Glacier Bancorp - 10-Q quarterly report FY2010 Q3

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2010


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

For the transition period from to

COMMISSION FILE 0-18911

GLACIER BANCORP, INC.

(Exact name of registrant as specified in its charter)


MONTANA		81-0519541
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)


49 Commons Loop, Kalispell, Montana		59901
(Address of principal executive offices)		(Zip Code)

(406) 756-4200

Registrant’s telephone number, including area code

Not Applicable

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

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

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 þ No o

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


Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o (Do not check if a smaller reporting company)		Smaller reporting Company o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo þ

The number of shares of Registrant’s common stock outstanding on October 21, 2010 was 71,915,073. No preferred shares are issued or outstanding.

GLACIER BANCORP, INC.
Quarterly Report on Form 10-Q

Index


	Page
Part I. Financial Information

Item 1 — Financial Statements

Unaudited Condensed Consolidated Statements of Financial Condition — September 30, 2010, December 31, 2009, and September 30, 2009		3

Unaudited Condensed Consolidated Statements of Operations — Three and Nine Months ended September 30, 2010 and 2009		4

Unaudited Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income — Year ended December 31, 2009 and Nine Months ended September 30, 2010		5

Unaudited Condensed Consolidated Statements of Cash Flows — Nine Months ended September 30, 2010 and 2009		6

Notes to Unaudited Condensed Consolidated Financial Statements		7

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3 — Quantitative and Qualitative Disclosure about Market Risk		54

Item 4 — Controls and Procedures		54

Part II. Other Information		54

Item 1 — Legal Proceedings		54

Item 1A — Risk Factors		54

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		61

Item 3 — Defaults upon Senior Securities		61

Item 5 — Other Information		61

Item 6 — Exhibits		61

Signatures		62
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Financial Condition


	September 30,			December 31,			September 30,
(Dollars in thousands, except per share data)	2010			2009			2009
Assets
Cash on hand and in banks	$	83,684			120,731			93,728
Federal funds sold		29,675			87,155			47,025
Interest bearing cash deposits		2,155			2,689			2,570

Cash and cash equivalents		115,514			210,575			143,323

Investment securities, available-for-sale		1,825,159			1,506,394			1,212,947

Loans held for sale		114,926			66,330			54,475
Loans receivable, gross		3,869,034			4,063,915			3,991,775
Allowance for loan and lease losses		(134,257	)		(142,927	)		(125,330	)

Loans receivable, net		3,849,703			3,987,318			3,920,920

Premises and equipment, net		143,645			140,921			136,617
Other real estate owned		63,440			57,320			54,537
Accrued interest receivable		30,863			29,729			29,489
Deferred tax asset		29,968			41,082			22,681
Core deposit intangible, net		11,515			13,937			10,719
Goodwill		146,259			146,259			146,259
Other assets		56,593			58,260			30,808


Total assets	$	6,272,659			6,191,795			5,708,300


Liabilities
Non-interest bearing deposits	$	887,637			810,550			801,261
Interest bearing deposits		3,530,204			3,289,602			2,809,756
Federal Home Loan Bank advances		579,184			790,367			640,735
Securities sold under agreements to repurchase		237,609			212,506			210,519
Federal Reserve Bank discount window		—			225,000			370,000
Other borrowed funds		17,386			13,745			15,064
Accrued interest payable		7,750			7,928			8,015
Subordinated debentures		125,096			124,988			120,167
Other liabilities		34,139			31,219			34,681

Total liabilities		5,419,005			5,505,905			5,010,198


Stockholders’ Equity
Preferred shares, $0.01 par value per share, 1,000,000 shares authorized, none issued or outstanding		—			—			—
Common stock, $0.01 par value per share, 117,187,500 shares authorized		719			616			615
Paid-in capital		643,674			497,493			495,663
Retained earnings — substantially restricted		192,819			188,129			186,678
Accumulated other comprehensive income (loss)		16,442			(348	)		15,146

Total stockholders’ equity		853,654			685,890			698,102


Total liabilities and stockholders’ equity	$	6,272,659			6,191,795			5,708,300


Number of shares outstanding		71,915,073			61,619,803			61,519,808
Book value per share	$	11.87			11.13			11.35

See accompanying notes to unaudited condensed consolidated financial statements.

3

Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Operations


	Three Months ended September 30,						Nine Months ended September 30,
(Dollars in thousands, except per share data)	2010			2009			2010			2009
Interest Income
Residential real estate loans	$	11,367			13,330			34,621			41,542
Commercial loans		35,734			36,739			109,409			112,302
Consumer and other loans		10,599			11,150			31,959			33,631
Investment securities		14,403			13,211			43,330			36,907

Total interest income		72,103			74,430			219,319			224,382


Interest Expense
Deposits		9,142			9,232			27,695			28,799
Federal Home Loan Bank advances		2,318			2,087			7,083			5,758
Securities sold under agreements to repurchase		412			447			1,227			1,450
Subordinated debentures		1,683			1,641			4,967			5,224
Other borrowed funds		26			394			242			1,663

Total interest expense		13,581			13,801			41,214			42,894


Net Interest Income		58,522			60,629			178,105			181,488

Provision for loan losses		19,162			47,050			57,318			87,905

Net interest income after provision for loan losses		39,360			13,579			120,787			93,583


Non-Interest Income
Service charges and other fees		11,956			10,604			32,117			29,838
Miscellaneous loan fees and charges		1,266			1,499			3,651			3,821
Gain on sale of loans		7,367			5,613			17,391			20,834
Gain on sale of investments		2,041			2,667			2,597			2,667
Other income		1,355			1,317			5,830			3,235

Total non-interest income		23,985			21,700			61,586			60,395


Non-Interest Expense
Compensation, employee benefits and related expense		22,235			20,935			65,243			63,589
Occupancy and equipment expense		6,034			5,835			17,970			17,341
Advertising and promotions		1,912			1,596			5,148			5,042
Outsourced data processing expense		750			830			2,205			2,181
Core deposit intangibles amortization		801			758			2,422			2,294
Other real estate owned expense		9,655			2,881			19,346			5,722
Federal Deposit Insurance Corporation premiums		2,633			1,699			6,998			6,700
Other expense		7,995			7,362			22,880			21,616

Total non-interest expense		52,015			41,896			142,212			124,485


Earnings (Loss) Before Income Taxes		11,330			(6,617	)		40,161			29,493

Federal and state income tax expense (benefit)		1,885			(5,086	)		7,424			4,593


Net Earnings (Loss)	$	9,445			(1,531	)		32,737			24,900


Basic earnings (loss) per share	$	0.13			(0.03	)		0.48			0.40
Diluted earnings (loss) per share	$	0.13			(0.03	)		0.48			0.40
Dividends declared per share	$	0.13			0.13			0.39			0.39
Return on average assets (annualized)		0.60	%		-0.11	%		0.70	%		0.60	%
Return on average equity (annualized)		4.37	%		-0.88	%		5.43	%		4.81	%
Average outstanding shares — basic		71,915,073			61,519,808			68,897,348			61,499,662
Average outstanding shares — diluted		71,915,073			61,519,808			68,899,228			61,502,073

See accompanying notes to unaudited condensed consolidated financial statements.

4

Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

and Comprehensive Income

Year ended December 31, 2009 and Nine Months ended September 30, 2010


							Retained			Accumulated			Total
							Earnings			Other Comp-			Stock-
	Common Stock				Paid-in		Substantially			rehensive			holders’
(Dollars in thousands, except per share data)	Shares		Amount		Capital		Restricted			(Loss) Income			Equity
Balance at December 31, 2008		61,331,273	$	613		491,794		185,776			(1,243	)		676,940

Comprehensive income:
Net earnings		—		—		—		34,374			—			34,374
Unrealized gain on securities, net of reclassification adjustment and taxes		—		—		—		—			895			895

Total comprehensive income														35,269


Cash dividends declared ($0.52 per share)		—		—		—		(32,021	)		—			(32,021	)
Stock options exercised		188,535		2		2,552		—			—			2,554
Stock issued in connection with acquisition		99,995		1		1,419		—			—			1,420
Stock based compensation and tax benefit		—		—		1,728		—			—			1,728

Balance at December 31, 2009		61,619,803	$	616		497,493		188,129			(348	)		685,890

Comprehensive income:
Net earnings		—		—		—		32,737			—			32,737
Unrealized gain on securities, net of reclassification adjustment and taxes		—		—		—		—			16,790			16,790

Total comprehensive income														49,527


Cash dividends declared ($0.39 per share)		—		—		—		(28,047	)		—			(28,047	)
Public offering of stock issued		10,291,465		103		145,493		—			—			145,596
Stock options exercised		3,805		—		58		—			—			58
Stock based compensation and tax benefit		—		—		630		—			—			630

Balance at September 30, 2010		71,915,073	$	719		643,674		192,819			16,442			853,654

See accompanying notes to unaudited condensed consolidated financial statements.

5

Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows


	Nine Months ended September 30
(Dollars in thousands)	2010			2009
Operating Activities
Net cash provided by operating activities	$	98,834			100,501


Investing Activities
Proceeds from sales, maturities and prepayments of investments available-for-sale		438,937			194,297
Purchases of investments available-for-sale		(734,807	)		(386,502	)
Principal collected on commercial and consumer loans		520,136			768,123
Commercial and consumer loans originated or acquired		(503,926	)		(807,260	)
Principal collections on real estate loans		140,141			161,483
Real estate loans originated or acquired		(106,288	)		(133,997	)
Net purchase of FHLB and FRB stock		(1,819	)		(701	)
Proceeds from sale of other real estate owned		36,713			9,833
Net addition of premises and equipment and other real estate owned		(10,943	)		(11,957	)

Net cash used in investment activities		(221,856	)		(206,681	)


Financing Activities
Net increase in deposits		317,689			348,456
Net (decrease) increase in FHLB advances		(211,183	)		302,279
Net increase in securities sold under repurchase agreements		25,103			22,156
Net decrease in Federal Reserve Bank discount window		(225,000	)		(544,000	)
Net increase in other borrowed funds		3,749			6,726
Cash dividends paid		(28,047	)		(23,998	)
Excess (deficiencies) benefits related to the exercise of stock options		(4	)		75
Proceeds from exercise of stock options and other stock issued		145,654			2,554

Net cash provided by financing activities		27,961			114,248


Net (decrease) increase in cash and cash equivalents		(95,061	)		8,068
Cash and cash equivalents at beginning of period		210,575			135,255

Cash and cash equivalents at end of period	$	115,514			143,323


Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	41,392			44,630
Cash paid during the period for income taxes		9,371			28,392
Sale and refinancing of other real estate owned		9,637			5,802
Other real estate acquired in settlement of loans		67,343			61,581

See accompanying notes to unaudited condensed consolidated financial statements.

6

Notes to Unaudited Condensed Consolidated Financial Statements

1)		Basis of Presentation

		In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of Glacier Bancorp Inc.’s (the “Company”) financial condition as of September 30, 2010 and 2009, stockholders’ equity and comprehensive income for the nine months ended September 30, 2010, the results of operations for the three and nine month periods ended September 30, 2010 and 2009, and cash flows for the nine months ended September 30, 2010 and 2009. The condensed consolidated statement of financial condition and statement of stockholders’ equity and comprehensive income of the Company as of December 31, 2009 have been derived from the audited consolidated statements of the Company as of that date.

		The accompanying condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2009. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results anticipated for the year ending December 31, 2010. Certain reclassifications have been made to the 2009 financial statements to conform to the 2010 presentation.

		Material estimates that are particularly susceptible to significant change include the determination of the allowance for loan and lease losses (“ALLL” or “allowance”) and the valuations related to investments, business combinations and real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the ALLL and other real estate valuation estimates, management obtains independent appraisals for significant items. Estimates relating to investments are obtained from independent parties. Estimates relating to business combinations are determined based on internal calculations using significant independent party inputs and independent party valuations.

2)		Organizational Structure

		The Company, headquartered in Kalispell, Montana, is a Montana corporation incorporated in 2004 as a successor corporation to the Delaware corporation incorporated in 1990. The Company is a regional multi-bank holding company that provides a full range of banking services to individual and corporate customers in Montana, Idaho, Wyoming, Colorado, Utah and Washington through its bank subsidiaries (collectively referred to hereafter as the “Banks”). The bank subsidiaries are subject to competition from other financial service providers. The bank subsidiaries are also subject to the regulations of certain government agencies and undergo periodic examinations by those regulatory authorities.

		As of September 30, 2010, the Company is the parent holding company for eleven independent wholly-owned community bank subsidiaries: Glacier Bank (“Glacier”), First Security Bank of Missoula (“First Security”), Western Security Bank (“Western”), Big Sky Western Bank (“Big Sky”), Valley Bank of Helena (“Valley”), and First Bank of Montana (“First Bank-MT”), all located in Montana, Mountain West Bank (“Mountain West”) and Citizens Community Bank (“Citizens”) located in Idaho, 1^st Bank (“1^st Bank”) and First National Bank & Trust (“First National”) located in Wyoming, and Bank of the San Juans (“San Juans”) located in Colorado.

7

		In April 2010, the Company formed a independent wholly-owned subsidiary, GBCI Other Real Estate (“GORE”) to isolate bank foreclosed properties for legal protection and administrative purposes. During the second and third quarters, foreclosed properties were sold to the new entity from bank subsidiaries at fair market value and such properties are currently held for sale.

		In addition, the Company owns seven trust subsidiaries, Glacier Capital Trust II (“Glacier Trust II”), Glacier Capital Trust III (“Glacier Trust III”), Glacier Capital Trust IV (“Glacier Trust IV”), Citizens (ID) Statutory Trust I (“Citizens Trust I”), Bank of the San Juans Bancorporation Trust I (“San Juans Trust I”), First Company Statutory Trust 2001 (“First Co Trust 01”) and First Company Statutory Trust 2003 (“First Co Trust 03”) for the purpose of issuing trust preferred securities and, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification™ (“ASC”) Topic 810, Consolidation, the trust subsidiaries are not consolidated into the Company’s financial statements.

		On October 2, 2009, the Company completed the acquisition of First Company and its subsidiary First National. First National became an independent wholly-owned community bank subsidiary of the Company and the financial condition and results of operations are included from the acquisition date.

		FASB ASC Topic 810, Consolidation, provides guidance as to when a company should consolidate the assets, liabilities, and activities of a variable interest entity (“VIE”) in its financial statements, and when a company should disclose information about its relationship with a VIE. A VIE is a legal structure used to conduct activities or hold assets, and a VIE must be consolidated by a company if it is the primary beneficiary that absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both.

		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 CDE’s and the LIHTC partnerships are VIE’s. The underlying activities of the VIE’s are community development projects designed primarily to promote community welfare, such as economic rehabilitation and development of low-income areas by providing housing, services, or jobs for residents. The maximum exposure to loss in the VIE’s is the amount of equity invested or credit extended by the Company; however, the Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. The Company has evaluated the variable interests held by the Company and others and where the Company is the primary beneficiary of a VIE, the VIE has been consolidated into the bank subsidiary which holds the direct investment in the VIE. Currently, only CDE (NMTC) investments are consolidated into the Company’s financial statements. For the CDE (NMTC) investments, the creditors and other beneficial interest holders have no recourse to the general credit of the bank subsidiaries. As of September 30, 2010, the Company had investments in VIE’s of $39,848,000 and $2,991,000 for the CDE (NMTC) and LIHTC partnerships, respectively. The consolidated VIE’s as well as the unconsolidated VIE’s are regularly monitored by the Company to determine if any reconsideration events have occurred that could cause its primary beneficiary status to change.

8

		See Note 11 — Operating Segment Information for selected financial data including net earnings and total assets for the parent company and each of the subsidiaries. Although the consolidated total assets of the Company were $6.3 billion at September 30, 2010, nine of the eleven community banks had total assets of less than $1 billion. The smallest community bank subsidiary had $184 million in total assets, while the largest community bank subsidiary had $1.3 billion in total assets at September 30, 2010.

