Form 10-Q GLACIER BANCORP INC For: Sep 30

Article Stock Quotes (1)

FREE Breaking News Alerts from StreetInsider.com!

StreetInsider.com Top Tickers, 4/24/2024

1. TSLA
2. SPY
3. GM
4. SPOT
5. AMZN

6. SHW
7. AAPL
8. IBM
9. MINN
10. NVDA

Top News Most Read Special Reports

November 4, 2014 9:50 AM EST

E-mail

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549�

______________________________________________________________________

FORM 10-Q

______________________________________________________________________

� QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September�30, 2014

�

� TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________ ��

Commission file number 000-18911

______________________________________________________________________

GLACIER BANCORP, INC.

(Exact name of registrant as specified in its charter)

�______________________________________________________________________



MONTANA	81-0519541
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
�	�
49 Commons Loop, Kalispell, Montana	59901
(Address of principal executive offices)	(Zip Code)

(406) 756-4200

Registrants telephone number, including area code

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)�

______________________________________________________________________

Indicate by check mark whether the registrant (1)�has filed all reports required to be filed by Section�13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)�has been subject to such filing requirements for the past 90 days.��Yes��No��

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (�232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).��Yes��No��

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



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

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

The number of shares of Registrants common stock outstanding on October�20, 2014 was 75,024,092. No preferred shares are issued or outstanding.

TABLE OF CONTENTS

�



�	Page
Part I. Financial Information	�
Item�1 Financial Statements	�
Unaudited Condensed Consolidated Statements of Financial Condition September 30, 2014 and December 31, 2013	3
Unaudited Condensed Consolidated Statements of Operations Three and Nine Months ended September 30, 2014 and 2013	4
Unaudited Condensed Consolidated Statements of Comprehensive Income Three and Nine Months ended September 30, 2014 and 2013	5
Unaudited Condensed Consolidated Statements of Changes in Stockholders Equity Nine Months ended September 30, 2014 and 2013	6
Unaudited Condensed Consolidated Statements of Cash Flows Nine Months ended September 30, 2014 and 2013	7
Notes to Unaudited Condensed Consolidated Financial Statements	9
Item�2 Managements Discussion and Analysis of Financial Condition and Results of Operations	34
Item�3 Quantitative and Qualitative Disclosure about Market Risk	65
Item�4 Controls and Procedures	65
Part II. Other Information	65
Item�1 Legal Proceedings	65
Item�1A Risk Factors	65
Item�2 Unregistered Sales of Equity Securities and Use of Proceeds	65
Item�3 Defaults upon Senior Securities	66
Item�4 Mine Safety Disclosures	66
Item�5 Other Information	66
Item�6 Exhibits	66
Signatures	67

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

�



(Dollars in thousands, except per share data)	September�30, 2014			�	December�31, 2013
Assets	�			�	�
Cash on hand and in banks	$	109,947		�	109,995
Federal funds sold	488			�	10,527
Interest bearing cash deposits	171,662			�	35,135
Cash and cash equivalents	282,097			�	155,657
Investment securities, available-for-sale	2,398,196			�	3,222,829
Investment securities, held-to-maturity (fair values of $513,142 and $0)	482,757			�
Total investment securities	2,880,953			�	3,222,829
Loans held for sale	65,598			�	46,738
Loans receivable	4,459,099			�	4,062,838
Allowance for loan and lease losses	(130,632		)	�	(130,351	)
Loans receivable, net	4,328,467			�	3,932,487
Premises and equipment, net	178,509			�	167,671
Other real estate owned	28,374			�	26,860
Accrued interest receivable	42,981			�	41,898
Deferred tax asset	44,452			�	43,549
Core deposit intangible, net	11,617			�	9,512
Goodwill	129,706			�	129,706
Non-marketable equity securities	52,868			�	52,192
Other assets	64,188			�	55,251
Total assets	$	8,109,810		�	7,884,350
Liabilities	�			�	�
Non-interest bearing deposits	$	1,595,971		�	1,374,419
Interest bearing deposits	4,510,840			�	4,205,548
Securities sold under agreements to repurchase	367,213			�	313,394
Federal Home Loan Bank advances	366,866			�	840,182
Other borrowed funds	7,351			�	8,387
Subordinated debentures	125,669			�	125,562
Accrued interest payable	3,058			�	3,505
Other liabilities	92,362			�	50,103
Total liabilities	7,069,330			�	6,921,100
Stockholders Equity	�			�	�
Preferred shares, $0.01 par value per share, 1,000,000 shares authorized, none issued or outstanding				�
Common stock, $0.01 par value per share, 117,187,500 shares authorized	750			�	744
Paid-in capital	707,821			�	690,918
Retained earnings - substantially restricted	309,234			�	261,943
Accumulated other comprehensive income	22,675			�	9,645
Total stockholders equity	1,040,480			�	963,250
Total liabilities and stockholders equity	$	8,109,810		�	7,884,350
Number of common stock shares issued and outstanding	75,024,092			�	74,373,296

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



�	Three Months ended						�	Nine Months ended
(Dollars in thousands, except per share data)	September�30, 2014			�	September�30, 2013		�	September�30, 2014		�	September�30, 2013
Interest Income	�			�	�		�	�		�	�
Residential real estate loans	$	7,950		�	7,320		�	22,257		�	21,606
Commercial loans	37,387			�	34,291		�	107,696		�	92,788
Consumer and other loans	7,559			�	8,447		�	22,785		�	24,220
Investment securities	22,794			�	19,473		�	71,002		�	51,023
Total interest income	75,690			�	69,531		�	223,740		�	189,637
Interest Expense	�			�	�		�	�		�	�
Deposits	3,027			�	3,398		�	9,177		�	10,584
Securities sold under agreements to repurchase	225			�	209		�	627		�	646
Federal Home Loan Bank advances	2,356			�	2,730		�	7,317		�	8,029
Federal funds purchased and other borrowed funds	34			�	54		�	135		�	160
Subordinated debentures	788			�	795		�	2,342		�	2,410
Total interest expense	6,430			�	7,186		�	19,598		�	21,829
Net Interest Income	69,260			�	62,345		�	204,142		�	167,808
Provision for loan losses	360			�	1,907		�	1,721		�	5,085
Net interest income after provision for loan losses	68,900			�	60,438		�	202,421		�	162,723
Non-Interest Income	�			�	�		�	�		�	�
Service charges and other fees	14,319			�	13,711		�	40,085		�	36,115
Miscellaneous loan fees and charges	1,342			�	1,408		�	3,571		�	3,650
Gain on sale of loans	6,000			�	7,021		�	14,373		�	23,582
Loss on sale of investments	(61		)	�	(403	)	�	(160	)	�	(299	)
Other income	2,832			�	2,136		�	8,455		�	6,997
Total non-interest income	24,432			�	23,873		�	66,324		�	70,045
Non-Interest Expense	�			�	�		�	�		�	�
Compensation and employee benefits	30,142			�	27,469		�	87,764		�	76,963
Occupancy and equipment	6,961			�	6,421		�	20,307		�	18,152
Advertising and promotions	2,141			�	1,897		�	5,866		�	5,066
Outsourced data processing	1,472			�	1,232		�	4,792		�	2,870
Other real estate owned	602			�	1,049		�	1,675		�	4,901
Regulatory assessments and insurance	1,435			�	1,677		�	4,055		�	4,843
Core deposit intangibles amortization	692			�	693		�	2,095		�	1,684
Other expense	10,793			�	9,930		�	30,427		�	27,804
Total non-interest expense	54,238			�	50,368		�	156,981		�	142,283
Income Before Income Taxes	39,094			�	33,943		�	111,764		�	90,485
Federal and state income tax expense	9,800			�	8,315		�	27,063		�	21,387
Net Income	$	29,294		�	25,628		�	84,701		�	69,098
Basic earnings per share	$	0.40		�	0.35		�	1.14		�	0.95
Diluted earnings per share	$	0.40		�	0.35		�	1.14		�	0.95
Dividends declared per share	$	0.17		�	0.15		�	0.50		�	0.44
Average outstanding shares - basic	74,631,317			�	73,945,523		�	74,512,806		�	72,804,321
Average outstanding shares - diluted	74,676,124			�	74,021,871		�	74,554,263		�	72,869,475

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

�



�	Three Months ended						�	Nine Months ended
(Dollars in thousands)	September�30, 2014			�	September�30, 2013		�	September�30, 2014		�	September�30, 2013
Net Income	$	29,294		�	25,628		�	84,701		�	69,098
Other Comprehensive (Loss) Income, Net of Tax	�			�	�		�	�		�	�
Unrealized (losses) gains on available-for-sale securities	(2,764		)	�	(21,600	)	�	32,553		�	(77,285	)
Reclassification adjustment for losses included in net income	61			�	403		�	182		�	299
Net unrealized (losses) gains on available-for-sale securities	(2,703		)	�	(21,197	)	�	32,735		�	(76,986	)
Tax effect	1,049			�	8,246		�	(12,687	)	�	29,948
Net of tax amount	(1,654		)	�	(12,951	)	�	20,048		�	(47,038	)
Unrealized gains (losses) on derivatives used for cash flow hedges	201			�	(735	)	�	(11,468	)	�	14,827
Tax effect	(78		)	�	287		�	4,450		�	(5,768	)
Net of tax amount	123			�	(448	)	�	(7,018	)	�	9,059
Total other comprehensive (loss) income, net of tax	(1,531		)	�	(13,399	)	�	13,030		�	(37,979	)
Total Comprehensive Income	$	27,763		�	12,229		�	97,731		�	31,119

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

Nine Months ended September�30, 2014 and 2013

�

(Dollars in thousands, except per share data)

Common Stock

�

Paid-in Capital

�

Retained

Earnings

Substantially Restricted

�

Accumulated

Other Compre-

hensive Income

�

Amount

�

Total

Balance at December 31, 2012

71,937,222

�

719

�

641,737

�

210,531

�

47,962

�

900,949

Comprehensive income

�

69,098

�

(37,979

)

�

31,119

Cash dividends declared ($0.44 per share)

�

(32,299

)

�

(32,299

)

Stock issuances under stock incentive plans

227,597

�

3,500

�

3,502

Stock issued in connection with acquisitions

2,143,132

�

45,011

�

45,033

Stock-based compensation and related taxes

�

(497

)

�

(497

)

Balance at September 30, 2013

74,307,951

�

743

�

689,751

�

247,330

�

9,983

�

947,807

Balance at December 31, 2013

74,373,296

�

744

�

690,918

�

261,943

�

9,645

�

963,250

Comprehensive income

�

84,701

�

13,030

�

97,731

Cash dividends declared ($0.50 per share)

�

(37,410

)

�

(37,410

)

Stock issuances under stock incentive plans

95,064

�

757

�

758

Stock issued in connection with acquisition

555,732

�

15,122

�

15,127

Stock-based compensation and related taxes

�

1,024

�

1,024

Balance at September 30, 2014

75,024,092

�

750

�

707,821

�

309,234

�

22,675

�

1,040,480

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

�



�	Nine Months ended
(Dollars in thousands)	September�30, 2014			�	September�30, 2013
Operating Activities	�			�	�
Net income	$	84,701		�	69,098
Adjustments to reconcile net income to net cash provided by operating activities:	�			�	�
Provision for loan losses	1,721			�	5,085
Net amortization of investment securities premiums and discounts	21,239			�	55,043
Loans held for sale originated or acquired	(498,118		)	�	(760,860	)
Proceeds from sales of loans held for sale	504,518			�	904,066
Gain on sale of loans	(14,373		)	�	(23,582	)
Loss on sale of investments	160			�	299
Bargain purchase gain	(680		)	�
Stock-based compensation expense, net of tax benefits	652			�	800
Excess tax deficiencies from stock-based compensation	14			�	219
Depreciation of premises and equipment	8,706			�	7,408
(Gain) loss on sale of other real estate owned and writedowns, net	(1,096		)	�	1,276
Amortization of core deposit intangibles	2,095			�	1,684
Net decrease (increase) in accrued interest receivable	254			�	(2,628	)
Net (increase) decrease in other assets	(1,373		)	�	3,459
Net decrease in accrued interest payable	(530		)	�	(1,290	)
Net increase in other liabilities	12,908			�	12,526
Net cash provided by operating activities	120,798			�	272,603
Investing Activities	�			�	�
Sales of available-for-sale securities	162,930			�	181,971
Maturities, prepayments and calls of available-for-sale securities	476,286			�	1,494,957
Purchases of available-for-sale securities	(126,666		)	�	(1,321,504	)
Maturities, prepayments and calls of held-to-maturity securities	8,930			�
Purchases of held-to-maturity securities	(11,250		)	�
Principal collected on loans	993,806			�	854,553
Loans originated or acquired	(1,273,235		)	�	(1,121,384	)
Net addition of premises and equipment and other real estate owned	(9,463		)	�	(6,861	)
Proceeds from sale of other real estate owned	12,644			�	18,131
Net sale of non-marketable equity securities	801			�	583
Net cash (paid) received in acquisitions	(2,112		)	�	26,155
Net cash provided by investing activities	232,671			�	126,601

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

�



�	Nine Months ended
(Dollars in thousands)	September�30, 2014			�	September�30, 2013
Financing Activities	�			�	�
Net increase (decrease) in deposits	$	217,203		�	(301,759	)
Net increase in securities sold under agreements to repurchase	53,819			�	24,805
Net decrease in Federal Home Loan Bank advances	(473,316		)	�	(35,098	)
Net decrease in other borrowed funds	(929		)	�	(1,458	)
Cash dividends paid	(24,629		)	�	(21,153	)
Excess tax deficiencies from stock-based compensation	(14		)	�	(219	)
Proceeds from stock options exercised	837			�	3,322
Net cash used in financing activities	(227,029		)	�	(331,560	)
Net increase in cash and cash equivalents	126,440			�	67,644
Cash and cash equivalents at beginning of period	155,657			�	187,040
Cash and cash equivalents at end of period	$	282,097		�	254,684
Supplemental Disclosure of Cash Flow Information	�			�	�
Cash paid during the period for interest	$	20,128		�	23,120
Cash paid during the period for income taxes	23,504			�	17,283
Supplemental Disclosure of Non-Cash Investing Activities	�			�	�
Transfer of investment securities from available-for-sale to held-to-maturity	$	484,583		�
Sale and refinancing of other real estate owned	665			�	3,549
Transfer of loans to other real estate owned	8,995			�	13,091
Acquisitions	�			�	�
Fair value of common stock shares issued	15,127			�	45,033
Cash consideration for outstanding shares	16,690			�	24,858
Fair value of assets acquired	349,167			�	630,569
Liabilities assumed	316,670			�	560,678

See accompanying notes to unaudited condensed consolidated financial statements.

GLACIER BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

�

Note 1. Nature of Operations and Summary of Significant Accounting Policies

General

Glacier Bancorp, Inc. (Company) is a Montana corporation headquartered in Kalispell, Montana. The Company provides a full range of banking services to individual and corporate customers in Montana, Idaho, Wyoming, Colorado, Utah and Washington through thirteen divisions of its wholly-owned bank subsidiary, Glacier Bank (Bank). The Company offers a wide range of banking products and services, including transaction and savings deposits, real estate, commercial, agriculture and consumer loans and mortgage origination services. The Company serves individuals, small to medium-sized businesses, community organizations and public entities.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Companys financial condition as of September�30, 2014, the results of operations and comprehensive income for the three and nine month periods ended September�30, 2014 and 2013, and changes in stockholders equity and cash flows for the nine month periods ended September�30, 2014 and 2013. The condensed consolidated statement of financial condition of the Company as of December�31, 2013 has been derived from the audited consolidated statements of the Company as of that date.

The accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Companys Annual Report on Form 10-K for the year ended December�31, 2013. Operating results for the nine months ended September�30, 2014 are not necessarily indicative of the results anticipated for the year ending December�31, 2014.

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 Companys consolidated financial position, results of operations or liquidity.

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

Principles of Consolidation

The consolidated financial statements of the Company include the parent holding company and the Bank. The Bank consists of thirteen bank divisions, a treasury division and an information technology division. The treasury division includes the Banks investment security portfolio and wholesale borrowings and the information technology division includes the Banks internal data processing and information technology expenses. Each of the Bank divisions operate under separate names, management teams and directors. The Company considers the Bank to be its sole operating segment as the Bank 1) engages in similar bank business activity from which it earns revenues and incurs expenses, 2) the operating results of the Bank are regularly reviewed by the Chief Executive Officer (i.e., the chief operating decision maker) who makes decisions about resources to be allocated to the Bank, and 3) financial information is available for the Bank. All significant inter-company transactions have been eliminated in consolidation.

In May 2013, the Company acquired Wheatland Bankshares, Inc. and its wholly-owned subsidiary, First State Bank, a community bank based in Wheatland, Wyoming. In July 2013, the Company completed its acquisition of North Cascades Bancshares, Inc. and its wholly-owned subsidiary, North Cascades National Bank, a community bank based in Chelan, Washington. In August 2014, the Company completed its acquisition of FNBR Holding Corporation (FNBR) and its wholly-owned subsidiary, First National Bank of the Rockies, a community bank based in Grand Junction, Colorado. The transactions were accounted for using the acquisition method, and their results of operations have been included in the Companys consolidated financial statements as of the acquisition dates.

The Company formed GBCI Other Real Estate (GORE) to isolate certain bank foreclosed properties for legal protection and administrative purposes and the remaining properties are currently held for sale. GORE is included in the Bank operating segment due to its insignificant activity.

The Company owns the following trust subsidiaries, each of which issued trust preferred securities as Tier 1 capital instruments: Glacier Capital Trust II, Glacier Capital Trust III, Glacier Capital Trust IV, Citizens (ID) Statutory Trust I, Bank of the San Juans Bancorporation Trust I, First Company Statutory Trust 2001 and First Company Statutory Trust 2003. The trust subsidiaries are not included in the Companys consolidated financial statements.

