represents the right to use the underlying asset for the lease term and also includes any direct costs and payments made prior to lease commencement and excludes lease incentives. When an implicit rate is not available, an incremental borrowing rate based on the information available at
16


commencement date is used in determining the present value of the lease payments. A lease term may include an option to extend or terminate the lease when it is reasonably certain the option will be exercised. The Company accounts for lease and nonlease components (e.g., common-area maintenance) together as a single combined lease component for all asset classes. Short-term leases of 12 months or less are excluded from accounting guidance; as a result, the lease payments are recognized on a straight-line basis over the lease term and the leases are not reflected on the Company’s statements of financial condition. Renewal and termination options are considered when determining short-term leases. Leases are accounted for on an individual lease level.

Lease improvements incurred at the inception of the lease are recorded as an asset and depreciated over the initial term of the lease and lease improvements incurred subsequently are depreciated over the remaining term of the lease.

The Company also leases certain premises and equipment to third parties. A lessor lease is classified as an operating lease unless it meets certain criteria that would classify it as either a sales-type lease or a direct financing lease. For additional information relating to leases, see Note 4.

Other Real Estate Owned
Property acquired by foreclosure or deed-in-lieu of foreclosure is initially recorded at fair value, less estimated selling cost, at acquisition date (i.e., cost of the property). The Company is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan upon the occurrence of either the Company obtaining legal title to the property or the borrower conveying all interest in the property through a deed-in-lieu or similar agreement. Fair value is determined as the amount that could be reasonably expected in a current sale between a willing buyer and a willing seller in an orderly transaction between market participants at the measurement date. Subsequent to the initial acquisition, if the fair value of the asset, less estimated selling cost, is less than the cost of the property, a loss is recognized in other expense and the asset carrying value is reduced. Gain or loss on disposition of OREO is recorded in non-interest income or non-interest expense, respectively. In determining the fair value of the properties on the date of transfer and any subsequent estimated losses of net realizable value, the fair value of other real estate acquired by foreclosure or deed-in-lieu of foreclosure is determined primarily based upon appraisal or evaluation of the underlying property value.

Business Combinations and Intangible Assets
Acquisition accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets. Goodwill is recorded if the purchase price exceeds the net fair value of assets acquired and a bargain purchase gain is recorded in other income if the net fair value of assets acquired exceeds the purchase price.

Adjustment of the allocated purchase price may be related to fair value estimates for which all information has not been obtained of the acquired entity known or discovered during the allocation period, the period of time required to identify and measure the fair values of the assets and liabilities acquired in the business combination. The allocation period is generally limited to one year following consummation of a business combination.

Core deposit intangible represents the intangible value of depositor relationships resulting from deposit liabilities assumed in acquisitions and is amortized using an accelerated method based on an estimated runoff of the related deposits. The core deposit intangible is evaluated for impairment and recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life.

The Company tests goodwill for impairment at the reporting unit level annually during the third quarter. The Company has identified that each of the Bank divisions are reporting units (i.e., components of the Glacier Bank operating segment) given that each division has a separate management team that regularly reviews its respective division financial information; however, the reporting units are aggregated into a single reporting unit due to the reporting units having similar economic characteristics.

The goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. Examples of events and circumstances that could trigger the need for interim impairment testing include:
•a significant change in legal factors or in the business climate;
•an adverse action or assessment by a regulator;
•unanticipated competition;
•a loss of key personnel;
17


•a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of; and
•the testing for recoverability of a significant asset group within a reporting unit.

For the goodwill impairment assessment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. The Company elected to bypass the qualitative assessment for its 2022 and 2021 annual goodwill impairment testing and proceed directly to the goodwill impairment assessment. The goodwill impairment process requires the Company to make assumptions and judgments regarding fair value. The Company calculates an implied fair value and if the implied fair value is less than the carrying value, an impairment loss is recognized for the difference. For additional information relating to goodwill, see Note 5.

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

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

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

Equity Securities
Non-marketable equity securities primarily consist of Federal Home Loan Bank (“FHLB”) stock. FHLB stock is restricted because such stock may only be sold to FHLB at its par value. Due to restrictive terms, and the lack of a readily determinable fair value, FHLB stock is carried at cost and evaluated for impairment. The investments in FHLB stock are required investments related to the Company’s borrowings from FHLB. FHLB obtains its funding primarily through issuance of consolidated obligations of the FHLB system. The U.S. government does not guarantee these obligations, and each of the regional FHLBs is jointly and severally liable for repayment of each other’s debt.

The Company also has an insignificant amount of marketable equity securities that are included in other assets on the Company’s statements of financial condition. Marketable equity securities with readily determinable fair values are measured at fair value and changes in fair value are recognized in other income. Marketable equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.

Federal Reserve Bank Term Funding Program
During the first quarter of 2023, the FRB also offered a new Bank Term Funding Program (“BTFP”) for eligible depository institutions. The BTFP offers loans of up to one year in length to institutions pledging collateral eligible for purchase by the FRB in open market operations such as U.S. Treasuries, U.S. Agency securities, and U.S. agency mortgage-backed securities. These assets will be valued at par.

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

Bank-Owned Life Insurance
The Company maintains bank-owned life insurance policies on certain current and former employees and directors, which are recorded at their cash surrender values as determined by the insurance carriers. The appreciation in the cash surrender value of the policies is recognized as a component of other non-interest income in the Company’s statements of operations.
Derivatives and Hedging Activities
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The Company is exposed to certain risks relating to its ongoing operations. The primary risk managed by using derivative instruments is interest risk. Interest rate caps and interest rate swaps have been entered into to manage interest rate risk associated with variable rate borrowings and were designated as cash flow hedges. The Company does not enter into derivative instruments for trading or speculative purposes.

These cash flow hedges were recognized as assets or liabilities on the Company’s statements of financial condition and were measured at fair value. Cash flows resulting from the interest rate derivative financial instruments that were accounted for as hedges of assets and liabilities were classified in the Company’s cash flow statement in the same category as the cash flows of the items being hedged. For additional information relating to the interest rate caps and residential real estate derivatives, see Note 9.

Revenue Recognition
The Company recognizes revenue when services or products are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled. The Company’s principal source of revenue is interest income from debt securities and loans. Revenue from contracts with customers within the scope of Accounting Standards CodificationTM (“ASC”) Topic 606 was $20,879,000 and $19,129,000 for the three months ended March 31, 2023 and 2022, respectively, and largely consisted of revenue from service charges and other fees from deposits (e.g., overdraft fees, ATM fees, debit card fees). Due to the short-term nature of the Company’s contracts with customers, an insignificant amount of receivables related to such revenue was recorded at March 31, 2023 and December 31, 2022 and there were no impairment losses recognized. Policies specific to revenue from contracts with customers include the following:

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

Debit Card Fees. Revenue from debit card fees includes interchange fee income from debit cards processed through card association networks. Interchange fees represent a portion of a transaction amount that the Company and other involved parties retain to compensate themselves for giving the cardholder immediate access to funds. Interchange rates are generally set by the card association networks and are based on purchase volumes and other factors. The Company records interchange fees as services are provided.
Accounting Guidance Adopted in 2023
The ASC is the Financial Accounting Standards Board (“FASB”) officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of the federal securities laws are also sources of authoritative GAAP for the Company as an SEC registrant. All other accounting literature is non-authoritative. The following provides a description of a recently adopted Accounting Standards Updates (“ASU”) that could have a material effect on the Company’s financial position or results of operations.

ASU 2022-02 - Troubled Debt Restructurings and Vintage Disclosures. In March 2022, FASB amended Subtopic ASC 310-40 and Subtopic 326-20 relating to post-current expected credit losses (“CECL”) (ASU 2016-13) implementation areas including TDRs and vintage disclosures. The amendments in this Update eliminate the accounting guidance for TDRs by creditors in Subtopic 326-40, while enhancing disclosure requirements. The amendments to Subtopic 326-20 require an entity to disclose current-period gross write-offs by year of origination for financing receivables within the scope of Subtopic 326-20. For entities that have adopted CECL, the amendments are effective for public business entities the first interim and annual reporting periods beginning after December 15, 2022. Early adoption is permitted if an entity has adopted CECL and the entity may elect to adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company adopted the amendments beginning January 1, 2023. The Company adjusted its processes and procedures related to the amendments and it did not have a material impact to the Company’s financial position and results of operations.


19


Accounting Guidance Pending Adoption in 2023
The following provides a description of a recently issued but not yet effective ASU that could have a material effect on the Company’s financial position or results of operations

ASU 2023-02 - Investments Equity Method and Joint Ventures. In March 2023, FASB amended Topic ASC 232 relating to accounting for investments in tax credit structures using the proportional amortization method. The amendments in this Update allow reporting entities to consistently account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits. Currently the accounting standards limit the proportional amortization method to account for qualifying investment in low-income-housing tax credit structures. The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the tax credits being presented net in the income statement as a component of income tax expense (benefit). The amendments in this Update permit an entity to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The amendments are effective for public business entities beginning with the first interim and annual reporting periods after December 15, 2023. Early adoption is permitted in any interim periods. If an entity adopts the amendments in an interim period, it shall adopt them as of the beginning of the fiscal year that includes the interim period. The Company is currently evaluating its tax credit investments that may be impacted by this update, but does not expect the adoption of this guidance to have a material impact to the financial statements.

ASU 2020-04, ASU 2021-01, ASU 2022-06 - Reference Rate Reform. In March 2020, FASB amended topic 848 related to the facilitation of the effects of reference rate reform on financial reporting. The amendment provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR.”) These updates are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2024. The Company is currently evaluating its contracts and the optional expedients provided by this update, but does not expect the adoption of this guidance to have a material impact to the financial statements.

Note 2. Debt Securities
The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of the Company’s debt securities:
 March 31, 2023
(Dollars in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
Available-for-sale
U.S. government and federal agency$486,250 20 (36,042)450,228 
U.S. government sponsored enterprises320,614 — (27,982)292,632 
State and local governments105,171 696 (3,189)102,678 
Corporate bonds27,049 — (927)26,122 
Residential mortgage-backed securities3,572,207 7 (392,646)3,179,568 
Commercial mortgage-backed securities1,232,322 1,305 (86,542)1,147,085 
Total available-for-sale$5,743,613 2,028 (547,328)5,198,313 
Held-to-maturity
U.S. government and federal agency848,741 — (72,382)776,359 
State and local governments1,675,146 2,468 (208,847)1,468,767 
Residential mortgage-backed securities1,140,506 — (92,879)1,047,627 
Total held-to-maturity3,664,393 2,468 (374,108)3,292,753 
Total debt securities9,408,006 4,496 (921,436)8,491,066 


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 December 31, 2022
(Dollars in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
Available-for-sale
U.S. government and federal agency$487,320 23 (42,616)444,727 
U.S. government sponsored enterprises320,157 — (32,793)287,364 
State and local governments137,033 709 (4,749)132,993 
Corporate bonds27,101 — (992)26,109 
Residential mortgage-backed securities3,706,427 6 (439,092)3,267,341 
Commercial mortgage-backed securities1,252,065 347 (103,639)1,148,773 
Total available-for-sale$5,930,103 1,085 (623,881)5,307,307 
Held-to-maturity
U.S. government and federal agency846,046 — (83,796)762,250 
State and local governments1,682,640 1,045 (248,233)1,435,452 
Residential mortgage-backed securities1,186,366 — (109,276)1,077,090 
Total held-to-maturity3,715,052 1,045 (441,305)3,274,792 
Total debt securities$9,645,155 2,130 (1,065,186)8,582,099 


Maturity Analysis
The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by contractual maturity at March 31, 2023. Actual maturities may differ from expected or contractual maturities since some issuers have the right to prepay obligations with or without prepayment penalties.
 March 31, 2023
 Available-for-SaleHeld-to-Maturity
(Dollars in thousands)Amortized CostFair ValueAmortized CostFair Value
Due within one year$1,895 1,884 2,834 2,828 
Due after one year through five years852,614 788,517 778,384 717,869 
Due after five years through ten years40,945 39,565 307,011 286,156 
Due after ten years43,630 41,694 1,435,658 1,238,273 
939,084 871,660 2,523,887 2,245,126 
Mortgage-backed securities 1
4,804,529 4,326,653 1,140,506 1,047,627 
Total$5,743,613 5,198,313 3,664,393 3,292,753 
______________________________
1 Mortgage-backed securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.

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Sales and Calls of Debt Securities
Proceeds from sales and calls of debt securities and the associated gains and losses that have been included in earnings are listed below:
 Three Months ended
(Dollars in thousands)March 31,
2023		March 31,
2022
Available-for-sale
Proceeds from sales and calls of debt securities$31,279 53,120 
Gross realized gains 1
145 693 
Gross realized losses 1
(176)(15)
Held-to-maturity
Proceeds from calls of debt securities4,635 12,975 
Gross realized gains 1
8 15 
Gross realized losses 1
(91)(247)
______________________________
1 The gain or loss on the sale or call of each debt security is determined by the specific identification method.

Allowance for Credit Losses - Available-For-Sale Debt Securities
In assessing whether a credit loss existed on available-for-sale debt securities with unrealized losses, the Company compared the present value of cash flows expected to be collected from the debt securities with the amortized cost basis of the debt securities. In addition, the following factors were evaluated individually and collectively in determining the existence of expected credit losses:
•credit ratings from Nationally Recognized Statistical Rating Organizations (“NRSRO” entities such as Standard and Poor’s [“S&P”] and Moody’s);
•extent to which the fair value is less than cost;
•adverse conditions, if any, specifically related to the impaired securities, including the industry and geographic area;
•the overall deal and payment structure of the debt securities, including the investor entity’s position within the structure, underlying obligors, financial condition and near-term prospects of the issuer, including specific events which may affect the issuer’s operations or future earnings, and credit support or enhancements; and
•failure of the issuer and underlying obligors, if any, to make scheduled payments of interest and principal.
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The following table summarizes available-for-sale debt securities that were in an unrealized loss position for which an ACL has not been recorded, based on the length of time the individual securities have been in an unrealized loss position. The number of available-for-sale debt securities in an unrealized position is also disclosed.
 March 31, 2023
 Number
of
Securities		Less than 12 Months12 Months or MoreTotal
(Dollars in thousands)Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Available-for-sale
U.S. government and federal agency
56 $3,616 (55)441,707 (35,987)445,323 (36,042)
U.S. government sponsored enterprises
14 — — 292,633 (27,982)292,633 (27,982)
State and local governments97 13,974 (225)61,829 (2,964)75,803 (3,189)
Corporate bonds5 11,864 (221)13,350 (706)25,214 (927)
Residential mortgage-backed securities
428 20,139 (528)3,159,113 (392,118)3,179,252 (392,646)
Commercial mortgage-backed securities
155 235,155 (6,526)853,535 (80,016)1,088,690 (86,542)
Total available-for-sale
755 $284,748 (7,555)4,822,167 (539,773)5,106,915 (547,328)
 
 December 31, 2022
 Number
of
Securities		Less than 12 Months12 Months or MoreTotal
(Dollars in thousands)Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
Available-for-sale
U.S. government and federal agency
56 $4,150 (64)435,375 (42,552)439,525 (42,616)
U.S. government sponsored enterprises
14 — — 287,364 (32,793)287,364 (32,793)
State and local governments121 71,512 (2,109)20,753 (2,640)92,265 (4,749)
Corporate bonds5 25,146 (992)— — 25,146 (992)
Residential mortgage-backed securities
441 301,548 (24,581)2,965,512 (414,511)3,267,060 (439,092)
Commercial mortgage-backed securities
157 673,102 (41,984)435,176 (61,655)1,108,278 (103,639)
Total available-for-sale
794 $1,075,458 (69,730)4,144,180 (554,151)5,219,638 (623,881)

With respect to severity, the majority of available-for-sale debt securities with unrealized loss positions at March 31, 2023 have unrealized losses as a percentage of book value of less than five percent. A substantial portion of such securities were issued by Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), Government National Mortgage Association (“Ginnie Mae”) and other agencies of the U.S. government or have credit ratings issued by one or more of the NRSRO entities in the four highest credit rating categories. All of the Company’s available-for-sale debt securities with unrealized loss positions at March 31, 2023 have been determined to be investment grade.