		The following abbreviated organizational chart illustrates the various relationships as of September 30, 2010:

9

3)

Investment Securities, Available-for-Sale

A comparison of the amortized cost and estimated fair value of the Company’s investment securities, available-for-sale and other investments is as follows:


	As of September 30, 2010
											Estimated
	Weighted			Amortized		Gross Unrealized					Fair
(Dollars in thousands)	Yield			Cost		Gains		Losses			Value
U.S. Government and federal agency
Maturing after one year through five years		1.62	%	$	207		6		—			213

Government sponsored enterprises
Maturing after one year through five years		2.43	%		39,249		990		—			40,239
Maturing after five years through ten years		1.96	%		86		—		—			86
Maturing after ten years		0.73	%		5		—		—			5

		2.43	%		39,340		990		—			40,330

State and local governments and other issues
Maturing within one year		3.66	%		943		17		—			960
Maturing after one year through five years		3.96	%		8,569		232		(6	)		8,795
Maturing after five years through ten years		3.98	%		23,465		871		(3	)		24,333
Maturing after ten years		4.74	%		506,070		22,074		(471	)		527,673

		4.69	%		539,047		23,194		(480	)		561,761

Collateralized debt obligations
Maturing after ten years		8.03	%		12,360		—		(5,068	)		7,292

Residential mortgage-backed securities		2.12	%		1,142,145		14,854		(6,455	)		1,150,544


Total marketable securities		2.97	%		1,733,099		39,044		(12,003	)		1,760,140


Other investments
FHLB and FRB stock, at cost		1.43	%		64,414		—		—			64,414
Other stock		0.05	%		607		4		(6	)		605


Total investment securities		2.91	%	$	1,798,120		39,048		(12,009	)		1,825,159

10


	As of December 31, 2009
											Estimated
	Weighted			Amortized		Gross Unrealized					Fair
(Dollars in thousands)	Yield			Cost		Gains		Losses			Value
U.S. Government and federal agency
Maturing after one year through five years		1.62	%	$	210		—		(1	)		209

Government sponsored enterprises
Maturing after one year through five years		3.21	%		74		—		—			74
Maturing after five years through ten years		1.64	%		40		—		—			40
Maturing after ten years		2.05	%		63		—		—			63

		2.43	%		177		—		—			177


State and local governments and other issues
Maturing within one year		2.48	%		2,040		6		—			2,046
Maturing after one year through five years		3.30	%		9,326		208		(12	)		9,522
Maturing after five years through ten years		3.84	%		27,125		786		(168	)		27,743
Maturing after ten years		4.80	%		434,165		10,140		(2,640	)		441,665

		4.71	%		472,656		11,140		(2,820	)		480,976


Collateralized debt obligations
Maturing after ten years		8.40	%		14,688		—		(7,899	)		6,789

Residential mortgage-backed securities		3.42	%		956,033		15,167		(16,158	)		955,042


Total marketable securities		3.89	%		1,443,764		26,307		(26,878	)		1,443,193


Other investments
FHLB and FRB stock, at cost		1.30	%		62,577		—		—			62,577
Other stock		0.05	%		624		—		—			624


Total investment securities		3.78	%	$	1,506,965		26,307		(26,878	)		1,506,394

Maturities of securities do not reflect repricing opportunities present in adjustable rate securities, nor do they reflect expected shorter maturities based upon early prepayment of principal. Weighted yields on tax-exempt investment securities exclude the tax effect.

Interest income from investment securities consists of the following:


	For the Three Months				For the Nine Months
	ended September 30,				ended September 30,
(Dollars in thousands)	2010		2009		2010		2009
Taxable interest	$	8,431		7,588		25,920		20,215
Tax-exempt interest		5,972		5,623		17,410		16,692

Total interest income	$	14,403		13,211		43,330		36,907

11

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


	For the Three Months						For the Nine Months
	ended September 30,						ended September 30,
(Dollars in thousands)	2010			2009			2010			2009
Gross proceeds	$	62,779			37,450			95,102			37,450
Less amortized cost		(60,738	)		(34,783	)		(92,505	)		(34,783	)

Net gain on sale of investments	$	2,041			2,667			2,597			2,667


Gross gain on sale of investments	$	2,041			2,871			3,390			2,871
Gross loss on sale of investments		—			(204	)		(793	)		(204	)

Net gain on sale of investments	$	2,041			2,667			2,597			2,667

At September 30, 2010 and 2009, the Company had investment securities with carrying values of approximately $726,630,000 and $691,651,000, respectively, pledged as collateral for Federal Home Loan Bank (“FHLB”) advances, Federal Reserve Bank (“FRB”) discount window borrowings, securities sold under agreements to repurchase, U.S. Treasury Tax and Loan borrowings and deposits of several local government units.

The investments in the FHLB stock are required investments related to the Company’s borrowings from FHLB. FHLB obtains its funding primarily through issuance of consolidated obligations of the FHLB system. The U.S. Government does not guarantee these obligations, and each of the 12 FHLBs are jointly and severally liable for repayment of each other’s debt.

Investments with an unrealized loss position at September 30, 2010:


	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
State and local governments and other issues	$	14,516		150		15,276		330		29,792		480
Collateralized debt obligations		—		—		7,292		5,068		7,292		5,068
Residential mortgage-backed securities		340,077		2,131		32,790		4,324		372,867		6,455
Other investments — other stock		5		6		—		—		5		6

Total temporarily impaired securities	$	354,598		2,287		55,358		9,722		409,956		12,009

Investments with an unrealized loss position at December 31, 2009:


	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
U.S. Government and federal agency	$	208		1		—		—		208		1
State and local governments and other issues		74,045		1,835		18,094		985		92,139		2,820
Collateralized debt obligations		6,789		7,899		—		—		6,789		7,899
Residential mortgage-backed securities		466,196		3,861		39,780		12,297		505,976		16,158

Total temporarily impaired securities	$	547,238		13,596		57,874		13,282		605,112		26,878

12

The Company assesses individual securities in its investment securities portfolio for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant. An investment is impaired if the fair value of the security is less than its carrying value at the financial statement date. If impairment is determined to be other-than-temporary, an impairment loss is recognized by reducing the amortized cost for the credit loss portion of the impairment with a corresponding charge to earnings.

For fair value estimates provided by third party vendors, management also considered the models and methodology, for appropriate consideration of both observable and unobservable inputs, including appropriately adjusted discount rates and credit spreads for securities with limited or inactive markets, and whether the quoted prices reflect orderly transactions. For certain securities, the Company obtained independent estimates of inputs, including cash flows, in supplement to third party vendor provided information. The Company also reviewed financial statements of select issuers, with follow up discussions with issuers’ management for clarification and verification of information relevant to the Company’s impairment analysis.

In evaluating debt securities for other-than-temporary impairment losses, management assesses whether the Company intends to sell or if it is more likely-than-not that it will be required to sell impaired debt securities. In so doing, management considers contractual constraints, liquidity, capital, asset / liability management and securities portfolio objectives. With respect to its impaired debt securities at September 30, 2010, management determined that it does not intend to sell and that there is no expected requirement to sell any of its impaired debt securities.

Based on an analysis of its impaired securities as of September 30, 2010, the Company determined that none of such securities had other-than-temporary impairment.

4)

Loans Receivable, Net and Loans Held for Sale

The following table summarizes the Company’s loan and lease portfolio:


	September 30, 2010						December 31, 2009						September 30, 2009
(Dollars in thousands)	Amount			Percent			Amount			Percent			Amount			Percent
Real estate loans
Residential	$	675,107			17.5	%	$	746,050			18.7	%	$	736,595			18.8	%
Held for sale		114,926			3.0	%		66,330			1.7	%		54,475			1.4	%

Total		790,033			20.5	%		812,380			20.4	%		791,070			20.2	%

Commercial loans
Real estate		1,848,976			48.0	%		1,900,438			47.7	%		1,934,200			49.3	%
Other commercial		670,391			17.5	%		724,966			18.2	%		627,083			16.0	%

Total		2,519,367			65.5	%		2,625,404			65.9	%		2,561,283			65.3	%

Consumer and other loans
Consumer		180,367			4.7	%		201,001			5.0	%		195,742			5.0	%
Home equity		501,235			13.0	%		501,920			12.6	%		504,343			12.9	%

Total		681,602			17.7	%		702,921			17.6	%		700,085			17.9	%

Net deferred loan fees premiums and discounts		(7,042	)		-0.2	%		(10,460	)		-0.3	%		(6,188	)		-0.2	%


Loans receivable, gross		3,983,960			103.5	%		4,130,245			103.6	%		4,046,250			103.2	%
Allowance for loan and lease losses		(134,257	)		-3.5	%		(142,927	)		-3.6	%		(125,330	)		-3.2	%

Loans receivable, net	$	3,849,703			100.0	%	$	3,987,318			100.0	%	$	3,920,920			100.0	%

13

The following table sets forth information regarding the Company’s non-performing assets at the dates indicated:


	September 30,			December 31,			September 30,
(Dollars in thousands)	2010			2009			2009
Real estate and other assets owned	$	63,440			57,320			54,537
Accruing loans 90 days or more overdue		5,335			5,537			2,891
Non-accrual loans		192,695			198,281			185,577

Total non-performing assets	$	261,470			261,138			243,005

Non-performing assets as a percentage of total subsidiary assets		4.03	%		4.13	%		4.10	%

The following table summarizes impaired loans at the dates indicated:


	September 30,			December 31,			September 30,
(Dollars in thousands)	2010			2009			2009
Impaired loans, without a valuation allowance	$	144,498			141,613			111,877
Impaired loans, with a valuation allowance		87,927			77,129			95,177

Impaired loans, gross		232,425			218,742			207,054
Valuation allowance included in ALLL		(18,622	)		(19,760	)		(23,056	)

Impaired loans, net	$	213,803			198,982			183,998

The loans without a specific impairment resulting in no valuation allowance are attributable to the loan’s fair value, less estimated cost to sell, exceeding the loans carrying value.

The following table illustrates the loan and lease loss experience:


	September 30,			December 31,			September 30,
(Dollars in thousands)	2010			2009			2009
Balance at the beginning of the year	$	142,927			76,739			76,739

Charge-offs		(68,868	)		(60,896	)		(40,991	)
Recoveries		2,880			2,466			1,677
Provision		57,318			124,618			87,905

Balance at the end of the period	$	134,257			142,927			125,330


Net charge-offs as a percentage of total loans		1.66	%		1.42	%		0.97	%

In June 2009, FASB issued an amendment to FASB ASC Topic 860, Accounting for Transfers and Servicing of Financial Assets, and is effective for transfers occurring after the beginning of the first annual reporting period that begins after November 15, 2009. The Company adopted this amendment for all new transfers, primarily consisting of transfers of loans, occurring on or subsequent to January 1, 2010. The Company generally sells its long-term mortgage loans originated, retaining servicing only when required by certain lenders. The sale of loans in the secondary mortgage market reduces the Company’s risk of holding residential fixed rate loans in the loan portfolio. Mortgage loans sold with no servicing rights retained for the nine months ended September 30, 2010 and 2009 were $674,989,000 and $982,207,000, respectively. The amount of loans sold and serviced for others at September 30, 2010 and 2009 was approximately $180,700,000 and $178,533,000, respectively.

14

In accordance with this amendment, transfers of SBA loans are recognized as sales when the warranty period expires, which is typically 90 days. The Company has been active in originating commercial SBA loans, some of which are sold to investors. As of September 30, 2010, the Company had $6,280,000 of SBA loans sold for which there was a deferred gain of $641,000 due to unexpired warranty periods.

The Company occasionally purchases and sells other loan participations, the majority of which are large commercial loans. For participation transactions after the adoption of the amendment, the bank subsidiaries typically originate and sell the loan participations, at fair value, on a proportionate ownership basis, with no recourse conditions.

5) Goodwill and Other Intangible Assets

The following table sets forth information regarding the Company’s core deposit intangible and mortgage servicing rights as of September 30, 2010:


	Core			Mortgage
	Deposit			Servicing
(Dollars in thousands)	Intangible			Rights¹		Total
Gross carrying value	$	31,847
Accumulated amortization		(20,332	)

Net carrying value	$	11,515			933		12,448


Weighted-average amortization period (Period in years)		9.1			9.3		9.1

Aggregate amortization expense
For the three months ended September 30, 2010	$	801			51		852
For the nine months ended September 30, 2010		2,422			132		2,554

Estimated amortization expense
For the year ended December 31, 2010	$	2,603			166		2,769
For the year ended December 31, 2011		1,895			67		1,962
For the year ended December 31, 2012		1,534			65		1,599
For the year ended December 31, 2013		1,283			63		1,346
For the year ended December 31, 2014		1,034			61		1,095


¹		The mortgage servicing rights are included in other assets and gross carrying value and accumulated amortization are not readily available.

15


		Acquisitions are accounted for as prescribed by FASB ASC Topic 805, Business Combinations. Acquisition accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets. Goodwill is recorded if the purchase price exceeds the net fair value of assets acquired and a bargain purchase gain is recorded in other income if the net fair value of assets acquired exceeds the purchase price.

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

6) Deposits

The following table illustrates the amounts outstanding for deposits $100,000 and greater at September 30, 2010 according to the time remaining to maturity. Included in Certificates of Deposit are brokered certificates of deposit and deposits issued through the Certificate of Deposit Account Registry System of $347,732,000. Included in Demand Deposits are brokered deposits of $164,224,000.


	Certificates		Demand
(Dollars in thousands)	of Deposit		Deposits		Totals
Within three months	$	382,925		1,762,898		2,145,823
Three months to six months		161,662		—		161,662
Seven months to twelve months		173,545		—		173,545
Over twelve months		156,334		—		156,334

Totals	$	874,466		1,762,898		2,637,364

16

7)		Borrowings

		The following chart illustrates the average balances and the maximum outstanding month-end balances for FHLB advances, repurchase agreements and borrowings through the FRB:


	As of and			As of and			As of and
	for the Nine			for the			for the Nine
	Months ended			Year ended			Months ended
(Dollars in thousands)	September 30, 2010			December 31, 2009			September 30, 2009
FHLB advances
Amount outstanding at end of period	$	579,184			790,367			640,735
Average balance	$	657,698			473,038			413,446
Maximum outstanding at any month-end	$	807,644			790,367			640,735
Weighted average interest rate		1.44	%		1.68	%		1.86	%

Repurchase agreements
Amount outstanding at end of period	$	237,609			212,506			210,519
Average balance	$	224,690			204,503			196,562
Maximum outstanding at any month-end	$	252,083			234,914			210,519
Weighted average interest rate		0.73	%		0.98	%		0.99	%

Federal Reserve Bank discount window
Amount outstanding at end of period	$	—			225,000			370,000
Average balance	$	47,637			658,262			776,592
Maximum outstanding at any month-end	$	235,000			1,005,000			1,005,000
Weighted average interest rate		0.25	%		0.26	%		0.27	%

Total FHLB advances, repurchase agreements, and Federal Reserve Bank discount window
Amount outstanding at end of period	$	816,793			1,227,873			1,221,254
Average balance	$	930,025			1,335,803			1,386,600
Maximum outstanding at any month-end	$	1,294,727			2,030,281			1,856,254
Weighted average interest rate		1.21	%		0.87	%		0.84	%

8)		Earnings Per Share

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

17

The following schedule contains the data used in the calculation of basic and diluted earnings per share:


	For the Three Months					For the Nine Months
	ended September 30,					ended September 30,
	2010		2009			2010		2009
Net earnings (loss) available to common stockholders, basic and diluted	$	9,445,000		(1,531,000	)		32,737,000		24,900,000

Average outstanding shares — basic		71,915,073		61,519,808			68,897,348		61,499,662
Add: dilutive stock options		—		—			1,880		2,411

Average outstanding shares — diluted		71,915,073		61,519,808			68,899,228		61,502,073


Basic earnings (loss) per share	$	0.13		(0.03	)		0.48		0.40


Diluted earnings (loss) per share	$	0.13		(0.03	)		0.48		0.40

There were approximately 2,309,410 and 2,723,109 average shares excluded from the diluted average outstanding share calculation for the nine months ended September 30, 2010 and 2009, respectively, due to the option exercise price exceeding the market price.

9)		Comprehensive Income

		The Company’s only component of comprehensive income other than net earnings is the unrealized gains and losses on available-for-sale securities.


	For the Three Months						For the Nine Months
	ended September 30,						ended September 30,
(Dollars in thousands)	2010			2009			2010			2009
Net earnings (loss)	$	9,445			(1,531	)		32,737			24,900

Unrealized holding gain arising during the period		14,620			31,492			30,208			29,626
Tax expense		(5,730	)		(12,342	)		(11,839	)		(11,615	)

Net after tax		8,890			19,150			18,369			18,011
Reclassification adjustment for gains included in net earnings		(2,041	)		(2,667	)		(2,597	)		(2,667	)
Tax expense		800			1,045			1,018			1,045

Net after tax		(1,241	)		(1,622	)		(1,579	)		(1,622	)

Net unrealized gain on securities		7,649			17,528			16,790			16,389


Total comprehensive income	$	17,094			15,997			49,527			41,289

18

10)		Federal and State Income Taxes

		The Company and its bank subsidiaries join together in the filing of consolidated income tax returns in the following jurisdictions: federal, Montana, Idaho, Colorado and Utah. Although 1st Bank and First National have operations in Wyoming and Mountain West has operations in Washington, neither Wyoming nor Washington imposes a corporate-level income tax. All required income tax returns have been timely filed. The following schedule summarizes the years that remain subject to examination as of September 30, 2010:


		Years ended December 31,
Federal		2007, 2008 and 2009
Montana		2003, 2004, 2005, 2007, 2008 and 2009
Idaho		2003, 2004, 2005, 2007, 2008 and 2009
Colorado		2006, 2007, 2008 and 2009
Utah		2007, 2008 and 2009

		During 2010 and 2009, the Company made investments in CDE’s which received NMTC allocations. 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 made investments in LIHTC’s which are indirect Federal subsidies used to finance the development of affordable rental housing for low-income households. The federal income tax credits received are claimed over a ten-year credit allowance period. The Company invests 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.