Variable Interest Entities

The Company has equity investments in Certified Development Entities (CDE) which have received allocations of New Markets Tax Credits (NMTC). The Company also has equity investments in Low-Income Housing Tax Credit (LIHTC) partnerships. The CDEs and the LIHTC partnerships are variable interest entities (VIE).

The following table summarizes the carrying amounts of the VIEs assets and liabilities included in the Companys consolidated financial statements at September�30, 2014 and December�31, 2013:

�

September 30, 2014

�

December 31, 2013

(Dollars in thousands)

CDE�(NMTC)

�

LIHTC

�

CDE�(NMTC)

�

LIHTC

Assets

�

Loans receivable

36,077

�

36,039

�

Premises and equipment, net

�

13,220

�

13,536

Accrued interest receivable

113

�

117

�

Other assets

672

�

184

�

843

�

153

Total assets

36,862

�

13,404

�

36,999

�

13,689

Liabilities

�

Other borrowed funds

4,555

�

1,690

�

4,555

�

1,723

Accrued interest payable

�

Other liabilities

�

151

�

189

Total liabilities

4,653

�

1,695

�

4,710

�

1,917

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

Loans Receivable

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

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

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

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

A restructured loan is considered a troubled debt restructuring (TDR) if the creditor, for economic or legal reasons related to the debtors financial difficulties, grants a concession to the debtor that it would not otherwise consider. A TDR loan is considered an impaired loan and a specific valuation allowance is established when the fair value of the collateral-dependent loan or present value of the loans expected future cash flows (discounted at the loans effective interest rate based on the original contractual rate) is lower than the carrying value of the impaired loan. The Company has made the following types of loan modifications, some of which were considered a TDR:


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


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


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

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


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


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


"	loan structures and related covenants.

For additional information relating to loans, see Note 3.

Allowance for Loan and Lease Losses

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

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

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

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

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

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

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

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


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


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


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


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


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


"	Changes in the quality of the Companys loan review system;


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


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


"	The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Companys existing portfolio.

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

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

Impact of Recent Authoritative Accounting Guidance

The Accounting Standards Codification^" (ASC) is the Financial Accounting Standards Boards (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.

In August 2014, FASB amended FASB ASC Subtopic 310-40, Receivables - Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. The amendment requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: 1) The loan has a government guarantee that is not separable from the loan before foreclosure. 2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim. 3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendment is effective for public business entities for interim and annual periods beginning after December�15, 2014. An entity can elect to adopt the amendments using either a prospective transition method or a modified retrospective method as defined in the amendment. The Company is currently evaluating the impact of the adoption of this amendment, but does not expect it to have a material effect on the Companys financial position or results of operations.

In June 2014, FASB amended FASB ASC Topic 860, Transfers and Servicing. The amendments in this Update require the following two accounting changes: 1) change the accounting for repurchase-to-maturity transactions to secured borrowing accounting and 2) for repurchase finance arrangements, require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in a secured borrowing accounting for the repurchase agreement. The amendments also require certain disclosures for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted for as secured borrowings. The accounting changes are effective for public business entities for the first interim or annual reporting periods beginning after December 15, 2014. Early application for public business entities is not permitted. The disclosure changes for repurchase agreements are effective for public business entities for annual reporting periods beginning after December 15, 2014. The Company is currently evaluating the impact of the adoption of the amendments, but does not expect them to have a material effect on the Companys financial position or results of operations.

In May 2014, FASB amended FASB ASC Topic 606, Revenue from Contracts with Customers. The amendments clarify the principals for recognizing revenue and develop a common revenue standard among industries. The new guidance establishes the following core principal: recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services. Five steps are provided for a company or organization to follow to achieve such core principle. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. For public entities, the amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within the reporting period. Early application is not permitted. The entity should apply the amendments using one of two retrospective methods described in the amendment. The Company is currently evaluating the impact of the adoption of the amendments, but does not expect them to have a material effect on the Companys financial position or results of operations.

In January 2014, FASB amended FASB ASC Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors. The amendment clarifies that an in substance repossession foreclosure occurs when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either 1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or 2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendment requires interim and annual disclosure of both 1) the amount of foreclosed residential real estate property held by the creditor and 2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendment is effective for public business entities for interim and annual periods beginning after December�15, 2014. An entity can elect to adopt the amendments using either a modified retrospective transition method or a prospective transition method as defined in the amendment. The Company is currently evaluating the impact of the adoption of this amendment, but does not expect it to have a material effect on the Companys financial position or results of operations.

In January 2014, FASB amended FASB ASC Topic 323, Investments - Equity Method and Joint Ventures. The amendments permit entities to make an accounting policy election for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense. The amendments should be applied retrospectively to all periods presented and are effective for public business entities for annual periods and interim periods within those annual periods, beginning after December�15, 2014. The Company is currently evaluating the impact of the adoption of the amendments, but does not expect them to have a material effect on the Companys financial position or results of operations.

Note 2. Investment Securities

Effective January 1, 2014, the Company reclassified state and local government securities with a fair value of approximately $484,583,000, inclusive of a net unrealized gain of $4,624,000, from available-for-sale classification to held-to-maturity classification. The Company considers the held-to-maturity classification of these investment securities to be appropriate as it has the positive intent and ability to hold these securities to maturity.

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

�

September 30, 2014

�

Amortized Cost

�

Gross Unrealized

�

Fair Value

(Dollars in thousands)

�

Gains

�

Losses

�

Available-for-sale

�

U.S. government sponsored enterprises

9,200

�

9,282

State and local governments

901,474

�

39,244

�

(3,944

)

�

936,774

Corporate bonds

338,353

�

3,382

�

(204

)

�

341,531

Residential mortgage-backed securities

1,102,546

�

12,948

�

(4,885

)

�

1,110,609

Total available-for-sale

2,351,573

�

55,656

�

(9,033

)

�

2,398,196

Held-to-maturity

�

State and local governments

482,757

�

33,754

�

(3,369

)

�

513,142

Total held-to-maturity

482,757

�

33,754

�

(3,369

)

�

513,142

Total investment securities

2,834,330

�

89,410

�

(12,402

)

�

2,911,338

�

December 31, 2013

�

Amortized Cost

�

Gross Unrealized

�

Fair Value

(Dollars in thousands)

�

Gains

�

Losses

�

Available-for-sale

�

U.S. government sponsored enterprises

10,441

�

187

�

10,628

State and local governments

1,377,347

�

31,621

�

(23,890

)

�

1,385,078

Corporate bonds

440,337

�

3,922

�

(1,758

)

�

442,501

Residential mortgage-backed securities

1,380,816

�

14,071

�

(10,265

)

�

1,384,622

Total available-for-sale

3,208,941

�

49,801

�

(35,913

)

�

3,222,829

Total investment securities

3,208,941

�

49,801

�

(35,913

)

�

3,222,829

Included in the residential mortgage-backed securities are $97,000 and $2,602,000 as of September�30, 2014 and December�31, 2013, respectively, of non-guaranteed private label whole loan mortgage-backed securities of which none of the underlying collateral is considered subprime.

The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity securities by contractual maturity at September�30, 2014. Actual maturities may differ from expected or contractual maturities since borrowers have the right to prepay obligations with or without prepayment penalties.

�

September 30, 2014

�

Available-for-Sale

�

Held-to-Maturity

(Dollars in thousands)

Amortized Cost

�

Fair Value

�

Carrying Value

�

Fair Value

Due within one year

114,022

�

114,789

�

Due after one year through five years

410,860

�

416,380

�

Due after five years through ten years

72,388

�

74,851

�

Due after ten years

651,757

�

681,567

�

482,757

�

513,142

�

1,249,027

�

1,287,587

�

482,757

�

513,142

Residential mortgage-backed securities ¹

1,102,546

�

1,110,609

�

Total

2,351,573

�

2,398,196

�

482,757

�

513,142

________

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

Gain or loss on sale of investment securities consists of the following:



�	Three Months ended						�	Nine Months ended
(Dollars in thousands)	September�30, 2014			�	September�30, 2013		�	September�30, 2014		�	September�30, 2013
Available-for-sale	�			�	�		�	�		�	�
Gross proceeds	$	166,577		�	102,483		�	200,277		�	181,971
Less amortized cost ¹	(166,638		)	�	(102,886	)	�	(200,459	)	�	(182,270	)
Net loss on sale of available-for-sale investment securities	$	(61	)	�	(403	)	�	(182	)	�	(299	)
Gross gain on sale of investments	$	160		�	3,467		�	341		�	3,723
Gross loss on sale of investments	(221		)	�	(3,870	)	�	(523	)	�	(4,022	)
Net loss on sale of available-for-sale investment securities	$	(61	)	�	(403	)	�	(182	)	�	(299	)
Held-to-maturity ²	�			�	�		�	�		�	�
Gross proceeds	$	5,006		�			�	8,936		�
Less amortized cost ¹	(5,006		)	�			�	(8,914	)	�
Net gain on sale of held-to-maturity investment securities	$			�			�	22		�
Gross gain on sale of investments	$			�			�	22		�
Gross loss on sale of investments				�			�			�
Net gain on sale of held-to-maturity investment securities	$			�			�	22		�

__________

¹ The cost of each investment security sold is determined by specific identification.

² The gain or loss on sale of held-to-maturity investment securities is solely due to securities that were partially or wholly called.

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

�



�	September 30, 2014
�	Less than 12 Months					�	12 Months or More				�	Total
(Dollars in thousands)	Fair Value		�	Unrealized Loss		�	Fair Value	�	Unrealized Loss		�	Fair Value	�	Unrealized Loss
Available-for-sale	�		�	�		�	�	�	�		�	�	�	�
U.S. government sponsored enterprises	$	22	�			�		�			�	22	�
State and local governments	43,206		�	(443	)	�	154,709	�	(3,501	)	�	197,915	�	(3,944	)
Corporate bonds	27,361		�	(120	)	�	8,312	�	(84	)	�	35,673	�	(204	)
Residential mortgage-backed securities	115,529		�	(762	)	�	196,743	�	(4,123	)	�	312,272	�	(4,885	)
Total available-for-sale	$	186,118	�	(1,325	)	�	359,764	�	(7,708	)	�	545,882	�	(9,033	)
Held-to-maturity	�		�	�		�	�	�	�		�	�	�	�
State and local governments	$	1,566	�	(24	)	�	92,150	�	(3,345	)	�	93,716	�	(3,369	)
Total held-to-maturity	$	1,566	�	(24	)	�	92,150	�	(3,345	)	�	93,716	�	(3,369	)

�

December 31, 2013

�

Less than 12 Months

�

12 Months or More

�

Total

(Dollars in thousands)

Fair

Value

�

Unrealized

Loss

�

Fair

Value

�

Unrealized

Loss

�

Fair

Value

�

Unrealized

Loss

Available-for-sale

�

U.S. government sponsored enterprises

�

State and local governments

408,812

�

(17,838

)

�

74,161

�

(6,052

)

�

482,973

�

(23,890

)

Corporate bonds

129,515

�

(1,672

)

�

1,702

�

(86

)

�

131,217

�

(1,758

)

Residential mortgage-backed securities

457,611

�

(10,226

)

�

1,993

�

(39

)

�

459,604

�

(10,265

)

Total available-for-sale

995,941

�

(29,736

)

�

77,856

�

(6,177

)

�

1,073,797

�

(35,913

)

Based on an analysis of its investment securities with unrealized losses as of September�30, 2014 and December�31, 2013, the Company determined that none of such securities had other-than-temporary impairment and the unrealized losses were primarily the result of interest rate changes and market spreads subsequent to acquisition. The fair value of the investment securities is expected to recover as payments are received and the securities approach maturity. At September�30, 2014, management determined that it did not intend to sell investment securities with unrealized losses, and there was no expected requirement to sell any of its investment securities with unrealized losses before recovery of their amortized cost.

Note 3. Loans Receivable, Net

The Companys loan portfolio is comprised of three segments: residential real estate, commercial and consumer and other loans. The loan segments are further disaggregated into the following classes: residential real estate, commercial real estate, other commercial, home equity and other consumer loans. The following tables are presented for each portfolio class of loans receivable and provide information about the ALLL, loans receivable, impaired loans and TDRs.

The following schedules summarize the activity in the ALLL:

��



�	Three Months ended September 30, 2014
(Dollars in thousands)	Total			�	Residential Real�Estate	�	Commercial Real Estate		�	Other Commercial		�	Home Equity		�	Other Consumer
Allowance for loan and lease losses	�			�	�	�	�		�	�		�	�		�	�
Balance at beginning of period	$	130,636		�	14,624	�	68,929		�	29,589		�	9,725		�	7,769
Provision for loan losses	360			�	374	�	(1,072	)	�	758		�	900		�	(600	)
Charge-offs	(2,243		)	�		�	(944	)	�	(579	)	�	(607	)	�	(113	)
Recoveries	1,879			�	42	�	650		�	997		�	86		�	104
Balance at end of period	$	130,632		�	15,040	�	67,563		�	30,765		�	10,104		�	7,160



�	Three Months ended September 30, 2013
(Dollars in thousands)	Total			�	Residential Real�Estate		�	Commercial Real Estate		�	Other Commercial		�	Home Equity		�	Other Consumer
Allowance for loan and lease losses	�			�	�		�	�		�	�		�	�		�	�
Balance at beginning of period	$	130,883		�	14,797		�	73,885		�	24,116		�	9,626		�	8,459
Provision for loan losses	1,907			�	950		�	381		�	385		�	125		�	66
Charge-offs	(3,077		)	�	(42	)	�	(1,235	)	�	(1,065	)	�	(333	)	�	(402	)
Recoveries	1,052			�	45		�	367		�	385		�	73		�	182
Balance at end of period	$	130,765		�	15,750		�	73,398		�	23,821		�	9,491		�	8,305



�	Nine Months ended September 30, 2014
(Dollars in thousands)	Total			�	Residential Real�Estate		�	Commercial Real Estate		�	Other Commercial		�	Home Equity		�	Other Consumer
Allowance for loan and lease losses	�			�	�		�	�		�	�		�	�		�	�
Balance at beginning of period	$	130,351		�	14,067		�	70,332		�	28,630		�	9,299		�	8,023
Provision for loan losses	1,721			�	1,111		�	(3,261	)	�	3,025		�	1,411		�	(565	)
Charge-offs	(5,567		)	�	(413	)	�	(1,208	)	�	(2,328	)	�	(906	)	�	(712	)
Recoveries	4,127			�	275		�	1,700		�	1,438		�	300		�	414
Balance at end of period	$	130,632		�	15,040		�	67,563		�	30,765		�	10,104		�	7,160

�



�	Nine Months ended September 30, 2013
(Dollars in thousands)	Total			�	Residential Real�Estate		�	Commercial Real Estate		�	Other Commercial		�	Home Equity		�	Other Consumer
Allowance for loan and lease losses	�			�	�		�	�		�	�		�	�		�	�
Balance at beginning of period	$	130,854		�	15,482		�	74,398		�	21,567		�	10,659		�	8,748
Provision for loan losses	5,085			�	464		�	(51	)	�	3,964		�	566		�	142
Charge-offs	(8,962		)	�	(391	)	�	(2,538	)	�	(2,817	)	�	(1,962	)	�	(1,254	)
Recoveries	3,788			�	195		�	1,589		�	1,107		�	228		�	669
Balance at end of period	$	130,765		�	15,750		�	73,398		�	23,821		�	9,491		�	8,305

The following schedules disclose the ALLL and loans receivable:

�

September 30, 2014

(Dollars in thousands)

Total

�

Residential

Real�Estate

�

Commercial

Real Estate

�

Other

Commercial

�

Home

Equity

�

Other

Consumer

Allowance for loan and lease losses

�

Individually evaluated for impairment

10,150

�

993

�

2,092

�

5,546

�

518

�

1,001

Collectively evaluated for impairment

120,482

�

14,047

�

65,471

�

25,219

�

9,586

�

6,159

Total allowance for loan and lease losses

130,632

�

15,040

�

67,563

�

30,765

�

10,104

�

7,160

Loans receivable

�

Individually evaluated for impairment

172,619

�

20,016

�

110,272

�

29,749

�

7,460

�

5,122

Collectively evaluated for impairment

4,286,480

�

583,790

�

2,166,010

�

942,498

�

378,221

�

215,961

Total loans receivable

4,459,099

�

603,806

�

2,276,282

�

972,247

�

385,681

�

221,083

�

December 31, 2013

(Dollars in thousands)

Total

�

Residential

Real�Estate

�

Commercial

Real Estate

�

Other

Commercial

�

Home

Equity

�

Other

Consumer

Allowance for loan and lease losses

�

Individually evaluated for impairment

11,949

�

990

�

3,763

�

6,155

�

265

�

776

Collectively evaluated for impairment

118,402

�

13,077

�

66,569

�

22,475

�

9,034

�

7,247

Total allowance for loan and lease losses

130,351

�

14,067

�

70,332

�

28,630

�

9,299

�

8,023

Loans receivable

�

Individually evaluated for impairment

199,680

�

24,070

�

119,526

�

41,504

�

9,039

�

5,541

Collectively evaluated for impairment

3,863,158

�

553,519

�

1,929,721

�

810,532

�

357,426

�

211,960

Total loans receivable

4,062,838

�

577,589

�

2,049,247

�

852,036

�

366,465

�

217,501

Substantially all of the Companys loans receivable are with customers in the Companys geographic market areas. Although the Company has a diversified loan portfolio, a substantial portion of its customers ability to honor their obligations is dependent upon the economic performance in the Companys market areas. Net deferred fees, costs, premiums, and discounts of $14,277,000 and $10,662,000 were included in the loans receivable balance at September�30, 2014 and December�31, 2013, respectively.