The Company did not have any past due available-for-sale debt securities as of March 31, 2023 and December 31, 2022, respectively. Accrued interest receivable on available-for-sale debt securities totaled $10,050,000 and $10,518,000 at March 31, 2023, and December 31, 2022, respectively, and was excluded from the estimate of credit losses.

Based on an analysis of its available-for-sale debt securities with unrealized losses as of March 31, 2023, the Company determined the decline in value was unrelated to credit losses and was primarily the result of changes in interest rates and market spreads subsequent to acquisition. The fair value of the debt securities is expected to recover as payments are received and the debt securities approach maturity. In addition, as of March 31, 2023, management determined it did not intend to sell available-for-sale debt securities with unrealized losses, and there was no expected requirement to sell such securities before recovery of their amortized cost. As a result, no ACL was recorded on available-for-sale debt securities at March 31, 2023. As part of this determination, the Company considered contractual obligations, regulatory constraints, liquidity, capital, asset/
23


liability management and securities portfolio objectives and whether or not any of the Company’s investment securities were managed by third-party investment funds.

Allowance for Credit Losses - Held-To-Maturity Debt Securities
The Company measured expected credit losses on held-to-maturity debt securities on a collective basis by major security type and NRSRO credit ratings, which is the Company’s primary credit quality indicator for state and local government securities. The estimate of expected credit losses considered historical credit loss information that was adjusted for current conditions as well as reasonable and supportable forecasts. The following table summarizes the amortized cost of held-to-maturity municipal bonds aggregated by NRSRO credit rating:
(Dollars in thousands)March 31,
2023		December 31,
2022
Municipal bonds held-to-maturity
S&P: AAA / Moody’s: Aaa
$427,447 430,542 
S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3
1,196,794 1,206,441 
S&P: A+, A, A- / Moody’s: A1, A2, A3
39,262 37,162 
Not rated by either entity
11,643 8,495 
Total municipal bonds held-to-maturity
$1,675,146 1,682,640 

The Company’s municipal bonds in the held-to-maturity debt securities portfolio is primarily comprised of general obligation and revenue bonds with NRSRO ratings in the four highest credit rating categories. All of the Company’s municipal bonds that are classified as held-to-maturity debt securities at March 31, 2023 have been determined to be investment grade. Held-to-maturity debt securities included in the Company’s U.S. government and federal agency and residential mortgage-backed security categories are issued and guaranteed by the U.S. Treasury, Fannie Mae, Freddie Mac, Ginnie Mae and other agencies of the U.S. government are considered to be zero-loss securities. This determination is in consideration of the explicit and implicit guarantees by the US Government, the US Government’s ability to print its own currency, a history of no credit losses by the US Government and noted agencies and the current economic and financial condition of the United States and US Government providing no indication the zero-loss determination is unjustified.

As of March 31, 2023 and December 31, 2022, the Company did not have any held-to-maturity debt securities past due. Accrued interest receivable on held-to-maturity debt securities totaled $20,669,000 and $17,524,000 at March 31, 2023 and December 31, 2022, respectively, and were excluded from the estimate of credit losses.

Based on the Company’s evaluation, an insignificant amount of credit losses is expected on the held-to-maturity debt securities portfolio; therefore, no ACL was recorded at March 31, 2023 or December 31, 2022.






24



Note 3. Loans Receivable, Net

The following table presents loans receivable for each portfolio segment of loans:
.
(Dollars in thousands)March 31,
2023		December 31,
2022
Residential real estate$1,508,403 1,446,008 
Commercial real estate9,992,019 9,797,047 
Other commercial2,804,104 2,799,668 
Home equity829,844 822,232 
Other consumer384,242 381,857 
Loans receivable15,518,612 15,246,812 
Allowance for credit losses(186,604)(182,283)
Loans receivable, net$15,332,008 15,064,529 
Net deferred origination (fees) costs included in loans receivable$(25,349)(25,882)
Net purchase accounting (discounts) premiums included in loans receivable$(16,811)(17,832)
Accrued interest receivable on loans$58,053 54,971 

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

The Company had no significant purchases or sales of portfolio loans or reclassification of loans held for investment to loans held for sale during the three months ended March 31, 2023.

Allowance for Credit Losses - Loans Receivable
The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on loans. The following tables summarize the activity in the ACL:
Three Months ended March 31, 2023
(Dollars in thousands)TotalResidential Real EstateCommercial Real EstateOther CommercialHome EquityOther Consumer
Balance at beginning of period$182,283 19,683 125,816 21,454 10,759 4,571 
Provision for credit losses6,260 293 4,704 (121)(230)1,614 
Charge-offs(3,293)(5)(347)(772)(4)(2,165)
Recoveries1,354 3 80 603 45 623 
Balance at end of period$186,604 19,974 130,253 21,164 10,570 4,643 

Three Months ended March 31, 2022
(Dollars in thousands)TotalResidential Real EstateCommercial Real EstateOther CommercialHome EquityOther Consumer
Balance at beginning of period$172,665 16,458 117,901 24,703 8,566 5,037 
Provision for credit losses4,344 (249)3,927 (1,003)559 1,110 
Charge-offs(2,694)— — (799)— (1,895)
Recoveries1,844 18 344 981 48 453 
Balance at end of period$176,159 16,227 122,172 23,882 9,173 4,705 
25


During the three months ended March 31, 2023, the ACL increased primarily as a result of loan portfolio growth.

The sizeable charge-offs in the other consumer loan segment is driven by deposit overdraft charge-offs which typically experience high charge-off rates and the amounts were comparable to historical trends. The other segments experience routine charge-offs and recoveries, with occasional large credit relationships charge-offs and recoveries that cause fluctuations from prior periods. During the three months ended March 31, 2023, there have been no significant changes to the types of collateral securing collateral-dependent loans.

Aging Analysis
The following tables present an aging analysis of the recorded investment in loans:
 March 31, 2023
(Dollars in thousands)TotalResidential
Real Estate		Commercial
Real Estate		Other
Commercial		Home
Equity		Other
Consumer
Accruing loans 30-59 days past due$17,031 4,338 3,842 3,559 2,354 2,938 
Accruing loans 60-89 days past due7,962 140 5,432 988 751 651 
Accruing loans 90 days or more past due
3,545 54 2,623 475 194 199 
Non-accrual loans with no ACL28,153 2,036 21,966 2,109 1,227 815 
Non-accrual loans with ACL250 — — 69 — 181 
Total past due and
  non-accrual loans
56,941 6,568 33,863 7,200 4,526 4,784 
Current loans receivable15,461,671 1,501,835 9,958,156 2,796,904 825,318 379,458 
Total loans receivable$15,518,612 1,508,403 9,992,019 2,804,104 829,844 384,242 
 
 December 31, 2022
(Dollars in thousands)TotalResidential
Real Estate		Commercial
Real Estate		Other
Commercial		Home
Equity		Other
Consumer
Accruing loans 30-59 days past due$16,331 2,796 5,462 4,192 754 3,127 
Accruing loans 60-89 days past due4,636 142 2,865 297 529 803 
Accruing loans 90 days or more past due
1,559 215 472 542 138 192 
Non-accrual loans with no ACL31,036 2,236 22,943 3,790 1,234 833 
Non-accrual loans with ACL115 — — 56 — 59 
Total past due and non-accrual loans
53,677 5,389 31,742 8,877 2,655 5,014 
Current loans receivable15,193,135 1,440,619 9,765,305 2,790,791 819,577 376,843 
Total loans receivable$15,246,812 1,446,008 9,797,047 2,799,668 822,232 381,857 

The Company had $27,000 and $720,000 of interest reversed on non-accrual loans during the three months ended March 31, 2023 and March 31, 2022, respectively.


26


Collateral-Dependent Loans
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The collateral on the loans is a significant portion of what secures the collateral-dependent loans and significant changes to the fair value of the collateral can impact the ACL. During 2022, there were no significant changes to collateral which secures the collateral-dependent loans, whether due to general deterioration or other reasons. The following table presents the amortized cost basis of collateral-dependent loans by collateral type:
 March 31, 2023
(Dollars in thousands)TotalResidential
Real Estate		Commercial
Real Estate		Other
Commercial		Home
Equity		Other
Consumer
Business assets$3,290 — 21 3,269 — — 
Residential real estate3,661 2,214 91 49 1,195 112 
Other real estate34,262 45 33,922 201 70 24 
Other810 — — 31 — 779 
Total$42,023 2,259 34,034 3,550 1,265 915 

 December 31, 2022
(Dollars in thousands)TotalResidential
Real Estate		Commercial
Real Estate		Other
Commercial		Home
Equity		Other
Consumer
Business assets$3,172 — 32 3,140 — — 
Residential real estate5,061 2,407 990 318 1,201 145 
Other real estate33,125 49 32,333 300 75 368 
Other1,155 — — 530 — 625 
Total$42,513 2,456 33,355 4,288 1,276 1,138 

Loan Modifications Made to Borrowers Experiencing Financial Difficulty
On January 1, 2023, the Company adopted FASB ASU 2022-02, Financial Instruments - Credit Losses Troubled Debt Restructurings and Vintage Disclosures, which changed the disclosures and classifications of loans previously considered TDRs. The following disclosures for loan modifications made to borrowers experiencing financial difficulty (“MBFD”) are presented in accordance with ASC Topic 310, whereas prior periods are presented in accordance with the prior guidance as disclosed in the Company’s 2022 Annual Report Form 10-K. The following tables shows the amortized cost basis at the end of the period of the loans modified to borrowers experiencing financial difficulty by segment:

March 31, 2023
Term ExtensionPrincipal ForgivenessCombination - Term Extension and Interest Rate Reduction
(Dollars in thousands)Amortized Cost Basis% of Total Class of Financing ReceivableAmortized Cost Basis% of Total Class of Financing ReceivableAmortized Cost Basis% of Total Class of Financing ReceivableTotal
Commercial
  real estate		$4,981 — %$— — %$35 — %$5,016 
Other commercial1,568 0.1 %— — %25 — %$1,593 
Other consumer18 — %10 — %— — %$28 
Total$6,567 $10 $60 $6,637 

27


The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty by segment:
Weighted Average Interest Rate ReductionWeighted Average Term ExtensionPrincipal Forgiveness
Commercial real estate2.11%10 months—
Other commercial—%6 months—
Other consumer—%8 months$10 thousand
There were no financing receivables modified in the twelve months that had a payment default during the period.

The following table depicts the performance of loans that have been modified in the last twelve months by segment:
(Dollars in thousands)TotalCurrent30-89 Days Past Due90 Days or More Past Due
Commercial real estate$5,016 1,446 3,570 — 
Other commercial1,593 1,379 193 21 
Other consumer28 28 — — 
Total$6,637 2,853 3,763 21 

Additional Disclosures
The implementation of FASB ASU 2022-02, Financial Instruments - Credit Losses Trouble Deb Restructings and Vintage Disclosures, eliminated the guidance and disclosure requirements related to TDRs. The following tables represent disclosures for the prior period that are no longer required as of January 1, 2023, but are included in this Form 10-Q since the Company is required to disclose comparative information with respected to restructured loans. A restructured loan was considered a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The following tables present TDRs that occurred during the periods presented and the TDRs that occurred within the previous twelve months that subsequently defaulted during the periods presented:

 Three Months ended March 31, 2022
(Dollars in thousands)TotalResidential
Real Estate		Commercial
Real Estate		Other
Commercial		Home
Equity		Other
Consumer
TDRs that occurred during the period
Number of loans3 1 — 2 — — 
Pre-modification recorded balance
$87 31 — 56 — — 
Post-modification recorded balance
$87 31 — 56 — — 

The modifications for the loans designated as TDRs during the three months ended March 31, 2022 included one or a combination of the following: an extension of the maturity date, a reduction of the interest rate or a reduction in the principal amount.

In addition to the loans designated as TDRs during the prior periods provided in the preceding tables, the Company had TDRs with pre-modification loan balances of $77,000 for the three months ended March 31, 2022, for which OREO was received in full or partial satisfaction of the loans. The majority of such TDRs were in consumer for the three months ended March 31, 2022. At December 31, 2022, the Company had $270,000, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process. At December 31, 2022, the Company did not have any OREO secured by residential real estate properties.