	New		Low-Income		Investment
Years ended	Markets		Housing		Securities
(Dollars in thousands)	Tax Credits		Tax Credits		Tax Credits		Total
2010	$	2,000		337		916		3,253
2011		2,000		785		970		3,755
2012		2,306		785		970		4,061
2013		2,400		785		970		4,155
2014		2,400		785		970		4,155
Thereafter		2,964		3,551		8,349		14,864

	$	14,070		7,028		13,145		34,243

The Company determined its unrecognized tax benefit to be $0 and $113,000 as of September 30, 2010 and 2009, respectively. The Company recognizes interest related to unrecognized income tax benefits in interest expense and penalties are recognized in other expense. During the nine months ended September 30, 2010 and 2009, the Company did not recognize interest expense or penalties with respect to income tax liabilities. The Company had approximately $0 and $20,000 accrued for the payment of interest at September 30, 2010 and 2009, respectively. The Company had no accrued liabilities for the payment of penalties at September 30, 2010 and 2009.

19

11)		Operating Segment Information

		FASB ASC Topic 280, Segment Reporting, requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers in deciding how to allocate resources and in assessing performance. The Company defines operating segments and evaluates segment performance internally based on individual bank charters. If required, VIEs are consolidated into the operating segment which invested in the entities.

		The accounting policies of the individual operating segments are the same as those of the Company. Transactions between operating segments are conducted at fair value, resulting in profits that are eliminated for reporting consolidated results of operations. Intersegment revenues primarily represents interest income on intercompany borrowings, management fees, and data processing fees received by individual banks or the parent company. Intersegment revenues, expenses and assets are eliminated in order to report results in accordance with accounting principles generally accepted in the United States of America. Expenses for centrally provided services are allocated based on the estimated usage of those services.

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


	Three months ended and as of September 30, 2010
				Mountain			First															First
(Dollars in thousands)	Glacier			West			Security			1st Bank			Western			Big Sky			Valley			National
External revenues	$	18,988			21,498			13,871			8,134			9,075			4,983			5,715			3,824
Intersegment revenues		218			197			41			81			130			—			165			21
Expenses		(15,326	)		(25,208	)		(11,549	)		(6,782	)		(7,212	)		(4,444	)		(3,951	)		(3,214	)

Net Earnings (Loss)	$	3,880			(3,513	)		2,363			1,433			1,993			539			1,929			631

Total Assets	$	1,332,594			1,177,317			948,692			655,334			682,635			365,254			341,219			305,353


				First Bank			San												Total
	Citizens			of MT			Juans			GORE			Parent			Eliminations			Consolidated
External revenues	$	4,426			2,553			2,730			156			135			—			96,088
Intersegment revenues		106			96			125			—			14,442			(15,622	)		—
Expenses		(3,795	)		(1,725	)		(2,323	)		(754	)		(4,712	)		4,352			(86,643	)

Net Earnings (Loss)	$	737			924			532			(598	)		9,865			(11,270	)		9,445

Total Assets	$	271,309			183,672			212,152			19,757			997,670			(1,220,299	)		6,272,659

20


	Three months ended and as of September 30, 2009
				Mountain			First
(Dollars in thousands)	Glacier			West			Security			1st Bank			Western			Big Sky			Valley
External revenues	$	20,546			23,641			14,188			8,310			8,782			5,233			5,433
Intersegment revenues		47			6			76			110			65			—			11
Expenses		(17,995	)		(34,135	)		(12,019	)		(7,556	)		(7,170	)		(5,907	)		(3,865	)

Net Earnings (Loss)	$	2,598			(10,488	)		2,245			864			1,677			(674	)		1,579

Total Assets	$	1,289,115			1,246,907			901,579			597,536			590,689			362,396			306,937


				First Bank			San									Total
	Citizens			of MT			Juans			Parent			Eliminations			Consolidated
External revenues	$	4,452			2,643			2,849			53			—			96,130
Intersegment revenues		—			3			—			2,926			(3,244	)		—
Expenses		(3,822	)		(1,894	)		(2,473	)		(4,510	)		3,685			(97,661	)

Net Earnings (Loss)	$	630			752			376			(1,531	)		441			(1,531	)

Total Assets	$	244,238			204,224			179,799			827,473			(1,042,593	)		5,708,300


	Nine Months ended and as of September 30, 2010
				Mountain			First															First
(Dollars in thousands)	Glacier			West			Security			1st Bank			Western			Big Sky			Valley			National
External revenues	$	56,692			62,631			39,524			23,863			26,014			14,918			16,605			11,523
Intersegment revenues		314			235			79			202			385			1			241			43
Expenses		(49,468	)		(65,451	)		(31,766	)		(20,202	)		(20,215	)		(13,345	)		(11,503	)		(10,070	)

Net Earnings (Loss)	$	7,538			(2,585	)		7,837			3,863			6,184			1,574			5,343			1,496

Total Assets	$	1,332,594			1,177,317			948,692			655,334			682,635			365,254			341,219			305,353


				First Bank			San												Total
	Citizens			of MT			Juans			GORE			Parent			Eliminations			Consolidated
External revenues	$	13,182			7,445			8,055			199			254			—			280,905
Intersegment revenues		134			178			149			—			46,963			(48,924	)		—
Expenses		(11,207	)		(5,121	)		(6,919	)		(1,022	)		(14,060	)		12,181			(248,168	)

Net Earnings (Loss)	$	2,109			2,502			1,285			(823	)		33,157			(36,743	)		32,737

Total Assets	$	271,309			183,672			212,152			19,757			997,670			(1,220,299	)		6,272,659


	Nine Months ended and as of September 30, 2009
				Mountain			First
(Dollars in thousands)	Glacier			West			Security			1st Bank			Western			Big Sky			Valley
External revenues	$	61,568			68,880			40,832			25,091			26,776			16,401			16,907
Intersegment revenues		140			7			631			236			436			—			96
Expenses		(51,761	)		(77,178	)		(32,410	)		(24,496	)		(21,981	)		(15,191	)		(12,142	)

Net Earnings (Loss)	$	9,947			(8,291	)		9,053			831			5,231			1,210			4,861

Total Assets	$	1,289,115			1,246,907			901,579			597,536			590,689			362,396			306,937


				First Bank			San									Total
	Citizens			of MT			Juans			Parent			Eliminations			Consolidated
External revenues	$	12,557			7,576			8,020			169			—			284,777
Intersegment revenues		2			3			—			38,168			(39,719	)		—
Expenses		(10,732	)		(5,505	)		(6,779	)		(13,437	)		11,735			(259,877	)

Net Earnings (Loss)	$	1,827			2,074			1,241			24,900			(27,984	)		24,900

Total Assets	$	244,238			204,224			179,799			827,473			(1,042,593	)		5,708,300

21

12)		Fair Value of Financial Instruments

		FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires the Company to disclose information relating to fair value. 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. The Topic establishes 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 standard describes three levels of inputs that may be used to measure fair value:

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

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

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

		The following is a description of the inputs and valuation methodologies used for financial assets measured at fair value on a recurring basis. There have been no significant changes in the valuation techniques during the period ended September 30, 2010.

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

		The following schedule discloses the major class of assets measured at fair value on a recurring basis for the period ended September 30, 2010:


	Assets/		Quoted Prices		Significant
	Liabilities		in Active Markets		Other		Significant
	Measured at		for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
(Dollars in thousands)	9/30/10		(Level 1)		(Level 2)		(Level 3)
Financial assets
U.S. Government and federal agency	$	213		—		213		—
Government sponsored enterprises		40,330		—		40,330		—
State and local governments and other issues		561,761		—		561,761		—
Collateralized debt obligations		7,292		—		—		7,292
Residential mortgage-backed securities		1,150,544		—		1,149,468		1,076

Total financial assets	$	1,760,140		—		1,751,772		8,368

22

The following schedule discloses the major class of assets measured at fair value on a recurring basis for the period ended September 30, 2009:


	Assets/		Quoted Prices		Significant
	Liabilities		in Active Markets		Other		Significant
	Measured at		for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
(Dollars in thousands)	9/30/09		(Level 1)		(Level 2)		(Level 3)
Financial assets
U.S. Government and federal agency	$	209		—		209		—
Government sponsored enterprises		278		—		278		—
State and local governments and other issues		451,115		—		450,851		264
Collateralized debt obligations		6,600		—		—		6,600
Residential mortgage-backed securities		692,625		—		615,466		77,159

Total financial assets	$	1,150,827		—		1,066,804		84,023

The following schedules reconcile the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine month periods ended September 30, 2010 and 2009.


	Significant Unobservable Inputs (Level 3)
				State and Local			Collateralized			Residential
				Government and			Debt			Mortgage-backed
(Dollars in thousands)	Total			Other Issues			Obligations			Securities
Balance as of December 31, 2009	$	9,988			2,088			6,789			1,111
Total unrealized gains (losses) included in other comprehensive income		2,755			—			2,790			(35	)
Amortization, accretion and principal payments		(327	)		—			(327	)		—
Sales, maturities and calls		(1,960	)		—			(1,960	)		—
Transfers out of Level 3		(2,088	)		(2,088	)		—			—

Balance as of September 30, 2010	$	8,368			—			7,292			1,076


	Significant Unobservable Inputs (Level 3)
				State and Local			Collateralized			Residential
				Government and			Debt			Mortgage-backed
(Dollars in thousands)	Total			Other Issues			Obligations			Securities
Balance as of December 31, 2008	$	23,421			284			15,540			7,597
Total unrealized gains included in other comprehensive income		7,864			—			(8,780	)		16,644
Amortization, accretion and principal payments		(1,142	)		(20	)		(160	)		(962	)
Purchases		60,515			—			—			60,515
Transfers out of Level 3		(6,635	)		—			—			(6,635	)

Balance as of September 30, 2009	$	84,023			264			6,600			77,159

The change in unrealized gains related to available-for-sale securities is reported in the accumulated other comprehensive income (loss). A state and local government security was transferred out of Level 3 and into Level 2 during the first quarter 2010 as a result of obtaining third party pricing which is also expected to be obtained in future quarters, whereas third party pricing was unavailable prior to first quarter 2010 for such security and there was a greater reliance on unobservable inputs for fair value.

23

The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis. There have been no significant changes in the valuation techniques during the period ended September 30, 2010.

Other real estate owned: real estate and other assets owned are carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell. Estimated fair value of real estate and other assets owned is based on appraisals. Real estate and other assets owned are classified within Level 3 of the fair value hierarchy.

Collateral-dependent impaired loans, net of ALLL: loans included in the Company’s financials for which it is probable that the Company will not collect all principal and interest due according to contractual terms are considered impaired in accordance with FASB ASC Topic 310,Receivables. 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 following schedule discloses the major class of assets with a recorded change in the financial statements resulting from re-measuring the assets at fair value on a non-recurring basis for the nine month period ending September 30, 2010 and 2009. The disclosure includes only individual financial assets that had a change in the balance during the period ended September 30, 2010 and 2009.

Assets/

Quoted Prices

Significant

Liabilities

in Active Markets

Other

Significant

Measured at

for Identical

Observable

Unobservable

Fair Value

Assets

Inputs

(Dollars in thousands)

9/30/10

(Level 1)

(Level 2)

(Level 3)

Financial assets

Other real estate owned

$

18,673

—

18,673

Collateral-dependent impaired loans, net of allowance for loan and lease losses

67,382

—

67,382

Total financial assets

$

86,055

—

86,055

Assets/

Quoted Prices

Significant

Liabilities

in Active Markets

Other

Significant

Measured at

for Identical

Observable

Unobservable

Fair Value

Assets

Inputs

(Dollars in thousands)

9/30/09

(Level 1)

(Level 2)

(Level 3)

Financial assets

Other real estate owned

$

2,038

—

2,038

Collateral-dependent impaired loans, net of allowance for loan and lease losses

68,184

—

68,184

Total financial assets

$

70,222

—

70,222

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

Financial Assets

The estimated fair value of cash, federal funds sold, interest bearing cash deposits, and accrued interest receivable is the book value of such financial assets.

24

The estimated fair value of FHLB and FRB stock is book value due to the restrictions that such stock may only be sold to another member institution or the FHLB or FRB at par value.

Loans receivable, net of ALLL: fair value for loans, net of ALLL, is estimated by discounting the future cash flows using the rates at which similar notes would be written for the same remaining maturities.

Financial Liabilities

The estimated fair value of accrued interest payable is the book value of such financial liabilities.

Deposits: fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The estimated fair value of demand, NOW, savings, and money market deposits is the book value since rates are regularly adjusted to market rates.

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

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 for subordinated debt issuances with similar characteristics.

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

The following presents the carrying amounts and estimated fair values as of September 30, 2010 and 2009:


	September 30, 2010				September 30, 2009
(Dollars in thousands)	Amount		Fair Value		Amount		Fair Value
Financial assets
Cash and cash equivalents	$	115,514		115,514		143,323		143,323
Investment securities		1,760,745		1,760,745		1,151,291		1,151,291
FHLB and FRB stock		64,414		64,414		61,656		61,656
Loans receivable, net of allowance for loan and lease losses		3,849,703		3,856,353		3,920,920		3,919,067
Accrued interest receivable		30,863		30,863		29,489		29,489

Total financial assets	$	5,821,239		5,827,889		5,306,679		5,304,826


Financial liabilities
Deposits	$	4,417,841		4,429,962		3,611,017		3,621,869
Federal Home Loan Bank advances		579,184		594,593		640,735		645,829
Federal Reserve Bank discount window		—		—		370,000		370,000
Repurchase agreements and other borrowed funds		254,995		255,004		225,583		225,603
Subordinated debentures		125,096		64,933		120,167		69,935
Accrued interest payable		7,750		7,750		8,015		8,015

Total financial liabilities	$	5,384,866		5,352,242		4,975,517		4,941,251

25

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

Forward Looking Statements

This Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about management’s plans, objectives, expectations and intentions that are not historical facts, and other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “should,” “projects,” “seeks,” “estimates” or words of similar meaning. These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations in the forward-looking statements, including those set forth in this Form 10-Q:

	•		the risks associated with lending and potential adverse changes of the credit quality of loans in the Company’s portfolio, including as a result of declines in the housing and real estate markets in its geographic areas;

	•		increased loan delinquency rates;

	•		the risks presented by a continued economic downturn, which could adversely affect credit quality, loan collateral values, other real estate owned values, investment values, liquidity and capital levels, dividends and loan originations;

	•		changes in market interest rates, which could adversely affect the Company’s net interest income and profitability;

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

	•		costs or difficulties related to the integration of acquisitions;

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

	•		reduced demand for banking products and services;

	•		the risks presented by public stock market volatility, which could adversely affect the market price of the Company’s common stock and the ability to raise additional capital in the future;

	•		competition from other financial services companies in the Company’s markets;

	•		loss of services from the senior management team; and

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

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in Risk Factors in Item 1A. Please take into account that forward-looking statements speak only as of the date of this Form 10-Q. The Company does not undertake any obligation to publicly correct or update any forward-looking statement if it later becomes aware that actual results are likely to differ materially from those expressed in such forward-looking statement.

26

Results of Operations — The three months ended September 30, 2010
Compared to June 30, 2010 and September 30, 2009

Performance Summary

The Company reported net earnings of $9.4 million for the third quarter of 2010, an increase of $10.9 million, or 717 percent, from the $1.5 million net loss reported for the third quarter of 2009. The diluted earnings per share of $0.13 for the quarter represented a 533 percent increase from the diluted loss per share of $0.03 for the same quarter of 2009. This quarter’s earnings per share includes $0.02 per share from the gain on sale of investments, net of tax. Annualized return on average assets and return on average equity for the third quarter were 0.60 percent and 4.37 percent, respectively, which compares with prior year returns for the third quarter of (0.11) percent and (0.88) percent, respectively.

Revenue Summary


	Three Months ended
	September 30,			June 30,			September 30,
(Unaudited - Dollars in thousands)	2010			2010			2009
Net interest income
Interest income	$	72,103			73,818			74,430
Interest expense		13,581			13,749			13,801

Total net interest income		58,522			60,069			60,629

Non-interest income
Service charges, loan fees, and other fees		13,222			11,900			12,103
Gain on sale of loans		7,367			6,133			5,613
Gain on sale of investments		2,041			242			2,667
Other income		1,355			3,143			1,317

Total non-interest income		23,985			21,418			21,700

	$	82,507			81,487			82,329


Net interest margin (tax-equivalent)		4.19	%		4.35	%		4.80	%


	$ Change from			$ Change from			% Change from			% Change from
	June 30,			September 30,			June 30,			September 30,
(Unaudited - Dollars in thousands)	2010			2009			2010			2009
Net interest income
Interest income	$	(1,715	)		(2,327	)		-2	%		-3	%
Interest expense		(168	)		(220	)		-1	%		-2	%

Total net interest income		(1,547	)		(2,107	)		-3	%		-3	%

Non-interest income
Service charges, loan fees, and other fees		1,322			1,119			11	%		9	%
Gain on sale of loans		1,234			1,754			20	%		31	%
Gain on sale of investments		1,799			(626	)		743	%		-23	%
Other income		(1,788	)		38			-57	%		3	%

Total non-interest income		2,567			2,285			12	%		11	%

	$	1,020			178			1	%		0	%

27

Net Interest Income

Net interest income decreased $1.5 million from the prior quarter and decreased $2.1 million over prior year’s third quarter. The current quarter net interest margin as a percentage of earning assets, on a tax-equivalent basis, was 4.19 percent which is 16 basis points lower than the 4.35 percent for the prior quarter and included a 7 basis points reduction from the reversal of interest on non-accrual loans. The net interest margin for the current quarter is 61 basis points lower than the 4.80 percent result for the third quarter of 2009. The decrease in interest income is due to a lower yield and volume of loans coupled with an increase in lower yielding investment securities. The decrease in interest expense is primarily attributable to the rate decreases on interest bearing deposits and lower cost borrowings.