The following schedules disclose the impaired loans:

�

At or for the Three or Nine Months ended September 30, 2014

(Dollars in thousands)

Total

�

Residential

Real�Estate

�

Commercial

Real Estate

�

Other

Commercial

�

Home

Equity

�

Other

Consumer

Loans with a specific valuation allowance

�

Recorded balance

46,179

�

5,178

�

21,890

�

15,582

�

979

�

2,550

Unpaid principal balance

47,161

�

5,421

�

22,303

�

15,739

�

1,088

�

2,610

Specific valuation allowance

10,150

�

993

�

2,092

�

5,546

�

518

�

1,001

Average balance - three months

49,813

�

4,986

�

22,239

�

19,092

�

995

�

2,501

Average balance - nine months

55,251

�

5,822

�

23,860

�

21,998

�

995

�

2,576

Loans without a specific valuation allowance

�

Recorded balance

126,440

�

14,838

�

88,382

�

14,167

�

6,481

�

2,572

Unpaid principal balance

156,922

�

15,893

�

111,162

�

19,170

�

7,956

�

2,741

Average balance - three months

128,534

�

15,131

�

89,840

�

13,727

�

7,079

�

2,757

Average balance - nine months

131,888

�

15,609

�

91,741

�

14,045

�

7,532

�

2,961

Totals

�

Recorded balance

172,619

�

20,016

�

110,272

�

29,749

�

7,460

�

5,122

Unpaid principal balance

204,083

�

21,314

�

133,465

�

34,909

�

9,044

�

5,351

Specific valuation allowance

10,150

�

993

�

2,092

�

5,546

�

518

�

1,001

Average balance - three months

178,347

�

20,117

�

112,079

�

32,819

�

8,074

�

5,258

Average balance - nine months

187,139

�

21,431

�

115,601

�

36,043

�

8,527

�

5,537

�

At or for the Year ended December 31, 2013

(Dollars in thousands)

Total

�

Residential

Real�Estate

�

Commercial

Real Estate

�

Other

Commercial

�

Home

Equity

�

Other

Consumer

Loans with a specific valuation allowance

�

Recorded balance

61,503

�

7,233

�

23,917

�

27,015

�

886

�

2,452

Unpaid principal balance

63,406

�

7,394

�

25,331

�

27,238

�

949

�

2,494

Specific valuation allowance

11,949

�

990

�

3,763

�

6,155

�

265

�

776

Average balance

59,823

�

7,237

�

26,105

�

22,460

�

767

�

3,254

Loans without a specific valuation allowance

�

Recorded balance

138,177

�

16,837

�

95,609

�

14,489

�

8,153

�

3,089

Unpaid principal balance

169,082

�

18,033

�

119,017

�

19,156

�

9,631

�

3,245

Average balance

139,129

�

18,103

�

95,808

�

14,106

�

8,844

�

2,268

Totals

�

Recorded balance

199,680

�

24,070

�

119,526

�

41,504

�

9,039

�

5,541

Unpaid principal balance

232,488

�

25,427

�

144,348

�

46,394

�

10,580

�

5,739

Specific valuation allowance

11,949

�

990

�

3,763

�

6,155

�

265

�

776

Average balance

198,952

�

25,340

�

121,913

�

36,566

�

9,611

�

5,522

Interest income recognized on impaired loans for the periods ended September�30, 2014 and December�31, 2013 was not significant.

The following is a loans receivable aging analysis:

�



�	September 30, 2014
(Dollars in thousands)	Total		�	Residential Real�Estate	�	Commercial Real Estate	�	Other Commercial	�	Home Equity	�	Other Consumer
Accruing loans 30-59 days past due	$	12,454	�	524	�	6,353	�	3,122	�	1,626	�	829
Accruing loans 60-89 days past due	5,116		�	1,760	�	994	�	1,660	�	431	�	271
Accruing loans 90 days or more past due	1,617		�	869	�	367	�	331	�	27	�	23
Non-accrual loans	68,149		�	6,592	�	45,862	�	7,571	�	6,513	�	1,611
Total past due and non-accrual loans	87,336		�	9,745	�	53,576	�	12,684	�	8,597	�	2,734
Current loans receivable	4,371,763		�	594,061	�	2,222,706	�	959,563	�	377,084	�	218,349
Total loans receivable	$	4,459,099	�	603,806	�	2,276,282	�	972,247	�	385,681	�	221,083

�



�	December�31, 2013
(Dollars in thousands)	Total		�	Residential Real�Estate	�	Commercial Real Estate	�	Other Commercial	�	Home Equity	�	Other Consumer
Accruing loans 30-59 days past due	$	25,761	�	10,367	�	7,016	�	3,673	�	2,432	�	2,273
Accruing loans 60-89 days past due	6,355		�	1,055	�	2,709	�	1,421	�	668	�	502
Accruing loans 90 days or more past due	604		�	429	�		�	160	�	5	�	10
Non-accrual loans	81,956		�	10,702	�	51,438	�	10,139	�	7,950	�	1,727
Total past due and non-accrual loans	114,676		�	22,553	�	61,163	�	15,393	�	11,055	�	4,512
Current loans receivable	3,948,162		�	555,036	�	1,988,084	�	836,643	�	355,410	�	212,989
Total loans receivable	$	4,062,838	�	577,589	�	2,049,247	�	852,036	�	366,465	�	217,501

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

�

Three Months ended September 30, 2014

(Dollars in thousands)

Total

�

Residential

Real�Estate

�

Commercial

Real Estate

�

Other

Commercial

�

Home

Equity

�

Other

Consumer

Troubled debt restructurings

�

Number of loans

�

Pre-modification recorded balance

8,681

�

8,361

�

309

�

Post-modification recorded balance

8,681

�

8,361

�

309

�

Troubled debt restructurings that subsequently defaulted

�

Number of loans

�

Recorded balance

1,620

�

927

�

693

�

Three Months ended September 30, 2013

(Dollars in thousands)

Total

�

Residential

Real�Estate

�

Commercial

Real Estate

�

Other

Commercial

�

Home

Equity

�

Other

Consumer

Troubled debt restructurings

�

Number of loans

�

Pre-modification recorded balance

2,926

�

284

�

2,481

�

104

Post-modification recorded balance

3,141

�

499

�

2,481

�

104

Troubled debt restructurings that subsequently defaulted

�

Number of loans

�

Recorded balance

363

�

363

�

Nine Months ended September 30, 2014

(Dollars in thousands)

Total

�

Residential

Real�Estate

�

Commercial

Real Estate

�

Other

Commercial

�

Home

Equity

�

Other

Consumer

Troubled debt restructurings

�

Number of loans

�

Pre-modification recorded balance

32,957

�

12,793

�

19,908

�

242

�

Post-modification recorded balance

32,320

�

12,836

�

19,228

�

242

�

Troubled debt restructurings that subsequently defaulted

�

Number of loans

�

Recorded balance

1,676

�

927

�

749

�

Nine Months ended September 30, 2013

(Dollars in thousands)

Total

�

Residential

Real�Estate

�

Commercial

Real Estate

�

Other

Commercial

�

Home

Equity

�

Other

Consumer

Troubled debt restructurings

�

Number of loans

�

Pre-modification recorded balance

12,016

�

1,907

�

7,137

�

2,572

�

147

�

253

Post-modification recorded balance

12,418

�

2,293

�

7,137

�

2,588

�

147

�

253

Troubled debt restructurings that subsequently defaulted

�

Number of loans

�

Recorded balance

2,772

�

265

�

1,918

�

589

�

During the nine months ended September�30, 2014, 66 percent of the modifications were due to extensions of maturity dates and 17 percent were due to a combination of interest rate reductions, extensions of maturity dates, or reductions in the face amount. During that same period, approximately 90 percent of the modifications in the other commercial loan class, the class with the largest dollar amount of TDRs during the period, were due to extensions of maturity dates. During the nine months ended September�30, 2013, 59 percent of modifications were due to extensions of maturity dates and 17 percent were due to a combination of interest rate reductions, extensions of maturity dates, or reductions in the face amount. During that same period of the prior year, 63 percent of the modifications in the commercial real estate loan class, the class with the largest dollar amount of TDRs during the period, were due to extensions of maturity dates and 25 percent were due to a combination of interest rate reductions, extension of maturity dates, or reductions in the face amount.

In addition to the TDRs that occurred during the period provided in the preceding table, the Company had TDRs with pre-modification loan balances of $10,178,000 and $14,695,000 for the nine months ended September�30, 2014 and 2013, respectively, for which other real estate owned (OREO) was received in full or partial satisfaction of the loans. The majority of such TDRs were in commercial real estate for the nine months ended September�30, 2014 and 2013.�

Note 4. Goodwill

The Company performed its annual goodwill impairment test during the third quarter of 2014 and determined the fair value of the aggregated reporting units exceeded the carrying value, such that the Companys 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.

�

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

�

Three Months ended

�

Nine Months ended

(Dollars in thousands)

September�30,
2014

�

September�30,
2013

�

September�30,
2014

�

September�30,
2013

Net carrying value at beginning of period

129,706

�

119,509

�

129,706

�

106,100

Acquisitions

�

10,197

�

23,606

Net carrying value at end of period

129,706

�

129,706

�

129,706

�

129,706

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



(Dollars in thousands)	September�30, 2014			�	December�31, 2013		�	�	�	�
Gross carrying value	$	169,865		�	169,865		�	�	�	�
Accumulated impairment charge	(40,159		)	�	(40,159	)	�	�	�	�
Net carrying value	$	129,706		�	129,706		�	�	�	�

Note 5. Derivatives and Hedging Activities

As of September�30, 2014, the Companys interest rate swap derivative financial instruments were designated as cash flow hedges and are summarized as follows:

�



(Dollars in thousands)	Forecasted Notional� Amount		�	Variable Interest�Rate�¹	�	Fixed Interest�Rate�¹		�	Term ²
Interest rate swap	$	160,000	�	3 month LIBOR	�	3.378	%	�	Oct. 21, 2014 - Oct. 21, 2021
Interest rate swap	100,000		�	3�month�LIBOR	�	2.498	%	�	Nov�30,�2015�-�Nov.�30,�2022

__________

¹ The Company pays the fixed interest rate and the counterparties pay the Company the variable interest rate.

² No cash will be exchanged prior to the term.

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

The following table discloses the offsetting of financial assets and interest rate swap derivative assets:

�

September�30, 2014

�

December�31, 2013

(Dollars in thousands)

Gross Amounts of Recognized Assets

�

Gross Amounts Offset in the Statements of Financial Position

�

Net Amounts of Assets Presented in the Statements of Financial Position

�

Gross Amounts of Recognized Assets

�

Gross Amounts Offset in the Statements of Financial Position

�

Net Amounts of Assets Presented in the Statements of Financial Position

Interest rate swaps

1,930

�

(1,930

)

�

6,844

�

(4,948

)

�

1,896

The following table discloses the offsetting of financial liabilities and interest rate swap derivative liabilities:

�

September�30, 2014

�

December�31, 2013

(Dollars in thousands)

Gross Amounts of Recognized Liabilities

�

Gross Amounts Offset in the Statements of Financial Position

�

Net Amounts of Liabilities Presented in the Statements of Financial Position

�

Gross Amounts of Recognized Liabilities

�

Gross Amounts Offset in the Statements of Financial Position

�

Net Amounts of Liabilities Presented in the Statements of Financial Position

Interest rate swaps

11,502

�

(1,930

)

�

9,572

�

4,948

�

(4,948

)

�

Pursuant to the interest rate swap agreements, the Company pledged collateral to the counterparties in the form of investment securities totaling $12,908,000 at September�30, 2014. There was $0 collateral pledged from the counterparties to the Company as of September�30, 2014. There is the possibility that the Company may need to pledge additional collateral in the future if there were declines in the fair value of the interest rate swap derivative financial instruments versus the collateral pledged.

Note 6. Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, included in stockholders equity, are as follows:

�



(Dollars in thousands)	September�30, 2014			�	December�31, 2013
Unrealized gains on available-for-sale securities	$	46,623		�	13,888
Tax effect	(18,090		)	�	(5,403	)
Net of tax amount	28,533			�	8,485
Unrealized (losses) gains on derivatives used for cash flow hedges	(9,572		)	�	1,896
Tax effect	3,714			�	(736	)
Net of tax amount	(5,858		)	�	1,160
Total accumulated other comprehensive income	$	22,675		�	9,645

Note 7. Earnings Per Share

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

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



�	Three Months ended				�	Nine Months ended
(Dollars in thousands, except per share data)	September�30, 2014		�	September�30, 2013	�	September�30, 2014	�	September�30, 2013
Net income available to common stockholders, basic and diluted	$	29,294	�	25,628	�	84,701	�	69,098
Average outstanding shares - basic	74,631,317		�	73,945,523	�	74,512,806	�	72,804,321
Add: dilutive stock options and awards	44,807		�	76,348	�	41,457	�	65,154
Average outstanding shares - diluted	74,676,124		�	74,021,871	�	74,554,263	�	72,869,475
Basic earnings per share	$	0.40	�	0.35	�	1.14	�	0.95
Diluted earnings per share	$	0.40	�	0.35	�	1.14	�	0.95

There were 0 and 49,932 options excluded from the diluted average outstanding share calculation for the nine months ended September�30, 2014 and 2013, respectively, due to the option exercise price exceeding the market price of the Companys common stock.

Note 8. Fair Value of Assets and Liabilities

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

�

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


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


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

Transfers in and out of Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) are recognized on the actual transfer date. There were no transfers between fair value hierarchy levels during the nine month periods ended September�30, 2014 and 2013.

Recurring Measurements

The following is a description of the inputs and valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended September�30, 2014.

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

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

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

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

��

�

Fair Value Measurements

At the End of the Reporting Period Using

(Dollars in thousands)

Fair Value September 30, 2014

�

Quoted Prices

in�Active� Markets

for Identical

Assets

(Level 1)

�

Significant

Other

Observable

Inputs

(Level 2)

�

Significant

Unobservable

Inputs

(Level 3)

Investment securities, available-for-sale

�

U.S. government sponsored enterprises

9,282

�

9,282

�

State and local governments

936,774

�

936,774

�

Corporate bonds

341,531

�

341,531

�

Residential mortgage-backed securities

1,110,609

�

1,110,609

�

Total assets measured at fair value on a recurring basis

2,398,196

�

2,398,196

�

Interest rate swaps

9,572

�

9,572

�

Total liabilities measured at fair value on a recurring basis

9,572

�

9,572

�

Fair Value Measurements

At the End of the Reporting Period Using

(Dollars in thousands)

Fair Value December 31, 2013

�

Quoted Prices

in�Active� Markets

for Identical

Assets

(Level 1)

�

Significant

Other

Observable

Inputs

(Level 2)

�

Significant

Unobservable

Inputs

(Level 3)

Investment securities, available-for-sale

�

U.S. government sponsored enterprises

10,628

�

10,628

�

State and local governments

1,385,078

�

1,385,078

�

Corporate bonds

442,501

�

442,501

�

Residential mortgage-backed securities

1,384,622

�

1,384,622

�

Interest rate swaps

1,896

�

1,896

�

Total assets measured at fair value on a recurring basis

3,224,725

�

3,224,725

�

Non-recurring Measurements

The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended September�30, 2014.

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

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

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

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

�

Fair Value Measurements

At the End of the Reporting Period Using

(Dollars in thousands)

Fair Value September 30, 2014

�

Quoted Prices

in�Active� Markets

for Identical

Assets

(Level 1)

�

Significant

Other

Observable

Inputs

(Level 2)

�

Significant

Unobservable

Inputs

(Level 3)

Other real estate owned

1,309

�

1,309

Collateral-dependent impaired loans, net of ALLL

14,689

�

14,689

Total assets measured at fair value on a non-recurring basis

15,998

�

15,998

�

Fair Value Measurements

At the End of the Reporting Period Using

(Dollars in thousands)

Fair Value December 31, 2013

�

Quoted Prices

in�Active� Markets

for Identical

Assets

(Level 1)

�

Significant

Other

Observable

Inputs

(Level 2)

�

Significant

Unobservable

Inputs

(Level 3)

Other real estate owned

10,888

�

10,888

Collateral-dependent impaired loans, net of ALLL

18,670

�

18,670

Total assets measured at fair value on a non-recurring basis

29,558

�

29,558

Non-recurring Measurements Using Significant Unobservable Inputs (Level 3)

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:



�	Fair Value September 30, 2014		�	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)	Fair Value September 30, 2014		�	Valuation Technique	�	Unobservable Input	�	Range (Weighted Average) ¹
Other real estate owned	$	529	�	Sales comparison approach	�	Selling costs	�	8.0% - 10.0% (8.2%)
�	�		�	�	�	Adjustment to comparables	�	0.0% - 7.0% (0.8%)
�	780		�	Combined approach	�	Selling costs	�	10.0% - 10.0% (10.0%)
�	�		�	�	�	Discount rate	�	10.0% - 10.0% (10.0%)
�	$	1,309	�	�	�	�	�	�
Collateral-dependent impaired loans, net of ALLL	$	76	�	Cost approach	�	Selling costs	�	6.0% - 6.0% (6.0%)
�	5,364		�	Income approach	�	Selling costs	�	8.0% - 10.0% (8.5%)
�	�		�	�	�	Discount rate	�	8.3% - 12.0% (9.1%)
�	6,939		�	Sales comparison approach	�	Selling costs	�	0.0% - 10.0% (8.2%)
�	2,310		�	Combined approach	�	Selling costs	�	8.0% - 10.0% (8.7%)
�	�		�	�	�	Adjustment to comparables	�	5.0% - 10.0% (8.2%)
�	$	14,689	�	�	�	�	�	�



�	Fair Value December 31, 2013		�	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)	Fair Value December 31, 2013		�	Valuation Technique	�	Unobservable Input	�	Range (Weighted- Average) ¹
Other real estate owned	$	9,278	�	Sales comparison approach	�	Selling costs	�	7.0% - 10.0% (7.7%)
�	�		�	�	�	Adjustment to comparables	�	0.0% - 37.5% (1.4%)
�	1,610		�	Combined approach	�	Selling costs	�	5.0% - 10.0% (7.5%)
�	�		�	�	�	Discount rate	�	8.5% - 8.5% (8.5%)
�	�		�	�	�	Adjustment to comparables	�	25.0% - 25.0% (25.0%)
�	$	10,888	�	�	�	�	�	�
Collateral-dependent impaired loans, net of ALLL	$	4,076	�	Income approach	�	Selling costs	�	8.0% - 8.0% (8.0%)
�	�		�	�	�	Discount rate	�	8.3% - 8.3% (8.3%)
�	11,784		�	Sales comparison approach	�	Selling costs	�	0.0% - 10.0% (7.9%)
�	�		�	�	�	Adjustment to comparables	�	0.0% - 1.0% (0.0%)
�	2,810		�	Combined approach	�	Selling costs	�	0.0% - 8.0% (7.8%)
�	�		�	�	�	Discount rate	�	7.3% - 7.3% (7.3%)
�	�		�	�	�	Adjustment to comparables	�	10.0% - 50.0% (18.9%)
�	$	18,670	�	�	�	�	�	�

__________

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

Fair Value of Financial Instruments

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

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

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

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

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

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

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

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

FHLB advances: fair value of non-callable FHLB advances is estimated by discounting the future cash flows using rates of similar advances with similar maturities. Such rates were obtained from current rates offered by FHLB. The estimated fair value of callable FHLB advances was obtained from FHLB and the model was reviewed by the Company, including discussions with FHLB.