28


Credit Quality Indicators
The Company categorizes commercial real estate and other commercial loans into risk categories based on relevant information about the ability of borrowers to service their obligations. The following tables present the amortized cost in commercial real estate and other commercial loans based on the Company’s internal risk rating and the gross charge-offs. The date of a modification, renewal or extension of a loan is considered for the year of origination if the terms of the loan are as favorable to the Company as the terms are for a comparable loan to other borrowers with similar credit risk.
 March 31, 2023
(Dollars in thousands)Gross Charge-OffsTotalPassSpecial MentionSubstandardDoubtful/
Loss
Commercial real estate loans
Term loans by origination year
2023 (year-to-date)$— 461,073 461,073 — — — 
2022300 2,541,603 2,534,386 — 6,912 305 
2021— 2,406,658 2,403,479 — 3,179 — 
2020— 1,228,836 1,224,116 — 4,720 — 
2019— 728,604 693,522 — 35,082 — 
Prior47 2,394,798 2,316,087 1,412 77,268 31 
Revolving loans— 230,447 230,209 — 237 1 
Total$347 9,992,019 9,862,872 1,412 127,398 337 
Other commercial loans
Term loans by origination year
2023 (year-to-date)$755 60,778 60,004 — 774 — 
2022— 628,411 626,914 17 1,479 1 
2021— 567,517 564,433 — 2,123 961 
20202 292,021 288,377 — 3,641 3 
2019— 183,443 178,084 — 5,357 2 
Prior15 524,802 516,219 108 8,434 41 
Revolving loans— 547,132 543,827 — 3,305 — 
Total$772 2,804,104 2,777,858 125 25,113 1,008 

29


 December 31, 2022
(Dollars in thousands)TotalPassSpecial MentionSubstandardDoubtful/
Loss
Commercial real estate loans
Term loans by origination year
20222,584,831 2,578,558 — 6,273 — 
20212,457,790 2,454,696 — 3,094 — 
20201,274,852 1,269,254 — 5,598 — 
2019744,634 709,246 — 35,388 — 
2018658,268 634,316 — 23,952 — 
Prior1,851,965 1,787,941 1,416 62,576 32 
Revolving loans224,707 224,629 — 78 — 
Total9,797,047 9,658,640 1,416 136,959 32 
Other commercial loans
Term loans by origination year
2022603,393 599,498 371 3,469 55 
2021573,273 569,542 — 2,707 1,024 
2020308,555 304,179 — 4,373 3 
2019191,498 185,748 — 5,748 2 
2018140,122 135,727 — 4,394 1 
Prior404,319 398,523 114 5,322 360 
Revolving loans578,508 567,770 — 10,604 134 
Total2,799,668 2,760,987 485 36,617 1,579 

30


For residential real estate, home equity and other consumer loan segments, the Company evaluates credit quality primarily on the aging status of the loan. The following tables present the amortized cost in residential real estate, home equity and other consumer loans based on payment performance:
 March 31, 2023
(Dollars in thousands)Gross Charge-OffsTotalPerforming30-89 Days Past DueNon-Accrual and 90 Days or More Past Due
Residential real estate loans
Term loans by origination year
2023 (year-to-date)$— 34,038 34,038 — — 
20225 594,723 592,734 1,989 — 
2021— 540,013 539,632 381 — 
2020— 112,360 112,360 — — 
2019— 44,792 44,000 792 — 
Prior— 179,783 176,377 1,316 2,090 
Revolving loans— 2,694 2,694 — — 
Total$5 1,508,403 1,501,835 4,478 2,090 
Home equity loans
Term loans by origination year
2023 (year-to-date)$— — — — — 
2022— 61 61 — — 
2021— 80 80 — — 
2020— 26 26 — — 
2019— 221 191 — 30 
Prior— 7,196 6,893 135 168 
Revolving loans4 822,260 818,067 2,970 1,223 
Total$4 829,844 825,318 3,105 1,421 
Other consumer loans
Term loans by origination year
2023 (year-to-date)$2,011 40,877 39,490 1,359 28 
202213 131,626 130,497 875 254 
202147 85,679 84,915 675 89 
202034 44,976 44,746 180 50 
201925 17,849 17,487 205 157 
Prior35 24,027 23,266 154 607 
Revolving loans— 39,208 39,057 141 10 
Total$2,165 384,242 379,458 3,589 1,195 

31


 December 31, 2022
(Dollars in thousands)TotalPerforming30-89 Days Past DueNon-Accrual and 90 Days or More Past Due
Residential real estate loans
Term loans by origination year
2022543,469 543,023 446 — 
2021552,748 551,756 992 — 
2020116,810 116,543 136 131 
201945,055 44,604 451 — 
201837,252 36,993 — 259 
Prior149,292 146,318 913 2,061 
Revolving loans1,382 1,382 — — 
Total1,446,008 1,440,619 2,938 2,451 
Home equity loans
Term loans by origination year
202260 60 — — 
202177 77 — — 
202082 82 — — 
2019225 195 — 30 
2018594 594 — — 
Prior7,165 6,868 131 166 
Revolving loans814,029 811,701 1,152 1,176 
Total822,232 819,577 1,283 1,372 
Other consumer loans
Term loans by origination year
2022152,685 149,702 2,825 158 
202194,210 93,749 421 40 
202049,257 48,990 212 55 
201920,432 20,166 96 170 
201810,598 9,970 91 537 
Prior16,014 15,786 106 122 
Revolving loans38,661 38,480 179 2 
Total381,857 376,843 3,930 1,084 


32


Note 4. Leases

The Company leases certain land, premises and equipment from third parties. ROU assets for operating and finance leases are included in net premises and equipment and lease liabilities are included in other liabilities and other borrowed funds, respectively, on the Company’s statements of financial condition. The following table summarizes the Company’s leases:
March 31, 2023December 31, 2022
(Dollars in thousands)Finance
Leases		Operating
Leases		Finance
Leases		Operating
Leases
ROU assets$30,254 30,254 
Accumulated depreciation(3,786)(2,760)
Net ROU assets$26,468 42,931 27,494 43,551 
Lease liabilities$26,899 46,171 28,204 46,579 
Weighted-average remaining lease term12 years16 years12 years17 years
Weighted-average discount rate3.6 %3.6 %3.6 %3.6 %

Maturities of lease liabilities consist of the following:
March 31, 2023
(Dollars in thousands)Finance
Leases		Operating
Leases
Maturing within one year$4,483 4,737 
Maturing one year through two years4,424 4,692 
Maturing two years through three years4,432 4,520 
Maturing three years through four years4,442 4,353 
Maturing four years through five years3,482 3,956 
Thereafter11,569 41,659 
Total lease payments32,832 63,917 
Present value of lease payments
Short-term3,574 3,181 
Long-term23,325 42,990 
Total present value of lease payments26,899 46,171 
Difference between lease payments and present value of lease payments$5,933 17,746 

The components of lease expense consist of the following:
Three Months ended
(Dollars in thousands)March 31,
2023		March 31,
2022
Finance lease cost
Amortization of ROU assets$1,026 78 
Interest on lease liabilities244 46 
Operating lease cost1,496 1,496 
Short-term lease cost205 105 
Variable lease cost443 307 
Sublease income(13)(12)
Total lease expense$3,401 2,020 

33


Supplemental cash flow information related to leases is as follows:
Three Months ended
March 31, 2023March 31, 2022
(Dollars in thousands)Finance
Leases		Operating
Leases		Finance
Leases		Operating
Leases
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows$244 926 46 1,025 
Financing cash flows861 N/A39 N/A
The Company also leases office space to third parties through operating leases. Rent income from these leases for the three months ended March 31, 2023 and 2022 was not significant.

Note 5. Goodwill

The following schedule discloses the changes in the carrying value of goodwill:
Three Months ended
(Dollars in thousands)March 31,
2023		March 31,
2022
Net carrying value at beginning of period$985,393 985,393 

The Company performed its annual goodwill impairment test during the third quarter of 2022 and determined the fair value of the aggregated reporting units exceeded the carrying value, such that the Company’s goodwill was not considered impaired. Changes in the economic environment, operations of the aggregated reporting units, or other factors could result in the decline in the fair value of the aggregated reporting units which could result in a goodwill impairment in the future. Accumulated impairment charges were $40,159,000 as of March 31, 2023 and December 31, 2022.
34



Note 6. Loan Servicing

Mortgage loans that are serviced for others are not reported as assets, only the servicing rights are recorded and included in other assets. The following schedules disclose the change in the carrying value of mortgage servicing rights that is included in other assets, principal balances of loans serviced and the fair value of mortgage servicing rights:
(Dollars in thousands)March 31,
2023		December 31,
2022
Carrying value at beginning of period$13,488 12,839 
Additions101 2,461 
Amortization(313)(1,812)
Carrying value at end of period$13,276 13,488 
Principal balances of loans serviced for others$1,641,897 1,661,294 
Fair value of servicing rights$19,665 19,716 

Note 7. Variable Interest Entities

A VIE is a partnership, limited liability company, trust or other legal entity that meets one of the following criteria: 1) the entity’s equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; 2) the holders of the equity investment at risk, as a group, lack the characteristics of a controlling financial interest; and 3) the voting rights of some holders of the equity investment at risk are disproportionate to their obligation to absorb losses or receive returns, and substantially all of the activities are conducted on behalf of the holder of equity investment at risk with disproportionately few voting rights. A VIE must be consolidated by the Company if it is deemed to be the primary beneficiary, which is the party involved with the VIE that has both: 1) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and 2) the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company’s VIEs are regularly monitored to determine if any reconsideration events have occurred that could cause the primary beneficiary status to change. A previously unconsolidated VIE is consolidated when the Company becomes the primary beneficiary. A previously consolidated VIE is deconsolidated when the Company ceases to be the primary beneficiary or the entity is no longer a VIE.

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

The Bank is also the sole member of certain tax credit funds that make direct investments in qualified affordable housing projects (e.g., Low-Income Housing Tax Credit [“LIHTC”] partnerships). As such, the Company is the primary beneficiary of
35


these tax credit funds and their assets, liabilities, and results of operations are included in the Company’s consolidated financial statements.

The following table summarizes the carrying amounts of the consolidated VIEs’ assets and liabilities included in the Company’s statements of financial condition and are adjusted for intercompany eliminations. All assets presented can be used only to settle obligations of the consolidated VIEs and all liabilities presented consist of liabilities for which creditors and other beneficial interest holders therein have no recourse to the general credit of the Company.
(Dollars in thousands)March 31,
2023		December 31,
2022
Assets
Loans receivable$135,194 134,603 
Accrued interest receivable491 370 
Other assets49,753 48,136 
Total assets$185,438 183,109 
Liabilities
Other borrowed funds$49,286 49,089 
Accrued interest payable270 274 
Other liabilities75 179 
Total liabilities$49,631 49,542 

Unconsolidated Variable Interest Entities
The Company has equity investments in LIHTC partnerships, both directly and through tax credit funds, with carrying values of $75,813,000 and $72,918,000 as of March 31, 2023 and December 31, 2022, respectively. The LIHTCs are indirect federal subsidies to finance low-income housing and are used in connection with both newly constructed and renovated residential rental buildings. Once a project is placed in service, it is generally eligible for the tax credit for ten years. To continue generating the tax credit and to avoid tax credit recapture, a LIHTC building must satisfy specific low-income housing compliance rules for a full fifteen years. The maximum exposure to loss in the VIEs is the amount of equity invested and credit extended by the Company. However, the Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. The Company has evaluated the variable interests held by the Company in each LIHTC investment and determined that the Company does not have controlling financial interests in such investments, and is not the primary beneficiary. The Company reports the investments in the unconsolidated LIHTCs as other assets on the Company’s statements of financial condition. There were no impairment losses on the Company’s LIHTC investments during the three months ended March 31, 2023 and 2022. Future unfunded contingent equity commitments related to the Company’s LIHTC investments at March 31, 2023 are as follows:
(Dollars in thousands)Amount
Years ending December 31,
2023$27,231 
202447,624 
202517,401 
20267,241 
2027381 
Thereafter2,649 
Total$102,527 

The Company has elected to use the proportional amortization method, and more specifically the practical expedient method, for the amortization of all eligible LIHTC investments and amortization expense is recognized as a component of income tax expense. The following table summarizes the amortization expense and the amount of tax credits and other tax benefits recognized for qualified affordable housing project investments during the periods presented.
36


Three Months ended
(Dollars in thousands)March 31,
2023		March 31,
2022
Amortization expense
$3,949 2,995 
Tax credits and other tax benefits recognized
5,283 3,996 
The Company also owns the following trust subsidiaries, each of which issued trust preferred securities as capital instruments: Glacier Capital Trust II, Glacier Capital Trust III, Glacier Capital Trust IV, Citizens (ID) Statutory Trust I, Bank of the San Juans Bancorporation Trust I, First Company Statutory Trust 2001, First Company Statutory Trust 2003, FNB (UT) Statutory Trust I and FNB (UT) Statutory Trust II. The trust subsidiaries have no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the securities held by third parties. The trust subsidiaries are not included in the Company’s consolidated financial statements because the sole asset of each trust subsidiary is a receivable from the Company, even though the Company owns all of the voting equity shares of the trust subsidiaries, has fully guaranteed the obligations of the trust subsidiaries and may have the right to redeem the third party securities under certain circumstances. The Company reports the trust preferred securities issued to the trust subsidiaries as subordinated debentures on the Company’s statements of financial condition.

Note 8. Securities Sold Under Agreements to Repurchase

The following table summarizes the carrying value of the Company’s securities sold under agreements to repurchase (“repurchase agreements”) by remaining contractual maturity of the agreements and category of collateral:
Overnight and Continuous
(Dollars in thousands)March 31,
2023		December 31,
2022
Residential mortgage-backed securities$1,191,323 945,916 

The repurchase agreements are secured by debt securities with carrying values of $1,444,580,000 and $1,378,962,000 at March 31, 2023 and December 31, 2022, respectively. Securities are pledged to customers at the time of the transaction in an amount at least equal to the outstanding balance and are held in custody accounts by third parties. The fair value of collateral is continually monitored and additional collateral is provided as deemed appropriate.

Note 9. Derivatives and Hedging Activities

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

Interest Rate Cap Derivatives. The Company has purchased interest rate caps designated as cash flow hedges with notional amounts totaling $130,500,000 on its variable rate subordinated debentures and were determined to be fully effective during the three months ended March 31, 2023. The interest rate caps require receipt of variable amounts from the counterparty when interest rates rise above the strike price in the contracts. The strike prices in the five year term contracts range from 1.5 percent to 2 percent plus 3 month LIBOR. At March 31, 2023 and December 31, 2022, the interest rate caps had a fair value of $6,705,000 and $7,757,000, respectively, and were reported as other assets on the Company’s statements of financial condition. Changes in fair value were recorded in OCI. Amortization recorded on the interest rate caps totaled $42,000 for the three months ended March 31, 2023 and 2022, respectively, and was reported as a component of interest expense on subordinated debentures.

The effect of cash flow hedge accounting on OCI for the periods ending March 31, 2023 and 2022 was as follows:
Three Months ended
(Dollars in thousands)March 31,
2023		March 31,
2022
Amount of (loss) gain recognized in OCI
$(36)2,967 
Amount of gain reclassified from OCI to net income
974 — 
37


Residential Real Estate Derivatives
The Company enters into residential real estate derivatives for commitments (“interest rate locks”) to fund certain residential real estate loans to be sold into the secondary market. At March 31, 2023 and December 31, 2022, loan commitments with interest rate lock commitments totaled $42,228,000 and $28,910,000, respectively. At March 31, 2023 and December 31, 2022, the fair value of the related derivatives on the interest rate lock commitments was $732,000 and $362,000, respectively, and was included in other assets with corresponding changes recorded in gain on sale of loans. The Company enters into free-standing derivatives to mitigate interest rate risk for most residential real estate loans to be sold. These derivatives include forward commitments to sell to-be-announced (“TBA”) securities which are used to economically hedge the interest rate risk associated with such loans and unfunded commitments. At March 31, 2023 and December 31, 2022, TBA commitments were $18,500,000 and $21,000,000, respectively. At March 31, 2023 and December 31, 2022, the fair value was $170,000 and $188,000, respectively, and was included in other liabilities with corresponding changes recorded in gain on sale of loans. The Company does not enter into a commitment to sell these loans to an investor until the loan is funded and is ready to be delivered to the investor. Due to the forward sales commitments being short-term in nature, the corresponding derivatives are not significant. For all other residential real estate loans to be sold, the Company enters into “best efforts” forward sales commitments for the future delivery of loans to third party investors when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. Forward sales commitments on a “best efforts” basis are not designated in hedge relationships until the loan is funded.