Non-interest Income

Non-interest income for the quarter totaled $24.0 million, an increase of $2.6 million over the prior quarter and $2.3 million over the same quarter as last year. Fee income of $13.2 million increased $1.3 million, or 11 percent, during the quarter and $1.1 million, or 9 percent over prior year’s quarter, such increases resulting from significant growth in debit card income. Gain on sale of loans increased $1.2 million, or 20 percent, over the prior quarter due to a reduction in mortgage interest rates during the second quarter which continued in the third quarter and led to greater loan origination volume. Gain on sale of loans increased $1.8 million, or 31 percent, over the same period last year, primarily the result of significant purchase and refinance activity this period compared to the third quarter 2009. Net gain on sale of investments was $2.0 million for the current quarter 2010 compared to $242 thousand for the previous quarter and $2.7 million for the prior year’s quarter. Such sales were executed with the proceeds used to purchase securities that enable the investment portfolio to perform well across varying interest rates. Other income of $1.4 million for the current quarter is a decrease of $1.8 million from the prior quarter, such decrease relates to the second quarter sale of Mountain West’s merchant card servicing portfolio.

28

Non-interest Expense


	Three Months ended
	September 30,		June 30,		September 30,
(Unaudited - Dollars in thousands)	2010		2010		2009
Compensation, employee benefits and related expense	$	22,235		21,652		20,935
Occupancy and equipment expense		6,034		5,988		5,835
Advertising and promotions		1,912		1,644		1,596
Outsourced data processing expense		750		761		830
Core deposit intangibles amortization		801		801		758
Other real estate owned expense		9,655		7,373		2,881
Federal Deposit Insurance Corporation premiums		2,633		2,165		1,699
Other expenses		7,995		7,852		7,362

Total non-interest expense	$	52,015		48,236		41,896


	$ Change from			$ Change from			% Change from			% Change from
	June 30,			September 30,			June 30,			September 30,
(Unaudited - Dollars in thousands)	2010			2009			2010			2009
Compensation, employee benefits and related expense	$	583			1,300			3	%		6	%
Occupancy and equipment expense		46			199			1	%		3	%
Advertising and promotions		268			316			16	%		20	%
Outsourced data processing expense		(11	)		(80	)		-1	%		-10	%
Core deposit intangibles amortization		—			43			0	%		6	%
Other real estate owned expense		2,282			6,774			31	%		235	%
Federal Deposit Insurance Corporation premiums		468			934			22	%		55	%
Other expenses		143			633			2	%		9	%

Total non-interest expense	$	3,779			10,119			8	%		24	%

Non-interest expense of $52.0 million for the quarter increased by $3.8 million, or 8 percent, from the prior quarter and increased $10.1 million, or 24 percent, from the prior year third quarter. Compensation and employee benefits of $22.2 million increased $583 thousand, or 3 percent, from the previous quarter, partly the result of higher commission expense paid on mortgage originations, and $1.3 million, or 6 percent, from the prior year third quarter which is primarily due to the addition of First National employees in October 2009. The number of full-time equivalent employees increased slightly from 1,654 to 1,658 during the quarter, and increased from 1,577 since the end of the 2009 third quarter.

Occupancy and equipment expense increased $46 thousand, or 1 percent, from the prior quarter and increased $199 thousand, or 3 percent, from the prior year third quarter. Advertising and promotion expense increased $268 thousand, or 16 percent, from prior quarter and increased $316 thousand, or 20 percent, from the third quarter of 2009. The majority of such increases were driven by aggressive advertising relating to the disposal of other real estate owned. Other real estate owned expenses increased $2.3 million, or 31 percent, from prior quarter and increased $6.8 million, or 235 percent, from the prior year third quarter. The current quarter other real estate owned expense of $9.7 million included $1.2 million of operating expenses, $6.4 million of fair value write-downs, and $2.1 million of loss on sale of other real estate owned. The other real estate owned expenses have increased as the Company continues to aggressively dispose of problem assets and other real estate owned. FDIC premiums increased $468 thousand, or 22 percent, from prior quarter and increased $934 thousand, or 55 percent, from the prior year third quarter. Other expenses increased $143 thousand, or 2 percent, from the prior quarter and increased $633 thousand, or 9 percent, from the prior year third quarter which was primarily due to an increase in debt card expenses reflecting the increase in debit card activity and number of debit cards.

29

In the current quarter, the Company revised the efficiency ratio calculation to be consistent with industry reporting by SNL Financial and has also revised the efficiency ratio reported for all prior periods. The efficiency ratio is now calculated as non-interest expense before other real estate owned expenses, core deposit intangible amortization, and non-recurring expense items as a percentage of fully taxable-equivalent net interest income and non-interest income, excluding gains and losses on sale of investment securities, other real estate owned income, and non-recurring income items. The efficiency ratio for the quarter was 50 percent compared to 47 percent for the prior year third quarter. The increase resulted from continuing pressure on net interest income in the current low interest rate environment coupled with small increases in operating expenses.

Provision for Loan Losses

The current quarter provision for loan loss expense was $19.2 million, an increase of $1.9 million from the prior quarter and a decrease of $27.9 million from the same quarter in 2009. Net charged-off loans for the current quarter were $26.6 million compared to $19.2 million for the prior quarter and $19.1 million for the same quarter in 2009.

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

Results of Operations – The nine months ended September 30, 2010
Compared to the nine months ended September 30, 2009

Performance Summary

Net earnings for the nine months ended September 30, 2010 were $32.7 million, which is an increase of $7.8 million or 31 percent, over the prior year. Diluted earnings per share of $0.48 is an increase of 20 percent over $0.40 earned in 2009.

Revenue Summary


	Nine Months ended
	September 30,			September 30,
(Unaudited - Dollars in thousands)	2010			2009			$ Change			% Change
Net interest income
Interest income	$	219,319		$	224,382		$	(5,063	)		-2	%
Interest expense		41,214			42,894			(1,680	)		-4	%

Total net interest income		178,105			181,488			(3,383	)		-2	%

Non-interest income
Service charges, loan fees, and other fees		35,768			33,659			2,109			6	%
Gain on sale of loans		17,391			20,834			(3,443	)		-17	%
Gain on sale of investments		2,597			2,667			(70	)		-3	%
Other income		5,830			3,235			2,595			80	%

Total non-interest income		61,586			60,395			1,191			2	%

	$	239,691		$	241,883		$	(2,192	)		-1	%


Net interest margin (tax-equivalent)		4.32	%		4.87	%

30

Net Interest Income

Net interest income for the nine month period decreased $3.4 million, or 2 percent, over the same period in 2009. Total interest income decreased $5.1 million, or 2 percent, while total interest expense decreased $1.7 million, or 4 percent. The net interest margin as a percentage of earning assets, on a tax-equivalent basis, decreased 55 basis points from 4.87 percent for 2009 to 4.32 percent for 2010 and included a 6 basis points reduction from the reversal of interest on non-accrual loans.

Non-interest Income

Non-interest income increased for the nine month period of 2010 by $1.2 million over the same period in 2009. Fee income for the first nine months of 2010 has increased $2.1 million, or 6 percent, compared to the prior year primarily from an increase in debit card income. Gain on sale of loans decreased $3.4 million, or 17 percent, over the first nine months of last year, primarily the result of significant refinance activity in the first half of 2009. Other income increased $2.6 million over the same period in 2009, of which $1.8 million relates to the second quarter 2010 sale of Mountain West’s merchant card servicing portfolio.

Non-interest Expense


	Nine Months ended
	September 30,		September 30,
(Unaudited - Dollars in thousands)	2010		2009		$ Change		% Change
Compensation, employee benefits and related expense	$	65,243	$	63,589	$	1,654		3	%
Occupancy and equipment expense		17,970		17,341		629		4	%
Advertising and promotions		5,148		5,042		106		2	%
Outsourced data processing expense		2,205		2,181		24		1	%
Core deposit intangibles amortization		2,422		2,294		128		6	%
Other real estate owned expense		19,346		5,722		13,624		238	%
Federal Deposit Insurance Corporation premiums		6,998		6,700		298		4	%
Other expenses		22,880		21,616		1,264		6	%

Total non-interest expense	$	142,212	$	124,485	$	17,727		14	%

Non-interest expense for the first nine months of 2010 increased by $17.7 million, or 14 percent, from the same period last year, of which 11 percent related to other real estate owned expense. The other real estate owned expenses of $19.3 million for the first nine months of 2010 included $3.3 million of operating expenses, $9.7 million of fair value write-downs, and $6.3 million of loss on sale of other real estate owned. FDIC premiums increased $298 thousand, or 4 percent, from the prior year which included a second quarter special assessment of $2.5 million. Compensation and employee benefits increased $1.7 million, or 3 percent, from 2009. Occupancy and equipment expense increased $629 thousand, or 4 percent, from 2009. Advertising and promotion expense increased by $106 thousand, or 2 percent, from 2009. Other real estate owned expense increased $13.6 million, or 238 percent, from the prior year first nine months. Other expense increased $1.3 million, or 6 percent, from the prior year.

The efficiency ratio for the first nine months of 2010 was 50 percent compared to 46 percent for the prior year’s first nine months. The increase in efficiency ratio resulted from continuing pressure on net interest income in the current low interest rate environment coupled with small increases in operating expenses.

Provision for Loan Losses

The provision for loan loss expense was $57.3 million for the first nine months of 2010, a decrease of $30.6 million, or 35 percent, from the same period in 2009. Net charged-off loans during the nine months ended September 30, 2010 was $66.0 million, an increase of $26.7 million from the same period in 2009.

31

Financial Condition Analysis

Assets


										$ Change from			$ Change from
	September 30,			December 31,			September 30,			December 31,			September 30,
(Unaudited - Dollars in thousands)	2010			2009			2009			2009			2009
Cash on hand and in banks	$	83,684			120,731			93,728			(37,047	)		(10,044	)
Investments, interest bearing deposits, FHLB stock, FRB stock, and fed funds		1,856,989			1,596,238			1,262,542			260,751			594,447
Loans
Residential real estate		787,335			797,626			787,911			(10,291	)		(576	)
Commercial		2,515,767			2,613,218			2,558,270			(97,451	)		(42,503	)
Consumer and other		680,858			719,401			700,069			(38,543	)		(19,211	)

Loans receivable, gross		3,983,960			4,130,245			4,046,250			(146,285	)		(62,290	)
Allowance for loan and lease losses		(134,257	)		(142,927	)		(125,330	)		8,670			(8,927	)

Loans receivable, net		3,849,703			3,987,318			3,920,920			(137,615	)		(71,217	)


Other assets		482,283			487,508			431,110			(5,225	)		51,173

Total assets	$	6,272,659			6,191,795			5,708,300			80,864			564,359

Total assets at September 30, 2010 were $6.273 billion, which is $81 million, or 1 percent greater than total assets of $6.192 billion at December 31, 2009. Total assets increased $564 million, or 10 percent, from September 30, 2009, of which $272 million, including $161 million in loans, related to the acquisition of First National in October 2009.

Investment securities, including interest bearing deposits, FHLB and FRB stock, and federal funds sold, have increased $261 million, or 16 percent, from December 31, 2009 and increased $594 million, or 47 percent, from September 30, 2009. The Company continues to purchase investment securities as loan originations slow, such purchases predominately mortgage-backed securities issued by Freddie Mac and Fannie Mae with low yields and short-weighted average lives. The Company also continues to selectively purchase tax-exempt investment securities. Investment securities represent 30 percent of total assets at September 30, 2010 versus 22 percent of total assets at September 30, 2009.

At September 30, 2010, gross loans were $3.984 billion, a decrease of $146 million over gross loans of $4.130 billion at December 31, 2009. The largest category decrease was in commercial loans which decreased $97 million, or 4 percent. The decrease in each loan category is due to the slowing loan demand within the Company’s market areas resulting from the current economic downturn. Excluding net charge-offs of $66 million, loans transferred to other real estate of $67 million, and an increase in loans held for sale of $49 million, loans decreased $62 million, or 2 percent annualized, from December 31, 2009.

32

Liabilities


							$ Change from			$ Change from
	September 30,		December 31,		September 30,		December 31,			September 30,
(Unaudited - Dollars in thousands)	2010		2009		2009		2009			2009
Non-interest bearing deposits	$	887,637		810,550		801,261		77,087			86,376
Interest bearing deposits		3,530,204		3,289,602		2,809,756		240,602			720,448
Federal Home Loan Bank advances		579,184		790,367		640,735		(211,183	)		(61,551	)
Federal Reserve Bank discount window		—		225,000		370,000		(225,000	)		(370,000	)
Securities sold under agreements to repurchase and other borrowed funds		254,995		226,251		225,583		28,744			29,412
Other liabilities		41,889		39,147		42,696		2,742			(807	)
Subordinated debentures		125,096		124,988		120,167		108			4,929

Total liabilities	$	5,419,005		5,505,905		5,010,198		(86,900	)		408,807

As of September 30, 2010, non-interest bearing deposits of $888 million increased $77 million, or 13 percent annualized, since December 31, 2009 and increased $86 million, or 11 percent, since September 30, 2009. Interest bearing deposits of $3.530 billion at September 30, 2010 include $187 million issued through the Certificate of Deposit Account Registry System (“CDARS”). Interest bearing deposits increased $241 million, or 10 percent annualized, from December 31, 2009 and $720 million, or 26 percent from September 30, 2009. The increase in interest bearing deposits from December 31, 2009 and September 30, 2009 includes $175 million and $292 million, respectively, from wholesale deposits, including CDARS. The increase in non-interest bearing deposits and interest bearing deposits from September 30, 2009 includes $39 million and $197 million, respectively, from the First National acquisition. The increase in both interest bearing and non-interest bearing deposits was driven by a greater number of personal and business customers, as well as existing customers retaining cash deposits because of the uncertainty in the current interest rate environment and for liquidity purposes.

Increases in both interest and non-interest bearing deposits have allowed the Company to reduce overall borrowings. Federal Home Loan Bank advances decreased $211 million, or 27 percent, from December 31, 2009 and decreased $62 million, or 10 percent, from September 30, 2009. There were no Federal Reserve Bank borrowings through the Term Auction Facility program (“TAF”) at September 30, 2010 due to cessation of the TAF program by the Federal Reserve. TAF borrowings totaled $225 million at December 31, 2009 and $345 million at September 30, 2009. Repurchase agreements and other borrowed funds were $255 million at September 30, 2010, an increase of $29 million from December 31, 2009 and September 30, 2009.

33

Stockholders’ Equity


										$ Change from		$ Change from
	September 30,			December 31,			September 30,			December 31,		September 30,
Unaudited - Dollars in thousands, except per share data)	2010			2009			2009			2009		2009
Common equity	$	837,212			686,238			682,956			150,974		154,256
Accumulated other comprehensive income (loss)		16,442			(348	)		15,146			16,790		1,296

Total stockholders’ equity		853,654			685,890			698,102			167,764		155,552
Goodwill and core deposit intangible, net		(157,774	)		(160,196	)		(156,978	)		2,422		(796	)

Tangible stockholders’ equity	$	695,880			525,694			541,124			170,186		154,756


Stockholders’ equity to total assets		13.61	%		11.08	%		12.23	%
Tangible stockholders’ equity to total tangible assets		11.38	%		8.72	%		9.75	%
Book value per common share	$	11.87			11.13			11.35			0.74		0.52
Tangible book value per common share	$	9.68			8.53			8.80			1.15		0.88
Market price per share at end of year	$	14.59			13.72			14.94			0.87		(0.35	)

Total stockholders’ equity and book value per share increased $168 million and $0.74 per share and $156 million and $0.52 per share, from December 31, 2010 and September 30, 2009, respectively, such increases are largely the result of the $146 million in net proceeds from the Company’s March equity offering of 10.291 million shares. Tangible stockholders’ equity has increased $170 million, or 32 percent, and $155 million, or 29 percent, since December 31, 2009 and September 30, 2009, respectively, with tangible stockholders’ equity to tangible assets at 11.38 percent, 8.72 percent, and 9.75 percent as of September 30, 2010, December 31, 2010, and September 30, 2009, respectively. Accumulated other comprehensive income (loss), representing net unrealized gains or losses (net of tax) on investment securities, increased $16.8 million since December 31, 2009 and $1.3 million from September 30, 2009.

On September 29, 2010, the Board of Directors declared a cash dividend of $0.13 per share, payable October 21, 2010 to shareholders of record on October 12, 2010. Future cash dividends will depend on a variety of factors, including net income, capital, asset quality and general economic conditions.

