glacier revised

The Henry Fund Henry B. Tippie School of Management Husam Atari [[email protected]]

Glacier Bancorp Inc. (GBCI) April 11, 2016

Financial Services – Regional Banks Stock Rating Sell

Investment Thesis $23.00 We recommend a SELL for Glacier Bancorp (GBCI), as we believe it is currently overvalued by 6.5%. Glacier has missed analyst EPS estimates for the past three quarters, has used acquisitions to mask meager organic growth, and is operating in a low-rate, sluggish GDP world. Unfortunately for Glacier, we see these trends continuing. Also, as Glacier gets larger, regulatory pressures will impede its growth. Thus, we do not envision an organic growth rate or level of margin improvement that justifies Glacier’s current market price.

Drivers: • National and regional GDP could exceed expectations, spurring organic

growth of Glacier’s assets that is higher than our projected 4.7% five-yearCAGR.

• For 2016-2020, we model a 5.6% interest income CAGR and a 17 bpsincrease in net interest margin. However, if the Fed raises rates moreaggressively than we anticipate, such forecasts may be too low.

• Glacier could undertake accretive acquisitions that boost its growth ratebeyond our expectations.

Risks: • Glacier’s past loan growth rates are skewed high by acquisitions. Hence our

five-year organic loan CAGR of 4.5%, relative to the non-organic 10%historical rate.

• We expect national and regional GDP in the 2-2.4% range, fostering anorganic total asset CAGR of 4.7% the next five-years, slightly lower than thenon-organic 6% historical rate.

• The Fed will continue to raise rates cautiously, triggering a 17 bps increasein Glacier’s net interest margin. While welcome, such a boost will notaccelerate Glacier’s profitability enough to make it an attractive stock.

• Increased regulatory costs from reaching $10B in total assets in 2017 andprice competition on fees will contribute to a lower net income CAGR of4.5% the next five-years, relative to the 15% historical rate.

$22.61 $21.15

$23.64

$24.36 $21.90 – 30.29

$26.50

$1.87 76.17 76.50%

1.35 3.28%

10.00% 16.00

13.81 1.72

3.68%

3.54% 1.34%

Target PriceHenry Fund Equity DCFHenry Fund DDM Relative P/BPrice DataCurrent Price52wk RangeMedian 1yr TargetKey StatisticsMarket Cap (B)Shares Outstanding (M)Institutional Ownership BetaDividend YieldEst. 5yr GrowthPrice/Earnings (TTM)Price/Earnings (FY1)Price/Book (mrq)

ProfitabilityNet Interest MarginNet Interest Spread Return on Assets (TTM)Return on Equity (TTM) 11.04%

Earnings Estimates Year 2013 2014 2015 2016E 2017E 2018E EPS $1.31 $1.51 $1.54 $1.63 $1.71 $1.78

growth 24.47% 15.60% 1.76% 5.80% 5.31% 4.09% 12 Month Performance Company Description

Glacier Bancorp is a bank holding company that owns and operates 144 branches across 6 states in the Rocky Mountain region. Glacier provides commercial bank services, ranging from mortgages to working capital financing for small to medium sized businesses. Glacier currently has approximately $9B in assets, and is expected to surpass the $10B mark in 2017.

Tearsheet sources: Yahoo! Finance; FactSet

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P/B ROE Div. Yield

GBCI Sector Industry

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A M J J A S O N D J F M

GBCI S&P 500

Important disclosures appear on the last page of this report.

EXECUTIVE SUMMARY

In recent history, Glacier’s acquisitions have obscured its unimpressive organic growth. Additionally, Glacier has missed analyst EPS estimates the last 3 quarters and is sensitive to the national and regional economies, which continue to grow at a tepid pace.

Overall, the impossibility of predicting acquisitions, a slowly moving interest rate environment, fee competition and the regulatory constraints that come with a larger balance sheet frames Glacier’s growth story. Consequently, this five-year story is one of slow and steady growth at about 4.7% compounded annually for assets, 4.5% for loans, 4.8% for revenue, and 4.5% for net income.

These growth assumptions drive our Equity DCF model, which produces an intrinsic value of $22.61 and, in turn, our $23 target price. Given that Glacier currently trades at $24.36, it is overvalued by approximately 6.5%. Ultimately, Glacier is a fine bank, but barring unforeseen developments, it is not worth its current stock price.

COMPANY DESCRIPTION

Glacier Bancorp is a bank holding company headquartered in Montana that offers commercial banking services through 144 offices throughout the Rocky Mountain region.i The specific states Glacier operates in are: Montana, Idaho, Wyoming, Colorado, Utah and Washington. Glacier primarily takes deposits from and makes loans to individuals, small to medium sized businesses, community organizations, and public entities.ii

In terms of size, Glacier currently stands at approximately $9B in total assets, growing at a 6% CAGR the past 5 years. For the next 5 years, we expect that Glacier will continue to grow but at a slightly slower rate of 4.7% CAGR. This makes sense, as the historical figure is skewed high by Glacier’s 5 acquisitions the past 3 years. Hence, our CAGR represents expected organic growth.