Note 10. Other Expenses

Other expenses consists of the following:
 Three Months ended
(Dollars in thousands)March 31,
2023		March 31,
2022
Consulting and outside services$4,081 3,143 
Debit card expenses2,965 1,804 
VIE amortization and other expenses2,528 2,544 
Loan expenses1,707 1,823 
Telephone1,579 1,594 
Business development1,361 1,081 
Employee expenses1,295 1,088 
Postage1,118 995 
Accounting and audit fees1,024 671 
Printing and supplies844 1,050 
Checking and operating expenses666 352 
Mergers and acquisition expenses352 6,207 
Legal fees325 448 
Gain on dispositions of fixed assets(15)(310)
Other2,302 1,354 
Total other expenses$22,132 23,844 


38


Note 11. Accumulated Other Comprehensive (Loss) Income

The following table illustrates the activity within accumulated other comprehensive (loss) income by component, net of tax:
 
(Dollars in thousands)(Losses) Gains on Available-For-Sale and Transferred Debt Securities(Losses) Gains on Derivatives Used for Cash Flow HedgesTotal
Balance at January 1, 2022$27,038 321 27,359 
Other comprehensive (loss) income before reclassifications(276,295)2,218 (274,077)
Reclassification adjustments for gains and transfers included in net income(507)— (507)
Reclassification adjustments for amortization included in net income for transferred securities(584)— (584)
Net current period other comprehensive (loss) income(277,386)2,218 (275,168)
Balance at March 31, 2022$(250,348)2,539 (247,809)
Balance at January 1, 2023$(474,338)5,546 (468,792)
Other comprehensive (loss) income before reclassifications57,890 (27)57,863 
Reclassification adjustments for gains and transfers included in net income24 (728)(704)
Reclassification adjustments for amortization included in net income for transferred securities1,405 — 1,405 
Net current period other comprehensive (loss) income59,319 (755)58,564 
Balance at March 31, 2023$(415,019)4,791 (410,228)

Note 12. Earnings Per Share

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

Basic and diluted earnings per share has been computed based on the following:
 Three Months ended
(Dollars in thousands, except per share data)March 31,
2023		March 31,
2022
Net income available to common stockholders, basic and diluted
$61,211 67,795 
Average outstanding shares - basic110,824,648 110,724,655 
Add: dilutive restricted stock units and stock options
57,060 75,346 
Average outstanding shares - diluted110,881,708 110,800,001 
Basic earnings per share$0.55 0.61 
Diluted earnings per share$0.55 0.61 
Restricted stock units and stock options excluded from the diluted average outstanding share calculation 1
205,974 4,934 
______________________________
1 Anti-dilution occurs when the unrecognized compensation cost per share of a restricted stock unit or the exercise price of a stock option exceeds the market price of the Company’s stock.

39



Note 13. Fair Value of Assets and Liabilities

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

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

Transfers in and out of Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) are recognized on the actual transfer date. There were no transfers between fair value hierarchy levels during the three month periods ended March 31, 2023 and 2022.

Recurring Measurements
The following is a description of the inputs and valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended March 31, 2023.

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

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

Loans held for sale, at fair value. Loans held for sale measured at fair value, for which an active secondary market and readily available market prices exist, are initially valued at the transaction price and are subsequently valued by using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors. Loans held for sale measured at fair value are classified within Level 2. Included in gain on sale of loans were net gains of $119,000 and net losses of $1,583,000 for the three month periods ended March 31, 2023 and 2022, respectively, from the changes in fair value of loans held for sale measured at fair value. Electing to measure loans held for sale at fair value reduces certain timing differences and better matches changes in fair value of these assets with changes in the value of the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting.

40


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

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

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

The following tables disclose the fair value measurement of assets and liabilities measured at fair value on a recurring basis:
  
  Fair Value Measurements
At the End of the Reporting Period Using
(Dollars in thousands)
Fair Value
March 31, 2023
Quoted Prices
in Active  Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Debt securities, available-for-sale
U.S. government and federal agency$450,228 — 450,228 — 
U.S. government sponsored enterprises292,632 — 292,632 — 
State and local governments102,678 — 102,678 — 
Corporate bonds26,122 — 26,122 — 
Residential mortgage-backed securities3,179,568 — 3,179,568 — 
Commercial mortgage-backed securities1,147,085 — 1,147,085 — 
Loans held for sale, at fair value14,461 — 14,461 — 
Interest rate caps6,705 — 6,705 — 
Interest rate locks732 — 732 — 
Total assets measured at fair value
  on a recurring basis
$5,220,211 — 5,220,211 — 
TBA hedge$170 — 170 — 
Total liabilities measured at fair value on a recurring basis
$170 — 170 — 

41


  Fair Value Measurements
At the End of the Reporting Period Using
(Dollars in thousands)Fair Value December 31, 2022Quoted Prices
in Active  Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Debt securities, available-for-sale
U.S. government and federal agency$444,727 — 444,727 — 
U.S. government sponsored enterprises287,364 — 287,364 — 
State and local governments132,993 — 132,993 — 
Corporate bonds26,109 — 26,109 — 
Residential mortgage-backed securities3,267,341 — 3,267,341 — 
Commercial mortgage-backed securities1,148,773 — 1,148,773 — 
Loans held for sale, at fair value
12,314 — 12,314 — 
Interest rate caps7,757 — 7,757 — 
Interest rate locks
362 — 362 — 
Total assets measured at fair value on a recurring basis
$5,327,740 — 5,327,740 — 
TBA hedge$188 — 188 — 
Total liabilities measured at fair value on a recurring basis
$188 — 188 — 

Non-recurring Measurements
The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended March 31, 2023.

Other real estate owned. OREO is initially recorded at fair value less estimated cost to sell, establishing a new cost basis. OREO is subsequently accounted for at lower of cost or fair value less estimated cost to sell. Estimated fair value of OREO is based on appraisals or evaluations (new or updated). OREO is classified within Level 3 of the fair value hierarchy.

Collateral-dependent loans, net of ACL. Fair value estimates of collateral-dependent loans that are individually reviewed are based on the fair value of the collateral, less estimated cost to sell. Collateral-dependent individually reviewed loans are classified within Level 3 of the fair value hierarchy.

The Company’s credit department reviews appraisals for OREO and collateral-dependent loans, giving consideration to the highest and best use of the collateral. The appraisal or evaluation (new or updated) is considered the starting point for determining fair value. The valuation techniques used in preparing appraisals or evaluations (new or updated) include the cost approach, income approach, sales comparison approach, or a combination of the preceding valuation techniques. The key inputs used to determine the fair value of the collateral-dependent loans and OREO include selling costs, discounted cash flow rate or capitalization rate, and adjustment to comparables. Valuations and significant inputs obtained by independent sources are reviewed by the Company for accuracy and reasonableness. The Company also considers other factors and events in the environment that may affect the fair value. The appraisals or evaluations (new or updated) are reviewed at least quarterly and more frequently based on current market conditions, including deterioration in a borrower’s financial condition and when property values may be subject to significant volatility. After review and acceptance of the collateral appraisal or evaluation (new or updated), adjustments to the impaired loan or OREO may occur. The Company generally obtains appraisals or evaluations (new or updated) annually.

42


The following tables disclose the fair value measurement of assets with a recorded change during the period resulting from re-measuring the assets at fair value on a non-recurring basis:
  Fair Value Measurements
At the End of the Reporting Period Using
(Dollars in thousands)
Fair Value
March 31, 2023
Quoted Prices
in Active  Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Collateral-dependent impaired loans, net of ACL$1,439 — — 1,439 
Total assets measured at fair value
  on a non-recurring basis
$1,439 — — 1,439 

  Fair Value Measurements
At the End of the Reporting Period Using
(Dollars in thousands)Fair Value December 31, 2022Quoted Prices
in Active  Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Collateral-dependent impaired loans, net of ACL$1,360 — — 1,360 
Total assets measured at fair value
  on a non-recurring basis
$1,360 — — 1,360 


Non-recurring Measurements Using Significant Unobservable Inputs (Level 3)
The following tables present additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
 
Fair Value
March 31, 2023
Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)Valuation TechniqueUnobservable Input
Range
(Weighted-Average) 1
Collateral-dependent
  impaired loans, net of ACL
$1,363 Cost approachSelling costs
10.0% - 10.0% (10.0%)
76 Sales comparison approachSelling costs
10.0% - 10.0% (10.0%)
$1,439 

 Fair Value December 31, 2022Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)Valuation TechniqueUnobservable Input
Range
(Weighted-Average) 1
Collateral-dependent impaired loans, net of ACL
$1,329 Cost approachSelling costs
10.0% - 10.0% (10.0%)
31 Sales comparison approachSelling Costs
10.0% - 10.0% (10.0%)
$1,360 
______________________________
1 The range for selling cost inputs represents reductions to the fair value of the assets.


43


Fair Value of Financial Instruments
The following tables present the carrying amounts, estimated fair values and the level within the fair value hierarchy of the Company’s financial instruments not carried at fair value. Receivables and payables due in one year or less, equity securities without readily determinable fair values and deposits with no defined or contractual maturities are excluded. There have been no significant changes in the valuation techniques during the period ended March 31, 2023.

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

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

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

Term Deposits: fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The market rates used were obtained from an independent third party based on current rates offered by the Company’s regional competitors.

FHLB advances: fair value of advances is estimated based on borrowing rates currently available to the Company for advances with similar terms and maturities.

FRB borrowing: fair value of borrowings through the FRB is estimated based on borrowing rates currently available to the Company through the FRB Bank Term Funding facility with similar terms and maturities.

Repurchase agreements and other borrowed funds: fair value of term repurchase agreements and other term borrowings is estimated based on current repurchase rates and borrowing rates currently available to the Company for repurchases and borrowings with similar terms and maturities. The 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 obtained from an independent third party.

Off-balance sheet financial instruments: unused lines of credit and letters of credit represent the principal categories of off-balance sheet financial instruments. The fair value of commitments is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of unused lines of credit and letters of credit is not material; therefore, such commitments are not included in the following tables.
44


  Fair Value Measurements
At the End of the Reporting Period Using
(Dollars in thousands)
Carrying Amount
March 31, 2023
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Financial assets
Cash and cash equivalents$1,529,534 1,529,534 — — 
Debt securities, held-to-maturity3,664,393 — 3,292,753 — 
Loans receivable, net of ACL15,332,008 — — 15,063,785 
Total financial assets$20,525,935 1,529,534 3,292,753 15,063,785 
Financial liabilities
Term deposits$1,155,494 — 1,156,303 — 
FHLB advances335,000 — 335,000 — 
FRB Bank Term Funding2,740,000 2,730,300 
Repurchase agreements and
  other borrowed funds
1,267,508 — 1,267,508 — 
Subordinated debentures132,822 — 113,358 — 
Total financial liabilities$5,630,824 — 5,602,469 — 

  Fair Value Measurements
At the End of the Reporting Period Using
(Dollars in thousands)Carrying Amount December 31, 2022Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Financial assets
Cash and cash equivalents$401,995 401,995 — — 
Debt securities, held-to-maturity3,715,052 — 3,274,792 — 
Loans receivable, net of ACL15,064,529 — — 14,806,354 
Total financial assets$19,181,576 401,995 3,274,792 14,806,354 
Financial liabilities
Term deposits$880,589 — 874,850 — 
FHLB advances1,800,000 — 1,799,936 — 
Repurchase agreements and
  other borrowed funds
1,023,209 — 1,023,209 — 
Subordinated debentures132,782 — 122,549 — 
Total financial liabilities$3,836,580 — 3,820,544 — 


45



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition than can be obtained from reading the Consolidated Financial Statements alone. The discussion should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in “Part I. Item 1. Financial Statements.”

FORWARD-LOOKING STATEMENTS

This Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about the Company’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 other comparable words or phrases of a future or forward-looking nature. 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 based on assumptions that are subject to change. The following factors, among others, including additional factors identified in the sections titled “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as applicable, in this report and in the Company’s 2022 Annual Report on Form 10-K, could cause actual results to differ materially from the anticipated results:

•risks associated with lending and potential adverse changes in the credit quality of the Company’s loan portfolio;
•changes in monetary and fiscal policies, including interest rate policies of the Federal Reserve Board, which could adversely affect the Company’s net interest income and margin, the fair value of its financial instruments, profitability, and stockholders’ equity;
•legislative or regulatory changes, including increased banking and consumer protection regulations, that may adversely affect the Company’s business;
•risks related to overall economic conditions, including the impact on the economy of a rising interest rate environment, inflationary pressures, and geopolitical instability, including the war in Ukraine;
•risks associated with the Company’s ability to negotiate, complete, and successfully integrate any future acquisitions;
•costs or difficulties related to the completion and integration of acquisitions;
•impairment of the goodwill recorded by the Company in connection with acquisitions, which may have an adverse impact on earnings and capital;
•reduction in demand for banking products and services, whether as a result of changes in customer behavior, economic conditions, banking environment, or competition;
•deterioration of the reputation of banks and the financial services industry, which could adversely affect the Company's ability to obtain and maintain customers;
•changes in the competitive landscape, including as may result from new market entrants or further consolidation in the financial services industry, resulting in the creation of larger competitors with greater financial resources;
•risks presented by continued public stock market volatility, which could adversely affect the market price of the Company’s common stock and the ability to raise additional capital or grow through acquisitions;
•risks associated with dependence on the Chief Executive Officer (“CEO”), the senior management team and the Presidents of Glacier Bank (the “Bank”) divisions;
•material failure, potential interruption or breach in security of the Company’s systems or changes in technological which could expose the Company to cybersecurity risks, fraud, system failures, or direct liabilities;
•risks related to natural disasters, including droughts, fires, floods, earthquakes, pandemics, and other unexpected events;
•success in managing risks involved in the foregoing; and
•effects of any reputational damage to the Company resulting from any of the foregoing.

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

46



MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Highlights
 At or for the Three Months ended
(Dollars in thousands, except per share and market data)
Mar 31,
2023		Dec 31,
2022		Mar 31,
2022
Operating results
Net income$61,211 79,677 67,795 
Basic earnings per share$0.55 0.72 0.61 
Diluted earnings per share$0.55 0.72 0.61 
Dividends declared per share$0.33 0.33 0.33 
Market value per share
Closing$42.01 49.42 50.28 
High$50.03 59.70 60.69 
Low$37.07 48.64 49.61 
Selected ratios and other data
Number of common stock shares outstanding
110,868,713110,777,780110,763,316
Average outstanding shares - basic110,824,648110,773,084110,724,655
Average outstanding shares - diluted110,881,708110,872,127110,800,001
Return on average assets
  (annualized)		0.93 %1.19 %1.06 %
Return on average equity
  (annualized)		8.54 %11.35 %8.97 %
Efficiency ratio60.39 %53.18 %57.11 %
Dividend payout ratio60.00 %45.83 %54.10 %
Loan to deposit ratio77.09 %74.05 %63.52 %
Number of full time equivalent employees
3,3903,3903,439
Number of locations222221223
Number of ATMs263265273

The Company reported net income of $61.2 million for the current quarter, a decrease of $6.6 million, or 10 percent, from the $67.8 million of net income for the prior year first quarter. Diluted earnings per share for the current quarter was $0.55 per share, a decrease of 10 percent from the prior year first quarter diluted earnings per share of $0.61. The decrease in net income versus the prior quarter and prior year first quarter is primarily due to the significant increase in funding costs.