Additional Management’s Discussion and Analysis

Loan Portfolio

The following tables summarize selected information by bank and regulatory classification on the Company’s loan portfolio:


	Loans Receivable, Gross by Bank							% Change			% Change
	Balance			Balance		Balance		from			from
(Dollars in thousands)	9/30/10			12/31/09		9/30/09		12/31/09			9/30/09
Glacier	$	891,508			942,254		950,000		-5	%		-6	%
Mountain West		884,648			957,451		971,240		-8	%		-9	%
First Security		575,980			566,713		574,371		2	%		0	%
1st Bank		275,650			296,913		299,095		-7	%		-8	%
Western		322,452			323,375		332,709		0	%		-3	%
Big Sky		259,474			270,970		283,110		-4	%		-8	%
Valley		194,705			187,283		188,221		4	%		3	%
First National		151,134			153,058		—		-1	%		n/m
Citizens		173,941			166,049		172,769		5	%		1	%
First Bank-MT		114,665			117,017		123,846		-2	%		-7	%
San Juans		143,616			149,162		150,889		-4	%		-5	%
Eliminations		(3,813	)		—		—		n/m			n/m

Total	$	3,983,960			4,130,245		4,046,250		-4	%		-2	%

34


	Land, Lot and Other Construction Loans by Bank						% Change			% Change
	Balance		Balance		Balance		from			from
(Dollars in thousands)	9/30/10		12/31/09		9/30/09		12/31/09			9/30/09
Glacier	$	150,167		165,734		164,448		-9	%		-9	%
Mountain West		173,543		217,078		238,268		-20	%		-27	%
First Security		74,168		71,404		73,432		4	%		1	%
1st Bank		29,520		36,888		39,218		-20	%		-25	%
Western		30,552		32,045		37,887		-5	%		-19	%
Big Sky		56,440		71,365		73,944		-21	%		-24	%
Valley		13,423		14,704		15,450		-9	%		-13	%
First National		12,630		10,247		—		23	%		n/m
Citizens		12,622		13,263		21,816		-5	%		-42	%
First Bank-MT		799		1,010		5,804		-21	%		-86	%
San Juans		31,389		39,621		36,202		-21	%		-13	%

Total	$	585,253		673,359		706,469		-13	%		-17	%


	Land, Lot and Other Construction Loans by Bank, by Type at 9/30/10
			Consumer				Developed		Commercial
	Land		Land or		Unimproved		Lots for		Developed		Other
(Dollars in thousands)	Development		Lot		Land		Operative Builders		Lot		Construction
Glacier	$	60,405		28,784		28,513		8,873		23,592		—
Mountain West		45,079		63,388		17,680		23,407		8,855		15,134
First Security		27,795		6,994		20,125		4,512		499		14,243
1st Bank		7,968		10,565		3,782		218		2,305		4,682
Western		15,190		5,938		4,858		587		1,863		2,116
Big Sky		20,402		17,622		9,290		729		2,377		6,020
Valley		2,259		5,485		1,308		106		3,288		977
First National		2,074		3,992		1,426		477		2,139		2,522
Citizens		2,790		2,292		2,957		50		657		3,876
First Bank-MT		—		50		749		—		—		—
San Juans		3,384		16,821		2,253		—		7,862		1,069

Total	$	187,346		161,931		92,941		38,959		53,437		50,639


													Custom &
	Residential Construction Loans by Bank, by Type						% Change			% Change			Owner		Pre-Sold
	Balance		Balance		Balance		from			from			Occupied		& Spec
(Dollars in thousands)	9/30/10		12/31/09		9/30/09		12/31/09			9/30/09			9/30/10		9/30/10
Glacier	$	42,975		57,183		72,828		-25	%		-41	%	$	9,037		33,938
Mountain West		22,829		57,437		63,572		-60	%		-64	%		7,461		15,368
First Security		12,375		19,664		15,981		-37	%		-23	%		4,628		7,747
1st Bank		10,037		17,633		18,783		-43	%		-47	%		6,589		3,448
Western		1,294		2,245		3,709		-42	%		-65	%		871		423
Big Sky		13,724		20,679		27,803		-34	%		-51	%		256		13,468
Valley		5,550		5,170		5,380		7	%		3	%		4,455		1,095
First National		2,105		2,612		—		-19	%		n/m			1,626		479
Citizens		11,175		13,211		16,705		-15	%		-33	%		5,166		6,009
First Bank-MT		135		234		179		-42	%		-25	%		135		—
San Juans		8,421		13,811		13,549		-39	%		-38	%		8,026		395

Total	$	130,620		209,879		238,489		-38	%		-45	%	$	48,250		82,370

35


	Single Family Residential Loans by Bank, by Type						% Change			% Change			1st		Junior
	Balance		Balance		Balance		from			from			Lien		Lien
(Dollars in thousands)	9/30/10		12/31/09		9/30/09		12/31/09			9/30/09			9/30/10		9/30/10
Glacier	$	193,110		204,789		205,203		-6	%		-6	%	$	170,746		22,364
Mountain West		297,676		278,158		275,936		7	%		8	%		258,331		39,345
First Security		93,629		82,141		82,349		14	%		14	%		79,130		14,499
1st Bank		59,102		65,555		63,893		-10	%		-7	%		54,069		5,033
Western		56,914		50,502		45,764		13	%		24	%		54,701		2,213
Big Sky		34,895		33,308		33,840		5	%		3	%		31,327		3,568
Valley		66,344		66,644		65,261		0	%		2	%		55,241		11,103
First National		15,169		19,239		—		-21	%		n/m			11,794		3,375
Citizens		25,940		20,937		21,659		24	%		20	%		23,958		1,982
First Bank-MT		9,314		10,003		10,592		-7	%		-12	%		8,138		1,176
San Juans		29,164		22,811		22,790		28	%		28	%		27,571		1,593

Total	$	881,257		854,087		827,287		3	%		7	%	$	775,006		106,251


	Commercial Real Estate Loans by Bank, by Type						% Change			% Change			Owner		Non-Owner
	Balance		Balance		Balance		from			from			Occupied		Occupied
(Dollars in thousands)	9/30/10		12/31/09		9/30/09		12/31/09			9/30/09			9/30/10		9/30/10
Glacier	$	228,090		232,552		235,576		-2	%		-3	%	$	113,859		114,231
Mountain West		221,761		230,383		212,865		-4	%		4	%		145,032		76,729
First Security		225,806		224,425		223,756		1	%		1	%		152,480		73,326
1st Bank		61,460		64,008		66,924		-4	%		-8	%		43,559		17,901
Western		104,052		107,173		104,450		-3	%		0	%		54,236		49,816
Big Sky		90,337		82,303		83,489		10	%		8	%		54,758		35,579
Valley		51,985		48,144		48,202		8	%		8	%		33,866		18,119
First National		28,336		26,703		—		6	%		n/m			22,406		5,930
Citizens		60,070		55,660		53,424		8	%		12	%		44,161		15,909
First Bank-MT		17,095		18,827		13,772		-9	%		24	%		11,070		6,025
San Juans		49,530		47,838		54,525		4	%		-9	%		28,820		20,710

Total	$	1,138,522		1,138,016		1,096,983		0	%		4	%	$	704,247		434,275


	Consumer Loans by Bank, by Type						% Change			% Change			Home Equity		Other
	Balance		Balance		Balance		from			from			Line of Credit		Consumer
(Dollars in thousands)	9/30/10		12/31/09		9/30/09		12/31/09			9/30/09			9/30/10		9/30/10
Glacier	$	155,150		162,723		161,416		-5	%		-4	%	$	139,773		15,377
Mountain West		71,818		71,702		72,696		0	%		-1	%		62,729		9,089
First Security		74,765		78,345		80,444		-5	%		-7	%		48,793		25,972
1st Bank		41,937		46,455		46,686		-10	%		-10	%		16,654		25,283
Western		46,772		48,946		49,912		-4	%		-6	%		33,309		13,463
Big Sky		27,462		28,903		28,906		-5	%		-5	%		24,584		2,878
Valley		25,204		24,625		25,753		2	%		-2	%		15,771		9,433
First National		26,416		27,320		—		-3	%		n/m			16,292		10,124
Citizens		30,566		29,253		28,276		4	%		8	%		24,174		6,392
First Bank-MT		7,937		7,650		7,699		4	%		3	%		3,803		4,134
San Juans		13,900		14,189		13,935		-2	%		0	%		12,605		1,295

Total	$	521,927		540,111		515,723		-3	%		1	%	$	398,487		123,440


n/m —		not measurable

36

Allowance for Loan and Lease Losses

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

Although the Company and Banks continue to actively monitor economic trends, soft economic conditions combined with potential declines in the values of real estate that collateralize most of the Company’s loan and lease portfolios may adversely affect the credit risk and potential for loss to the Company.

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

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

Management of each bank subsidiary exercises significant judgment when evaluating the effect of applicable qualitative or environmental factors on each bank subsidiary’s historical loss experience for loans not identified as impaired. Quantification of the impact upon each bank’s allowance is inherently subjective as data for any factor may not be directly applicable, consistently relevant, or reasonably available for management to determine the precise impact of a factor on the collectability of the bank’s unimpaired loan and lease portfolio as of each evaluation date. Bank management documents its conclusions and rationale for changes that occur in each applicable factor’s weight, i.e., measurement and ensures that such changes are directionally consistent based on the underlying current trends and conditions for the factor.

The Company is committed to a conservative management of the credit risk within the loan and lease portfolios, including the early recognition of problem loans. The Company’s credit risk management includes stringent credit policies, individual loan approval limits, limits on concentrations of credit, and committee approval of larger loan requests. Management practices also include regular internal and external credit examinations, identification and review of individual loans and leases experiencing deterioration of credit quality, procedures for the collection of non-performing assets, quarterly monitoring of the loan and lease portfolios, semi-annual review of loans by industry, and periodic stress testing of the loans secured by real estate.

37

The Company’s model of eleven independent wholly-owned community banks, each with its own loan committee, chief credit officer and Board of Directors, provides substantial local oversight to the lending and credit management function. Unlike a traditional, single-bank holding company, the Company’s decentralized business model affords multiple reviews of larger loans before credit is extended, a significant benefit in mitigating and managing the Company’s credit risk. The geographic dispersion of the market areas in which the Company and the community bank subsidiaries operate further mitigates the risk of credit loss. While this process is intended to limit credit exposure, there can be no assurance that further problem credits will not arise and additional loan losses incurred, particularly in periods of rapid economic downturns.

The primary responsibility for credit risk assessment and identification of problem loans rests with the loan officer of the account. This continuous process, utilizing each of the Banks’ internal credit risk rating process, is necessary to support management’s evaluation of the ALLL adequacy. An independent loan review function verifying credit risk ratings evaluates the loan officer and management’s evaluation of the loan portfolio credit quality. The loan review function also assesses the evaluation process and provides an independent analysis of the adequacy of the ALLL.

The Company considers the ALLL balance of $134.3 million adequate to cover inherent losses in the loan and lease portfolios as of September 30, 2010. However, no assurance can be given that the Company will not, in any particular period, sustain losses that are significant relative to the amount reserved, or that subsequent evaluations of the loan and lease portfolios applying management’s judgment about then current factors, including economic and regulatory developments, will not require significant changes in the ALLL. Under such circumstances, this could result in enhanced provisions for loan losses. See additional risk factors in “Part II, ITEM 1A. Risk Factors.”

The following table summarizes the allocation of the ALLL:


	September 30, 2010					December 31, 2009					September 30, 2009
	Allowance		Percent			Allowance		Percent			Allowance		Percent
	for Loan and		of Loans in			for Loan and		of Loans in			for Loan and		of Loans in
(Unaudited - Dollars in thousands)	Lease Losses		Category			Lease Losses		Category			Lease Losses		Category
Residential real estate	$	11,872		19.8	%		13,496		19.6	%		11,959		19.5	%
Commercial real estate		61,092		46.3	%		66,791		45.9	%		59,471		47.7	%
Other commercial		39,768		16.8	%		39,558		17.5	%		33,406		15.5	%
Consumer and other loans		21,525		17.1	%		23,082		17.0	%		20,494		17.3	%

Totals	$	134,257		100.0	%		142,927		100.0	%		125,330		100.0	%

38

The following tables summarize the ALLL experience at the dates indicated, including breakouts by regulatory and bank subsidiary classification:


	Nine Months ended			Year ended			Nine Months ended
	September 30,			December 31,			September 30,
(Unaudited — Dollars in thousands)	2010			2009			2009
Balance at beginning of period	$	142,927			76,739			76,739
Charge-offs
Residential real estate		(12,287	)		(18,854	)		(10,031	)
Commercial loans		(51,274	)		(35,077	)		(26,408	)
Consumer and other loans		(5,307	)		(6,965	)		(4,552	)

Total charge-offs		(68,868	)		(60,896	)		(40,991	)


Recoveries
Residential real estate		695			423			372
Commercial loans		1,841			1,636			1,011
Consumer and other loans		344			407			294

Total recoveries		2,880			2,466			1,677


Charge-offs, net of recoveries		(65,988	)		(58,430	)		(39,314	)
Provision for loan losses		57,318			124,618			87,905

Balance at end of period	$	134,257			142,927			125,330


Allowance for loan and lease losses as a percentage of total loan and leases		3.37	%		3.46	%		3.10	%

Net charge-offs as a percentage of total loans		1.66	%		1.42	%		0.97	%


									Provision for
							Provision for		the Year-to-Date		ALLL
	Allowance for Loan and Lease Losses						Year-to-Date		Ended 9/30/10		as a Percent
	Balance		Balance		Balance		Ended		Over Net		of Loans
(Dollars in thousands)	9/30/10		12/31/09		9/30/09		9/30/10		Charge-Offs		9/30/10
Glacier	$	34,936		38,978		35,835		18,300		0.8		3.92	%
Mountain West		28,963		37,551		32,686		23,300		0.7		3.27	%
First Security		19,007		18,242		15,673		5,100		1.2		3.30	%
1st Bank		11,224		10,895		10,038		2,150		1.2		4.07	%
Western		8,719		8,762		8,020		700		0.9		2.70	%
Big Sky		10,450		10,536		8,862		2,900		1.0		4.03	%
Valley		4,752		4,367		4,132		500		4.3		2.44	%
First National		2,498		1,679		—		1,453		2.3		1.65	%
Citizens		6,000		4,865		4,064		1,900		2.5		3.45	%
First Bank — MT		3,070		2,904		2,699		265		2.7		2.68	%
San Juans		4,638		4,148		3,321		750		2.9		3.23	%

Total	$	134,257		142,927		125,330		57,318		0.9		3.37	%

39


	Net Charge-Offs, Year-to-Date Period Ending, By Bank
	Balance		Balance		Balance		Charge-Offs		Recoveries
(Dollars in thousands)	9/30/10		12/31/09		9/30/09		9/30/10		9/30/10
Glacier	$	22,342		12,012		4,155		22,762		420
Mountain West		31,888		28,931		21,296		32,521		633
First Security		4,335		3,745		1,889		5,431		1,096
1st Bank		1,821		5,917		5,024		2,288		467
Western		743		1,500		1,342		827		84
Big Sky		2,986		4,896		4,370		3,073		87
Valley		115		414		349		125		10
First National		634		4		—		655		21
Citizens		765		656		532		771		6
First Bank-MT		99		26		31		104		5
San Juans		260		329		326		311		51

Total	$	65,988		58,430		39,314		68,868		2,880


	Net Charge-Offs (Recoveries), Year-to-Date
	Period Ending, By Loan Type
	Balance			Balance		Balance		Charge-Offs		Recoveries
(Dollars in thousands)	9/30/10			12/31/09		9/30/09		9/30/10		9/30/10
Residential construction	$	6,248			13,455		6,363		6,530		282
Land, lot and other construction		37,456			28,310		22,567		38,465		1,009
Commercial real estate		7,965			1,187		763		8,108		143
Commercial and industrial		4,010			3,610		2,022		4,655		645
1-4 family		6,771			7,242		4,745		7,195		424
Home equity lines of credit		2,987			2,357		1,419		3,015		28
Consumer		583			1,895		1,370		854		271
Other		(32	)		374		65		46		78

Total	$	65,988			58,430		39,314		68,868		2,880

At September 30, 2010, the allowance for loan and lease losses was $134.3 million, an increase of $8.9 million from a year ago and a decrease of $8.7 million from year end. The allowance was 3.37 percent of total loans outstanding at September 30, 2010, such percentage was down from the 3.51 percent at June 30, 2010, but higher than the 3.10 percent at September 30, 2009. Loan portfolio growth, composition, average loan size, credit quality considerations, and other environmental factors will continue to determine the level of additional provision for loan loss expense at each subsidiary bank.

The allowance determined by each of the community bank subsidiaries is combined together into a single allowance for the Company. As of September 30, 2010 and 2009, the Company’s allowance consisted of the following components:


	September 30,		September 30,
(Unaudited — Dollars in thousands)	2010		2009
Specific allowance	$	18,622		23,056
General allowance		115,635		102,274

Total allowance	$	134,257		125,330

The specific valuation allowance of $18.6 million pertains to total impaired loans of $232.4 million. Included in the impaired loans is $144.5 million of loans which have no specific valuation allowance since the fair values (less estimated costs to sell) exceed the carrying values of such loans.