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. The market rates used were averages of currently traded trust preferred securities with similar characteristics to the Companys issuances and obtained from an independent third party.

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

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

The following schedules present the carrying amounts, estimated fair values and the level within the fair value hierarchy of the Companys financial instruments:

�

Fair Value Measurements

At the End of the Reporting Period Using

(Dollars in thousands)

Carrying Amount September 30, 2014

�

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

282,097

�

282,097

�

Investment securities, available-for-sale

2,398,196

�

2,398,196

�

Investment securities, held-to-maturity

482,757

�

513,142

�

Loans held for sale

65,598

�

65,598

�

Loans receivable, net of ALLL

4,328,467

�

4,222,037

�

162,469

Accrued interest receivable

42,981

�

42,981

�

Non-marketable equity securities

52,868

�

52,868

�

Total financial assets

7,652,964

�

390,676

�

7,186,243

�

162,469

Financial liabilities

�

Deposits

6,106,811

�

4,720,941

�

1,391,221

�

FHLB advances

366,866

�

381,132

�

Repurchase agreements and other borrowed funds

374,564

�

374,564

�

Subordinated debentures

125,669

�

76,806

�

Accrued interest payable

3,058

�

3,058

�

Interest rate swaps

9,572

�

9,572

�

Total financial liabilities

6,986,540

�

4,723,999

�

2,233,295

�

Fair Value Measurements

At the End of the Reporting Period Using

(Dollars in thousands)

Carrying Amount December 31, 2013

�

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

155,657

�

155,657

�

Investment securities, available-for-sale

3,222,829

�

3,222,829

�

Loans held for sale

46,738

�

46,738

�

Loans receivable, net of ALLL

3,932,487

�

3,807,993

�

187,731

Accrued interest receivable

41,898

�

41,898

�

Non-marketable equity securities

52,192

�

52,192

�

Interest rate swaps

1,896

�

1,896

�

Total financial assets

7,453,697

�

244,293

�

7,084,910

�

187,731

Financial liabilities

�

Deposits

5,579,967

�

4,258,213

�

1,341,382

�

FHLB advances

840,182

�

857,551

�

Repurchase agreements and other borrowed funds

321,781

�

321,781

�

Subordinated debentures

125,562

�

71,501

�

Accrued interest payable

3,505

�

3,505

�

Total financial liabilities

6,870,997

�

4,261,718

�

2,592,215

�

Note 9. Mergers and Acquisitions

On August 31, 2014, the Company acquired 100 percent of the outstanding common stock of FNBR, a privately-owned company, and its wholly-owned subsidiary, First National Bank of the Rockies, a community bank based in Grand Junction, Colorado. First National Bank of the Rockies provides community banking services to individuals and businesses in northwestern Colorado, with banking offices located in Grand Junction, Steamboat Springs, Meeker, Rangely, Craig, Hayden and Oak Creek. As a result of the acquisition, the Company further diversified its loan and deposit customer base with its increased presence in the state of Colorado. The branches of First National Bank of the Rockies have been combined with an existing division of the Bank operating under the name Bank of the San Juans, division of Glacier Bank. The consideration paid by the Company to acquire FNBR was $31,817,000, which resulted in the Company issuing 555,732 shares of its common stock and $16,690,000 in cash in exchange for all of FNBRs outstanding common stock. The fair value of the Companys common stock issued was $27.22 per share, i.e., the closing market price of the Companys common stock as of the August 31, 2014 acquisition date.

The purchase price paid by the Company to acquire FNBR was the result of extensive negotiations and was the subject of analysis and related issuance of an opinion as to the fairness, from a financial point of view, of the consideration to be received by the holders of FNBR common stock in connection with the acquisition by the Company. The merger agreement limited FNBRs ability to pursue alternative acquisition proposals and provided for the payment by FNBR of a $1,630,000 break-up fee in the event FNBR received an unsolicited acquisition proposal from a third party that was superior from a financial point of view to that made by the Company and the merger agreement was terminated. For additional information regarding the factors leading to the determination of the purchase price, see the Sections entitled Risk Factors and Background of and Reasons for the Merger in the Companys Registration Statement on Form S-4 filed with the United States Securities and Exchange Commission on May 30, 2014.

The assets and liabilities of FNBR were recorded on the Companys consolidated statements of financial condition at their estimated fair values as of the August 31, 2014 acquisition date and FNBRs results of operations have been included in the Companys consolidated statements of operations since that date. The Company recorded a $680,000 bargain purchase gain due to the fair value of FNBRs identifiable net assets exceeding the consideration transferred. The bargain purchase gain is included in other income in the Companys consolidated statements of operations. Before recognizing the bargain purchase gain, the Company reassessed whether it correctly identified and valued each of the assets acquired and liabilities assumed. The objective of the reassessment process was to ensure that the measurements reflected consideration of all available information as of the acquisition date. The reassessment process included reviewing FNBRs statement of financial condition to verify that all assets and liabilities had been identified and then re-evaluating and challenging again the procedures and the reasonableness of the significant assumptions utilized in determining the fair value of the identifiable assets and liabilities with respect to the acquisition date. The Company obtained fair value estimates from independent third party specialists for the significant identifiable assets and liabilities, including loans, investment securities and deposits. Following the reassessment process, the Company concluded that the consideration transferred and all of the assets acquired and liabilities assumed had been properly identified and valued.

The following table discloses the calculation of the fair value of the consideration transferred, the total identifiable net assets acquired and the resulting bargain purchase gain arising from the FNBR acquisition:



(Dollars in thousands)	August�31, 2014
Fair value of consideration transferred	�
Fair value of Company shares issued, net of equity issuance costs	$	15,127
Cash consideration for outstanding shares	16,690
Contingent consideration
Total fair value of consideration transferred	31,817
Recognized amounts of identifiable assets acquired and liabilities assumed	�
Identifiable assets acquired	�
Cash and cash equivalents	14,578
Investment securities	157,018
Loans receivable	137,488
Core deposit intangible	4,199
Accrued income and other assets	35,884
Total identifiable assets acquired	349,167
Liabilities assumed	�
Deposits	309,641
Accrued expenses and other liabilities	7,029
Total liabilities assumed	316,670
Total identifiable net assets	32,497
Bargain purchase gain	$	680

The fair value of the FNBR assets acquired includes loans with fair values of $137,488,000. The gross principal and contractual interest due under the FNBR contracts is $146,019,000, all of which is expected to be collectible.

Core deposit intangible assets related to the FNBR acquisition totaled $4,199,000 with an estimated life of 10 years.

The Company incurred $525,000 of FNBR third-party acquisition-related costs during the nine month period ended September�30, 2014. The expenses are included in other expense in the Company's consolidated statements of operations.

Total income consisting of net interest income and non-interest income of the acquired operations of FNBR was approximately $2,251,000 and net income was approximately $1,029,000 from August 31, 2014 to September�30, 2014. The following unaudited pro forma summary presents consolidated information of the Company as if the FNBR acquisition had occurred on January 1, 2013:

�

Three Months ended

�

Nine Months ended

(Dollars in thousands)

September�30,
2014

�

September�30,
2013

�

September�30,
2014

�

September�30,
2013

Net interest income and non-interest income

95,966

�

89,155

�

278,983

�

247,449

Net income

29,034

�

25,523

�

85,310

�

70,778


Item 2.	Managements Discussion and Analysis of Financial Condition and Results of Operations

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

FORWARD-LOOKING STATEMENTS

This Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about managements plans, objectives, expectations and intentions that are not historical facts, and other statements identified by words such as expects, anticipates, intends, plans, believes, should, projects, seeks, estimates or words of similar meaning. These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Companys control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. In addition to the factors set forth in the sections titled Risk Factors, Business and Managements Discussion and Analysis of Financial Condition and Results of Operations, as applicable, in this report and the Annual Report on Form 10-K for the year ended December�31, 2013 (the 2013 Annual Report), the following factors, among others, could cause actual results to differ materially from the anticipated results:


"	the risks associated with lending and potential adverse changes of the credit quality of loans in the Companys portfolio;


"	increased loan delinquency rates;


"	the risks presented by the lingering economic recovery which could adversely affect credit quality, loan collateral values, OREO values, investment values, liquidity and capital levels, dividends and loan originations;


"	changes in market interest rates, which could adversely affect the Companys net interest income and profitability;


"	legislative or regulatory changes that adversely affect the Companys business, ability to complete pending or prospective future acquisitions, limit certain sources of revenue, or increase cost of operations;


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


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


"	reduced demand for banking products and services;


"	the risks presented by public stock market volatility, which could adversely affect the market price of the Companys common stock and the ability to raise additional capital or grow the Company through acquisitions;


"	consolidation in the financial services industry in the Companys markets resulting in the creation of larger financial institutions who may have greater resources could change the competitive landscape;


"	dependence on the CEO, the senior management team and the Presidents of the Bank divisions;


"	potential interruption or breach in security of the Companys systems; and


"	the Companys success in managing risks involved in the foregoing.

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

MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Recent Acquisition

On August 31, 2014, the Company completed the acquisition of FNBR Holding Corporation (FNBR), and its subsidiary, First National Bank of the Rockies which has ten community banking offices in Grand Junction, Steamboat Springs, Meeker, Rangely, Craig, Hayden, and Oak Creek, Colorado. The branches of FNBR have been combined with an existing division of Glacier Bank and operate under the name Bank of the San Juans, division of Glacier Bank. The total purchase price of the acquisition was $31.8 million, consisting of $16.7 million of cash paid and 555,732 shares of the Companys common stock issued which resulted in a bargain purchase gain of $680 thousand. The Company incurred $525 thousand of legal and professional expenses in connection with the acquisition. The Companys results of operations and financial condition include the acquisition of FNBR from the August 31, 2014 acquisition date.

Financial Condition Analysis

Assets

The following table summarizes the Companys assets as of the dates indicated:�



�	�			�	�		�	�		�	�		�	$ Change from
(Dollars in thousands)	Sep�30, 2014			�	Jun�30, 2014		�	Dec�31, 2013		�	Sep�30, 2013		�	Jun�30, 2014		�	Dec�31, 2013		�	Sep�30, 2013
Cash and cash equivalents	$	282,097		�	202,358		�	155,657		�	254,684		�	79,739		�	126,440		�	27,413
Investment securities, available-for-sale	2,398,196			�	2,559,411		�	3,222,829		�	3,318,953		�	(161,215	)	�	(824,633	)	�	(920,757	)
Investment securities, held-to-maturity	482,757			�	483,557		�			�			�	(800	)	�	482,757		�	482,757
Total investment securities	2,880,953			�	3,042,968		�	3,222,829		�	3,318,953		�	(162,015	)	�	(341,876	)	�	(438,000	)
Loans receivable	�			�	�		�	�		�	�		�	�		�	�		�	�
Residential real estate	603,806			�	587,340		�	577,589		�	583,817		�	16,466		�	26,217		�	19,989
Commercial	3,248,529			�	3,023,915		�	2,901,283		�	2,828,287		�	224,614		�	347,246		�	420,242
Consumer and other	606,764			�	592,024		�	583,966		�	588,995		�	14,740		�	22,798		�	17,769
Loans receivable	4,459,099			�	4,203,279		�	4,062,838		�	4,001,099		�	255,820		�	396,261		�	458,000
Allowance for loan and lease losses	(130,632		)	�	(130,636	)	�	(130,351	)	�	(130,765	)	�	4		�	(281	)	�	133
Loans receivable, net	4,328,467			�	4,072,643		�	3,932,487		�	3,870,334		�	255,824		�	395,980		�	458,133
Other assets	618,293			�	572,125		�	573,377		�	603,959		�	46,168		�	44,916		�	14,334
Total assets	$	8,109,810		�	7,890,094		�	7,884,350		�	8,047,930		�	219,716		�	225,460		�	61,880

Total investment securities decreased $162 million, or 5 percent, during the current quarter and decreased $438 million, or 13 percent, from September 30, 2013 as the Company continued to reduce the overall size of the investment portfolio. At September 30, 2014, investment securities represented 36 percent of total assets, down from 39 percent at the previous quarter and 41 percent at September 30, 2013.

Excluding the loans receivable from the acquisition of FNBR, the loan portfolio increased by $118 million, or 11 percent annualized, during the current quarter with improvement in all loan categories. Excluding the acquisition, the largest dollar and percentage increase was in commercial loans which increased $107 million, or 4 percent, during the current quarter which was attributable to increases in loan production and seasonal draws on construction lines. Excluding the loans receivable from the acquisition, the loan portfolio increased $258 million, or 6 percent, since December 31, 2013 of which $230 million came from growth in commercial loans.

Liabilities

The following table summarizes the Companys liabilities as of the dates indicated:



�	�		�	�	�	�	�	�	�	$ Change from
(Dollars in thousands)	Sep�30, 2014		�	Jun�30, 2014	�	Dec�31, 2013	�	Sep�30, 2013	�	Jun�30, 2014		�	Dec�31, 2013		�	Sep�30, 2013
Non-interest bearing deposits	$	1,595,971	�	1,464,938	�	1,374,419	�	1,397,401	�	131,033		�	221,552		�	198,570
Interest bearing deposits	4,510,840		�	4,280,898	�	4,205,548	�	4,215,479	�	229,942		�	305,292		�	295,361
Repurchase agreements	367,213		�	315,240	�	313,394	�	314,313	�	51,973		�	53,819		�	52,900
FHLB advances	366,866		�	607,305	�	840,182	�	967,382	�	(240,439	)	�	(473,316	)	�	(600,516	)
Other borrowed funds	7,351		�	7,367	�	8,387	�	8,466	�	(16	)	�	(1,036	)	�	(1,115	)
Subordinated debentures	125,669		�	125,633	�	125,562	�	125,526	�	36		�	107		�	143
Other liabilities	95,420		�	78,698	�	53,608	�	71,556	�	16,722		�	41,812		�	23,864
Total liabilities	$	7,069,330	�	6,880,079	�	6,921,100	�	7,100,123	�	189,251		�	148,230		�	(30,793	)

�

Excluding the FNBR acquisition, non-interest bearing deposits at September 30, 2014 increased $51.0 million, or 3 percent, during the current quarter, and increased $119 million, or 8 percent, from September 30, 2013. Excluding the acquisition, interest bearing deposits were unchanged from the prior quarter and increased $65.8 million, or 2 percent, from the prior year. In addition to the increase in deposit balances, the Company has benefited from a higher than expected increase in the number of checking accounts during the current year. Interest bearing deposits of $4.511 billion at September 30, 2014 included $196 million of wholesale deposits (i.e., brokered deposits classified as NOW, money market deposits and certificate accounts). Federal Home Loan Bank (FHLB) advances of $367 million at September 30, 2014 decreased $240 million, or 40 percent, during the current quarter and decreased $601 million, or 62 percent, from September 30, 2013 as the need for borrowings continued to decrease concurrent with the increase in deposits.

Stockholders Equity

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



�	�			�	�		�	�		�	�		�	$ Change from
(Dollars in thousands, except per share data)	Sep�30, 2014			�	Jun�30, 2014		�	Dec�31, 2013		�	Sep�30, 2013		�	Jun�30, 2014		�	Dec�31, 2013		�	Sep�30, 2013
Common equity	$	1,017,805		�	985,809		�	953,605		�	937,824		�	31,996		�	64,200		�	79,981
Accumulated other comprehensive income	22,675			�	24,206		�	9,645		�	9,983		�	(1,531	)	�	13,030		�	12,692
Total stockholders equity	1,040,480			�	1,010,015		�	963,250		�	947,807		�	30,465		�	77,230		�	92,673
Goodwill and core deposit intangible, net	(141,323		)	�	(137,815	)	�	(139,218	)	�	(139,934	)	�	(3,508	)	�	(2,105	)	�	(1,389	)
Tangible stockholders equity	$	899,157		�	872,200		�	824,032		�	807,873		�	26,957		�	75,125		�	91,284
Stockholders equity to total assets	12.83		%	�	12.80	%	�	12.22	%	�	11.78	%	�	�		�	�		�	�
Tangible stockholders equity to total tangible assets	11.28		%	�	11.25	%	�	10.64	%	�	10.22	%	�	�		�	�		�	�
Book value per common share	$	13.87		�	13.56		�	12.95		�	12.76		�	0.31		�	0.92		�	1.11
Tangible book value per common share	$	11.98		�	11.71		�	11.08		�	10.87		�	0.27		�	0.90		�	1.11
Market price per share at end of period	$	25.86		�	28.38		�	29.79		�	24.68		�	(2.52	)	�	(3.93	)	�	1.18

Tangible stockholders equity of $899 million at September 30, 2014 increased $27.0 million, or 3 percent, from the prior quarter as a result of $15.1 million of Company stock issued in connection with the acquisition of FNBR and earnings retention. Tangible stockholders equity increased $91.3 million from a year ago as the result of earnings retention, stock issued in connection with the acquisition, and an increase in accumulated other comprehensive income. Tangible book value per common share of $11.98 increased $0.27 per share from the prior quarter and increased $1.11 per share from the prior year third quarter.