47


Financial Condition Analysis

Assets
The following table summarizes the Company’s assets as of the dates indicated:
$ Change from
(Dollars in thousands)Mar 31,
2023		Dec 31,
2022		Mar 31,
2022		Dec 31,
2022		Mar 31,
2022
Cash and cash equivalents$1,529,534 401,995 436,805 1,127,539 1,092,729 
Debt securities, available-for-sale
5,198,313 5,307,307 6,535,763 (108,994)(1,337,450)
Debt securities, held-to-maturity
3,664,393 3,715,052 3,576,941 (50,659)87,452 
Total debt securities
8,862,706 9,022,359 10,112,704 (159,653)(1,249,998)
Loans receivable
Residential real estate1,508,403 1,446,008 1,125,648 62,395 382,755 
Commercial real estate
9,992,019 9,797,047 8,865,585 194,972 1,126,434 
Other commercial2,804,104 2,799,668 2,661,048 4,436 143,056 
Home equity829,844 822,232 715,963 7,612 113,881 
Other consumer384,242 381,857 362,775 2,385 21,467 
Loans receivable15,518,612 15,246,812 13,731,019 271,800 1,787,593 
Allowance for credit losses
(186,604)(182,283)(176,159)(4,321)(10,445)
Loans receivable, net
15,332,008 15,064,529 13,554,860 267,479 1,777,148 
Other assets2,078,186 2,146,492 1,995,955 (68,306)82,231 
Total assets$27,802,434 26,635,375 26,100,324 1,167,059 1,702,110 

Total debt securities of $8.863 billion at March 31, 2023 decreased $160 million, or 2 percent, during the current quarter and decreased $1.250 billion, or 12 percent, from the prior year first quarter. The Company continues to utilize cash flow from the securities portfolio to primarily fund loan growth. Debt securities represented 32 percent of total assets at March 31, 2023 compared to 34 percent at December 31, 2022 and 39 percent at March 31, 2022. In addition, the Company increased its cash position by $1.1 billion during the current quarter to further strengthen its liquidity position.

The loan portfolio of $15.519 billion increased $272 million, or 7 percent annualized, during the current quarter with the largest dollar increase in commercial real estate which increased $195 million, or 8 percent annualized. The loan portfolio increased $1.788 billion, or 13 percent, from the prior year first quarter with the largest dollar increase in commercial real estate loans which increased $1.126 billion, or 13 percent.
48


Liabilities
The following table summarizes the Company’s liabilities as of the dates indicated:
$ Change from
(Dollars in thousands)Mar 31,
2023		Dec 31,
2022		Mar 31,
2022		Dec 31,
2022		Mar 31,
2022
Deposits
Non-interest bearing deposits
$7,001,241 7,690,751 7,990,003 (689,510)(988,762)
NOW and DDA accounts
5,156,709 5,330,614 5,376,881 (173,905)(220,172)
Savings accounts
2,985,351 3,200,321 3,287,521 (214,970)(302,170)
Money market deposit accounts
3,429,123 3,472,281 4,044,655 (43,158)(615,532)
Certificate accounts
1,155,494 880,589 995,147 274,905 160,347 
Core deposits, total
19,727,918 20,574,556 21,694,207 (846,638)(1,966,289)
Wholesale deposits
420,390 31,999 3,688 388,391 416,702 
Deposits, total
20,148,308 20,606,555 21,697,895 (458,247)(1,549,587)
Securities sold under agreements to repurchase
1,191,323 945,916 958,479 245,407 232,844 
Federal Home Loan Bank advances
335,000 1,800,000 80,000 (1,465,000)255,000 
FRB Bank Term Funding2,740,000 — — 2,740,000 2,740,000 
Other borrowed funds76,185 77,293 57,258 (1,108)18,927 
Subordinated debentures132,822 132,782 132,661 40 161 
Other liabilities251,892 229,524 239,838 22,368 12,054 
Total liabilities$24,875,530 23,792,070 23,166,131 1,083,460 1,709,399 

During the current quarter, the Company continued to focus on its diversified deposit and repurchase agreement product offerings. Total deposits and retail repurchase agreements of $21.340 billion at the current quarter end increased $289 million, or 1 percent, during March and decreased $213 million, or 1 percent, during the current quarter. Non-interest bearing deposits were 35 percent of total core deposits at March 31, 2023 compared to 37 percent at December 31, 2022 and March 31, 2022.

During the current quarter, the Company participated in the Bank Term Funding Program of the Federal Reserve Bank (“FRB”) which enabled the Company to pay off higher rate FHLB advances. The FHLB advances decreased $1.465 billion during the current quarter while FRB Bank Term funding increased $2.740 billion and was used to fund the FHLB pay down, support the additional $1.1 billion cash position and the current quarter decrease in deposits. The Company’s liquidity position remains strong with solid core deposit customer relationships, excess cash, debt securities, and access to diversified borrowing sources.



49


Stockholders’ Equity
The following table summarizes the stockholders’ equity balances as of the dates indicated:
$ Change from
(Dollars in thousands, except per share data)
Mar 31,
2023		Dec 31,
2022		Mar 31,
2022		Dec 31,
2022		Mar 31,
2022
Common equity$3,337,132 3,312,097 3,182,002 25,035 155,130 
Accumulated other comprehensive income
(410,228)(468,792)(247,809)58,564 (162,419)
Total stockholders’ equity
2,926,904 2,843,305 2,934,193 83,599 (7,289)
Goodwill and core deposit intangible, net
(1,024,545)(1,026,994)(1,034,987)2,449 10,442 
Tangible stockholders’ equity
$1,902,359 1,816,311 1,899,206 86,048 3,153 
Stockholders’ equity to total assets
10.53 %10.67 %11.24 %
Tangible stockholders’ equity to total tangible assets
7.10 %7.09 %7.58 %
Book value per common share
$26.40 25.67 26.49 0.73 (0.09)
Tangible book value per common share
$17.16 16.40 17.15 0.76 0.01 

Tangible stockholders’ equity of $1.902 billion at March 31, 2023 increased $86.0 million, or 5 percent, from the prior quarter which was primarily due to earnings retention and the decrease in the net unrealized loss (after-tax) on the AFS debt securities. Accumulated other comprehensive income (“AOCI”) includes the net unrealized loss (after-tax) on AFS debt securities. AOCI does not include $278 million of net unrealized loss on HTM debt securities. Tangible book value per common share of $17.16 at the current quarter end increased $0.76 per share, or 5 percent, from the prior quarter. The tangible book value per common share increased $0.01 per share from the prior year first quarter.

Cash Dividend
On March 29, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.33 per share The current quarter dividend of $0.33 per share was consistent with the dividend declared in the prior quarter and the prior year first quarter. The dividend was payable April 20, 2023 to shareholders of record on April 11, 2023. The dividend was the Company’s 152nd consecutive regular dividend. Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations.

50


Operating Results for Three Months Ended March 31, 2023 
Compared to December 31, 2022, March 31, 2022

Income Summary
The following table summarizes income for the periods indicated: 
 Three Months ended$ Change from
(Dollars in thousands)Mar 31,
2023		Dec 31,
2022		Mar 31,
2022		Dec 31,
2022		Mar 31,
2022
Net interest income
Interest income$231,888225,085190,5166,803 41,372 
Interest expense45,69621,0264,96124,670 40,735 
Total net interest income186,192204,059185,555(17,867)637 
Non-interest income
Service charges and other fees
17,77118,73417,111(963)660 
Miscellaneous loan fees and charges
3,9673,9053,55562 412 
Gain on sale of loans2,4002,1759,015225 (6,615)
(Loss) gain on sale of investments(114)519446(633)(560)
Other income3,8713,1503,436721 435 
Total non-interest income
27,89528,48333,563(588)(5,668)
Total income$214,087232,542219,118(18,455)(5,031)
Net interest margin (tax-equivalent)
3.08 %3.30 %3.20 %

Net Interest Income
The current quarter interest income of $232 million increased $6.8 million, or 3 percent, over the prior quarter and was driven primarily by the increase in the loan portfolio and an increase in loan yields. The current quarter interest income increased $41.4 million, or 22 percent, over the prior year first quarter also due to loan growth and increased loan yields.

The current quarter interest expense of $45.7 million increased $24.7 million, or 117 percent, over the prior quarter and increased $40.7 million, or 821 percent, over the prior year first quarter primarily the result of an increase in rates on deposits and borrowings along with increased use of borrowing programs. Core deposit cost (including non-interest bearing deposits) was 23 basis points for the current quarter compared to 8 basis points in the prior quarter and 7 basis points for the prior year first quarter. The total cost of funding (including non-interest bearing deposits) was 79 basis points in the current quarter compared to 35 basis points in the prior quarter and 9 basis points in the prior year first quarter which was the result of the increased deposit and borrowing rates.

The Company’s net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the current quarter was 3.08 percent compared to 3.30 percent in the prior quarter and 3.20 percent in the prior year first quarter. The core net interest margin, excluding discount accretion, the impact from non-accrual interest and the impact from the PPP loans, was 3.07 percent compared to 3.27 percent in the prior quarter and 3.07 percent in the prior year first quarter. The core net interest margin decreased 20 basis points in the current quarter primarily as a result of increased deposit and borrowing rates. The loan yield of 5.02 percent in the current quarter increased 19 basis points from the prior quarter loan yield of 4.83 percent and increased 43 basis points from the prior year first quarter core loan yield of 4.59 percent. New loan production yields for the quarter were 6.96 percent.
51


Non-interest Income
Non-interest income for the current quarter totaled $27.9 million which was a decrease of $588 thousand, or 2 percent, over the prior quarter. Current quarter non-interest income decreased $5.7 million, or 17 percent, over the same quarter last year which was primarily driven by the decrease in gain on sale of residential loans. Gain on the sale of residential loans of $2.4 million for the current quarter increased $225 thousand, or 10 percent, compared to the prior quarter and decreased $6.6 million, or 73 percent, from the prior year first quarter.

Non-interest Expense
The following table summarizes non-interest expense for the periods indicated:
 
 Three Months ended$ Change from
(Dollars in thousands)Mar 31,
2023		Dec 31,
2022		Mar 31,
2022		Dec 31,
2022		Mar 31,
2022
Compensation and employee benefits
$81,477 79,814 79,074 1,663 2,403 
Occupancy and equipment11,665 10,734 10,964 931 701 
Advertising and promotions4,235 3,558 3,232 677 1,003 
Data processing8,109 8,079 7,475 30 634 
Other real estate owned12 5 — 7 12 
Regulatory assessments and insurance
4,903 3,425 3,055 1,478 1,848 
Core deposit intangibles amortization
2,449 2,664 2,664 (215)(215)
Other expenses22,132 20,700 23,844 1,432 (1,712)
Total non-interest expense$134,982 128,979 130,308 6,003 4,674 

Total non-interest expense of $135 million for the current quarter increased $6.0 million, or 5 percent, over the prior quarter and increased $4.7 million, or 4 percent, over the prior year first quarter.

Compensation and employee expense of $81.5 million for the current quarter increased $1.7 million, or 2 percent, from the prior quarter and increased $2.4 million, or 3 percent, over the prior year first quarter which was driven primarily by annual salary increases. Regulatory assessments and insurance of $4.9 million, increased $1.5 million, or 43 percent, over the prior quarter and $1.8 million, or 60 percent, over the prior year first quarter and was primarily due to the FDIC uniformly increasing all depository institutions premiums in the current quarter. Other expense of $22.1 million in the current quarter increased $1.4 million, or 7 percent, over prior quarter due to a $2.5 million gain on sale of former branch in the prior quarter. Other expense in the current quarter decreased by $1.7 million, or 7 percent, over the prior year first quarter primarily as a result of a decrease in acquisition-related expense which was partially offset by increases in several miscellaneous expense categories. Acquisition-related expense was $352 thousand in the current quarter compared to $804 thousand in the prior quarter and $6.2 million in the prior year first quarter.

Efficiency Ratio
The efficiency ratio was 60.39 percent in the current quarter compared to 53.18 percent in the prior quarter and 57.11 percent in the prior year first quarter. The increase from prior quarter and prior year first quarter was primarily attributable to the increase in interest expense and non-interest expense in the current quarter.
52


Provision for Credit Losses for Loans
The following table summarizes provision for credit losses for loans, net charge-offs and select ratios relating to provision for credit losses for the previous eight quarters:
(Dollars in thousands)Provision for Credit Losses on LoansNet Charge-Offs
(Recoveries)		Allowance for
Credit Losses
as a Percent
of Loans		Accruing
Loans 30-89
Days Past Due
as a Percent of
Loans		Non-Performing
Assets to
Total Sub-sidiary Assets
First quarter 2023$6,260 $1,939 1.20 %0.16 %0.12 %
Fourth quarter 20226,060 1,968 1.20 %0.14 %0.12 %
Third quarter 20228,382 3,154 1.20 %0.07 %0.13 %
Second quarter 2022(1,353)1,843 1.20 %0.12 %0.16 %
First quarter 20224,344 850 1.28 %0.12 %0.24 %
Fourth quarter 202119,301 616 1.29 %0.38 %0.26 %
Third quarter 20212,313 152 1.36 %0.23 %0.24 %
Second quarter 2021(5,723)(725)1.35 %0.11 %0.26 %

The current quarter provision for credit loss expense for loans was $6.3 million which was an increase of $200 thousand from the prior quarter and a $1.9 million increase from the prior year first quarter. Loan portfolio growth, composition, average loan size, credit quality considerations, economic forecasts and other environmental factors will continue to determine the level of the provision for credit losses for loans.

Net charge-offs for the current and prior quarter were $2.0 million compared to $850 thousand for the prior year first quarter. Net charge-offs of $2.0 million included $2.0 million in deposit overdraft net charge-offs and $31 thousand of net loan recoveries.