Source: Glacier 10K; model projections

Regarding balance sheet makeup, like most banks, Glacier’s assets primarily consist of loans and investment securities. Historically, investment securities have made up approximately 40% of Glacier’s assets, and loans have made up about 51%.

Source: Glacier 10K

Moving forward, we expect this composition to shift to approximately 35% in investment securities and 56% in loans. We expect this shift because in 2014 and 2015 Glacier reduced its investment securities to about 36% of its total assets and increased its loans to about 55% of its total assets. Accordingly, we expect Glacier’s balance sheet proportions to stay in line with the past 2 years, more than 2013 and prior.

Source: Model projections

Within its asset structure, Glacier’s loan portfolio includes residential real estate loans, commercial loans, and consumer and other loans. In 2015, this portfolio was weighted about 13% residential real estate, 74% commercial, and 13% consumer and other.

Source: Glacier 10K

We expect these weightings to shift slightly over the next 5 years, eventuating in a 15% residential real estate, 72% commercial, and 13% consumer and other breakdown by 2020.


This small bump in residential real estate relative to commercial loans is based on the somewhat rosier forecasts for housing starts compared to commercial real estate growth. Specifically, US housing starts are expected to grow at a 12.20% CAGR the next 3 years, vs. a 9.92% CAGR the past 3 years.iii

Source: FactSet

Conversely, commercial real estate establishments will grow at a slower 1.87% CAGR the next 5 years, vs. a 2.28% CAGR the past 5 years.iv

Source: IBISWorld

In short, both housing and commercial real estate are expected to grow, but commercial real estate will grow slower than its historical pace while residential will grow faster. Thus, we expect Glacier to shift its loan composition slightly away from commercial loans towards residential.

Loan Growth

Residential real estate loans finance the construction and/or purchase of 1-4 family residences. Such loans are secured by the developed land and/or the residence. The credit risk borne by these loans hinges on macro and regional economic factors that impact the market value of the secured property and the borrower’s personal income. Glacier attempts to offset such risk by lending to a large number of borrowers, diversifying its geographic and market area exposure, and originating loans for relatively small amounts. Mortgage loans have a maximum loan-to-value (“LTV”) ratio of 80% and loans for constructing the residence have a maximum LTV of 75%. Given the optimism of US housing starts discussed above, we expect Glacier’s residential real estate loans to grow at a 6% CAGR.

Commercial loans mostly relate to the purchase, construction, and/or financing of commercial real estate properties. However, this category also includes loans that finance working capital, equipment, and expansion for its small to medium sized business customers. Here, credit risk depends on the macro regional economic environment, as well as the borrower’s cash flow position. Similar to the residential loans, commercial loans are typically secured by the commercial property or corresponding asset. The maximum LTV is 75% for borrowers who will own and occupy the property and 70% for investment/income properties. Given the decelerating growth in US commercial real estate discussed above, we expect Glacier to grow this portion of its portfolio at a 4% CAGR, slightly lower than the residential portion.

Consumer and other loans consist of a wide-variety loans ranging from junior lien home equity loans to automobile loans. These loans tend be shorter-term in nature than the residential and commercial categories, spanning anywhere from 3-months to 15 years. Given the hodgepodge disposition of this category, it is difficult to use an economic variable as a proxy for growth expectations here. Hence, we kept its percentage of the overall loan portfolio stable, resulting in a 5% CAGR.

In sum, we expect some organic loan growth, driven by the housing and commercial data cited above. However, our forecasted CAGR of 4.5% is quite a bit lower than the 2011-2015 CAGR of 10%. But again, the historical figure is skewed high by acquisitions. In fact, excluding its most recent acquisition, Glacier’s annualized 4Q2015 loan growth rate was 3.5%.v Moreover, management expects 5% loan growth in 2016, so our annual forecast would be in-line with that expectation.

The Other Side: Liabilities and Equity

As a commercial bank, Glacier primarily finances its assets through deposits. In fact, deposits make up about 86% of its liabilities, with the vast majority (70%+) being interest bearing. We do not expect these proportions to change going forward because the deposit make-up has been very stable and consistent historically, and such make-up is crucial to the banking business model.

Since Glacier can only invest and lend out what it is able to bring in, its asset growth must be in line with its deposit growth. Accordingly, since we expect Glacier’s investment securities to grow at a 3% CAGR and its loans to grow at a 4.5% CAGR, we anticipate a 5% CAGR for deposits.