On September 25, 2014, the Companys Board of Directors declared a cash dividend of $0.17 per share during the current quarter. The dividend is payable October 16,�2014 to shareholders of record on October 7, 2014. The dividend was the 118th consecutive quarterly dividend declared by the Company and future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations.

Operating Results for Three Months Ended September�30, 2014�

Compared to June�30, 2014, March�31, 2014 and September�30, 2013

Performance Summary�



�	Three Months ended
(Dollars in thousands, except per share data)	September�30, 2014			�	June�30, 2014		�	March�31, 2014		�	September�30, 2013
Net income	$	29,294		�	28,677		�	26,730		�	25,628
Diluted earnings per share	$	0.40		�	0.38		�	0.36		�	0.35
Return on average assets (annualized)	1.46		%	�	1.47	%	�	1.39	%	�	1.27	%
Return on average equity (annualized)	11.30		%	�	11.45	%	�	11.04	%	�	10.85	%

The Company reported net income of $29.3 million for the current quarter, an increase of $3.7 million, or 14 percent, from the $25.6 million of net income for the prior year third quarter. Diluted earnings per share for the current quarter was $0.40 per share, an increase of $0.05, or 14 percent, from the prior year third quarter diluted earnings per share of $0.35.

Income Summary

The following table summarizes revenue for the periods indicated:�



�	Three Months ended												�	$ Change from
(Dollars in thousands)	Sep�30, 2014			�	Jun�30, 2014		�	Mar�31, 2014		�	Sep�30, 2013		�	Jun�30, 2014		�	Mar�31, 2014		�	Sep�30, 2013
Net interest income	�			�	�		�	�		�	�		�	�		�	�		�	�
Interest income	$	75,690		�	73,963		�	74,087		�	69,531		�	1,727		�	1,603		�	6,159
Interest expense	6,430			�	6,528		�	6,640		�	7,186		�	(98	)	�	(210	)	�	(756	)
Total net interest income	69,260			�	67,435		�	67,447		�	62,345		�	1,825		�	1,813		�	6,915
Non-interest income	�			�	�		�	�		�	�		�	�		�	�		�	�
Service charges, loan fees, and other fees	15,661			�	14,747		�	13,248		�	15,119		�	914		�	2,413		�	542
Gain on sale of loans	6,000			�	4,778		�	3,595		�	7,021		�	1,222		�	2,405		�	(1,021	)
Loss on sale of investments	(61		)	�	(48	)	�	(51	)	�	(403	)	�	(13	)	�	(10	)	�	342
Other income	2,832			�	3,027		�	2,596		�	2,136		�	(195	)	�	236		�	696
Total non-interest income	24,432			�	22,504		�	19,388		�	23,873		�	1,928		�	5,044		�	559
�	$	93,692		�	89,939		�	86,835		�	86,218		�	3,753		�	6,857		�	7,474
Net interest margin (tax-equivalent)	3.99		%	�	3.99	%	�	4.02	%	�	3.56	%	�	�		�	�		�	�

Net Interest Income

Current quarter net interest income of $69.3 million increased $1.8 million during the current quarter. The current quarter interest income of $75.7 million increased $1.7 million, or 2 percent, from the prior quarter. The current quarter increase in interest income was primarily driven by a greater volume of commercial loans which more than offset the reduction in interest income from the investment portfolio.

The current quarters interest income increased $6.2 million, or 9 percent, over the prior year third quarter and was primarily attributable to higher interest income on the investment portfolio and commercial loans. Interest income of $22.8 million on investment securities increased $3.3 million, or 17 percent, over the prior year third quarter as a result of a higher yielding mix of investment securities coupled with a reduction of premium amortization (net of discount accretion) on the investment portfolio (premium amortization). The current quarter interest income of $37.4 million on commercial loans increased $3.1 million, or 9 percent, over the prior year third quarter as a result of an increased volume of commercial loans.

The current quarter interest expense of $6.4 million decreased $98 thousand, or 2 percent, from the prior quarter and decreased $756 thousand, or 11 percent, from the prior year third quarter. The decrease in interest expense from the prior quarter and the prior year third quarter was the result of decreases in deposit interest rates and in the volume of borrowings. The cost of total funding (including non-interest bearing deposits) for the current quarter was 37 basis points compared to 39 basis points in the prior quarter and 41 basis points for the prior year third quarter.

The Companys net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the current and prior quarter was 3.99 percent. The 2 basis points decrease in the current quarter yield on earning assets was offset by a 2 basis points decrease in cost of funds.

The Companys current quarter net interest margin increased 43 basis points from the prior year third quarter net interest margin of 3.56 percent, such increase was primarily driven by the increased yield on the investment portfolio combined with a significant shift in earning assets to the higher yielding loan portfolio.

Non-interest Income

Non-interest income for the current quarter totaled $24.4 million, an increase of $1.9 million over the prior quarter and an increase of $559 thousand over the same quarter last year. The Company continued to benefit from the increased number of deposit accounts which was reflected in the $914 thousand, or 6 percent, increase in service charge fee income from the prior quarter and the $542 thousand, or 4 percent, increase from the prior year third quarter, respectively. Gain of $6.0 million on the sales of residential loans in the current quarter was an increase of $1.2 million, or 26 percent, from the prior quarter. Gain on the sale of the residential loans in the current quarter decreased $1.0 million, or 15 percent, from the prior year third quarter as a result of the reduction in refinance activity. Included in other income was operating revenue of $38 thousand from other real estate owned (OREO) and gain of $368 thousand from the sale of OREO, a combined total of $406 thousand for the current quarter compared to $615 thousand for the prior quarter and $433 thousand for the prior year third quarter.

Non-interest Expense

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

�



�	Three Months ended								�	$ Change from
(Dollars in thousands)	Sep�30, 2014		�	Jun�30, 2014	�	Mar�31, 2014	�	Sep�30, 2013	�	Jun�30, 2014		�	Mar�31, 2014		�	Sep�30, 2013
Compensation and employee benefits	$	30,142	�	28,988	�	28,634	�	27,469	�	1,154		�	1,508		�	2,673
Occupancy and equipment	6,961		�	6,733	�	6,613	�	6,421	�	228		�	348		�	540
Advertising and promotions	2,141		�	1,948	�	1,777	�	1,897	�	193		�	364		�	244
Outsourced data processing	1,472		�	2,032	�	1,288	�	1,232	�	(560	)	�	184		�	240
Other real estate owned	602		�	566	�	507	�	1,049	�	36		�	95		�	(447	)
Regulatory assessments and insurance	1,435		�	1,028	�	1,592	�	1,677	�	407		�	(157	)	�	(242	)
Core deposit intangibles amortization	692		�	693	�	710	�	693	�	(1	)	�	(18	)	�	(1	)
Other expense	10,793		�	10,685	�	8,949	�	9,930	�	108		�	1,844		�	863
Total non-interest expense	$	54,238	�	52,673	�	50,070	�	50,368	�	1,565		�	4,168		�	3,870

Compensation and employee benefits increased by $1.2 million, or 4 percent, from the prior quarter due to the increased number of employees from the FNBR acquisition and additional benefit costs. Compensation and employee benefits increased by $2.7 million from the prior year third quarter because of the increased number of employees from the FNBR acquisition and the North Cascades Bank acquisition at July 31, 2013 along with additional benefit costs and salary increases. Occupancy and equipment expense increased $540 thousand, or 8 percent, from the prior year third quarter as a result of increases in equipment expense related to the Companys expansion of information and technology infrastructure. Advertising and promotion expense increased $193 thousand, or 10 percent, compared to the prior quarter and increased $244 thousand, or 13 percent, from the prior year third quarter primarily from the FNBR acquisition and recent marketing promotions at a number of the Bank divisions. Outsourced data processing expense decreased $560 thousand, or 28 percent, from the prior quarter as a result of conversion related expenses in the second quarter of 2014. Outsourced data processing expense increased $240 thousand, or 19 percent, from the prior year third quarter because of the acquired banks outsourced data processing expense and from an increase in technology infrastructure. The current quarter OREO expense of $602 thousand included $362 thousand of operating expense, $65 thousand of fair value write-downs, and $175 thousand of loss on sale of OREO. OREO expense may fluctuate as the Company continues to work through non-performing assets and dispose of foreclosed properties.

Efficiency Ratio

The efficiency ratio for the current quarter and the prior year third quarter was 54 percent. The increases in non-interest expense were more than offset by the increases in net interest income resulting in a comparable efficiency ratio.

Provision for Loan Losses�

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



(Dollars in thousands)	Provision for Loan Losses		�	Net Charge-Offs		�	ALLL as�a�Percent of Loans		�	Accruing Loans 30-89 Days�Past�Due as�a�Percent�of Loans		�	Non-Performing Assets to Total�Sub-sidiary Assets
Third quarter 2014	$	360	�	$	364	�	2.93	%	�	0.39	%	�	1.21	%
Second quarter 2014	239		�	332		�	3.11	%	�	0.44	%	�	1.30	%
First quarter 2014	1,122		�	744		�	3.20	%	�	1.05	%	�	1.37	%
Fourth quarter 2013	1,802		�	2,216		�	3.21	%	�	0.79	%	�	1.39	%
Third quarter 2013	1,907		�	2,025		�	3.27	%	�	0.66	%	�	1.56	%
Second quarter 2013	1,078		�	1,030		�	3.56	%	�	0.60	%	�	1.64	%
First quarter 2013	2,100		�	2,119		�	3.84	%	�	0.95	%	�	1.79	%
Fourth quarter 2012	2,275		�	8,081		�	3.85	%	�	0.80	%	�	1.87	%

Net charged-off loans for the current quarter remained stable from the prior quarter and decreased $1.7 million, or 82 percent, from the prior year third quarter. The current quarter provision for loan losses of $360 thousand increased $121 thousand from the prior quarter and decreased $1.5 million from the prior year third quarter. Loan portfolio growth, composition, average loan size, credit quality considerations, and other environmental factors will continue to determine the level of provision for loan loss expense.

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

Operating Results for Nine Months ended September�30, 2014

Compared to September�30, 2013

Performance Summary



�	Nine Months ended
(Dollars in thousands, except per share data)	September�30, 2014			�	September�30, 2013
Net income	$	84,701		�	69,098
Diluted earnings per share	$	1.14		�	0.95
Return on average assets (annualized)	1.44		%	�	1.19	%
Return on average equity (annualized)	11.27		%	�	9.96	%

Net income for the nine months ended September 30, 2014 was $84.7 million, an increase of $15.6 million, or 23 percent, from the $69.1 million of net income for the same period the prior year. Diluted earnings per share for the first nine months of the current year was $1.14 per share, an increase of $0.19, or 20 percent, from the diluted earnings per share in the prior year first nine months.

Revenue Summary

The following table summarizes revenue for the periods indicated, including the amount and percentage change from September�30, 2013:



�	Nine Months ended							�	�			�	�
(Dollars in thousands)	September�30, 2014			�	September�30, 2013			�	$ Change			�	% Change
Net interest income	�			�	�			�	�			�	�
Interest income	$	223,740		�	$	189,637		�	$	34,103		�	18	�%
Interest expense	19,598			�	21,829			�	(2,231		)	�	(10	)%
Total net interest income	204,142			�	167,808			�	36,334			�	22	�%
Non-interest income	�			�	�			�	�			�	�
Service charges, loan fees, and other fees	43,656			�	39,765			�	3,891			�	10	�%
Gain on sale of loans	14,373			�	23,582			�	(9,209		)	�	(39	)%
Loss on sale of investments	(160		)	�	(299		)	�	139			�	(46	)%
Other income	8,455			�	6,997			�	1,458			�	21	�%
Total non-interest income	66,324			�	70,045			�	(3,721		)	�	(5	)%
�	$	270,466		�	$	237,853		�	$	32,613		�	14	�%
Net interest margin (tax-equivalent)	4.00		%	�	3.34		%	�	�			�	�

Net Interest Income

Net interest income for the first nine months of the current year was $204 million, an increase of $36.3 million, or 22 percent, over the same period last year. Interest income for the first nine months of the current year increased $34.1 million, or 18 percent, from the prior year first nine months and was principally due to the decrease in premium amortization on investment securities and increased income from commercial loans. Interest income benefited from a reduction by $33.8 million in premium amortization on investment securities during the first nine months of the current year compared to the same period last year. Current year interest income on commercial loans increased $14.9 million, or 16 percent, from the first nine months of the prior year and was primarily the result of an increased volume of commercial loans.

Interest expense for the first nine months of the current year decreased $2.2 million, or 10 percent, from the prior year first nine months and was primarily attributable to the decreases in interest rates on certificate of deposits and lower volume of borrowings. The funding cost (including non-interest bearing deposits) for the first nine months of 2014 was 39 basis points compared to 43 basis points for the first nine months of 2013.

The net interest margin as a percentage of earning assets, on a tax-equivalent basis, for the first nine months of 2014 was 4.00 percent, a 66 basis points increase from the net interest margin of 3.34 percent for the first nine months of 2013. The increase in the net interest margin was due to the increased yield on the investment portfolio combined with the shift in earning assets to the higher yielding loan portfolio. The premium amortization for the first nine months of 2014 accounted for a 42 basis points reduction in the net interest margin, which was a decrease of 61 basis points compared to the 103 basis points reduction in the net interest margin for the same period last year.

Non-interest Income

Non-interest income of $66.3 million for the first nine months of 2014 decreased $3.7 million, or 5 percent, over the same period last year. Gain of $14.4 million on the sale of residential loans for the first nine months of 2014 decreased $9.2 million, or 39 percent, from the first nine months of 2013 as a consequence of the slowdown in refinance activity. Service charges and other fees of $43.7 million for the first nine months of 2014 increased $3.9 million, or 10 percent, from the same period last year. Included in other income was operating revenue of $136 thousand from OREO and gain of $1.7 million from the sale of OREO, which combined totaled $1.8 million for the first nine months of 2014 compared to $1.9 million for the same period in the prior year.

Non-interest Expense Summary

The following table summarized the non-interest expense for the periods indicated, including the amount and percentage change from September�30, 2013:



�	Nine Months ended					�	�			�	�
(Dollars in thousands)	September�30, 2014		�	September�30, 2013		�	$ Change			�	% Change
Compensation and employee benefits	$	87,764	�	$	76,963	�	$	10,801		�	14	�%
Occupancy and equipment	20,307		�	18,152		�	2,155			�	12	�%
Advertising and promotions	5,866		�	5,066		�	800			�	16	�%
Outsourced data processing	4,792		�	2,870		�	1,922			�	67	�%
Other real estate owned	1,675		�	4,901		�	(3,226		)	�	(66	)%
Regulatory assessments and insurance	4,055		�	4,843		�	(788		)	�	(16	)%
Core deposit intangibles amortization	2,095		�	1,684		�	411			�	24	�%
Other expense	30,427		�	27,804		�	2,623			�	9	�%
Total non-interest expense	$	156,981	�	$	142,283	�	$	14,698		�	10	�%

Compensation and employee benefits for the first nine months of 2014 increased $10.8 million, or 14 percent, from the same period last year due to the increased number of employees from the acquired banks, additional benefit costs and annual salary increases. Occupancy and equipment expense increased $2.2 million, or 12 percent, as a result of the acquisitions and increases in equipment expense related to additional information and technology infrastructure. Outsourced data processing expense increased $1.9 million, or 67 percent, from the prior year first nine months as a result of the acquired banks outsourced data processing expense, conversion related expenses and general increases in data processing expense. OREO expense of $1.7 million in the first nine months of 2014 decreased $3.2 million, or 66 percent, from the same period last year. OREO expense for the first nine months of 2014 included $1.1 million of operating expenses, $217 thousand of fair value write-downs, and $383 thousand of loss on sale of OREO. Other expense for the first nine months of 2014 increased by $2.6 million, or 9 percent, from the first nine months of the prior year primarily from debit card expenses and other deposit account related charges.

Efficiency Ratio

The efficiency ratio was 54 percent for the first nine months of 2014 and 55 percent for the first nine months of 2013. The improvement in the efficiency ratio resulted from net interest income outpacing the increase in non-interest expense and the decrease in non-interest income.

Provision for Loan Losses

The provision for loan losses was $1.7 million for the first nine months of 2014, a decrease of $3.4 million, or 66 percent, from the same period in the prior year. Net charged-off loans during the first nine months of 2014 was $1.4 million, a decrease of $3.7 million from the first nine months of 2013.

ADDITIONAL MANAGEMENTS DISCUSSION AND ANALYSIS

Lending Activity and Practices

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 that concentrates on targeted businesses, and 3) installment lending for consumer purposes (e.g., home equity, automobile, etc.). Supplemental information regarding the Companys 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. Managements 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. Managements Discussion and Analysis of Financial Condition and Results of Operations is based on the Companys loan segments and classes which is based on the purpose of the loan, unless otherwise noted as a regulatory classification.