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


53


ADDITIONAL MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Debt Securities
Debt securities classified as available-for-sale are carried at estimated fair value and debt securities classified as held-to-maturity are carried at amortized cost. Unrealized gains or losses, net of tax, on available-for-sale debt securities are reflected as an adjustment to other comprehensive income. The Company’s debt securities are summarized below:
March 31, 2023December 31, 2022March 31, 2022
(Dollars in thousands)Carrying AmountPercentCarrying AmountPercentCarrying AmountPercent
Available-for-sale
U.S. government and federal agency$450,228 5 %$444,727 5 %$465,760 5 %
U.S. government sponsored enterprises292,632 3 %287,364 3 %302,350 3 %
State and local governments102,678 1 %132,993 1 %463,041 5 %
Corporate bonds26,122 1 %26,109 1 %113,185 1 %
Residential mortgage-backed securities3,179,568 36 %3,267,341 36 %3,974,655 39 %
Commercial mortgage-backed securities1,147,085 13 %1,148,773 13 %1,216,772 12 %
Total available-for-sale
5,198,313 59 %5,307,307 59 %6,535,763 65 %
Held-to-maturity
U.S. government and federal agency848,741 9 %846,046 9 %843,264 8 %
State and local governments1,675,146 19 %1,682,640 19 %1,385,516 14 %
Residential mortgage-backed securities1,140,506 13 %1,186,366 13 %1,348,161 13 %
Total held-to-maturity3,664,393 41 %3,715,052 41 %3,576,941 35 %
Total debt securities$8,862,706 100 %$9,022,359 100 %$10,112,704 100 %

The Company’s debt securities are primarily comprised of state and local government securities and mortgage-backed securities. The Company’s debt securities were primarily comprised of U.S. government and federal agency and mortgage-backed securities. State and local government securities are largely exempt from federal income tax and the Company’s federal statutory income tax rate of 21 percent is used in calculating the tax-equivalent yields on the tax-exempt securities. Mortgage-backed securities largely consists of short, weighted-average life U.S. agency guaranteed residential and commercial mortgage pass-through securities and to a lesser extent, short, weighted-average life U.S. agency guaranteed residential collateralized mortgage obligations. Combined, the mortgage-backed securities provide the Company with ongoing liquidity as scheduled and pre-paid principal is received on the securities.

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

54


The following table stratifies the state and local government securities by the associated NRSRO ratings. The highest issued rating was used to categorize the securities in the table for those securities where the NRSRO ratings were not at the same level.
March 31, 2023December 31, 2022
(Dollars in thousands)Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
S&P: AAA / Moody’s: Aaa
$446,471 397,032 456,074 395,371 
S&P: AA+, AA, AA- / Moody’s: Aa1, Aa2, Aa3
1,258,275 1,101,111 1,291,020 1,102,120 
S&P: A+, A, A- / Moody’s: A1, A2, A3
57,399 56,950 58,045 56,865 
S&P: BBB+, BBB, BBB- / Moody’s: Baa1, Baa2, Baa3— — — — 
Not rated by either entity
18,172 16,352 14,534 14,089 
Total
$1,780,317 1,571,445 1,819,673 1,568,445 

State and local government securities largely consist of both taxable and tax-exempt general obligation and revenue bonds. The following table stratifies the state and local government securities by the associated security type.
March 31, 2023December 31, 2022
(Dollars in thousands)Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
General obligation - unlimited
$399,353 374,215 421,698 389,762 
General obligation - limited
184,093 163,893 186,401 162,096 
Revenue1,157,354 997,230 1,171,971 981,486 
Certificate of participation
36,788 33,450 36,864 32,464 
Other
2,729 2,657 2,739 2,637 
Total
$1,780,317 1,571,445 1,819,673 1,568,445 

The following table outlines the five states in which the Company owns the highest concentrations of state and local government securities.
March 31, 2023December 31, 2022
(Dollars in thousands)Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
New York$378,704 332,467 382,529 324,651 
Texas127,597 114,241 128,590 113,444 
Michigan85,468 80,363 89,372 82,649 
California116,246 105,063 117,284 102,804 
Washington98,855 89,829 103,106 92,411 
All other states
973,447 849,482 998,792 852,486 
Total
$1,780,317 1,571,445 1,819,673 1,568,445 

55


The following table presents the carrying amount and weighted-average yield of available-for-sale and held-to-maturity debt securities by contractual maturity at March 31, 2023. Weighted-average yields are based upon the amortized cost of securities and are calculated using the interest method which takes into consideration premium amortization, discount accretion and mortgage-backed securities’ prepayment provisions. Weighted-average yields on tax-exempt debt securities exclude the federal income tax benefit.
One Year or LessAfter One through Five YearsAfter Five through Ten YearsAfter Ten Years
Mortgage-Backed Securities 1
Total
(Dollars in thousands)AmountYieldAmountYieldAmountYieldAmountYieldAmountYieldAmountYield
Available-for-sale
U.S. government and federal agency
$24 3.82 %$435,735 1.07 %$3,791 3.86 %$10,678 4.17 %$— — %$450,228 1.17 %
U.S. government sponsored enterprises
— — %292,632 1.29 %— — %— — %— — %292,632 1.29 %
State and local governments
1,860 2.04 %38,571 1.82 %32,139 2.40 %30,108 2.49 %— — %102,678 2.21 %
Corporate bonds
— — %21,579 3.61 %3,635 4.00 %908 0.46 %— — %26,122 3.56 %
Residential mortgage-backed securities
— — %— — %— — %— — %3,179,568 1.22 %3,179,568 1.22 %
Commercial mortgage-backed securities
— — %— — %— — %— — %1,147,085 2.57 %1,147,085 2.57 %
Total available-for-sale
1,884 2.06 %788,517 1.25 %39,565 2.70 %41,694 2.87 %4,326,653 1.57 %5,198,313 1.54 %
Held-to-maturity
U.S. government and federal agency
— — %711,654 1.61 %137,087 1.66 %— — %— — %848,741 1.62 %
State and local governments
2,834 2.47 %66,730 2.90 %169,924 3.12 %1,435,658 2.47 %— — %1,675,146 2.55 %
Residential mortgage-backed securities
— — %— — %— — %— — %1,140,506 1.63 %1,140,506 1.63 %
Total held-to-maturity
2,834 2.47 %778,384 1.72 %307,011 2.47 %1,435,658 2.47 %1,140,506 1.63 %3,664,393 2.05 %
Total debt
  securities
$4,718 2.30 %$1,566,901 1.48 %$346,576 2.49 %$1,477,352 2.48 %$5,467,159 1.58 %$8,862,706 1.74 %
______________________________
1 Mortgage-backed securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.

Based on an analysis of its available-for-sale debt securities with unrealized losses as of March 31, 2023, the Company determined their decline in value was unrelated to credit loss and was primarily the result of interest rate changes and market spreads subsequent to acquisition. The fair value of the debt securities is expected to recover as payments are received and the debt securities approach maturity. In addition, the Company determined an insignificant amount of credit losses is expected on the held-to-maturity debt securities portfolio; therefore, no ACL has been recognized at March 31, 2023.

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


56


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

Non-marketable equity securities and marketable equity securities without readily determinable fair values are evaluated for impairment whenever events or circumstances suggest the carrying value may not be recoverable. Based on the Company’s evaluation of its investments in non-marketable equity securities and marketable equity securities without readily determinable fair values as of March 31, 2023, the Company determined that none of such securities were impaired.

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

 March 31, 2023December 31, 2022March 31, 2022
(Dollars in thousands)AmountPercentAmountPercentAmountPercent
Residential real estate$1,508,403 10 %$1,446,008 9 %$1,125,648 8 %
Commercial real estate9,992,019 65 %9,797,047 65 %8,865,585 65 %
Other commercial2,804,104 18 %2,799,668 19 %2,661,048 20 %
Home equity829,844 5 %822,232 5 %715,963 6 %
Other consumer384,242 3 %381,857 3 %362,775 2 %
Loans receivable15,518,612 101 %15,246,812 101 %13,731,019 101 %
Allowance for credit losses(186,604)(1)%(182,283)(1)%(176,159)(1)%
Loans receivable, net$15,332,008 100 %$15,064,529 100 %$13,554,860 100 %

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Non-performing Assets
The following table summarizes information regarding non-performing assets at the dates indicated:
 
At or for the Three Months endedAt or for the Year endedAt or for the Three Months ended
(Dollars in thousands)March 31,
2023		December 31,
2022		March 31,
2022
Other real estate owned and foreclosed assets$31 32 43 
Accruing loans 90 days or more past due3,545 1,559 4,510 
Non-accrual loans28,403 31,151 57,923 
Total non-performing assets$31,979 32,742 62,476 
Non-performing assets as a percentage of subsidiary assets
0.12 %0.12 %0.24 %
ACL as a percentage of non-performing loans
584 %557 %282 %
Accruing loans 30-89 days past due$24,993 20,967 16,080 
U.S. government guarantees included in non-performing assets
$2,071 2,312 5,068 
Interest income 1
$353 1,450 648 
______________________________
1Amounts represent estimated interest income that would have been recognized on loans accounted for on a non-accrual basis as of the end of each period had such loans performed pursuant to contractual terms.

Non-performing assets of $32.0 million at March 31, 2023 decreased $763 thousand, or 2 percent, over the prior quarter and decreased $30.5 million, or 49 percent, over prior year first quarter. Non-performing assets as a percentage of subsidiary assets at March 31, 2023 was 0.12 percent compared to 0.12 percent in the prior quarter and 0.24 percent in the prior year first quarter.

Early stage delinquencies (accruing loans 30-89 days past due) of $24.9 million at March 31, 2023 increased $3.9 million from the prior quarter and increased $8.8 million from the prior year first quarter. Early stage delinquencies as a percentage of loans at March 31, 2023 was 16 basis points, which compared to 14 basis points in the prior quarter and 12 basis points from prior year first quarter.

Most of the Company’s non-performing assets are secured by real estate, and based on the most current information available to management, including updated appraisals or evaluations (new or updated), the Company believes the value of the underlying real estate collateral is adequate to minimize significant charge-offs or losses to the Company. Through pro-active credit administration, the Company works closely with its borrowers to seek favorable resolution to the extent possible, thereby attempting to minimize net charge-offs or losses to the Company. With very limited exceptions, the Company does not disburse additional funds on non-performing loans. Instead, the Company proceeds to collection and foreclosure actions in order to reduce the Company’s exposure to loss on such loans.

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

Modifications to Borrowers Experiencing Financial Difficulty
Modifications to borrowers experiencing financial difficulties are considered modification if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. Each debt is separately negotiated with the borrower and includes terms and conditions that reflect the borrower’s prospective ability to service their obligations as modified. Such loans at March 31, 2023 had an amortized cost of $6.6 million.

Other Real Estate Owned and Foreclosed Assets
The book value of loans prior to the acquisition of collateral and transfer of the loans into other real estate owned (“OREO”) and other foreclosed assets during 2023 was $25 thousand. The fair value of the loan collateral acquired in foreclosure during 2023 was $8 thousand. The following table sets forth the changes in OREO for the periods indicated:

58


At or for the Three Months endedAt or for the Year endedAt or for the Three Months ended
(Dollars in thousands)March 31,
2023		December 31,
2022		March 31,
2022
Balance at beginning of period$32 18 18 
Additions8 907 45 
Sales(9)(893)(20)
Balance at end of period$31 32 43 


Allowance for Credit Losses - Loans Receivable
The following table summarizes the allocation of the ACL as of the dates indicated:
 March 31, 2023December 31, 2022March 31, 2022
(Dollars in thousands)ACLPercent of ACL in
Category		Percent
of Loans in
Category		ACLPercent of ACL in
Category		Percent
of Loans in
Category		ACLPercent of ACL in
Category		Percent
of Loans in
Category
Residential real estate
$19,974 11 %10 %$19,683 10 %10 %$16,227 9 %8 %
Commercial real estate
130,253 70 %64 %125,816 69 %65 %122,172 69 %65 %
Other commercial21,164 11 %18 %21,454 12 %18 %23,882 14 %19 %
Home equity10,570 6 %5 %10,759 6 %5 %9,173 5 %5 %
Other consumer4,643 2 %3 %4,571 3 %2 %4,705 3 %3 %
Total$186,604 100 %100 %$182,283 100 %100 %$176,159 100 %100 %

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The following table summarizes the ACL experience for the periods indicated:
At or for the Three Months endedAt or for the Year endedAt or for the Three Months ended
(Dollars in thousands)March 31,
2023		% of Average LoansDecember 31,
2022		% of Average LoansMarch 31,
2022		% of Average Loans
Balance at beginning of period$182,283 172,665 172,665 
Provision for credit losses6,260 17,433 4,344 
Net (charge-offs) recoveries
Residential real estate(2)— %63 — %18 — %
Commercial real estate(267)— %684 0.01 %344 — %
Other commercial(169)(0.01)%(2,545)(0.10)%182 0.01 %
Home equity41 — %250 0.03 %48 0.01 %
Other consumer(1,542)(0.40)%(6,267)(1.70)%(1,442)(0.41)%
Net charge-offs(1,939)(0.01)%(7,815)(0.05)%(850)(0.01)%
Balance at end of period$186,604 182,283 176,159 
ACL as a percentage of total loans
1.20 %1.20 %1.28 %
Non-accrual loans as a
     percentage of total loans		0.21 %0.20 %0.42 %
ACL as a percentage of
     non-accrual loans		656.99 %585.16 %304.13 %

The current quarter credit loss expense of $5.5 million included $6.3 million of credit loss expense from loans and $790 thousand of credit loss benefit from unfunded loan commitments.

The allowance for credit losses on loans (“ACL”) as a percentage of total loans outstanding at March 31, 2023 was 1.20 percent which was the same compared to the prior quarter and an 8 basis points decrease from the prior year first quarter. The Company’s ACL of $187 million is considered adequate to absorb the estimated credit losses from any segment of its loan portfolio. For the periods ended March 31, 2023 and 2022, the Company believes the ACL is commensurate with the risk in the Company’s loan portfolio and is directionally consistent with the change in the quality of the Company’s loan portfolio.


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

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

60


The Company provides commercial banking services to individuals, small to medium-sized businesses, community organizations and public entities from 222 locations, including 187 branches, across Montana, Idaho, Utah, Washington, Wyoming, Colorado, Arizona and Nevada. The states in which the Company operates have diverse economies and markets that are tied to commodities (crops, livestock, minerals, oil and natural gas), tourism, real estate and land development and an assortment of industries, both manufacturing and service-related. Thus, the changes in the global, national, and local economies are not uniform across the Company’s geographic locations. The geographic dispersion of these market areas helps to mitigate the risk of credit loss. The Company’s model of seventeen bank divisions with separate management teams is also a significant benefit in mitigating and managing the Company’s credit risk. This model provides substantial local oversight to the lending and credit management function and requires multiple reviews of larger loans before credit is extended.