In terms of other sources of funding, Glacier enters into repurchase agreements and takes FHLB advances. Both of these sources combine for just under 9% of Glacier’s liabilities, and the lack of clarity regarding both make such funding sources nearly impossible to predict. Thus, we kept both sources stable as a percentage of total liabilities in our forecast. Of Glacier’s remaining liabilities, none represents more than 1.15% of the total, and as such are not significant enough to warrant attention in this section.

While deposits, in large part, dictate how much Glacier can lend and invest, there is another controlling factor: regulation. In particular, as a bank holding company, Glacier is governed by the Federal Reserve, and in turn the Basel Accords. While Basel is a set of international guidelines, the Fed has decided to use Basel, along with Dodd-Frank, to establish capital requirements for US banks within its jurisdiction. Capital requirements mean that Glacier must finance its assets with a minimum level of equity. In other words, liabilities can only make-up so much of the other side of Glacier’s balance sheet.

The minimum level of equity financing required depends on the corresponding asset, and its perceived “riskiness.”

Glacier is required to assign a risk-weight to each of its assets (i.e., “RWAs”), and such assignment determines how much of that asset must be financed by equity. Because RWAs are measured internally, and are not disclosed to the public, we have no way of estimating or projecting Glacier’s RWA capital ratios. However, there is an overarching capital requirement that pertains to total assets. This is known as the “Basel Leverage Ratio” or the “Tier 1 Capital to Average Assets Ratio.”

Tier 1 Capital consists of share capital and retained earnings. Currently, Tier 1 Capital must represent at least 4% of average total assets, and 5% to be considered “well-capitalized.” Historically, Glacier has easily surpassed both of these marks, typically sitting at or around the 12% mark. Going forward, we expect Glacier to remain very, very well-capitalized. More specifically, while we project Glacier’s Basel leverage ratio to slightly drop to 11.36% by 2020, this is still more than double the current level of “well-capitalized.”


This makes sense, as a bank grows it becomes more difficult and costly to maintain the same level of equity financing as when it was smaller. Thus, Glacier will make the conscious trade-off in favor of less equity financing as it grows. However, this trade-off is essentially forced upon Glacier as a byproduct of its increased size.

How Glacier Makes Money

As a bank, Glacier’s business model is quite simple: it borrows at one rate, lends and invests at another, and captures the difference between the two rates. The income Glacier generates from loans and investments is “interest income”, which makes up about 75% of Glacier’s total revenue each year. The remaining 25% comes from fees, selling loans/investments, and fair value adjustments to certain assets.

Source: Glacier 10K

We expect this mix to shift closer to 80/20 over the next 5 years, as modest rate hikes slightly boost interest income and increased price-competition squeezes fees.


Within the interest income category, Glacier has demonstrated a consistent breakdown, and as such do not project any significant shifts.


The primary driver of interest income is the yield of the corresponding asset, or “earning asset yield” (“EAY”). In turn, EAY is driven by the riskiness of the asset and the overall interest rate environment. In holding risk constant, especially given management’s preference to keep credit quality consistent with historical standards, we focused on the broader rate setting to forecast EAY.

In December, the Federal Reserve raised the fed funds rate for the first time since 2006.vi Specifically, the Fed raised

this benchmark rate from 0-0.25% to 0.25%-0.50%. Initially, it was expected the Fed would hike rates four times in 2016, but this expectation has since waned to two times.vii However, given the Fed’s cautious tone, we would be surprised if rates increase 50 bps this year. Hence, we expect the Fed to gradually raise rates (i.e., two to three 25 bps hikes) over the next two to four years, rather than multiple times this year.

Our expectation regarding interest rate policy has culminated in an EAY forecast that is higher than Glacier’s historical average, but not astronomically so. More specifically, Glacier’s EAY stood at a 3.93% average from 2011-2015 and we see this increasing to 4.19% for 2016-2020. Thus, we see a 26 bps bump in EAY – not insignificant, but not ground moving either; just like the tone we expect for rate hikes.


However, it’s important to note that interest rate hikes will also impact Glacier’s borrowing costs. Specifically, we forecast a 3.85% CAGR for interest expenses the next five years, relative to a -6.41% CAGR from 2012-2015. Nonetheless, we believe the expected rate environment will disproportionately favor Glacier’s interest income relative to its interest expense. This makes sense, if higher rates impacted both sides of the income statement equally, the entire banking business model would breakdown.

Hence, Glacier, like any other bank, must be able to lend at higher rates than it borrows, otherwise it would not exist. Accordingly, we expect the higher fed funds rate to positively impact Glacier’s profitability.