40

The increase in the ALLL was primarily due to the increase in non-performing assets since September 30, 2009 and a continuing downturn in global, national and local economies. The eleven bank subsidiaries provide commercial services to individuals, small to medium size businesses, community organizations and public entities from 105 locations, including 96 branches, across Montana, Idaho, Wyoming, Colorado, Utah, and Washington. The Rocky Mountain areas in which the bank subsidiaries operate have diverse economies and markets that are tied to commodities (crops, livestock, minerals, oil and natural gas), tourism, real estate and land development and an assortment of industries, both manufacturing and service-related. Thus, the downturn in the global, national, and local economies is not uniform across each of the bank subsidiaries.

The soft economic conditions during much of 2009, though stabilized during the first nine months of 2010, included the declining sales of existing real property (e.g., single family residential, multi-family, commercial buildings), an increase in existing inventory of real property, increase in real property delinquencies and foreclosures, and corresponding decrease in absorption rates, and lower values of real property that collateralize most of the Company’s loan and lease portfolios, among other factors. While national unemployment increased steadily from 7.4 percent at the start of 2009 to 10.0 percent at year end 2009 and dropping to 9.6 at September 30, 2010, the unemployment rates for the states in which the community bank subsidiaries conduct operations were significantly lower throughout 2009 and in the first nine months of 2010 than the national unemployment percentages. Agricultural prices declines in livestock and grain in 2009 have significantly recovered in the first nine months of 2010. Concurrently, prices for oil held strong, while prices for natural gas remain below the exceptionally high price levels of 2008. The decline in the cost of living, as reflected in CPI measures, helped buffer the general softening of the economy nationally, regionally and locally, and the impact of lower real property values. The tourism industry and related lodging continues to be a source of strength for those banks whose market areas have national parks and similar recreational areas in the market areas served. Such changes affected the bank subsidiaries in distinctly different ways as each bank has its own geographic area and local economy influences over both a short-term and long-term horizon. The Company’s allowance is commensurate with the risk in the Company’s loan and lease portfolio and is directionally consistent with the change in the quality of the Company’s loan and lease portfolio as determined at each bank subsidiary.

The Banks’ 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. When such property is acquired, it is recorded at estimated fair value, less estimated cost to sell. Any write-down at the time of recording real estate owned is charged to the ALLL. Subsequent write-downs, if any, are charged to current expense.

41

Non-performing Assets

The following tables summarize information regarding non-performing assets at the dates indicated, including breakouts by regulatory and bank subsidiary classification:


	September 30,			December 31,			September 30,
(Unaudited - Dollars in thousands)	2010			2009			2009
Non-accrual loans
Residential real estate	$	23,705			20,093			17,295
Commercial		161,838			168,328			159,894
Consumer and other		7,152			9,860			8,388

Total		192,695			198,281			185,577
Accruing loans 90 days or more overdue
Residential real estate		709			1,965			371
Commercial		4,202			1,311			1,586
Consumer and other		424			2,261			934

Total		5,335			5,537			2,891

Other real estate owned		63,440			57,320			54,537

Total non-performing loans and real estate and other assets owned	$	261,470			261,138			243,005


Allowance for loan and lease losses as a percentage of non-performing assets		51	%		55	%		52	%
Non-performing assets as a percentage of total subsidiary assets		4.03	%		4.13	%		4.10	%

Accruing loans 30-89 days overdue	$	40,923			87,491			43,606

Interest income ¹	$	8,263			11,730			8,175


¹		Amounts represent estimated interest income that would have been recognized on loans accounted for on a non-accrual basis for the nine months ended September 30, 2010, year ended December 31, 2009 and nine months ended September 30, 2009 had such loans performed pursuant to contractual terms.


							Non-		Accruing		Other
	Non-performing Assets, by Loan Type						Accruing		Loans 90 Days		Real Estate
	Balance		Balance		Balance		Loans		or More Overdue		Owned
(Dollars in thousands)	9/30/10		12/31/09		9/30/09		9/30/10		9/30/10		9/30/10

Custom and owner occupied construction	$	4,126		3,281		1,131		1,752		1,609		765
Pre-sold and spec construction		19,628		29,580		39,812		17,016		—		2,612
Land development		81,505		88,488		84,929		58,443		—		23,062
Consumer land or lots		11,488		10,120		12,092		7,101		678		3,709
Unimproved land		40,082		32,453		29,779		25,366		—		14,716
Developed lots for operative builders		8,721		11,565		10,909		7,297		—		1,424
Commercial lots		3,219		909		1,011		3,183		—		36
Other construction		3,485		—		—		3,485		—		—
Commercial real estate		30,107		32,300		21,475		20,757		379		8,971
Commercial and industrial		14,005		12,271		9,235		12,195		1,780		30
Agriculture loans		5,645		283		1,121		5,115		125		405
1-4 family		31,782		30,868		24,615		24,652		412		6,718
Home equity lines of credit		5,446		6,234		5,539		4,432		253		761
Consumer		746		1,042		923		416		99		231
Other		1,485		1,744		434		1,485		—		—

Total	$	261,470		261,138		243,005		192,695		5,335		63,440

42


									Non-Accrual &
	Accruing 30-89 Days Delinquent Loans and						Accruing		Accruing Loans		Other
	Non-Performing Assets, by Bank						30-89 Days		90 Days or		Real Estate
	Balance		Balance		Balance		Overdue		More Overdue		Owned
(Dollars in thousands)	9/30/10		12/31/09		9/30/09		9/30/10		9/30/10		9/30/10
Glacier	$	77,144		97,666		99,792		8,267		62,413		6,464
Mountain West		71,780		109,187		76,073		14,989		53,756		3,035
First Security		55,627		59,351		46,321		7,245		35,950		12,432
1st Bank		18,166		21,117		19,744		2,890		6,566		8,710
Western		10,293		9,315		8,917		533		6,622		3,138
Big Sky		23,882		31,711		26,941		1,653		15,910		6,319
Valley		1,916		2,542		1,638		840		1,003		73
First National		10,519		9,290		—		701		9,073		745
Citizens		7,989		5,340		5,653		1,965		4,412		1,612
First Bank — MT		669		800		538		245		320		104
San Juans		5,252		2,310		994		1,595		2,005		1,652
GORE		19,156		—		—		—		—		19,156

Total	$	302,393		348,629		286,611		40,923		198,030		63,440

The allowance was 51 percent of non-performing assets at September 30, 2010, compared to 55 percent at the prior year end and down slightly from 52 percent a year ago. Non-performing assets as a percentage of total subsidiary assets at September 30, 2010 were at 4.03 percent, down from 4.13 percent as of prior year end, and down from 4.10 percent at September 30, 2009. Each bank subsidiary evaluates the level of its non-performing assets, the values of the underlying real estate and other collateral, and related trends in net charge-offs. Through pro-active credit administration, the Banks work closely with borrowers to seek favorable resolution to the extent possible, thereby attempting to minimize net charge-offs or losses to the Company.

Most of the Company’s non-performing assets are secured by real estate and, based on the most current information available to management, including updated appraisals or evaluations, the Company believes the value of the underlying real estate collateral is adequate to minimize significant charge-offs or loss to the Company.

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 unless the loan is in process of collection and well-secured by collateral the fair value of which is sufficient to pay off the debt in full. When a loan is placed on non-accrual status, interest previously accrued but not collected is reversed against current period interest income. Subsequent payments are applied to the outstanding principal balance if doubt remains as to the ultimate collectability of the loan. Interest accruals are 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.

Loans are designated impaired when the Company has serious doubts as to the ability of such borrowers to comply with the present loan repayment terms which includes loans, based upon current information and events, where 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. Impaired loans include non-performing loans (i.e., non-accrual loans and accruing loans 90 days or more overdue) and accruing loans under ninety days overdue where it is probable payments will not be received according to the loan agreement. An insignificant delay or shortfall in the amounts of payments would not cause a loan or lease to be considered impaired. The Company determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the facts and circumstances surrounding the loan and the borrower, including the length and reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest due. At the time a loan is identified as impaired, it is measured for impairment and thereafter reviewed and measured on at least a quarterly basis for additional impairment.

43

The amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except when it is determined that repayment of the loan is expected to be provided solely by the underlying collateral. For impairment based on expected future cash flows, the Company considers all information available as of a measurement date, including past events, current conditions, potential prepayments, and estimated costs to sell when such costs are expected to reduce the cash flows available to repay or otherwise satisfy the loan. For alternative ranges of cash flows, the likelihood of the possible outcomes is considered in determining the best estimate of expected future cash flows. The effective interest rate for a loan restructured in a troubled debt restructuring is based on the original contractual rate.

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 the estimated cost to sell. The Company measures impairment on collateral-dependent loans on a loan-by-loan basis. Fair value of collateral-dependent loans (and other real estate acquired by foreclosure or deed-in-lieu of foreclosure) is determined primarily based upon appraisal or evaluation of the underlying real property value.

When the ultimate collectability of the total principal of an impaired loan is in doubt and designated as non-accrual, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal on an impaired loan is not in doubt, contractual interest is generally credited to interest income when received under the cash basis method. Total interest income recognized for impaired loans under the cash basis for the nine months ended September 30, 2010 and 2009 was not significant. Of the $232.4 million impaired loans as of September 30, 2010, there were 48 commercial real estate loans that accounted for $117.4 million, or 51 percent, of the impaired loans. The 48 loans were collateralized by 142 percent of the loan value, the majority of which had appraisals (new or updated) in the later half of 2009 or 2010. Of the $232.4 million impaired loans, there was $159.4 million, or 69 percent, of multiple impaired loans issued to a single or related party group of borrowers. The amount of impaired loans that have had partial charge-offs during the first nine months of 2010 for which the Company continues to have concern about the collectability of the remaining loan balance was $38.4 million. Of these loans, there were charge-offs of $25.8 million during 2010.

A restructured loan is considered a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. With respect to the types of loan modifications made to the identified restructured loans, the following modifications were made:

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

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

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

Each restructured debt is separately negotiated with the borrower and includes terms and conditions that reflect the borrower’s prospective ability to service the debt as modified. The Company has not restructured any commercial real estate loans that resulted in the creation of multiple new loans. The Company does not utilize the multiple loan strategy when restructuring loans regardless of whether or not the notes are TDR loans. The Company’s TDR loans are considered impaired loans, of which the majority are designated as nonaccrual. The Company does not have any commercial TDR loans as of September 30, 2010 that have repayment dates extended at or near the original maturity date for which the Company has not classified as impaired. The Company had troubled debt restructuring loans of $71.3 million as of September 30, 2010. The Company has troubled debt restructured loans issued to a single borrower or related party groups that are currently in nonaccrual status or that have had charge-offs during the year, but which continue to have other loans that are currently recorded on accrual status. The amount of these troubled debt restructures is $19.7 million as of September 30, 2010 and the amount of the accruing loans is $30.6 million as of September 30, 2010.

44

Interest Reserves

Interest reserves are used to periodically advance loan funds to pay interest charges on the outstanding balance of the related loan. As with any extension of credit, the decision to establish a loan-funded interest reserve upon origination of construction loans as well as land acquisition, development and construction (“ADC”) loans is based on prudent underwriting, including the feasibility of the project, expected cash flow, creditworthiness of the borrower and guarantors, and the protection provided by the real estate and other collateral. Interest reserves provide an effective means for addressing the cash flow characteristics of construction and ADC loans. In response to the downturn in the housing market and potential impact upon construction and ADC lending, the Company discourages the creation or continued use of interest reserves.

The Company’s Loan Policy and credit administration practices establish standards and limits for all extensions of credit that are secured by interests in or liens on real estate, or made for the purpose of financing the construction of real property or other improvements. Ongoing monitoring and review of the loan portfolio, including construction and ADC loans, include assessing, based on current information, the borrowers’ and guarantors’ creditworthiness, value of the real estate and other collateral, the project’s performance against projections, and monthly inspections by employees or external parties until the real estate project is complete.

Interest reserves are advanced provided the related construction or ADC loan is performing as expected. Loans with interest reserves may be extended, renewed or restructured only when the related loan continues to perform as expected and meets the prudent underwriting standards identified above. Such renewals, extension or restructuring are not permitted in order to keep the related loan current.

In monitoring the performance and credit quality of a construction or an ADC loan, the Company assesses the adequacy of any remaining interest reserve, and whether the use of an interest reserve remains appropriate in the presence of emerging weakness and associated risks in the construction or ADC loan.

The ongoing accrual and recognition of uncollected interest as income continues only when facts and circumstances continue to reasonably support the contractual payment of principal or interest. Loans are designated as non-accrual when the collection of the contractual principal or interest is unlikely and the accrual of interest and its capitalization into the loan balance will be discontinued for such loans.

The Company had loans with interest reserves of $156.5 million and $216.4 million of which there was remaining interest reserves of $991 thousand and $3.4 million as of September 30, 2010 and December 31, 2009, respectively.

Income Tax Expense

Income tax expense for the nine months ended September 30, 2010 and 2009 was $7.4 million and $4.6 million, respectively. The Company’s effective tax rate for the nine months ended September 30, 2010 and 2009 was 18.5 percent and 15.6 percent, respectively. The primary reason for the low effective rate is the amount of tax-exempt investment income and federal tax credits. The tax-exempt income was $17.4 million and $16.7 million for the nine months ended September 30, 2010 and 2009, respectively. The federal tax credit benefits were $300 thousand and $1.8 million for the three and nine months ended September 30, 2010, respectively, and $359 thousand and $634 thousand for the three and nine months ended September 30, 2009, respectively. The Company continues its investments in select municipal securities and various VIEs whereby the Company receives federal tax credits and therefore the Company expects to maintain a moderate amount of tax-exempt items. For additional information on income taxes see Note 10, Federal and State Income Taxes, in “ITEM 1. Financial Statements.”

45

Other-Than-Temporary Impairment on Securities Accounting Policy and Analysis

The Company views the determination of whether an investment security is temporarily or other-than-temporarily impaired as a critical accounting policy, as the estimate is susceptible to significant change from period to period because it requires management to make significant judgments, assumptions and estimates in the preparation of its consolidated financial statements. The Company assesses individual securities in its investment securities portfolio for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant. An investment is impaired if the fair value of the security is less than its carrying value at the financial statement date. If impairment is determined to be other-than-temporary, an impairment loss is recognized by reducing the amortized cost for the credit loss portion of the impairment with a corresponding charge to earnings for a like amount.

The Company believes that macroeconomic conditions occurring the first nine months of 2010 and in 2009 have unfavorably impacted the fair value of certain debt securities in its investment portfolio. For debt securities with limited or inactive markets, the impact of these macroeconomic conditions upon fair value estimates includes higher risk-adjusted discount rates and downgrades in credit ratings provided by nationally recognized credit rating agencies, (e.g., Moody’s, S&P, Fitch, and DBRS).

For fair value estimates provided by third party vendors, management also considered the models and methodology, for appropriate consideration of both observable and unobservable inputs, including appropriately adjusted discount rates and credit spreads for securities with limited or inactive markets, and whether the quoted prices reflect orderly transactions. For certain securities, the Company obtained independent estimates of inputs, including cash flows, in supplement to third party vendor provided information. The Company also reviewed financial statements of select issuers, with follow up discussions with issuers’ management for clarification and verification of information relevant to the Company’s impairment analysis.

In evaluating equity securities for other-than-temporary impairment losses, management assesses the Company’s ability and intent to retain the equity securities for a period of time sufficient to allow for anticipated recovery in fair value. Equity securities owned at September 30, 2010 primarily consisted of stock issued by the Federal Home Loan Bank and the Federal Reserve Bank, such shares are measured at cost for purposes in recognition of the transferability restrictions imposed by the issuers. Other equity securities include Federal Agriculture Mortgage Corporation and Bankers Bank of the West Bancorporation, Inc. The fair value of other stock in an unrealized loss position was $5 thousand, with unrealized losses of $6 thousand or 115 percent of fair value, at September 30, 2010.

In evaluating debt securities for other-than-temporary impairment, management assesses whether the Company intends to sell or if it is more likely-than-not that it will be required to sell impaired debt securities. In so doing, management considers contractual constraints, liquidity, capital, asset / liability management and securities portfolio objectives. During the first nine months of 2010, the Company sold 83 securities of which 69 were tax-exempt state and local government securities, 66 of which were sold at a gross realized gain aggregating $2.868 million, 3 of which were sold at a gross realized loss aggregating $66 thousand, a net realized gain of $2.802 million. Of the 83 securities, 11 were non-guaranteed private label whole loan mortgages, 8 of which were sold at a gross realized gain aggregating $522 thousand, 3 of which were sold at a gross realized loss aggregating $727 thousand, a net realized loss of $205 thousand, 3 were US Treasury bonds, 1 of which was sold at a gross realized gain of $160 dollars, 2 of which were sold at a gross realized loss aggregating $10 dollars, a net realized gain of $150 dollars. Such sales were executed with the proceeds used to buy additional investment securities such that the investment portfolio performs well across varying interest rate environments.