The following table summarizes the Companys loan portfolio as of the dates indicated:

�

September 30, 2014

�

December 31, 2013

�

September 30, 2013

(Dollars in thousands)

Amount

�

Percent

�

Amount

�

Percent

�

Amount

�

Percent

Residential real estate loans

603,806

�

�%

�

577,589

�

�%

�

583,817

�

�%

Commercial loans

�

Real estate

2,276,282

�

�%

�

2,049,247

�

�%

�

1,994,058

�

�%

Other commercial

972,247

�

�%

�

852,036

�

�%

�

834,229

�

�%

Total

3,248,529

�

�%

�

2,901,283

�

�%

�

2,828,287

�

�%

Consumer and other loans

�

Home equity

385,681

�

�%

�

366,465

�

�%

�

373,512

�

�%

Other consumer

221,083

�

�%

�

217,501

�

�%

�

215,483

�

�%

Total

606,764

�

�%

�

583,966

�

�%

�

588,995

�

�%

Loans receivable

4,459,099

�

103

�%

�

4,062,838

�

103

�%

�

4,001,099

�

103

�%

Allowance for loan and lease losses

(130,632

)

�

(130,351

)

�

(130,765

)

�

Loans receivable, net

4,328,467

�

100

�%

�

3,932,487

�

100

�%

�

3,870,334

�

100

�%

Non-performing Assets

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

�



�	At or for the Nine Months ended			�	At or for the Six Months ended		�	At or for the Year ended		�	At or for the Nine Months ended
(Dollars in thousands)	September�30, 2014			�	June�30, 2014		�	December�31, 2013		�	September�30, 2013
Other real estate owned	$	28,374		�	26,338		�	26,860		�	36,531
Accruing loans 90 days or more past due	�			�	�		�	�		�	�
Residential real estate	869			�	296		�	429		�
Commercial	698			�	602		�	160		�	144
Consumer and other	50			�	82		�	15		�	30
Total	1,617			�	980		�	604		�	174
Non-accrual loans	�			�	�		�	�		�	�
Residential real estate	6,592			�	7,299		�	10,702		�	12,604
Commercial	53,433			�	58,428		�	61,577		�	65,127
Consumer and other	8,124			�	9,420		�	9,677		�	10,562
Total	68,149			�	75,147		�	81,956		�	88,293
Total non-performing assets ¹	$	98,140		�	102,465		�	109,420		�	124,998
Non-performing assets as a percentage of subsidiary assets	1.21		%	�	1.30	%	�	1.39	%	�	1.56	%
Allowance for loan and lease losses as a percentage of non-performing loans	187		%	�	172	%	�	158	%	�	148	%
Accruing loans 30-89 days past due	$	17,570		�	18,592		�	32,116		�	26,401
Accruing troubled debt restructurings	$	74,376		�	73,981		�	81,110		�	86,850
Non-accrual troubled debt restructurings	$	37,482		�	35,786		�	42,461		�	40,917
Interest income ²	$	2,489		�	1,828		�	4,122		�	3,340

�__________


¹�	As of September�30, 2014, non-performing assets have not been reduced by U.S. government guarantees of $3.4 million.


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

Non-performing assets at September 30, 2014 were $98.1 million and included $5.7 million from the FNBR acquisition. Excluding the acquisition, non-performing assets at September 30, 2014 were $92.5 million, a decrease of $10.0 million, or 10 percent, during the current quarter and a decrease of $32.5 million, or 26 percent, from a year ago. Land, lot and other construction loans (i.e., regulatory classification) continues to be the largest category and, excluding the acquisition, was $47.5 million, or 51 percent, of the non-performing assets at September 30, 2014. The Company has continued to make progress by reducing this category the past few years and, excluding the acquisition, the category decreased $1.6 million, or 3 percent, from the prior quarter. Early stage delinquencies (accruing loans 30-89 days past due) of $17.6 million at September 30, 2014 decreased $1.0 million, or 5 percent, from the prior quarter and decreased $8.8 million, or 33 percent, from the prior year third quarter.

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

For non-performing construction loans involving residential structures, the percentage of completion exceeds 95 percent at September�30, 2014. For non-performing construction loans involving commercial structures, the percentage of completion ranges from projects not started to projects completed at September�30, 2014. During the construction loan term, all construction loan collateral properties are inspected at least monthly, or more frequently as needed, until completion. Draws on construction loans are predicated upon the results of the inspection and advanced based upon a percentage of completion basis versus original budget percentages. When construction loans become non-performing and the associated project is not complete, the Company on a case-by-case basis makes the decision to advance additional funds or to initiate collection/foreclosure proceedings. Such decision includes obtaining as-is and at completion appraisals for consideration of potential increases or decreases in the collaterals value. The Company also considers the increased costs of monitoring progress to completion, and the related collection/holding period costs should collateral ownership be transferred to the Company. With very limited exception, the Company does not disburse additional funds on non-performing loans. Instead, the Company has proceeded to collection and foreclosure actions in order to reduce the Companys exposure to loss on such loans.

Construction loans, a regulatory classification, accounted for 47 percent of the Companys non-accrual loans as of September�30, 2014. Land, lot and other construction loans, a regulatory classification, were 96 percent of the non-accrual construction loans. Of the Companys $32.1 million of non-accrual construction loans at September�30, 2014, 92 percent of such loans had collateral properties securing the loans in Western Montana and Idaho. With locations and operations in the contiguous northern Rocky Mountain states of Idaho and Montana, the geography and economies of each of these geographic areas are predominantly tied to real estate development given the sprawling abundance of timbered valleys and mountainous terrain with significant lakes, streams and watershed areas. Consistent with the lingering economic recovery, the upscale primary, secondary and other housing markets, as well as the associated construction and building industries show improved activity after several years of decline. As the housing market (rental and owner-occupied) and related industries continue to recover from the downturn, the Company continues to reduce its exposure to loss in the land, lot and other construction loan portfolio.

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

Impaired Loans

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

Impaired loans were $173 million and $200 million as of September�30, 2014 and December�31, 2013, respectively. The ALLL includes specific valuation allowances of $10.2 million and $11.9 million of impaired loans as of September�30, 2014 and December�31, 2013, respectively. Of the total impaired loans at September�30, 2014, there were 23 significant commercial real estate and other commercial loans that accounted for $65.7 million, or 38 percent, of the impaired loans. The 23 loans were collateralized by 127 percent of the loan value, the majority of which had appraisals or evaluations (new or updated) during the last year, such appraisals reviewed at least quarterly taking into account current market conditions. Of the total impaired loans at September�30, 2014, there were 142 loans aggregating $83.3 million, or 48 percent, whereby the borrowers had more than one impaired loan. The amount of impaired loans that have had partial charge-offs during the year for which the Company continues to have concern about the collectability of the remaining loan balance was $2.1 million. Of these loans, there were charge-offs of $1.1 million during 2014.

Restructured Loans

A restructured loan is considered a troubled debt restructuring (TDR) if the creditor, for economic or legal reasons related to the debtors financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Company had TDR loans of $112 million and $124 million as of September�30, 2014 and December�31, 2013, respectively. The Companys TDR loans are considered impaired loans of which $37.5 million and $42.5 million as of September�30, 2014 and December�31, 2013, respectively, are designated as non-accrual.

Each restructured debt is separately negotiated with the borrower and includes terms and conditions that reflect the borrowers prospective ability to service the debt as modified. The Company discourages the use of the multiple loan strategy when restructuring loans regardless of whether or not the notes are TDR loans. The Company does not have any commercial TDR loans as of September�30, 2014 that have repayment dates extended at or near the original maturity date for which the Company has not classified as impaired. At September�30, 2014, the Company has TDR loans of $17.6 million that are in non-accrual status or that have had partial charge-offs during the year, the borrowers of which continue to have $33.0 million in other loans that are on accrual status.

Other Real Estate Owned

The loan book value prior to the acquisition and transfer of the loan into OREO during 2014 was $10.2 million of which $3.4 million was residential real estate, $4.5 million was commercial, and $2.3 million was consumer loans. The fair value of the loan collateral acquired in foreclosure during 2014 was $9.0 million of which $3.3 million was residential real estate, $3.7 million was commercial, and $2.0 million was consumer loans. The following table sets forth the changes in OREO for the periods indicated:

�



�	Nine Months ended			�	Six Months ended		�	Year ended		�	Nine Months ended
(Dollars in thousands)	September�30, 2014			�	June�30, 2014		�	December�31, 2013		�	September�30, 2013
Balance at beginning of period	$	26,860		�	26,860		�	45,115		�	45,115
Acquisitions	3,928			�			�	1,203		�	1,203
Additions	8,995			�	5,740		�	15,266		�	13,091
Capital improvements	804			�			�	79		�	79
Write-downs	(216		)	�	(151	)	�	(3,639	)	�	(2,365	)
Sales	(11,997		)	�	(6,111	)	�	(31,164	)	�	(20,592	)
Balance at end of period	$	28,374		�	26,338		�	26,860		�	36,531

Allowance for Loan and Lease Losses

Determining the adequacy of the ALLL involves a high degree of judgment and is inevitably imprecise as the risk of loss is difficult to quantify. The ALLL methodology is designed to reasonably estimate the probable loan and lease losses within the Companys loan portfolio. Accordingly, the ALLL is maintained within a range of estimated losses. The determination of the ALLL, including the provision for loan losses and net charge-offs, is a critical accounting estimate that involves managements judgments about all known relevant internal and external environmental factors that affect loan losses, including the credit risk inherent in the loan portfolio, economic conditions nationally and in the local markets in which the Company operates, changes in collateral values, delinquencies, non-performing assets and net charge-offs.

Although the Company continues to actively monitor economic trends, soft economic conditions combined with potential declines in the values of real estate that collateralize most of the Companys loan portfolio may adversely affect the credit risk and potential for loss to the Company.

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

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

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

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

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

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

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



�	September 30, 2014								�	December 31, 2013								�	September 30, 2013
(Dollars in thousands)	ALLL		�	Percent of ALLL�in Category		�	Percent of Loans�in Category		�	ALLL		�	Percent of� ALLL�in Category		�	Percent of�Loans�in Category		�	ALLL		�	Percent of� ALLL�in Category		�	Percent of�Loans�in Category
Residential real estate	$	15,040	�	11	%	�	13	%	�	$	14,067	�	11	%	�	14	%	�	$	15,750	�	12	%	�	15	%
Commercial real estate	67,563		�	52	%	�	51	%	�	70,332		�	54	%	�	51	%	�	73,398		�	56	%	�	50	%
Other commercial	30,765		�	24	%	�	22	%	�	28,630		�	22	%	�	21	%	�	23,821		�	18	%	�	21	%
Home equity	10,104		�	8	%	�	9	%	�	9,299		�	7	%	�	9	%	�	9,491		�	7	%	�	9	%
Other consumer	7,160		�	5	%	�	5	%	�	8,023		�	6	%	�	5	%	�	8,305		�	7	%	�	5	%
Totals	$	130,632	�	100	%	�	100	%	�	$	130,351	�	100	%	�	100	%	�	$	130,765	�	100	%	�	100	%

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

�



�	Nine Months ended			�	Six Months ended		�	Year ended		�	Nine Months ended
(Dollars in thousands)	September�30, 2014			�	June�30, 2014		�	December�31, 2013		�	September�30, 2013
Balance at beginning of period	$	130,351		�	130,351		�	130,854		�	130,854
Provision for loan losses	1,721			�	1,361		�	6,887		�	5,085
Charge-offs	�			�	�		�	�		�	�
Residential real estate	(413		)	�	(413	)	�	(793	)	�	(391	)
Commercial loans	(3,536		)	�	(2,013	)	�	(8,407	)	�	(5,355	)
Consumer and other loans	(1,618		)	�	(898	)	�	(4,443	)	�	(3,216	)
Total charge-offs	(5,567		)	�	(3,324	)	�	(13,643	)	�	(8,962	)
Recoveries	�			�	�		�	�		�	�
Residential real estate	275			�	233		�	299		�	195
Commercial loans	3,138			�	1,491		�	4,803		�	2,696
Consumer and other loans	714			�	524		�	1,151		�	897
Total recoveries	4,127			�	2,248		�	6,253		�	3,788
Charge-offs, net of recoveries	(1,440		)	�	(1,076	)	�	(7,390	)	�	(5,174	)
Balance at end of period	$	130,632		�	130,636		�	130,351		�	130,765
Allowance for loan and lease losses as a percentage of total loans	2.93		%	�	3.11	%	�	3.21	%	�	3.27	%
Net charge-offs as a percentage of total loans	0.03		%	�	0.03	%	�	0.18	%	�	0.13	%

The allowance was $131 million at September 30, 2014 and remained stable compared to the prior quarter and year ago periods. The allowance was 2.93 percent of total loans outstanding at September 30, 2014 compared to 3.11 percent at June 30, 2014 and 3.27 percent for the same quarter last year. Excluding the FNBR acquisition, the allowance was 3.02 percent of total loans outstanding at September 30, 2014, with the decrease from the prior quarter primarily reflecting the growth in the loan portfolio.

The Companys allowance of $131 million is considered adequate to absorb losses from any class of its loan portfolio. For the periods ended September�30, 2014 and 2013, the Company believes the allowance is commensurate with the risk in the Companys loan portfolio and is directionally consistent with the change in the quality of the Companys loan portfolio.

When applied to the Companys historical loss experience, the qualitative or environmental factors result in the provision for loan losses being recorded in the period in which the loss has probably occurred. When the loss is confirmed at a later date, a charge-off is recorded. During 2014, the provision for loan losses exceeded loan charge-offs, net of recoveries, by $281 thousand. During the same period in 2013, loan charge-offs, net of recoveries, exceeded the provision for loan losses by $89 thousand.

The Company provides commercial services to individuals, small to medium size businesses, community organizations and public entities from 128 locations, including 120 branches, across Montana, Idaho, Wyoming, Colorado, Utah, and Washington. The Rocky Mountain states in which the Company operates has 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 Companys geographic locations.

There have been improvements in the economic environment during the last year compared to the past several years. The housing recovery is slowly trying to regain traction. Nationally, home prices have gradually moved upward, and each of the states in which the Company has operations have continued to experience some recovery in home prices. Personal income growth has improved in each of the Companys states. The Federal Reserve Bank of Philadelphias composite state coincident indices reflected positive growth in Montana, Idaho, Colorado, Utah, and Washington over the last three months and the six month forecast of their state leading indices forecasts steady growth in each of the Companys states, except Wyoming. Although unemployment rates in each of the Companys states except Wyoming have experienced improvement with double digit year-over-year declines and each remain lower than the national unemployment rate of 5.9 percent for September 2014, wages and salaries have not increased at the same pace. Employment growth has remained positive in most industries across the Companys footprint and the personal bankruptcy filing rate has declined nationally and in each of the Companys states. Foreclosure starts have continued to decline year-over-year nationally and in each of the Companys states. The tourism industry and related lodging has continued to be a source of strength for the locations where the Companys market areas have national parks and similar recreational areas in the market areas served. Overall, the Company has started to see positive signs throughout the various economic indices; however, given the significant recession experienced during 2008 and 2009, the Company is cautiously optimistic that the housing and banking industries will slowly recover. The Company will continue to actively monitor the economys impact on its lending portfolio.

In evaluating the need for a specific or general valuation allowance for impaired and unimpaired loans, respectively, within the Companys construction loan portfolio (i.e., regulatory classification), including residential construction and land, lot and other construction loans, the credit risk related to such loans was considered in the ongoing monitoring of such loans, including assessments based on current information, including appraisals or evaluations (new or updated) of the underlying collateral, expected cash flows and the timing thereof, as well as the estimated cost to sell when such costs are expected to reduce the cash flows available to repay or otherwise satisfy the construction loan. Construction loans are 12 percent of the Companys total loan portfolio and account for 47 percent of the Companys non-accrual loans at September�30, 2014. Collateral securing construction loans includes residential buildings (e.g., single/multi-family and condominiums), commercial buildings, and associated land (multi-acre parcels and individual lots, with and without shorelines).

The Companys allowance consisted of the following components as of the dates indicated:

�



(Dollars in thousands)	September�30, 2014		�	June�30, 2014	�	December�31, 2013	�	September�30, 2013
Specific valuation allowance	$	10,150	�	9,442	�	11,949	�	12,728
General valuation allowance	120,482		�	121,194	�	118,402	�	118,037
Total ALLL	$	130,632	�	130,636	�	130,351	�	130,765

During 2014, the ALLL increased by $281 thousand, the net result of a $1.8 million decrease in the specific valuation allowance and a $2.1 million increase in the general valuation allowance. The specific valuation allowance decreased as the result of a $27.1 million reduction of loans individually reviewed for impairment from the prior year end. The increase in the general valuation allowance from the prior year-end was due to a $288 million increase in loans collectively evaluated for impairment, excluding the FNBR acquisition, applying the historical loss experience adjusted for qualitative or environmental factors.

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

Loans by Regulatory Classification

Supplemental information regarding identification of the Companys 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 Companys internal loan segments and classes which are based on the purpose of the loan.

The following table summarizes the Companys loan portfolio by regulatory classification:



�	Loans Receivable, by Loan Type												�	% Change from
(Dollars in thousands)	Sep�30, 2014			�	Jun�30, 2014		�	Dec�31, 2013		�	Sep�30, 2013		�	Jun�30, 2014		�	Dec�31, 2013		�	Sep�30, 2013
Custom and owner occupied construction	$	59,121		�	51,497		�	50,352		�	40,187		�	15	�%	�	17	�%	�	47	�%
Pre-sold and spec construction	44,085			�	34,114		�	34,217		�	38,702		�	29	�%	�	29	�%	�	14	�%
Total residential construction	103,206			�	85,611		�	84,569		�	78,889		�	21	�%	�	22	�%	�	31	�%
Land development	88,507			�	81,589		�	73,132		�	75,282		�	8	�%	�	21	�%	�	18	�%
Consumer land or lots	99,003			�	101,042		�	109,175		�	111,331		�	(2	)%	�	(9	)%	�	(11	)%
Unimproved land	66,684			�	51,457		�	50,422		�	51,986		�	30	�%	�	32	�%	�	28	�%
Developed lots for operative builders	15,471			�	15,123		�	15,951		�	15,082		�	2	�%	�	(3	)%	�	3	�%
Commercial lots	16,050			�	17,238		�	12,585		�	15,707		�	(7	)%	�	28	�%	�	2	�%
Other construction	149,207			�	112,081		�	103,807		�	99,868		�	33	�%	�	44	�%	�	49	�%
Total land, lot, and other construction	434,922			�	378,530		�	365,072		�	369,256		�	15	�%	�	19	�%	�	18	�%
Owner occupied	834,742			�	816,859		�	811,479		�	815,401		�	2	�%	�	3	�%	�	2	�%
Non-owner occupied	658,429			�	617,693		�	588,114		�	541,688		�	7	�%	�	12	�%	�	22	�%
Total commercial real estate	1,493,171			�	1,434,552		�	1,399,593		�	1,357,089		�	4	�%	�	7	�%	�	10	�%
Commercial and industrial	573,617			�	549,143		�	523,354		�	528,792		�	4	�%	�	10	�%	�	8	�%
Agriculture	317,506			�	288,555		�	279,959		�	283,801		�	10	�%	�	13	�%	�	12	�%
1st lien	782,116			�	757,954		�	733,406		�	738,842		�	3	�%	�	7	�%	�	6	�%
Junior lien	71,678			�	73,130		�	73,348		�	76,277		�	(2	)%	�	(2	)%	�	(6	)%
Total 1-4 family	853,794			�	831,084		�	806,754		�	815,119		�	3	�%	�	6	�%	�	5	�%
Multifamily residential	168,760			�	152,169		�	123,154		�	113,880		�	11	�%	�	37	�%	�	48	�%
Home equity lines of credit	322,442			�	309,282		�	298,119		�	298,935		�	4	�%	�	8	�%	�	8	�%
Other consumer	139,045			�	134,414		�	130,758		�	128,374		�	3	�%	�	6	�%	�	8	�%
Total consumer	461,487			�	443,696		�	428,877		�	427,309		�	4	�%	�	8	�%	�	8	�%
Other	118,234			�	95,960		�	98,244		�	88,469		�	23	�%	�	20	�%	�	34	�%
Total loans receivable, including loans held for sale	4,524,697			�	4,259,300		�	4,109,576		�	4,062,604		�	6	�%	�	10	�%	�	11	�%
Less loans held for sale ¹	(65,598		)	�	(56,021	)	�	(46,738	)	�	(61,505	)	�	17	�%	�	40	�%	�	7	�%
Total loans receivable	$	4,459,099		�	4,203,279		�	4,062,838		�	4,001,099		�	6	�%	�	10	�%	�	11	�%

__________

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

The following tables summarize selected information identified by regulatory classification on the Companys non-performing assets.