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

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

For additional information regarding the ACL, its relation to credit loss expense and risk related to asset quality, see Note 3 to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”
61


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

The following table summarizes the Company’s loan portfolio by regulatory classification:
 Loans Receivable, by Loan Type% Change from
(Dollars in thousands)Mar 31,
2023		Dec 31,
2022		Mar 31,
2022		Dec 31,
2022		Mar 31,
2022
Custom and owner occupied construction
$295,604 $298,461 $265,579 (1)%11 %
Pre-sold and spec construction
312,715 297,895 258,429 5 %21 %
Total residential construction
608,319 596,356 524,008 2 %16 %
Land development230,823 219,842 180,270 5 %28 %
Consumer land or lots187,498 206,604 184,217 (9)%2 %
Unimproved land104,811 104,662 90,498 — %16 %
Developed lots for operative builders
69,896 60,987 61,276 15 %14 %
Commercial lots91,780 93,952 98,403 (2)%(7)%
Other construction965,244 938,406 833,218 3 %16 %
Total land, lot, and other construction
1,650,052 1,624,453 1,447,882 2 %14 %
Owner occupied2,885,798 2,833,469 2,675,681 2 %8 %
Non-owner occupied3,631,158 3,531,673 3,190,519 3 %14 %
Total commercial real estate
6,516,956 6,365,142 5,866,200 2 %11 %
Commercial and industrial1,353,919 1,377,888 1,378,500 (2)%(2)%
Agriculture715,863 735,553 731,248 (3)%(2)%
1st lien1,864,294 1,808,502 1,466,279 3 %27 %
Junior lien42,397 40,445 33,438 5 %27 %
Total 1-4 family1,906,691 1,848,947 1,499,717 3 %27 %
Multifamily residential649,148 622,185 545,483 4 %19 %
Home equity lines of credit893,037 872,899 753,362 2 %19 %
Other consumer224,125 220,035 207,827 2 %8 %
Total consumer1,117,162 1,092,934 961,189 2 %16 %
States and political subdivisions806,878 797,656 659,742 1 %22 %
Other208,085 198,012 168,334 5 %24 %
Total loans receivable, including loans held for sale
15,533,073 15,259,126 13,782,303 2 %13 %
Less loans held for sale 1
(14,461)(12,314)(51,284)17 %(72)%
Total loans receivable$15,518,612 $15,246,812 $13,731,019 2 %13 %
______________________________
1 Loans held for sale are primarily 1st lien 1-4 family loans.
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The following table summarizes the Company’s non-performing assets by regulatory classification:
 
Non-performing Assets,
by Loan Type		Non-
Accrual
Loans		Accruing
Loans 90  Days or
More Past Due		OREO
(Dollars in thousands)Mar 31,
2023		Dec 31,
2022		Mar 31,
2022		Mar 31,
2023		Mar 31,
2023		Mar 31,
2023
Custom and owner occupied construction
$220 224 233 220 — — 
Pre-sold and spec construction1,548 389 — — 1,548 — 
Total residential construction
1,768 613 233 220 1,548 — 
Land development129 138 240 129 — — 
Consumer land or lots112 278 160 112 — — 
Unimproved land51 78 128 51 — — 
Developed lots for operative builders
607 251 — — 607 — 
Commercial lots188 — — 141 47 — 
Other construction12,884 12,884 12,884 12,884 — — 
Total land, lot and other construction
13,971 13,629 13,412 13,317 654 — 
Owner occupied2,682 2,076 3,508 2,424 258 — 
Non-owner occupied4,544 805 1,526 4,539 5 — 
Total commercial real estate
7,226 2,881 5,034 6,963 263 — 
Commercial and industrial2,001 3,326 4,252 1,715 262 24 
Agriculture2,573 2,574 28,801 2,208 365 — 
1st lien2,015 2,678 2,015 1,950 65 — 
Junior lien111 166 301 105 6 — 
Total 1-4 family2,126 2,844 2,316 2,055 71 — 
Multifamily residential— 4,535 6,469 — — — 
Home equity lines of credit1,225 1,393 1,416 1,042 183 — 
Other consumer1,062 911 543 883 172 7 
Total consumer2,287 2,304 1,959 1,925 355 7 
Other27 36 — — 27 — 
Total$31,979 32,742 62,476 28,403 3,545 31 


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The following table summarizes the Company’s accruing loans 30-89 days past due by regulatory classification:
 Accruing 30-89 Days Delinquent 
Loans, by Loan Type		% Change from
(Dollars in thousands)Mar 31,
2023		Dec 31,
2022		Mar 31,
2022		Dec 31,
2022		Mar 31,
2022
Custom and owner occupied construction
$1,624 $1,082 $703 50 %131 %
Pre-sold and spec construction— 1,712 — (100)%n/m
Total residential construction
1,624 2,794 703 (42)%131 %
Land development946 — 317 n/m198 %
Consumer land or lots668 442 28 51 %2,286 %
Unimproved land— 120 — (100)%n/m
Developed lots for operative builders
— 958 142 (100)%(100)%
Commercial lots— 47 54 (100)%(100)%
Other construction5,264 209 — 2,419 %n/m
Total land, lot and other construction
6,878 1,776 541 287 %1,171 %
Owner occupied1,783 3,478 3,778 (49)%(53)%
Non-owner occupied429 496 266 (14)%61 %
Total commercial real estate
2,212 3,974 4,044 (44)%(45)%
Commercial and industrial3,677 3,439 3,275 7 %12 %
Agriculture947 1,367 162 (31)%485 %
1st lien3,321 2,174 2,963 53 %12 %
Junior lien385 190 78 103 %394 %
Total 1-4 family3,706 2,364 3,041 57 %22 %
Multifamily residential201 492 — (59)%n/m
Home equity lines of credit2,804 1,182 1,315 137 %113 %
Other consumer1,598 1,824 1,097 (12)%46 %
Total consumer4,402 3,006 2,412 46 %83 %
States and political subdivisions— 28 21 (100)%(100)%
Other1,346 1,727 1,881 (22)%(28)%
Total$24,993 $20,967 $16,080 19 %55 %
______________________________
n/m - not measurable


64


The following table summarizes the Company’s charge-offs and recoveries by regulatory classification:
 Net Charge-Offs (Recoveries),
Year-to-Date Period Ending,
By Loan Type		Charge-OffsRecoveries
(Dollars in thousands)Mar 31,
2023		Dec 31,
2022		Mar 31,
2022		Mar 31,
2023		Mar 31,
2023
Custom and owner occupied construction
$— 17 — — — 
Pre-sold and spec construction$(4)(15)(4)— 4 
Total residential construction(4)2 (4)— 4 
Land development— (34)(21)— — 
Consumer land or lots— (46)(10)— — 
Total land, lot and other construction
— (80)(31)— — 
Owner occupied(68)555 (386)— 68 
Non-owner occupied298 (242)(2)300 2 
Total commercial real estate230 313 (388)300 70 
Commercial and industrial(382)(70)(449)24 406 
Agriculture— (7)(2)— — 
1st lien44 (109)(9)47 3 
Junior lien(5)(302)(78)— 5 
Total 1-4 family39 (411)(87)47 8 
Multifamily residential— 136 — — — 
Home equity lines of credit(39)(91)(5)4 43 
Other consumer125 451 55 160 35 
Total consumer86 360 50 164 78 
Other1,970 7,572 1,761 2,758 788 
Total$1,939 7,815 850 3,293 1,354 



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

Deposits
The Company has several deposit programs designed to attract both short-term and long-term deposits from the general public by providing a wide selection of accounts and rates. These programs include non-interest bearing deposit accounts and interest bearing deposit accounts such as NOW, DDA, savings, money market deposits, fixed rate certificates of deposit with maturities ranging from three months to five years, negotiated-rate jumbo certificates, and individual retirement accounts. These deposits
65


are obtained primarily from individual and business residents in the Bank’s geographic market areas. Wholesale deposits are obtained through various programs and include brokered deposits classified as NOW, DDA, money market deposits and certificate accounts. The Company’s deposits are summarized below:
March 31, 2023December 31, 2022March 31, 2022
(Dollars in thousands)AmountPercentAmountPercentAmountPercent
Non-interest bearing deposits$7,001,241 35 %$7,690,751 37 %$7,990,003 36 %
NOW and DDA accounts5,156,709 25 %5,330,614 26 %5,376,881 25 %
Savings accounts2,985,351 15 %3,200,321 16 %3,287,521 15 %
Money market deposit accounts3,429,123 17 %3,472,281 17 %4,044,655 19 %
Certificate accounts1,155,494 6 %880,589 4 %995,147 5 %
Wholesale deposits420,390 2 %31,999 — %3,688 — %
Total interest bearing deposits13,147,067 65 %12,915,804 63 %13,707,892 64 %
Total deposits$20,148,308 100 %$20,606,555 100 %$21,697,895 100 %

Borrowings
The Company borrows money through repurchase agreements. This process involves the selling of one or more of the securities in the Company’s investment portfolio and simultaneously entering into an agreement to repurchase the same securities at an agreed upon later date, typically overnight. A rate of interest is paid for the agreed period of time. The Bank enters into repurchase agreements with local municipalities, and certain customers, and has adopted procedures designed to ensure proper transfer of title and safekeeping of the underlying securities. In addition to retail repurchase agreements, the Company periodically enters into wholesale repurchase agreements as additional funding sources. The Company has not entered into reverse repurchase agreements.

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

During the first quarter of 2023, the FRB also offered a new Bank Term Funding Program (“BTFP”) for eligible depository institutions. The BTFP offers loans of up to one year in length to institutions pledging collateral eligible for purchase by the FRB in open market operations such as U.S. Treasuries, U.S. Agency securities, and U.S. agency mortgage-backed securities. These assets will be valued at par. The Company participated in the BTFP which enabled the Company to pay off higher rate FHLB advances and support its current cash position.

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

Short-term borrowings
A critical component of the Company’s liquidity and capital resources is access to short-term borrowings to fund its operations. Short-term borrowings are accompanied by increased risks managed by the Bank’s Asset Liability Committee (“ALCO”) such as rate increases or unfavorable change in terms which would make it more costly to obtain future short-term borrowings. The Company’s short-term borrowing sources include FHLB advances, FRB Bank Term Funding facility, federal funds purchased and retail and wholesale repurchase agreements. The Company also has access to the short-term discount window borrowing programs (i.e., primary credit) of the Federal Reserve Bank (“FRB”) as well as a line of credit with a large national banking institution. FHLB advances and certain other short-term borrowings may be renewed as long-term borrowings to decrease certain risks such as liquidity or interest rate risk; however, the reduction in risks are weighed against the increased cost of funds and other risks.
66


Subordinated Debentures
In addition to funds obtained in the ordinary course of business, the Company formed or acquired financing subsidiaries for the purpose of issuing or holding trust preferred securities that entitle the investor to receive cumulative cash distributions thereon. Subordinated debentures were issued in conjunction with the trust preferred securities and the terms of the subordinated debentures and trust preferred securities are the same. For regulatory capital purposes, the trust preferred securities are included in Tier 2 capital at March 31, 2023. The subordinated debentures outstanding as of March 31, 2023 were $133 million, including fair value adjustments from acquisitions.

Contractual Obligations and Off-Balance Sheet Arrangements
In the normal course of business, there may be various outstanding commitments to obtain funding and to extend credit, such as letters of credit and unfunded loan commitments, which are not reflected in the accompanying condensed consolidated financial statements. The Company assessed the off-balance sheet credit exposures as of March 31, 2023 and determined its ACL of $24.5 million was adequate to absorb the estimated credit losses.

Off-balance sheet arrangements also include any obligation related to a variable interest held in an unconsolidated entity. The Company does not anticipate any material losses as a result of these transactions. For additional information regarding the Company’s interests in unconsolidated variable interest entities (“VIE”), see Note 7 to the Unaudited Consolidated Financial Statements in “Part I. Item 1. Financial Statements.”

67


Liquidity Risk
In the normal course of business, the Company has commitments that require material cash requirements for customer deposits outflows, repurchase agreements, borrowed funds, lease obligations, off-balance sheet obligations, operating expenses and other contractual obligations. The source of funding for such requirements includes loan repayments, customer deposit inflows, borrowings, revenue from operations, and capital resources. Liquidity risk is the possibility that the Company will not be able to fund present and future obligations as they come due because of an inability to liquidate assets or obtain adequate funding at a reasonable cost. The objective of liquidity management is to maintain cash flows adequate to meet current and future needs for credit demand, deposit withdrawals, maturing liabilities and corporate operating expenses. Effective liquidity management entails three elements:
1.assessing on an ongoing basis, the current and expected future needs for funds, and ensuring that sufficient funds or access to funds exist to meet those needs at the appropriate time;
2.providing for an adequate cushion of liquidity to meet unanticipated cash flow needs that may arise from potential adverse circumstances ranging from high probability/low severity events to low probability/high severity; and
3.balancing the benefits between providing for adequate liquidity to mitigate potential adverse events and the cost of that liquidity.

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

The following table identifies certain liquidity sources and capacity available to the Company as of the dates indicated:
(Dollars in thousands)March 31,
2023		December 31,
2022
FHLB advances
Borrowing capacity$3,939,638 4,358,079 
Amount utilized(335,000)(1,800,000)
Letters of credit(2,075)(2,075)
Amount available$3,602,563 2,556,004 
FRB discount window
Borrowing capacity$1,641,990 1,680,117 
Amount utilized— — 
Amount available$1,641,990 1,680,117 
FRB Bank Term Funding Program
Borrowing capacity$3,575,755 — 
Amount utilized(2,740,000)— 
Amount available$835,755 $— 
Unsecured lines of credit available$805,000 805,000 
Unencumbered debt securities
U.S. government and federal agency$393,683 811,311 
U.S. government sponsored enterprises— 286,480 
State and local governments1,777,824 1,513,164 
Corporate bonds26,122 26,109 
Residential mortgage-backed securities63,690 2,646,766 
Commercial mortgage-backed securities290,010 970,300 
Total unencumbered debt securities 1
$2,551,329 6,254,130 
____________________________
1 Total unencumbered debt securities at March 31, 2023, included $663 million classified as AFS and $1.9 billion classified as HTM. Total unencumbered debt securities at December 31, 2022, included $4.0 billion classified as AFS, and $2.8 million classified as HTM. During the quarter, the Company increased the amount of securities pledged to the FRB’s Bank Term Funding Program.
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Capital Resources
Maintaining capital strength continues to be a long-term objective of the Company. Abundant capital is necessary to sustain growth, provide protection against unanticipated declines in asset values, and to safeguard the funds of depositors. Capital is also a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities. The Company has the capacity to issue 234,000,000 shares of common stock of which 110,868,713 have been issued as of March 31, 2023. The Company also has the capacity to issue 1,000,000 shares of preferred stock of which none have been issued as of March 31, 2023. Conversely, the Company may decide to utilize a portion of its strong capital position, as it has done in the past, to repurchase shares of its outstanding common stock, depending on market price and other relevant considerations.

The Federal Reserve has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company. The federal banking agencies issued final rules (“Final Rules”) that established a comprehensive regulatory capital framework based on the recommendation of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Final Rules require the Company to hold a 2.5 percent capital conservation buffer designed to absorb losses during periods of economic stress. As of March 31, 2023, management believes the Company and Bank meet all capital adequacy requirements to which they are subject and there are no conditions or events subsequent to this date that management believes have changed the Company’s or Bank’s risk-based capital category.