46

During the first half of 2009, the Company sold no investment securities as the Company continued its then historical approach to managing the investment portfolio, i.e., to “buy and hold” securities to maturity, although such securities may be sold given that all of the securities held in the investment portfolio are designated as “available-for-sale.” During the second half of 2009, the Company sold 59 securities of which 53 were tax-exempt state and local government securities, 7 of which were each sold at a gross realized loss of $1.118 million and 46 of which were each sold at a gross realized gain of $3.922 million, a net realized gain of $2.804 million. Of the 59 securities sold in the second half of 2009, 6 were residential mortgage-backed securities, with such securities sold at a gross realized gain aggregating $3.191 million.

Of the securities sold at a realized loss, none had previously been subject to an other-than-temporary impairment charge, and none were subject to an expectation or requirement to sell. With respect to its impaired debt securities at September 30, 2010, management determined that it does not intend to sell and that there is no expected requirement to sell any of its impaired debt securities.

As of September 30, 2010, there were 161 investments in an unrealized loss position of which 159 were debt securities and 2 were equity securities. With respect to the 159 debt securities, residential mortgage-backed securities have the largest unrealized loss. The fair value of these securities, which have underlying collateral consisting of U.S. government sponsored enterprise guaranteed mortgages and non-guaranteed private label whole loan mortgages, were $372.867 million at September 30, 2010 of which $212.219 million was purchased during 2010, the remainder of which had a fair market value of $233.108 million at December 31, 2009. For the securities purchased in 2010, there has been an unrealized loss of $1.263 million since purchase. Of the remaining residential mortgage-backed securities in a loss position, the unrealized loss decreased from 4.9 percent of fair value at December 31, 2009 to 3.23 percent of fair value at September 30, 2010. The fair value of Collateralized Debt Obligation (“CDO”) securities in an unrealized loss position is $7.292 million, with unrealized losses of $5.068 million at September 30, 2010; the unrealized loss decreased from 162.7 percent of fair value at December 31, 2009 to 69.5 percent of fair value at September 30, 2010. The fair value of state and local government securities in an unrealized loss position were $29.792 million at September 30, 2010 of which $5.246 million was purchased during 2010, the remainder of which had a fair market value of $23.565 million at December 31, 2009. For the securities purchased in 2010, there has been an unrealized loss of $109 thousand since purchase. Of the remaining state and local government securities in a loss position, the unrealized loss decreased from 5.9 percent of fair value at December 31, 2009 to 1.5 percent of fair value at September 30, 2010. With respect to severity, the following table provides the number of securities and amount of unrealized loss in the various ranges of unrealized loss as a percent of book value.


			Number of		Number of
	Unrealized		Debt		Equity
(Dollars in thousands)	Loss		Securities		Securities
Greater than 40.0%	$	5,072		6		1
30.1% to 40.0%		3		—		1
20.1% to 30.0%		—		—		—
15.1% to 20.0%		3,264		4		—
10.1% to 15.0%		1,221		6		—
5.1% to 10.0%		—		—		—
0.1% to 5.0%		2,449		143		—

Total	$	12,009		159		2

47

With respect to the duration of the impaired debt securities, the Company identified 33 which have been continuously impaired for the 12 months ending September 30, 2010. 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. 15 of the 33 securities are state and local tax-exempt securities with an unrealized loss of $329,549, the most notable of which had an unrealized loss of $159,376. 6 of the 33 securities are identical CDO securities with an aggregate unrealized loss of $5,068,357, the most notable of which had an unrealized loss of $1,267,089.

With respect to the CDO securities, each is in the in the form of pooled trust preferred structure of which the Company owns a portion of the Senior Notes tranche. All of the assets underlying the pooled trust preferred structure are capital securities issued by trust subsidiaries of holding companies of banks and thrifts. Since December 31, 2009, the Senior Notes have been rated “A3” by Moody’s and rated “A” by Fitch. As of the end of the third and second quarters of 2010, 8 of the 26 trust subsidiaries have elected to defer the interest on their respective obligations underlying the CDO structure. As of the end of the first quarter of 2010 and the fourth quarter of 2009, 6 of the 26 trust subsidiaries were deferring interest compared to 3 of the 26 trust subsidiaries deferring interest on their respective obligations as of the end of the first three quarters of 2009. In accordance with the prospectus for the CDO structure, the priority of payments favors holders of the Senior Notes over holders of the Mezzanine Notes and Income Notes. Though the maturity of the CDO structure is June 15, 2031, 17.40% of the outstanding principle of the Senior Notes has been prepaid through September 30 and June 30, 2010 compared to 15.22% at March 31, 2010 and December 31, 2009. More specifically, at any time the Senior Notes are outstanding, if either the Senior Principle or Senior Interest Coverage Tests (the “Senior Coverage Tests”) are not satisfied as of a calculation date, then funds that would have otherwise been used to make payments on the Mezzanine Notes or Income Notes shall instead be applied as principle prepayments on the Senior Notes. For each of the first three quarters of 2010 and the fourth quarter of 2009, the Senior Principle Coverage Test was below its threshold level, while the Senior Interest Coverage Test exceeded its threshold level. The Senior Coverage Tests exceeded the threshold levels for each of the first three quarters of 2009. In its assessment of the Senior Notes for potential other-than-temporary impairment, the Company evaluated the underlying issuers and engaged a third party vendor to stress test the performance of the underlying capital securities and related obligors. Such stress testing has been performed as of the end of each of the first three quarters of 2010 and at each quarter end in 2009. In each instance of stress testing, the results reflect no credit loss for the Senior Notes. In evaluating such results, the Company reviewed with the third party vendor the stress test assumptions and concurred with the analyses in concluding that the impairment at September 30, 2010 and for each of the prior quarters of 2010 and 2009 was temporary, and not other-than-temporary.

Of the 33 securities temporarily impaired continuously for twelve months, 10 are non-guaranteed private label whole loan mortgages with an aggregate unrealized loss of $4,324,373, the most notable of which had an unrealized loss of $869,092. Of the 10 non-guaranteed private label whole loan mortgages, 3 are collateralized by 30-year fixed residential mortgages considered to be “Prime” and 7 are collateralized by 30-year fixed residential mortgages considered to be “ALT — A.” Moreover, none of the underlying mortgage collateral is considered “subprime”.

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The Company’s engages a third-party to perform detailed analysis for other-than-temporary impairment of such securities. Such analysis takes into consideration original and current data for the tranche and CMO structure, the non-guaranteed classification of each CMO tranche, current and deal inception credit ratings, credit support (protection) afforded the tranche through the subordination of other tranches in the CMO structure, the nature of the collateral (e.g., Prime or Alt-A) underlying each CMO tranche, and realized cash flows since purchase. When available, the collateral loss estimates are compared against loss estimates obtained from the credit rating agencies for the CMO structure and the resulting impact upon the tranche.

The analysis includes performance projections based upon cash flow assumptions designed to assess risk by capturing key performance data and trends such as delinquencies, severity of defaults, severity of collateral loss, and a range of prepayment speeds taking into account both voluntary (“CRR”) and involuntary (“CDR”) payments and the seniority of the CMO tranche within the CMO deal. The projected cash flows incorporate a range of macroeconomic trends, including for example, interest rates, gross domestic product and employment, as well as home price appreciation/depreciation (HPA) and geographic affordability (Geo Aff).

HPA scenarios are performed at loan-level capturing characteristics such as loan-to-value, credit scores (e.g., FICO), loan type, occupancy, purpose, and geography. Geographic Affordability is also a house price appreciation scenario and such refers to house price affordability levels by geography (relative to income). Prior to performing any HPA or Geo Aff-based analysis, significant fine-tuning adjustments are made to factor in the current state of the housing market. Tuning adjustments include delinquency roll rates, cure rates, voluntary prepayments, loan-to-values, and credit scores. Additionally, other factors used in the analyses are updated for current market conditions and trends, including loss severities and collateral loss estimates provided by the credit rating agencies for the CMO structures.

Based on the analysis of its impaired securities as of September 30, 2010, the Company determined that none of such securities had other-than-temporary impairment.

Rate/Volume Analysis

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

49


	Nine Months ended September 30,
	2010 vs. 2009
	Increase (Decrease) Due to:
(Dollars in thousands)	Volume			Rate			Net
Interest income
Residential real estate loans	$	(2,896	)		(4,025	)		(6,921	)
Commercial loans		(983	)		(1,910	)		(2,893	)
Consumer and other loans		(501	)		(1,171	)		(1,672	)
Investment securities		23,982			(17,559	)		6,423

Total interest income		19,602			(24,665	)		(5,063	)

Interest expense
NOW accounts		508			1			509
Savings accounts		94			(306	)		(212	)
Money market demand accounts		733			(1,478	)		(745	)
Certificate accounts		3,024			(5,913	)		(2,889	)
Wholesale deposits		6,587			(4,354	)		2,233
FHLB advances		3,399			(2,074	)		1,325
Repurchase agreements and other borrowed funds		(5,208	)		3,307			(1,901	)

Total interest expense		9,137			(10,817	)		(1,680	)



Net interest income	$	10,465			(13,848	)		(3,383	)

Average Balance Sheet

The following schedule provides (i) the total dollar amount of interest and dividend income of the Company for earning assets and the resultant average yield; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest and dividend income and interest rate spread; and (iv) net interest margin and net interest margin (tax-equivalent). Non-accrual loans are included in the average balance of the loans.

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	Three Months ended 9/30/10							Nine Months ended 9/30/10
					Average							Average
	Average		Interest &		Yield/			Average		Interest &		Yield/
(Dollars in thousands)	Balance		Dividends		Rate			Balance		Dividends		Rate
Assets
Residential real estate loans	$	773,672		11,367		5.88	%	$	774,973		34,621		5.96	%
Commercial loans		2,543,798		35,734		5.57	%		2,574,842		109,409		5.68	%
Consumer and other loans		687,139		10,599		6.12	%		691,373		31,959		6.18	%

Total loans		4,004,609		57,700		5.72	%		4,041,188		175,989		5.82	%

Tax-exempt investment securities¹		489,658		5,972		4.88	%		474,324		17,410		4.89	%

Taxable investment securities²		1,339,456		8,431		2.52	%		1,272,642		25,920		2.72	%

Total earning assets		5,833,723		72,103		4.90	%		5,788,154		219,319		5.07	%

Goodwill and intangibles		158,239							159,037
Non-earning assets		287,128							282,368


Total assets	$	6,279,090						$	6,229,559


Liabilities
NOW accounts	$	707,097		622		0.35	%	$	712,650		2,028		0.38	%
Savings accounts		346,652		175		0.20	%		340,125		568		0.22	%
Money market demand accounts		858,942		1,737		0.80	%		839,585		5,662		0.90	%
Certificate accounts		1,088,215		5,402		1.97	%		1,080,434		15,997		1.98	%
Wholesale deposits³		622,032		1,206		0.77	%		533,425		3,440		0.86	%
FHLB advances		539,791		2,318		1.70	%		657,698		7,083		1.44	%
Securities sold under agreements to repurchase and other borrowed funds		383,279		2,121		2.19	%		414,238		6,436		2.08	%

Total interest bearing liabilities		4,546,008		13,581		1.19	%		4,578,155		41,214		1.20	%

Non-interest bearing deposits		849,977							813,038
Other liabilities		25,259							32,078

Total liabilities		5,421,244							5,423,271


Stockholders’ Equity
Common stock		719							689
Paid-in capital		643,567							600,732
Retained earnings		200,159							196,708
Accumulated other comprehensive income		13,401							8,159

Total stockholders’ equity		857,846							806,288

Total liabilities and stockholders’ equity	$	6,279,090						$	6,229,559


Net Interest Income			$	58,522						$	178,105

Net Interest Spread						3.71	%						3.87	%
Net Interest Margin						3.98	%						4.11	%
Net Interest Margin (tax-equivalent)						4.19	%						4.32	%


¹		Excludes tax effect of $7,708,000 and $2,644,000 on tax-exempt investment security income for the year-to-date and quarter ended September 30, 2010, respectively.

²		Excludes tax effect of $1,107,000 and $398,000 on investment security tax credits for the year-to-date and quarter ended September 30, 2010, respectively.

³		Wholesale deposits include brokered deposits classified as NOW, money market demand, and CDs.

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Liquidity Risk

Liquidity risk is the possibility that the Company will not be able to fund present and future obligations. 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. The Banks’ source of funds is generated by deposits, principal and interest payments on loans, sale of loans and securities, short and long-term borrowings, and net earnings. In addition, all of the Banks are members of FHLB. As of September 30, 2010, the Banks had $1.091 billion of available FHLB borrowing capacity of which $579 million was utilized. The Banks may also borrow funds through the FRB and from the U.S. Treasury Tax and Loan program of which the Banks have remaining borrowing capacity of $396 million and $9 million, respectively. Management of the Company has a wide range of versatility in managing the liquidity and asset/liability mix for each bank subsidiary as well as the Company as a whole.

Capital Resources and Adequacy

Maintaining capital strength continues to be a long term objective. Abundant capital is necessary to sustain growth, provide protection against unanticipated declines in asset values, and to safeguard the funds of depositors. Capital also is a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities. Stockholders’ equity increased $168 million since prior year end, or 24 percent, the net result of earnings of $33 million, a public offering of stock of $146 million, an increase of $17 million in net unrealized gains on available-for-sale investment securities, less cash dividend payments of $28 million.

The Federal Reserve Board has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company. The following table illustrates the Federal Reserve Board’s capital adequacy guidelines and the Company’s compliance with those guidelines as of September 30, 2010.


	Tier 1 (Core)			Tier 2 (Total)			Leverage
(Dollars in thousands)	Capital			Capital			Capital
Total stockholders’ equity	$	853,654			853,654			853,654
Less:
Goodwill and intangibles		(151,279	)		(151,279	)		(151,279	)
Accumulated other comprehensive unrealized gain on AFS securities		(16,442	)		(16,442	)		(16,442	)
Plus:
Allowance for loan and lease losses		—			57,499			—
Subordinated debentures		124,500			124,500			124,500

Regulatory capital	$	810,433			867,932			810,433


Risk weighted assets	$	4,523,412			4,523,412


Total adjusted average assets							$	6,127,811


Capital as % of risk weighted assets		17.92	%		19.19	%		13.23	%
Regulatory “well capitalized” requirement		6.00	%		10.00	%		5.00	%

Excess over “well capitalized” requirement		11.92	%		9.19	%		8.23	%

Lending Commitments

In the normal course of business, there are various outstanding commitments to extend credit, such as letters of credit and un-advanced loan commitments, which are not reflected in the accompanying condensed consolidated financial statements. Management does not anticipate any material losses as a result of these transactions.

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Effect of inflation and changing prices

Generally accepted accounting principles often require the measurement of financial position and operating results in terms of historical dollars, without consideration for change in relative purchasing power over time due to inflation. Virtually all assets of the Company and each bank subsidiary are monetary in nature; therefore, interest rates generally have a more significant impact on a company’s performance than does the effect of inflation.

Impact of Recent Authoritative Accounting Guidance

The Accounting Standards Codification is FASB’s officially recognized source of authoritative U.S. generally accepted accounting principles (“GAAP”) applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of the federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative.

In July 2010, FASB issued an amendment to FASB ASC Subtopic 310-30, Disclosures about the Credit Quality of Financing. As a result of the amendments in this Update, the Company will provide additional information to assist financial users in assessing the Company’s credit risk exposures and evaluating the adequacy of the Company’s allowance for loan loss. For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The company is currently evaluating the impact of the adoption of this amendment, but does not expect it to have a material effect on the Company’s financial position or results of operations.

In April 2010, FASB issued an amendment to FASB ASC Subtopic 310-30, Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality. As a result of the amendments in this Update, modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310—30 occurring in the first interim or annual period ending on or after July 15, 2010. The Company has evaluated the impact of the adoption of this standard and determined there was not a material effect on the Company’s financial position or results of operations.

In January 2010, FASB issued an amendment to FASB ASC Topic 820, Fair Value Measurements and Disclosures, that provides for more robust disclosures about 1) the different classes of assets and liabilities measured at fair value, 2) the valuation techniques and inputs used, 3) the activity in Level 3 fair value measurements, and 4) the transfers between Levels 1, 2, and 3. The new disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about the activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010. The Company has evaluated the impact of the adoption of this standard and determined there was not a material effect on the Company’s financial position or results of operations.

In June 2009, FASB issued an amendment to FASB ASC Topic 810, Consolidation. The objective of this standard is to amend certain requirements to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. This standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company has evaluated the impact of the adoption of this standard and determined there was not a material effect on the Company’s financial position or results of operations.

53

In June 2009, FASB issued an amendment to FASB ASC Topic 860, Transfers and Servicing. The objective of this standard is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. This standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company has evaluated the impact of the adoption of this standard and determined there was not a material effect on the Company’s financial position or results of operations.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

The Company believes that there have not been any material changes in information about the Company’s market risk than was provided in the Form 10-K/A report for the year ended December 31, 2009.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter 2010, to which this report relates that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

There are no pending material legal proceedings to which the registrant or its subsidiaries are a party.

ITEM 1A. Risk Factors

The Company and its eleven independent wholly-owned community bank subsidiaries are exposed to certain risks. The following is a discussion of the most significant risks and uncertainties that may affect the Company’s business, financial condition and future results.