�	� Non-performing�Assets,�by�Loan�Type								�	Non- Accrual Loans	�	Accruing Loans�90� Days or� More�Past�Due	�	Other Real� Estate Owned
(Dollars in thousands)	Sep�30, 2014		�	Jun�30, 2014	�	Dec�31, 2013	�	Sep�30, 2013	�	Sep�30, 2014	�	Sep�30, 2014	�	Sep�30, 2014
Custom and owner occupied construction	$	1,164	�	1,196	�	1,248	�	1,270	�	1,164	�		�
Pre-sold and spec construction	222		�	609	�	828	�	1,157	�	222	�		�
Total residential construction	1,386		�	1,805	�	2,076	�	2,427	�	1,386	�		�
Land development	24,803		�	23,718	�	25,062	�	25,834	�	16,037	�		�	8,766
Consumer land or lots	3,451		�	2,804	�	2,588	�	3,500	�	2,008	�		�	1,443
Unimproved land	13,659		�	12,421	�	13,630	�	14,977	�	11,233	�		�	2,426
Developed lots for operative builders	1,672		�	2,186	�	2,215	�	2,284	�	988	�		�	684
Commercial lots	2,697		�	2,787	�	2,899	�	2,978	�	271	�		�	2,426
Other construction	5,154		�	5,156	�	5,167	�	5,776	�	165	�		�	4,989
Total land, lot and other construction	51,436		�	49,072	�	51,561	�	55,349	�	30,702	�		�	20,734
Owner occupied	14,913		�	14,595	�	14,270	�	19,224	�	13,044	�	95	�	1,774
Non-owner occupied	3,768		�	3,956	�	4,301	�	5,453	�	1,790	�	272	�	1,706
Total commercial real estate	18,681		�	18,551	�	18,571	�	24,677	�	14,834	�	367	�	3,480
Commercial and industrial	4,833		�	5,850	�	6,400	�	7,452	�	4,307	�	320	�	206
Agriculture	3,430		�	3,506	�	3,529	�	2,488	�	2,491	�	11	�	928
1st lien	13,236		�	17,240	�	17,630	�	20,959	�	10,441	�	787	�	2,008
Junior lien	481		�	1,146	�	4,767	�	5,648	�	389	�	92	�
Total 1-4 family	13,717		�	18,386	�	22,397	�	26,607	�	10,830	�	879	�	2,008
Multifamily residential	450		�	729	�		�		�		�		�	450
Home equity lines of credit	3,985		�	4,289	�	4,544	�	5,599	�	3,400	�	17	�	568
Other consumer	222		�	277	�	342	�	399	�	199	�	23	�
Total consumer	4,207		�	4,566	�	4,886	�	5,998	�	3,599	�	40	�	568
Total	$	98,140	�	102,465	�	109,420	�	124,998	�	68,149	�	1,617	�	28,374



�	Accruing�30-89�Days�Delinquent�Loans,� by�Loan�Type											�	% Change from
(Dollars in thousands)	Sep�30, 2014		�	Jun�30, 2014		�	Dec�31, 2013		�	Sep�30, 2013		�	Jun�30, 2014		�	Dec�31, 2013		�	Sep�30, 2013
Custom and owner occupied construction	$		�	$		�	$	202	�	$		�	n/m		�	(100	)%	�	n/m
Pre-sold and spec construction	179		�	144		�			�	772		�	24	�%	�	n/m		�	(77	)%
Total residential construction	179		�	144		�	202		�	772		�	24	�%	�	(11	)%	�	(77	)%
Land development			�			�			�	917		�	n/m		�	n/m		�	(100	)%
Consumer land or lots	62		�	267		�	1,716		�	504		�	(77	)%	�	(96	)%	�	(88	)%
Unimproved land	1,177		�	899		�	615		�	311		�	31	�%	�	91	�%	�	278	�%
Developed lots for operative builders	21		�			�	8		�	9		�	n/m		�	163	�%	�	133	�%
Commercial lots	106		�			�			�	68		�	n/m		�	n/m		�	56	�%
Other construction	660		�			�			�			�	n/m		�	n/m		�	n/m
Total land, lot and other construction	2,026		�	1,166		�	2,339		�	1,809		�	74	�%	�	(13	)%	�	12	�%
Owner occupied	4,341		�	6,125		�	5,321		�	7,261		�	(29	)%	�	(18	)%	�	(40	)%
Non-owner occupied	266		�	1,665		�	2,338		�	2,509		�	(84	)%	�	(89	)%	�	(89	)%
Total commercial real estate	4,607		�	7,790		�	7,659		�	9,770		�	(41	)%	�	(40	)%	�	(53	)%
Commercial and industrial	3,376		�	2,528		�	3,542		�	4,176		�	34	�%	�	(5	)%	�	(19	)%
Agriculture	152		�	497		�	1,366		�	725		�	(69	)%	�	(89	)%	�	(79	)%
1st lien	3,738		�	2,408		�	12,386		�	5,142		�	55	�%	�	(70	)%	�	(27	)%
Junior lien	275		�	536		�	482		�	881		�	(49	)%	�	(43	)%	�	(69	)%
Total 1-4 family	4,013		�	2,944		�	12,868		�	6,023		�	36	�%	�	(69	)%	�	(33	)%
Multifamily Residential	684		�	689		�	1,075		�	226		�	(1	)%	�	(36	)%	�	203	�%
Home equity lines of credit	1,725		�	1,839		�	1,999		�	1,770		�	(6	)%	�	(14	)%	�	(3	)%
Other consumer	789		�	938		�	1,066		�	1,130		�	(16	)%	�	(26	)%	�	(30	)%
Total consumer	2,514		�	2,777		�	3,065		�	2,900		�	(9	)%	�	(18	)%	�	(13	)%
Other	19		�	57		�			�			�	(67	)%	�	n/m		�	n/m
Total	$	17,570	�	$	18,592	�	$	32,116	�	$	26,401	�	(5	)%	�	(45	)%	�	(33	)%

__________

n/m - not measurable

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



�	Net�Charge-Offs�(Recoveries),�Year-to-Date Period Ending, By Loan Type												�	Charge-Offs	�	Recoveries
(Dollars in thousands)	Sep�30, 2014			�	Jun�30, 2014		�	Dec�31, 2013		�	Sep�30, 2013		�	Sep�30, 2014	�	Sep�30, 2014
Custom and owner occupied construction	$			�			�	(51	)	�	(1	)	�		�
Pre-sold and spec construction	(58		)	�	(39	)	�	(10	)	�	128		�		�	58
Total residential construction	(58		)	�	(39	)	�	(61	)	�	127		�		�	58
Land development	(319		)	�	(333	)	�	(383	)	�	(97	)	�	148	�	467
Consumer land or lots	69			�	97		�	843		�	486		�	325	�	256
Unimproved land	(186		)	�	(126	)	�	715		�	435		�	25	�	211
Developed lots for operative builders	(125		)	�	(117	)	�	(81	)	�	(36	)	�	13	�	138
Commercial lots	(5		)	�	(3	)	�	248		�	250		�		�	5
Other construction				�			�	(473	)	�	(130	)	�		�
Total land, lot and other construction	(566		)	�	(482	)	�	869		�	908		�	511	�	1,077
Owner occupied	201			�	(7	)	�	350		�	271		�	487	�	286
Non-owner occupied	(44		)	�	(184	)	�	397		�	375		�	201	�	245
Total commercial real estate	157			�	(191	)	�	747		�	646		�	688	�	531
Commercial and industrial	932			�	1,343		�	3,096		�	1,382		�	2,146	�	1,214
Agriculture	(1		)	�			�	53		�	21		�		�	1
1st lien	207			�	298		�	681		�	347		�	698	�	491
Junior lien	199			�	91		�	106		�	145		�	491	�	292
Total 1-4 family	406			�	389		�	787		�	492		�	1,189	�	783
Multifamily residential	138			�	1		�	(39	)	�	(31	)	�	160	�	22
Home equity lines of credit	222			�	(120	)	�	1,606		�	1,516		�	500	�	278
Other consumer	210			�	175		�	324		�	109		�	373	�	163
Total consumer	432			�	55		�	1,930		�	1,625		�	873	�	441
Other				�			�	8		�	4		�		�
Total	$	1,440		�	1,076		�	7,390		�	5,174		�	5,567	�	4,127

Investment Activity

On January 1, 2014, the Company reclassified state and local government securities with a fair value of approximately $485 million, inclusive of a net unrealized gain of $4.6 million, from available-for-sale classification to held-to-maturity classification. Investment securities classified as available-for-sale are carried at estimated fair value and investment securities classified as held-to-maturity are carried at amortized cost. Unrealized gains or losses, net of tax, on available-for-sale securities are reflected as an adjustment to other comprehensive income. The Companys investment securities are summarized below:



�	September 30, 2014					�	December 31, 2013					�	September 30, 2013
(Dollars in thousands)	Carrying Amount		�	Percent		�	Carrying Amount		�	Percent		�	Carrying Amount		�	Percent
Available-for-sale	�		�	�		�	�		�	�		�	�		�	�
U.S. government sponsored enterprises	$	9,282	�		%	�	$	10,628	�		%	�	$	11,556	�		%
State and local governments	936,774		�	32	%	�	1,385,078		�	43	%	�	1,341,384		�	41	%
Corporate bonds	341,531		�	12	%	�	442,501		�	14	%	�	442,845		�	13	%
Residential mortgage-backed securities	1,110,609		�	39	%	�	1,384,622		�	43	%	�	1,523,168		�	46	%
Total available-for-sale	2,398,196		�	83	%	�	3,222,829		�	100	%	�	3,318,953		�	100	%
Held-to-maturity	�		�	�		�	�		�	�		�	�		�	�
State and local governments	482,757		�	17	%	�			�		%	�			�		%
Total held-to-maturity	482,757		�	17	%	�			�		%	�			�		%
Total investment securities	$	2,880,953	�	100	%	�	$	3,222,829	�	100	%	�	$	3,318,953	�	100	%

The Companys investment portfolio is primarily comprised of residential mortgage-backed securities and state and local government securities which are largely exempt from federal income tax. Similar to 2013, the Company continued to redeploy payments on its residential mortgage-backed securities to loans receivable during the year. The residential mortgage-backed securities are typically short, weighted-average life U.S. agency collateralized mortgage obligations that provide the Company with ongoing liquidity as scheduled and pre-paid principal is received on the securities. The maximum federal statutory rate of 35 percent is used in calculating the Companys tax-equivalent yields on tax-exempt state and local government securities.

The following table presents the carrying amount and weighted-average yield of available-for-sale and held-to-maturity investment securities by contractual maturity at September�30, 2014. Weighted-average yields are based upon the amortized cost of securities and are calculated using the interest method which takes into consideration premium amortization, discount accretion and mortgage-backed securities prepayment provisions. Weighted-average yields on tax-exempt investment securities exclude the federal income tax benefit.



�	One Year or Less					�	After One through Five Years					�	After Five through Ten Years					�	After Ten Years					�	Residential Mortgage-Backed Securities					�	Total
(Dollars in thousands)	Amount		�	Yield		�	Amount		�	Yield		�	Amount		�	Yield		�	Amount		�	Yield		�	Amount		�	Yield		�	Amount		�	Yield
Available-for-sale	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�
U.S. government sponsored enterprises	$	9,235	�	2.26	%	�	$	15	�	1.59	%	�	$	32	�	1.00	%	�	$		�		%	�	$		�		%	�	$	9,282	�	2.26	%
State and local governments	30,975		�	1.84	%	�	149,413		�	2.15	%	�	74,819		�	3.38	%	�	681,567		�	4.31	%	�			�		%	�	936,774		�	3.80	%
Corporate bonds	74,579		�	2.27	%	�	266,952		�	2.07	%	�			�		%	�			�		%	�			�		%	�	341,531		�	2.11	%
Residential mortgage-backed securities			�		%	�			�		%	�			�		%	�			�		%	�	1,110,609		�	2.31	%	�	1,110,609		�	2.31	%
Total available-for-sale	114,789		�	2.15	%	�	416,380		�	2.10	%	�	74,851		�	3.38	%	�	681,567		�	4.31	%	�	1,110,609		�	2.31	%	�	2,398,196		�	2.85	%
Held-to-maturity	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�
State and local governments			�		%	�			�		%	�			�		%	�	482,757		�	4.45	%	�			�		%	�	482,757		�	4.45	%
Total held-to-maturity			�		%	�			�		%	�			�		%	�	482,757		�	4.45	%	�			�		%	�	482,757		�	4.45	%
Total investment securities	$	114,789	�	2.15	%	�	$	416,380	�	2.10	%	�	$	74,851	�	3.38	%	�	$	1,164,324	�	4.37	%	�	$	1,110,609	�	2.31	%	�	$	2,880,953	�	3.13	%

For additional investment activity information, see Note 2 to the Consolidated Financial Statements in Part I. Item�1. Financial Statements.

Other-Than-Temporary Impairment on Securities Analysis

Non-marketable equity securities. Of the non-marketable equity securities owned at September 30, 2014, 97 percent consisted of capital stock issued by FHLB of Seattle. Non-marketable equity securities are evaluated for impairment whenever events or circumstances suggest the carrying value may not be recoverable.

The Companys investment in FHLB stock has limited marketability and is carried at cost, which approximates fair value. With respect to FHLB stock, the Company evaluates such stock for other-than temporary impairment. Such evaluation takes into consideration 1) FHLB deficiency, if any, in meeting applicable regulatory capital targets, including risk-based capital requirements, 2) the significance of any decline in net assets of, FHLB as compared to the capital stock amount for FHLB and the time period for any such decline, 3) commitments by FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of FHLB, 4) the impact of legislative and regulatory changes on FHLB, and 5) the liquidity position of FHLB.

Based on the Companys evaluation of its investments in non-marketable equity securities as of September 30, 2014, the Company determined that none of such securities had other-than-temporary impairment.

Debt securities. In evaluating debt securities for other-than-temporary impairment losses, management assesses whether the Company intends to sell the security or if it is more-likely-than-not that the Company will be required to sell the debt security. In so doing, management considers contractual constraints, liquidity, capital, asset / liability management and securities portfolio objectives. For debt securities with limited or inactive markets, the impact of macroeconomic conditions in the U.S. upon fair value estimates includes higher risk-adjusted discount rates and changes in credit ratings provided by Nationally Recognized Statistical Rating Organizations ("NRSRO" entities such as Moody's, Standard and Poor's, and Fitch). In June 2014, Standard and Poor's reaffirmed its AA+ rating of U.S. government long-term debt and the outlook remains stable. In July 2013, Moody's upgraded its outlook to stable from negative while maintaining its Aaa rating on U.S. government long-term debt. In September 2014, Fitch reaffirmed its AAA rating of U.S. government long-term debt and the outlook remains stable. Standard and Poor's, Moody's and Fitch have similar credit ratings and outlooks with respect to certain long-term debt instruments issued by Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and other U.S. government agencies linked to the long-term U.S. debt.

The following table separates investments with an unrealized loss position at September 30, 2014 into two categories: investments purchased prior to 2014 and those purchased during 2014. Of those investments purchased prior to 2014, the fair market value and unrealized gain or loss at December 31, 2013 is also presented.

�

September 30, 2014

�

December 31, 2013

(Dollars in thousands)

Fair�Value

�

Unrealized

Loss

�

Unrealized

Loss as a

Percent of

Fair Value

�

Fair�Value

�

Unrealized
Loss

�

Unrealized
Loss as a
Percent of
Fair Value

Temporarily impaired securities purchased prior to 2014

�

U.S. government sponsored enterprises

�

�%

�

�%

State and local governments

286,687

�

(7,189

)

�

276,680

�

(18,719

)

�

Corporate bonds

35,673

�

(204

)

�

35,515

�

(793

)

�

Residential mortgage-backed securities

257,445

�

(4,560

)

�

298,657

�

(8,636

)

�

Total

579,827

�

(11,953

)

�

610,879

�

(28,148

)

�

Temporarily impaired securities purchased during 2014

�

State and local governments

4,944

�

(124

)

�

Residential mortgage-backed securities

54,827

�

(325

)

�

Total

59,771

�

(449

)

�

Temporarily impaired securities

�

U.S. government sponsored enterprises

�

�%

�

State and local governments

291,631

�

(7,313

)

�

Corporate bonds

35,673

�

(204

)

�

Residential mortgage-backed securities

312,272

�

(4,885

)

�

Total

639,598

�

(12,402

)

�

With respect to severity, the following table provides the number of securities and amount of unrealized loss in the various ranges of unrealized loss as a percent of book value at September 30, 2014:



(Dollars in thousands)	Number�of Debt Securities	�	Unrealized Loss
Greater than 10.0%	1	�	$	(116	)
5.1% to 10.0%	16	�	(1,813		)
0.1% to 5.0%	254	�	(10,473		)
Total	271	�	$	(12,402	)

With respect to the duration of the impaired debt securities, the Company identified 192 securities which have been continuously impaired for the twelve months ending September 30, 2014. The valuation history of such securities in the prior year(s) was also reviewed to determine the number of months in prior year(s) in which the identified securities was in an unrealized loss position.