The following table illustrates the Bank’s regulatory capital ratios and the Federal Reserve’s capital adequacy guidelines as of March 31, 2023:
Total Capital (To Risk-Weighted Assets)Tier 1 Capital (To Risk-Weighted Assets)Common Equity Tier 1 (To Risk-Weighted Assets)Leverage Ratio/
Tier 1 Capital (To Average Assets)
Glacier Bank actual regulatory ratios
13.73 %12.69 %12.69 %9.06 %
Minimum capital requirements
8.00 %6.00 %4.50 %4.00 %
Minimum capital requirements plus capital conservation buffer
10.50 %8.50 %7.00 %N/A
Well capitalized requirements
10.00 %8.00 %6.50 %5.00 %

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

Federal and State Income Taxes
The Company files a consolidated federal income tax return using the accrual method of accounting. All required tax returns have been timely filed. Financial institutions are subject to the provisions of the Internal Revenue Code of 1986, as amended, in the same general manner as other corporations. The federal statutory corporate income tax rate is 21 percent.

Within the Company’s geographic footprint under Montana, Idaho, Utah, Colorado and Arizona law, financial institutions are subject to a corporation income tax, which incorporates or is substantially similar to applicable provisions of the Internal Revenue Code. The corporation income tax is imposed on federal taxable income, subject to certain adjustments. State taxes are incurred at the rate of 6.75 percent in Montana, 6.00 percent in Idaho, 4.85 percent in Utah, 4.55 percent in Colorado and 4.90 percent in Arizona. Washington, Wyoming and Nevada do not impose a corporate income tax. The Company is also required to file in states other than the eight states in which it has properties.

69


The following table summarizes information relevant to the Company’s federal and state income taxes:
 Three Months ended
(Dollars in thousands)March 31,
2023		March 31,
2022
Income Before Income Taxes$73,635 81,779 
Federal and state income tax expense12,424 13,984 
Net Income$61,211 67,795 
Effective tax rate 1
16.9 %17.1 %
Income from tax-exempt debt securities, municipal loans and leases$19,657 17,612 
Benefits from federal income tax credits$5,283 3,996 
______________________________
1The current and prior year’s low effective income tax rates are due to income from tax-exempt debt securities, municipal loans and leases and benefits from federal income tax credits.

The Company has equity investments in Certified Development Entities (“CDE”) which have received allocations of New Markets Tax Credits (“NMTC”). Administered by the Community Development Financial Institutions Fund (“CDFI Fund”) of the U.S. Department of the Treasury, the NMTC program is aimed at stimulating economic and community development and job creation in low-income communities. The federal income tax credits received are claimed over a seven-year credit allowance period. The Company also has equity investments in Low-Income Housing Tax Credits (“LIHTC”) which are indirect federal subsidies used to finance the development of affordable rental housing for low-income households. The federal income tax credits are claimed over a ten-year credit allowance period. The Company has investments of $14.7 million in Qualified School Construction bonds whereby the Company receives quarterly federal income tax credits in lieu of taxable interest income. The federal income tax credits on these debt securities are subject to federal and state income tax.

Following is a list of expected federal income tax credits to be received in the years indicated.
 
(Dollars in thousands)New
Markets
Tax Credits		Low-Income
Housing
Tax Credits		Debt
Securities
Tax Credits		Total
2024$7,408 17,158 642 25,208 
20255,812 22,144 602 28,558 
20264,332 23,512 451 28,295 
20273,612 23,577 219 27,408 
20283,612 21,636 42 25,290 
Thereafter1,596 88,340 190 90,126 
$26,372 196,367 2,146 224,885 

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Average Balance Sheet
The following schedule provides 1) the total dollar amount of interest and dividend income of the Company for earning assets and the average yields; 2) the total dollar amount of interest expense on interest bearing liabilities and the average rates; 3) net interest and dividend income and interest rate spread; and 4) net interest margin (tax-equivalent).
Three Months ended Three Months ended
 March 31, 2023March 31, 2022
(Dollars in thousands)Average
Balance		Interest and
Dividends		Average
Yield/
Rate		Average
Balance		Interest and
Dividends		Average
Yield/
Rate
Assets
Residential real estate loans$1,493,938 $15,838 4.24 %$1,140,224 $15,515 5.44 %
Commercial loans 1
12,655,551 157,456 5.05 %11,318,767 125,919 4.51 %
Consumer and other loans1,207,315 16,726 5.62 %1,075,102 11,791 4.45 %
Total loans 2
15,356,804 190,020 5.02 %13,534,093 153,225 4.59 %
Tax-exempt investment securities 3, 4
1,761,533 16,030 3.64 %1,723,125 15,664 3.64 %
Taxable investment securities 5
8,052,662 31,084 1.54 %8,883,211 26,465 1.19 %
Total earning assets25,170,999 237,134 3.82 %24,140,429 195,354 3.28 %
Goodwill and intangibles1,025,716 1,036,315 
Non-earning assets478,962 756,422 
Total assets$26,675,677 $25,933,166 
Liabilities
Non-interest bearing deposits$7,274,228 $— — %$7,859,706 $— — %
NOW and DDA accounts5,080,175 2,271 0.18 %5,279,984 845 0.06 %
Savings accounts3,107,559 514 0.07 %3,246,512 332 0.04 %
Money market deposit accounts3,468,953 5,834 0.68 %4,030,795 1,381 0.14 %
Certificate accounts984,770 2,584 1.06 %1,019,595 897 0.36 %
Total core deposits19,915,685 11,203 0.23 %21,436,592 3,455 0.07 %
Short-term borrowings
Wholesale deposits 6
120,468 1,342 4.52 %17,191 9 0.22 %
Repurchase agreements1,035,582 4,606 1.80 %970,544 393 0.16 %
FHLB advances1,990,833 23,605 4.74 %15,000 12 0.33 %
FRB Bank Term Funding280,944 3,032 4.32 %— — — %
Total short-term borrowings3,427,827 32,585 3.80 %1,002,735 414 0.17 %
Long-term borrowings
Subordinated debentures and other borrowed funds
209,547 1,908 3.69 %179,725 1,092 2.46 %
Total interest bearing liabilities
23,553,059 45,696 0.79 %22,619,052 4,961 0.09 %
Other liabilities217,245 249,316 
Total liabilities23,770,304 22,868,368 
Stockholders’ Equity
Stockholders’ equity2,905,373 3,064,798 
Total liabilities and stockholders’ equity
$26,675,677 $25,933,166 
Net interest income (tax-equivalent)$191,438 $190,393 
Net interest spread (tax-equivalent)3.03 %3.19 %
Net interest margin (tax-equivalent)3.08 %3.20 %
______________________________
1Includes tax effect of $1.8 million and $1.4 million on tax-exempt municipal loan and lease income for the three months ended March 31, 2023, and 2022, respectively.
2Total loans are gross of the allowance for credit losses, net of unearned income and include loans held for sale. Non-accrual loans were included in the average volume for the entire period.
3Includes tax effect of $3.3 million and $3.3 million on tax-exempt debt securities income for the three months ended March 31, 2023, and 2022, respectively.
4Includes interest income of $2.1 million and $80 thousand on average interest-bearing cash balances of $176.3 million and $222.1 million for the three months ended March 31, 2023, and 2022, respectively.
5Includes tax effect of $215 thousand and $225 thousand on federal income tax credits for the three months ended March 31, 2023, and 2022, respectively.
6Wholesale deposits include brokered deposits classified as NOW, DDA, money market deposit and certificate accounts with contractual maturities.
71


Rate/Volume Analysis
Net interest income can be evaluated from the perspective of relative dollars of change in each period. Interest income and interest expense, which are the components of net interest income, are shown in the following table on the basis of the amount of any increases (or decreases) attributable to changes in the dollar levels of the Company’s interest earning assets and interest bearing liabilities (“volume”) and the yields earned and paid on such assets and liabilities (“rate”). The change in interest income and interest expense attributable to changes in both volume and rates has been allocated proportionately to the change due to volume and the change due to rate.
Three Months ended
2023 vs. 2022
 Increase (Decrease) Due to:
(Dollars in thousands)VolumeRateNet
Interest income
Residential real estate loans$4,813 (4,490)323 
Commercial loans (tax-equivalent)14,871 16,666 31,537 
Consumer and other loans1,450 3,485 4,935 
Investment securities (tax-equivalent)(3,145)8,133 4,988 
Total interest income17,989 23,794 41,783 
Interest expense
NOW and DDA accounts(32)1,457 1,425 
Savings accounts(14)197 183 
Money market deposit accounts(192)4,646 4,454 
Certificate accounts(31)1,717 1,686 
Wholesale deposits56 1,277 1,333 
Repurchase agreements27 4,186 4,213 
FHLB advances1,633 21,960 23,593 
FRB Bank Term Funding3,032 — 3,032 
Subordinated debentures and other borrowed funds
181 635 816 
Total interest expense4,660 36,075 40,735 
Net interest income (tax-equivalent)$13,329 (12,281)1,048 

Net interest income (tax-equivalent) increased $1.0 million for the three months ended March 31, 2023 compared to the same period in 2022. The interest income for the first three months of 2023 increased over the same period last year primarily loan growth and increased loan yields. The increase in interest expense for the first three months of 2023 was primarily the result of an increase in interest rates coupled with an increase in higher costs borrowings.

Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company’s primary market risk exposure is interest rate risk.

Interest Rate Risk
Interest rate risk is the potential for loss of future earnings resulting from adverse changes in the level of interest rates. Interest rate risk results from many factors and could have a significant impact on the Company’s net interest income, which is the Company’s primary source of net income. Net interest income is affected by a myriad of variables, including changes in interest rates, the relationship between rates on interest bearing assets and liabilities, the impact of the interest fluctuations on asset prepayments and the mix of interest bearing assets and liabilities.
Although interest rate risk is inherent in the banking industry, banks are expected to have sound risk management practices in place to measure, monitor and control interest rate exposures. The objective of interest rate risk management is to appropriately manage the risks associated with interest rate fluctuations. The process includes identification and management of the sensitivity of net interest income to changing interest rates.
72


Net interest income simulation
The Company uses a detailed and dynamic simulation model to quantify the estimated exposure of net interest income (“NII”) to sustained interest rate changes. While ALCO routinely monitors simulated NII sensitivity over rolling two-year and five-year horizons, it also utilizes additional tools to monitor potential longer-term interest rate risk. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company’s statements of financial condition. This sensitivity analysis is compared to ALCO policy limits which specify a maximum tolerance level for NII exposure over a one year and two year horizon, assuming no balance sheet growth. The ALCO policy rate scenarios include upward and downward shifts in interest rates for 100 bps, 200 bps, 300 bps, and 400 bps scenarios with instantaneous and parallel changes in current market yield curves. The ALCO policy also includes 200 bps and 400 bps rate scenarios with gradual parallel shifts in interest rates over 12-month and 24-month periods, respectively. Other non-parallel rate movement scenarios are also modeled to determine the potential impact on net interest income. The additional scenarios are adjusted as the economic environment changes and provide ALCO additional interest rate risk monitoring tools to evaluate current market conditions.

The following is indicative of the Company’s overall NII sensitivity analysis as of March 31, 2023. The Company’s NII sensitivity remained within policy limits at March 31, 2023.
 Estimated Sensitivity
Rate ScenariosOne YearTwo Years
-100 bps Rate shock3.87 %2.48 %
+100 bps Rate shock(3.19 %)(3.04 %)
+200 bps Rate shock(6.23 %)(5.96 %)
+200 bps Rate ramp(4.30 %)(6.82 %)
+300 bps Rate shock(9.30 %)(8.91 %)
+400 bps Rate shock(12.36 %)(11.87 %)
+400 bps Rate ramp(4.32 %)(11.04 %)

The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. Growth in the Company’s core deposit franchise, updated deposit pricing assumptions, and other balance sheet changes It is important to note that these hypothetical estimates are based upon numerous assumptions that are specific to our Company and thus may not be directly comparable to other institutions. These assumptions include: the nature and timing of interest rate levels including, but not limited to, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits and reinvestment/replacement of asset and liability cash flows. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal and external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates.
73


Item 3. Quantitative and Qualitative Disclosure about Market Risk

See “Market Risk” of this Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(c)) as of March 31, 2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective and timely, providing them with material information relating to the Company required to be disclosed in the reports the Company files or submits under the Exchange Act.

Changes in Internal Controls
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first quarter of 2023, to which this report relates that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.


PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings

The Company is involved in various claims, legal actions and complaints which arise in the ordinary course of business. In the Company’s opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on the financial condition or results of operations of the Company.


Item 1A. Risk Factors

The following risk factor represents a material update and addition to the risk factors previously disclosed in the Company’s 2022 Annual Report on Form 10-K. The risks and uncertainties described in the 2022 Annual Report continue to be present and should be carefully reviewed. These are not the only risks and uncertainties that the Company faces. Additional risks and uncertainties that we do not currently know about or that we currently believe are immaterial, or that we have not predicted, may also harm our business operations or adversely affect the Company. If any of these risks or uncertainties actually occurs, our business, financial condition, operating results or liquidity could be adversely affected.

Recent events impacting the financial services industry could adversely affect our results of operations and financial condition.

Late in the first quarter of 2023, the financial services industry was negatively affected by the bank failures involving Silicon Valley Bank and Signature Bank. More recently, First Republic Bank was acquired by JP Morgan Chase after being seized by the FDIC. The adverse events involving Silicon Valley Bank and Signature Bank caused significant volatility in the trading prices of stock of publicly traded bank holding companies and have decreased confidence in banks among depositors and investors. Such ramifications could continue or worsen in light of the recent failure and acquisition of First Republic Bank. Banking regulators’ actions in response to these events have included ensuring that depositors of Silicon Valley and Signature would have access to their deposits, including uninsured deposit accounts, establishing the Bank Term Funding Program as an additional source of liquidity for banks generally, and most recently facilitating the acquisition of First Republic by JP Morgan Chase. Continued concerns relating to these adverse events could result in a reduction in demand for our products and services, including withdrawals of uninsured deposits, and could impact profitability and stockholders’ equity. The premiums of the FDIC’s deposit insurance program are expected to increase, and banking regulators have signaled further review of regulatory requirements and the potential for changes to laws or regulations governing banks and bank holding companies. Changes resulting from these events could include increased regulatory oversight, higher capital requirements or changes in the way regulatory capital is calculated, and the impositions of additional restrictions through regulatory changes or supervisory or enforcement activities, each of which could have a material impact on our business.

74


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

(a)Not Applicable

(b)Not Applicable

(c)Not Applicable


Item 3. Defaults upon Senior Securities

(a)Not Applicable

(b)Not Applicable


Item 4. Mine Safety Disclosures

Not Applicable


Item 5. Other Information

(a)Not Applicable

(b)Not Applicable


75


Item 6. Exhibits
 




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

101.SCH    XBRL Taxonomy Extension Schema Document

101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF    XBRL Taxonomy Extension Definition Linkbase Document

101.LAB    XBRL Taxonomy Extension Labels Linkbase Document

101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

104    Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
76


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 GLACIER BANCORP, INC.
May 2, 2023/s/ Randall M. Chesler
Randall M. Chesler
President and CEO
May 2, 2023/s/ Ron J. Copher
Ron J. Copher
Executive Vice President and CFO


77
Glacier Bancorp (NASDAQ:GBCI)
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