54

The Company cannot accurately predict the effect of the continuing economic downturn on the Company’s future results of operations or the market price of its common stock.

The national economy and the financial services sector in particular continue to face challenges of a scope unprecedented in recent history. The Company cannot accurately predict the severity or duration of the continuing economic downturn, which has adversely impacted the Company’s markets. Any further deterioration in the economies of the nation as a whole or in the Company’s markets would have an adverse effect, which could be material, on the Company’s business, financial condition, results of operations and prospects, and could also cause the market price of the Company’s common stock to decline. While the Company cannot accurately predict how long these conditions may exist, the economic downturn could continue to present risks for some time for the industry and Company.

Further economic deterioration in the market areas the Company serves, including Montana, Idaho, Wyoming, Utah, Colorado and Washington, as well as the continuation of the current economic downturn, may continue to adversely impact earnings and could increase credit risk associated with the loan portfolio.

The inability of borrowers to repay loans can erode earnings by reducing earnings and by requiring the Company to add to its allowance for loan and lease losses. The effects of the national economic downturn are significantly impacting the market areas the Company serves. Further deterioration in the market areas the Company serves, as well as the continuation of the current economic downturn, could result in the following consequences, any of which could have an adverse impact, which could be material, on the Company’s business, financial condition, results of operations and prospects:

	•		loan delinquencies may increase further;

	•		problem assets and foreclosures may increase further;

	•		collateral for loans made may decline further in value, in turn reducing customers’ borrowing power, reducing the value of assets and collateral associated with existing loans;

	•		demand for banking products and services may decline; and

	•		low cost or non-interest bearing deposits may decrease.

The allowance for loan and lease losses may not be adequate to cover actual loan losses, which could adversely affect earnings.

The Company maintains an ALLL in an amount that it believes is adequate to provide for losses in the loan portfolio. While the Company strives to carefully manage and monitor credit quality and to identify loans that may become non-performing, at any time there are loans included in the portfolio that will result in losses, but that have not been identified as non-performing or potential problem loans. By closely monitoring credit quality, the Company attempts to identify deteriorating loans before they become nonperforming assets and adjust the ALLL accordingly. However, because future events are uncertain, and if the economic downturn continues or deteriorates further, there may be loans that deteriorate to a non-performing status in an accelerated time frame. As a result, future additions to the ALLL may be necessary. Because the loan portfolio contains a number of loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in non-performing loans, requiring an increase to the ALLL. Additionally, future significant additions to the ALLL may be required based on changes in the mix of loans comprising the portfolio, changes in the financial condition of borrowers, which may result from changes in economic conditions, or as a result of incorrect assumptions by management in determining the ALLL. Additionally, federal banking regulators, as an integral part of their supervisory function, periodically review the Company’s loan portfolio and the adequacy of the ALLL. These regulatory agencies may require the Company to recognize further loan loss provisions or charge-offs based upon their judgments, which may be different from the Company’s judgments. Any increase in the ALLL would have an adverse effect, which could be material, on the Company’s financial condition and results of operations.

55

The Company has a high concentration of loans secured by real estate, so any further deterioration in the real estate markets could require material increases in ALLL and adversely affect the Company’s financial condition and results of operations.

A continuation of the downturn in the economic conditions or real estate values of the Company’s market areas, and particularly a further deterioration of such economic conditions or real estate values, may cause the Company to have lower earnings and could increase credit risk associated with the loan portfolio, as the collateral securing those loans may decrease in value. The continued downturn in the local economy or a further deterioration of the local economy could have a material adverse effect both on the borrowers’ ability to repay these loans, as well as the value of the real property held as collateral. The Company’s ability to recover on these loans by selling or disposing of the underlying real estate collateral is adversely impacted by declining real estate values, which increases the likelihood that the Company will suffer losses on defaulted loans secured by real estate beyond the amounts provided for in the ALLL. This, in turn, could require material increases in the ALLL which would adversely affect the Company’s financial condition and results of operations, perhaps materially.

A continued tightening of the credit markets may make it difficult to obtain adequate funding for loan growth, which could adversely affect earnings.

A continued tightening of the credit markets and the inability to obtain or retain adequate funds for continued loan growth at an acceptable cost may negatively affect the Company’s asset growth and liquidity position and, therefore, earnings capability. In addition to core deposit growth, maturity of investment securities and loan payments, the Company also relies on alternative funding sources through correspondent banking, and borrowing lines with the FRB and FHLB to fund loans. In the event the current economic downturn continues, particularly in the housing market, these resources could be negatively affected, both as to price and availability, which would limit and or raise the cost of the funds available to the Company.

There can be no assurance the Company will be able to continue paying dividends on the common stock at recent levels.

The ability to pay dividends on the Company’s common stock depends on a variety of factors. The Company paid dividends of $0.13 per share in each quarter of 2009 and the first three quarters of 2010. There can be no assurance that the Company will be able to continue paying quarterly dividends commensurate with recent levels. In that regard, the Federal Reserve now is requiring the Company to provide prior written notice and related information for staff review before declaring or paying dividends. In addition, current guidance from the Federal Reserve provides, among other things, that dividends per share generally should not exceed earnings per share. As a result, future dividends will depend on sufficient earnings to support them. Furthermore, the Company’s ability to pay dividends depends on the amount of dividends paid to the Company by its subsidiaries, which is also subject to government regulation, oversight and review. In addition, the ability of some of the bank subsidiaries to pay dividends to the Company is subject to prior regulatory approval.

The Company may not be able to continue to grow organically or through acquisitions.

Historically, the Company has expanded through a combination of organic growth and acquisitions. If market and regulatory conditions remain challenging, the Company may be unable to grow organically or successfully complete potential future acquisitions. In particular, while the Company intends to focus any near-term acquisition efforts on FDIC-assisted transactions within its existing market areas, there can be no assurance that such opportunities will become available on terms that are acceptable to the Company. Furthermore, there can be no assurance that the Company can successfully complete such transactions, since they are subject to a formal bid process and regulatory review and approval.

56

The FDIC has increased insurance premiums to rebuild and maintain the federal deposit insurance fund and there may be additional future premium increases and special assessments.

The FDIC recently adopted a new deposit insurance fund restoration plan to ensure that the fund reserve ratio reaches 1.35 percent by September 30, 2020, as required by financial reform legislation passed in 2010.

On May 22, 2009, the FDIC imposed a special deposit insurance assessment of five basis points on all insured institutions. This emergency assessment was calculated based on the insured institution’s assets at June 30, 2009, and collected on September 30, 2009. This special assessment was in addition to the regular quarterly risk-based assessment.

The FDIC has required insured institutions to prepay estimated quarterly risk-based assessments for the fourth quarter of 2009 and for 2010, 2011 and 2012. The prepayment was collected on December 30, 2009, and was accounted for as a prepaid expense amortized over the prepayment period. In 2009, the FDIC also adopted a final rule revising its risk-based assessment system, which became effective April 1, 2009. The changes to the assessment system involve adjustments to the risk-based calculation of an institution’s unsecured debt, secured liabilities and brokered deposits.

Despite the FDIC’s recently adopted plan to restore the deposit insurance fund, the fund may suffer additional losses in the future due to bank failures. There can be no assurance that there will not be additional significant deposit insurance premium increases, special assessments or prepayments in order to restore the insurance fund’s reserve ratio. Any significant premium increases or special assessments could have a material adverse effect on the Company’s financial condition and results of operations.

The Company’s loan portfolio mix increases the exposure to credit risks tied to deteriorating conditions.

The loan portfolio contains a high percentage of commercial, commercial real estate, real estate acquisition and development loans in relation to the total loans and total assets. These types of loans have historically been viewed as having more risk of default than residential real estate loans or certain other types of loans or investments. In fact, the FDIC has issued pronouncements alerting banks of its concern about banks with a heavy concentration of commercial real estate loans. These types of loans also typically are larger than residential real estate loans and other commercial loans. Because the Company’s loan portfolio contains a significant number of commercial and commercial real estate loans with relatively large balances, the deterioration of one or more of these loans may cause a significant increase in non-performing loans. An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses, or an increase in loan charge-offs, which could have an adverse impact on results of operations and financial condition.

57

Non-performing assets have increased significantly and could continue to increase, which could adversely affect the Company’s results of operations and financial condition.

Non-performing assets (which include foreclosed real estate) adversely affects the Company’s net income and financial condition in various ways. The Company does not record interest income on non-accrual loans or other real estate owned, thereby adversely affecting its income. When the Company takes collateral in foreclosures and similar proceedings, it is required to mark the related asset to the then fair market value of the collateral less cost to sell, which may result in a charge-off of the value of the asset and lead the Company to increase the provision for loan losses. An increase in the level of non-performing assets also increases the Company’s risk profile and may impact the capital levels its regulators believe is appropriate in light of such risks. Continued decreases in the value of these assets, or the underlying collateral, or in these borrowers’ performance or financial condition, whether or not due to economic and market conditions beyond the Company’s control, could adversely affect the Company’s business, results of operations and financial condition, perhaps materially. In addition to the carrying costs to maintain other real estate owned, the resolution of non-performing assets increases the Company’s loan administration costs generally, and requires significant commitments of time from management and the Company’s directors, which can be detrimental to performance of their other responsibilities. There can be no assurance that the Company will not experience further increases in non-performing assets in the future.

The Company’s ability to access markets for funding and acquire and retain customers could be adversely affected by the deterioration of other financial institutions or to the extent the financial service industry’s reputation is damaged.

Reputation risk is the risk to liquidity, earnings and capital arising from negative publicity regarding the financial services industry. The financial services industry continues to be featured in negative headlines about the global and national credit crisis and the resulting stabilization legislation enacted by the U.S. federal government. These reports can be damaging to the industry’s image and potentially erode consumer confidence in insured financial institutions, such as the Company’s bank subsidiaries. In addition, the Company’s ability to engage in routine funding and other transactions could be adversely affected by the actions and financial condition of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, correspondent, counterparty or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry in general, could lead to market-wide liquidity problems, losses of depositor, creditor and counterparty confidence and could lead to losses or defaults by us or by other institutions. The Company could experience material changes in the level of deposits as a direct or indirect result of other banks’ difficulties or failure, which could affect the amount of capital needed.

Decline in the fair value of the Company’s investment portfolio could adversely affect earnings

The fair value of the Company’s investment securities could decline as a result of factors including changes in market interest rates, credit quality and ratings, lack of market liquidity and other economic conditions. Investment securities are impaired if the fair value of the security is less than the carrying value. When a security is impaired, the Company determines whether impairment is temporary or other-than-temporary. If an impairment is determined to be other-than temporary, an impairment loss is recognized by reducing the amortized cost only for the credit loss associated with an other-than-temporary loss with a corresponding charge to earnings for a like amount.

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Fluctuating interest rates can adversely affect profitability.

The Company’s profitability is dependent to a large extent upon net interest income, which is the difference (or “spread”) between the interest earned on loans, securities and other interest-earning assets and interest paid on deposits, borrowings, and other interest-bearing liabilities. Because of the differences in maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect the Company’s interest rate spread, and, in turn, profitability. The Company seeks to manage its interest rate risk within well established guidelines. Generally, the Company seeks an asset and liability structure that insulates net interest income from large deviations attributable to changes in market rates. However, the Company’s structures and practices to manage interest rate risk may not be effective in a highly volatile rate environment.

If the goodwill recorded in connection with acquisitions becomes impaired, it could have an adverse impact on earnings and capital.

Accounting standards require that the Company account for acquisitions using the acquisition method of accounting. Under acquisition accounting, if the purchase price of an acquired company exceeds the fair value of its net assets, the excess is carried on the acquiror’s balance sheet as goodwill. In accordance with generally accepted accounting principles in the United States of America, goodwill is not amortized but rather is evaluated for impairment on an annual basis or more frequently if events or circumstances indicate that a potential impairment exists. Although at the current time the Company has not incurred an impairment of goodwill, there can be no assurance that future evaluations of goodwill will not result in findings of impairment and write-downs, which could be material. An impairment of goodwill could have a material adverse affect on the Company’s business, financial condition and results of operations. Furthermore, an impairment of goodwill could subject the Company to regulatory limitations, including the ability to pay dividends on common stock.

Growth through future acquisitions could, in some circumstances, adversely affect profitability or other performance measures.

The Company has in recent years acquired other financial institutions. The Company may in the future engage in selected acquisitions of additional financial institutions, including transactions that may receive assistance from the FDIC, although there can be no assurance that the Company will be able to successfully complete any such transactions. There are risks associated with any such acquisitions that could adversely affect profitability and other performance measures. These risks include, among other things, incorrectly assessing the asset quality of a financial institution being acquired, encountering greater than anticipated cost of integrating acquired businesses into the Company’s operations, and being unable to profitably deploy funds acquired in an acquisition. The Company cannot provide any assurance as to the extent to which the Company can continue to grow through acquisitions or the impact of such acquisitions on the Company’s operating results or financial condition.

The Company anticipates that it might issue capital stock in connection with future acquisitions. Acquisitions and related issuances of stock may have a dilutive effect on earnings per share and the percentage ownership of current shareholders.

The Company may pursue additional capital in the future, which could dilute the holders of the Company’s outstanding common stock and may adversely affect the market price of common stock.

In the current economic environment, the Company believes it is prudent to consider alternatives for raising capital when opportunities to raise capital at attractive prices present themselves, in order to further strengthen the Company’s capital and better position itself to take advantage of opportunities that may arise in the future. Such alternatives may include issuance and sale of common or preferred stock, trust preferred securities, or borrowings by the Company, with proceeds contributed to the bank subsidiaries. Any such capital raising alternatives could dilute the holders of the Company’s outstanding common stock, and may adversely affect the market price of our common stock and performance measures such as earnings per share.

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Business would be harmed if the Company lost the services of any of the senior management team.

The Company believes its success to date has been substantially dependent on its Chief Executive Officer and other members of the executive management team, and on the Presidents of its bank subsidiaries. The loss of any of these persons could have an adverse effect on the Company’s business and future growth prospects.

Competition in the Company’s market areas may limit future success.

Commercial banking is a highly competitive business. The Company competes with other commercial banks, savings and loan associations, credit unions, finance, insurance and other non-depository companies operating in its market areas. The Company is subject to substantial competition for loans and deposits from other financial institutions. Some of its competitors are not subject to the same degree of regulation and restriction as the Company. Some of the Company’s competitors have greater financial resources than the Company. If the Company is unable to effectively compete in its market areas, the Company’s business, results of operations and prospects could be adversely affected.

The Company operates in a highly regulated environment and changes of or increases in, or supervisory enforcement of, banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect the Company.

The Company is subject to extensive regulation, supervision and examination by federal and state banking authorities. In addition, as a publicly-traded company, the Company is subject to regulation by the Securities and Exchange Commission. Any change in applicable regulations or federal, state or local legislation or in policies or interpretations or regulatory approaches to compliance and enforcement, income tax laws and accounting principles could have a substantial impact on the Company and its operations. Changes in laws and regulations may also increase expenses by imposing additional fees or taxes or restrictions on operations. Additional legislation and regulations that could significantly affect powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect on the Company’s financial condition and results of operations. Failure to appropriately comply with any such laws, regulations or principles could result in sanctions by regulatory agencies or damage to the Company’s reputation, all of which could adversely affect the Company’s business, financial condition or results of operations.

In that regard, sweeping financial regulatory reform legislation was enacted in July 2010. Among other provisions, the new legislation (i) creates a new Bureau of Consumer Financial Protection with broad powers to regulate consumer financial products such as credit cards and mortgages, (ii) creates a Financial Stability Oversight Council comprised of the heads of other regulatory agencies, (iii) will lead to new capital requirements from federal banking agencies, (iv) places new limits on electronic debt card interchange fees, and (v) will require the Securities and Exchange Commission and national stock exchanges to adopt significant new corporate governance and executive compensation reforms. The new legislation and regulations are expected to increase the overall costs of regulatory compliance.

Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or regulations by financial institutions and holding companies in the performance of their supervisory and enforcement duties. Recently, these powers have been utilized more frequently due to the serious national, regional and local economic conditions the Company is facing. The exercise of regulatory authority may have a negative impact on the Company’s financial condition and results of operations. Additionally, the Company’s business is affected significantly by the fiscal and monetary policies of the U.S. federal government and its agencies, including the Federal Reserve Board.

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The Company cannot accurately predict the full effects of recent legislation or the various other governmental, regulatory, monetary and fiscal initiatives which have been and may be enacted on the financial markets, on the Company and on the banks. The terms and costs of these activities, or the failure of these actions to help stabilize the financial markets, asset prices, market liquidity and a continuation or worsening of current financial market and economic conditions could materially and adversely affect the Company’s business, financial condition, results of operations, and the trading price of the Company’s common stock.

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 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, 2010 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, tagged as blocks of text.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	GLACIER BANCORP, INC.
November 8, 2010	/s/ Michael J. Blodnick
	Michael J. Blodnick
	President/CEO


November 8, 2010	/s/ Ron J. Copher
	Ron J. Copher
	Senior Vice President/CFO

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Glacier Bancorp - 10-Q quarterly report FY2010 Q3

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