The following table provides details of the 192 securities which have been continuously impaired for the twelve months ended September 30, 2014, including the most notable loss for any one bond in each category.



(Dollars in thousands)	Number�of Debt Securities	�	Unrealized Loss for 12 Months Or More			�	Most Notable Loss
State and local governments	167	�	$	(6,846	)	�	$	(661	)
Corporate bonds	4	�	(84		)	�	(31		)
Residential mortgage-backed securities	21	�	(4,123		)	�	(903		)
Total	192	�	$	(11,053	)	�	�

Based on the Company's analysis of its impaired debt securities as of September 30, 2014, the Company determined that none of such securities had other-than-temporary impairment and the unrealized losses were primarily the result of interest rate changes and market spreads subsequent to acquisition. A substantial portion of the investment securities with unrealized losses at September 30, 2014 were issued by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Government National Mortgage Association and other agencies of the United States government or have credit ratings issued by one or more of the NRSRO entities in the four highest credit rating categories. All of the Company's impaired debt securities at September 30, 2014 have been determined by the Company to be investment grade.

Sources of Funds

The Companys deposits have traditionally been the principal source of funds for use in lending and other business purposes. The Company has a number of different deposit programs designed to attract both short-term and long-term deposits from the general public by providing a wide selection of accounts and rates. These programs include non-interest bearing demand accounts, interest bearing checking, regular statement savings, money market deposit accounts, and fixed rate certificates of deposit with maturities ranging from three months to five years, negotiated-rate jumbo certificates, and individual retirement accounts. In addition, wholesale deposits are obtained through various programs and include brokered deposits classified as NOW, money market deposit and certificate accounts. The Companys deposits are summarized below:



�	September 30, 2014					�	December 31, 2013					�	September 30, 2013
(Dollars in thousands)	Amount		�	Percent		�	Amount		�	Percent		�	Amount		�	Percent
Non-interest bearing deposits	$	1,595,971	�	26	%	�	$	1,374,419	�	25	%	�	$	1,397,401	�	25	%
NOW accounts	1,156,814		�	19	%	�	1,113,878		�	20	%	�	1,009,440		�	18	%
Savings accounts	714,986		�	12	%	�	600,998		�	11	%	�	579,822		�	10	%
Money market deposit accounts	1,253,171		�	21	%	�	1,168,918		�	21	%	�	1,167,119		�	21	%
Certificate accounts	1,189,795		�	19	%	�	1,116,622		�	20	%	�	1,130,885		�	20	%
Wholesale deposits	196,074		�	3	%	�	205,132		�	3	%	�	328,213		�	6	%
Total interest bearing deposits	4,510,840		�	74	%	�	4,205,548		�	75	%	�	4,215,479		�	75	%
Total deposits	$	6,106,811	�	100	%	�	$	5,579,967	�	100	%	�	$	5,612,880	�	100	%

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

Short-term borrowings

A critical component of the Companys 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 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 Companys short-term borrowing sources include FHLB advances, federal funds purchased and retail and wholesale repurchase agreements. The Company also has access to the short-term discount window borrowing programs (i.e., primary credit) of the Federal Reserve Bank. FHLB advances and certain other short-term borrowings may be extended as long-term borrowings to decrease certain risks such as liquidity or interest rate risk; however, the reduction in risks are weighed against the increased cost of funds and other risks.

The following table provides information relating to short-term borrowings which consists of borrowings that mature within one year from period end:�



�	At or for the Nine Months ended			�	At or for the Year ended
(Dollars in thousands)	September�30, 2014			�	December�31, 2013
Repurchase agreements	�			�	�
Amount outstanding at end of period	$	367,213		�	313,394
Weighted interest rate on outstanding amount	0.28		%	�	0.28	%
Maximum outstanding at any month-end	$	367,213		�	326,184
Average balance	$	308,739		�	295,004
Weighted average interest rate	0.27		%	�	0.29	%
FHLB advances	�			�	�
Amount outstanding at end of period	$	87,084		�	559,084
Weighted interest rate on outstanding amount	0.21		%	�	0.24	%
Maximum outstanding at any month-end	$	617,983		�	939,109
Average balance	$	378,668		�	693,225
Weighted average interest rate	0.24		%	�	0.25	%

Contractual Obligations and Off-Balance Sheet Arrangements

The Company has outstanding debt obligations, the largest aggregate amount of which were FHLB advances. In the normal course of business, there may be various outstanding commitments to obtain funding and to extend credit, such as letters of credit and un-advanced loan commitments, which are not reflected in the accompanying condensed consolidated financial statements. The Company does not anticipate any material losses as a result of these transactions.

Liquidity Risk

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


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


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


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

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

The following table identifies certain liquidity sources and capacity available to the Company at September�30, 2014:�



(Dollars in thousands)	September�30, 2014
FHLB advances	�
Borrowing capacity	$	1,267,759
Amount utilized	(366,866		)
Amount available	$	900,893
Federal Reserve Bank discount window	�
Borrowing capacity	$	866,140
Amount utilized
Amount available	$	866,140
Unsecured lines of credit available	$	255,000
Unencumbered investment securities	�
U.S. government sponsored enterprises	$	1,951
State and local governments	760,635
Corporate bonds	205,706
Residential mortgage-backed securities	371,909
Total unencumbered securities	$	1,340,201

Capital Resources

Maintaining capital strength continues to be a long-term objective of the Company. Abundant capital is necessary to sustain growth, provide protection against unanticipated declines in asset values, and to safeguard the funds of depositors. Capital is also a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities. The Company has the capacity to issue 117,187,500 shares of common stock of which 75,024,092 have been issued as of September�30, 2014. The Company also has the capacity to issue 1,000,000 shares of preferred stock of which none have been issued as of September�30, 2014. 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 Company and the Bank were considered well capitalized by their respective regulators as of September�30, 2014 and 2013. There are no conditions or events after September�30, 2014 that management believes have changed the Companys or the Banks risk-based capital category.

The following table illustrates the Federal Reserves capital adequacy guidelines and the Companys compliance with those guidelines as of September�30, 2014.



(Dollars in thousands)	Tier 1 Capital			�	Total Capital		�	Tier 1 Leverage Capital
Total stockholders equity	$	1,040,480		�	1,040,480		�	1,040,480
Less:	�			�	�		�	�
Goodwill and intangibles	(141,323		)	�	(141,323	)	�	(141,323		)
Net unrealized gains on available-for-sale securities and change in fair value of derivatives used for cash flow hedges	(22,675		)	�	(22,675	)	�	(22,675		)
Plus:	�			�	�		�	�
Allowance for loan and lease losses				�	70,852		�
Subordinated debentures	124,500			�	124,500		�	124,500
Total regulatory capital	$	1,000,982		�	1,071,834		�	1,000,982
Risk-weighted assets	$	5,608,316		�	5,608,316		�	�
Total adjusted average assets	�			�	�		�	$	7,796,461
Capital ratio	17.85		%	�	19.11	%	�	12.84		%
Regulatory well capitalized requirement	6.00		%	�	10.00	%	�	�
Excess over well capitalized requirement	11.85		%	�	9.11	%	�	�

Federal and State Income Taxes

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

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

Income tax expense for the nine months ended September�30, 2014 and 2013 was $27.1 million and $21.4 million, respectively. The Companys effective tax rate for the nine months ended September�30, 2014 and 2013 was 24.2 percent and 23.6 percent, respectively. The primary reason for the low effective rates are the benefits of tax-exempt investment income and federal tax credits. The tax-exempt income was $35.1 million and $31.4 million for the nine months ended September�30, 2014 and 2013, respectively. The federal tax credit benefits were $3.1 million and $3.0 million for the nine months ended September�30, 2014 and 2013, respectively.

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

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

�



(Dollars in thousands)	New Markets Tax�Credits		�	Low-Income Housing Tax Credits	�	Investment Securities Tax�Credits	�	Total
2014	$	2,850	�	1,270	�	910	�	5,030
2015	2,850		�	1,175	�	885	�	4,910
2016	1,014		�	1,175	�	861	�	3,050
2017	450		�	1,060	�	784	�	2,294
2018			�	1,060	�	707	�	1,767
Thereafter			�	2,021	�	3,759	�	5,780
�	$	7,164	�	7,761	�	7,906	�	22,831

Average Balance Sheet

The following schedule provides 1) the total dollar amount of interest and dividend income of the Company for earning assets and the average yields; 2) the total dollar amount of interest expense on interest bearing liabilities and the average rates; 3) net interest and dividend income and interest rate spread; and 4) net interest margin (tax-equivalent).

�

Three Months ended

�

Nine Months ended

�

September 30, 2014

�

September 30, 2014

(Dollars in thousands)

Average

Balance

�

Interest &

Dividends

�

Average

Yield/

Rate

�

Average

Balance

�

Interest &

Dividends

�

Average

Yield/

Rate

Assets

�

Residential real estate loans

653,633

�

7,950

�

4.87

�

627,790

�

22,257

�

4.73

Commercial loans

3,087,020

�

37,387

�

4.80

�

2,968,681

�

107,696

�

4.85

Consumer and other loans

592,904

�

7,559

�

5.06

�

583,279

�

22,785

�

5.22

Total loans ¹

4,333,557

�

52,896

�

4.84

�

4,179,750

�

152,738

�

4.89

Tax-exempt investment securities ²

1,203,419

�

16,920

�

5.62

�

1,197,604

�

50,577

�

5.63

Taxable investment securities ³

1,910,212

�

11,438

�

2.40

�

2,002,557

�

37,061

�

2.47

Total earning assets

7,447,188

�

81,254

�

4.33

�

7,379,911

�

240,376

�

4.35

Goodwill and intangibles

137,605

�

138,226

�

Non-earning assets

352,991

�

335,064

�

Total assets

7,937,784

�

7,853,201

�

Liabilities

�

Non-interest bearing deposits

1,506,748

�

1,408,661

�

NOW accounts

1,131,401

�

264

�

0.09

�

1,107,643

�

868

�

0.10

Savings accounts

673,823

�

0.05

�

645,990

�

250

�

0.05

Money market deposit accounts

1,221,917

�

593

�

0.19

�

1,200,899

�

1,813

�

0.20

Certificate accounts

1,137,852

�

1,948

�

0.68

�

1,136,490

�

5,903

�

0.69

Wholesale deposits ⁴

222,603

�

133

�

0.24

�

191,228

�

343

�

0.24

FHLB advances

488,487

�

2,356

�

1.89

�

659,141

�

7,317

�

1.46

Repurchase agreements, federal funds purchased and other borrowed funds

459,299

�

1,047

�

0.90

�

442,507

�

3,104

�

0.94

Total interest bearing liabilities

6,842,130

�

6,430

�

0.37

�

6,792,559

�

19,598

�

0.39

Other liabilities

66,960

�

55,382

�

Total liabilities

6,909,090

�

6,847,941

�

Stockholders Equity

�

Common stock

746

�

745

�

Paid-in capital

697,407

�

693,751

�

Retained earnings

306,200

�

290,464

�

Accumulated other comprehensive income

24,341

�

20,300

�

Total stockholders equity

1,028,694

�

1,005,260

�

Total liabilities and stockholders equity

7,937,784

�

7,853,201

�

Net interest income (tax-equivalent)

�

74,824

�

220,778

�

Net interest spread (tax-equivalent)

�

3.96

�

3.96

Net interest margin (tax-equivalent)

�

3.99

�

4.00

�

__________


¹�	Total loans are gross of the allowance for loan and lease losses, net of unearned income and include loans held for sale. Non-accrual loans were included in the average volume for the entire period.


²�	Includes tax effect of $5.2 million and $15.5 million on tax-exempt investment security income for the three and nine months ended September�30, 2014.


³�	Includes tax effect of $372 thousand and $1.1 million on investment security tax credits for the three and nine months ended September�30, 2014.


⁴�	Wholesale deposits include brokered deposits classified as NOW, money market deposit and certificate accounts.

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 Companys interest earning assets and interest bearing liabilities (Volume) and the yields earned and rates paid on such assets and liabilities (Rate). The change in interest income and interest expense attributable to changes in both volume and rates has been allocated proportionately to the change due to volume and the change due to rate.



�	Nine Months ended September 30,
�	2014 vs. 2013
�	Increase (Decrease) Due to:
(Dollars in thousands)	Volume			�	Rate		�	Net
Interest income	�			�	�		�	�
Residential real estate loans	$	415		�	236		�	651
Commercial loans	19,588			�	(4,680	)	�	14,908
Consumer and other loans	(238		)	�	(1,197	)	�	(1,435	)
Investment securities (tax-equivalent)	(8,325		)	�	29,880		�	21,555
Total interest income	11,440			�	24,239		�	35,679
Interest expense	�			�	�		�	�
NOW accounts	114			�	(130	)	�	(16	)
Savings accounts	47			�	3		�	50
Money market deposit accounts	236			�	(5	)	�	231
Certificate accounts	159			�	(1,201	)	�	(1,042	)
Wholesale deposits	(588		)	�	(42	)	�	(630	)
FHLB advances	(2,818		)	�	2,106		�	(712	)
Repurchase agreements, federal funds purchased and other borrowed funds	112			�	(224	)	�	(112	)
Total interest expense	(2,738		)	�	507		�	(2,231	)
Net interest income (tax-equivalent)	$	14,178		�	23,732		�	37,910

Net interest income (tax-equivalent) increased $37.9 million for the nine months ended September�30, 2014 compared to the same period in 2013. The increase in net interest income primarily resulted from higher interest rates on investment securities due to a significant decrease in premium amortization. The growth of the Companys commercial loan portfolio also contributed to the increase in net interest income.

Effect of inflation and changing prices

GAAP often requires the measurement of financial position and operating results in terms of historical dollars, without consideration for change in relative purchasing power over time due to inflation. Virtually all assets of the Company are monetary in nature; therefore, interest rates generally have a more significant impact on a companys performance than does the effect of inflation.


Item 3.	Quantitative and Qualitative Disclosure about Market Risk

The Companys assessment of market risk as of September�30, 2014 indicates there are no material changes in the quantitative and qualitative disclosures from those in the 2013 Annual Report.


Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Companys Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Companys disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(c)) as of September�30, 2014. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Companys 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 Companys internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter 2014, to which this report relates that have materially affected, or are reasonably likely to materially affect the Companys 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 Companys opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on the financial condition or results of operations of the Company.

Item 1A. Risk Factors

The Company believes there have been no material changes from risk factors previously disclosed in the 2013 Annual Report. The risks and uncertainties described in the 2013 Annual Report should be carefully reviewed. These are not the only risks and uncertainties that the Company faces. Additional risks and uncertainties that the Company does not currently know about or that the Company currently believes are immaterial, or that the Company has not predicted, may also harm its business operations or adversely affect the Company. If any of these risks or uncertainties actually occurs, the Companys business, financial condition, operating results or liquidity could be adversely affected.


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


(a)	Not Applicable


(b)	Not Applicable


(c)	Not Applicable


Item 3.	Defaults upon Senior Securities


(a)	Not Applicable


(b)	Not Applicable


Item 4.	Mine Safety Disclosures

Not Applicable


Item 5.	Other Information


(a)	Not Applicable


(b)	Not Applicable

Item 6. Exhibits

�


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


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


Exhibit 32 -	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002

Exhibit 101 -

The following financial information from Glacier Bancorp, Inc's Quarterly Report on Form 10-Q for the quarter ended September�30, 2014 is formatted in XBRL: (i) the Unaudited Condensed Consolidated Statements of Financial Condition, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income, (iv) the Unaudited Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Condensed Consolidated Financial Statements.

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 on November�4, 2014.



�	GLACIER BANCORP, INC.	�
�	/s/ Michael J. Blodnick
�	Michael J. Blodnick
�	President and CEO
�	/s/ Ron J. Copher
�	Ron J. Copher
�	Executive Vice President and CFO

Exhibit 31.1

CERTIFICATIONS

I, Michael J. Blodnick, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Glacier Bancorp, Inc.


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and


5.	The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.



November�4, 2014	�	/s/ Michael J. Blodnick
�	�	Michael J. Blodnick
�	�	President/CEO

Exhibit 31.2

CERTIFICATIONS

I, Ron J. Copher, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Glacier Bancorp, Inc.


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and


5.	The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.



November�4, 2014	�	/s/ Ron J. Copher
�	�	Ron J. Copher
�	�	Executive Vice President/CFO

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Glacier Bancorp, Inc. (the Company) on Form 10-Q for the period ended September�30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the Report), we, Michael J. Blodnick, President and Chief Executive Officer, and Ron J. Copher, Executive Vice President and Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. Section�1350, as adopted pursuant to Section�906 of the Sarbanes-Oxley Act of 2002, that:


(1)	The Report fully complies with the requirements of Section�13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section�906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section�906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.



November�4, 2014	�	/s/ Michael J. Blodnick
�	�	Michael J. Blodnick
�	�	President/CEO
November�4, 2014	�	/s/ Ron J. Copher
�	�	Ron J. Copher
�	�	Executive Vice President/CFO

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

Create E-mail Alert Related Categories

SEC Filings

Sign up for StreetInsider Free!

Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!

Form 10-Q GLACIER BANCORP INC For: Sep 30

You May Also Be Interested In

Create E-mail Alert Related Categories

Sign up for StreetInsider Free!

Free News Feed