This expectation is best reflected in two measures: net interest margin (“NIM”) and net interest spread (“NIS”). Both are very similar metrics that essentially take EAY and net it out for interest expenses. The only difference is that when netting interest expense, NIM uses current year

interest expense, whereas NIS adjusts the interest expense by averaging the corresponding liabilities. In short, NIM and NIS are the two main ways of viewing a bank’s profitability.

We foresee both NIM and NIS growing slightly the next five years. This is based on our 4 prong belief laid out above: (1) asset risk is held constant; (2) very gradual fed funds rate hikes; (3) very modest EAY increase as a result; (4) even lesser increase in interest expenses.

Specifically, we see NIM reaching 3.85% in 2020, relative to 3.68% in 2015 and NIS reaching 3.73% in 2020, relative to 3.54% in 2015.


In sum, we see Glacier’s profitability growing, but similar to its asset growth, we see the pace being slow and steady. This seems reasonable, barring a drastic change in Fed policy – either in the volume or magnitude of expected rate hikes.

The Curse of $10 Billion

As Glacier reaches the $10B mark in assets (expected by both us and management to occur in 2017), it will be subject to increased regulatory oversight. This will include Federal Reserve stress tests, a higher FDCI surcharge, and supervision from the Consumer Financial Protection Bureau (“CFPB”). Such regulatory costs will also constrain Glacier’s ability to organically grow at rates in line with its historical numbers. More specifically, it is expected that the costs of passing the $10B in asset threshold will range from $8M-$12M a year.viii

This factor and the expected service and loan fee compression (discussed in Markets and Competition below), are the main contributors to our five-year net income CAGR of 4.5% – significantly lower than the 15% historical rate.


Credit Quality

We would be remiss to project Glacier’s asset growth, without accounting for the quality of such assets. One way to chase growth would be to lower underwriting standards, because more borrowers would be eligible and thus loan volume would increase accordingly. However, Glacier management does not appear willing to do this as “ensuring strong asset quality” is crucial to their approach.

This approach can be measured in 2 ways: loan loss provision (LLP) and allowance for loan losses (ALL). LLP is an income statement account, that is charged against net interest income. ALL is a balance sheet contra account to loans receivable, and is essentially money set aside to fund the LLP. In short, these accounts reveal a bank’s credit evaluation ability and the riskiness of its loans.ix

Over the past five years, Glacier has averaged an ALL of 3.29% of its loans receivable. However, this average is a bit skewed as the number was 3.97% in 2011 and decreased every year to 2.55% in 2015. Accordingly, we projected an ALL of 2.50% for the next 5 years. Similarly, while Glacier’s LLP 5-year average is 0.23% of loans receivable, it has demonstrated a downward trend, leading us to forecast a LLP of 0.10% relative to loans receivable.

In sum, it seems that Glacier is becoming a more prudent lender as both its ALL and LLP tick down. This indicates that Glacier is unlikely to sacrifice credit quality for loan growth. In other words, many banks face a trade-off: lower standards to boost loan volume, or keep high standards at the expense of lower loan growth. Glacier is veering towards the latter, which will likely inhibit its organic loan growth going forward – contributing to our overall slower loan growth story for Glacier.

Variable Interest Entities

A Variable Interest Entity (“VIE”), is the not-so-distant relative of the Special Purpose Entity and Special Purpose Vehicle – the creatures that companies such as Enron used for esoteric transactions to hide debt. More formally, a VIE is legal entity that does not have enough equity to finance its operations without subordinated borrowing from third parties. Alternatively, an entity can be a VIE if its shareholders do not have the power to make significant decisions and/or do not absorb a proportionate share of the losses/returns of the VIE.

Certain VIEs need to be consolidated on Glacier’s balance sheet, but others do not. Specifically, if Glacier is the primary beneficiary of the VIE it must consolidate it, otherwise it is not required to do so. Currently, Glacier reports two consolidated VIEs, both of which have lost money the last two years (approx. $2M per year total). The losses have resulted in income tax credits, which may explain why Glacier owns these particular VIEs. In other words, Glacier could be dumping bad assets into the VIE to generate a loss that triggers a tax credit. In total, as of December 2015, the two VIEs have approx. $65M in assets and about $6.3M in liabilities. But even these assets include the always convoluted “other” category, further complicating the evaluation of the VIEs.

However, at least the above two VIEs are in the financials. More worrisome is the unconsolidated VIEs, which Glacier does not have to include in its financial statements. As of December 2015, Glacier owns seven VIEs that are unconsolidated. Glacier claims that these VIEs are used to issue trust preferred securities as Tier 1 Capital instruments. Trust preferred securities are essentially a hybrid debt/equity that get the tax treatment of debt, but regulatory treatment as equity (think back to Basel).x Thus, it appears Glacier is using an off-balance sheet entity to financially engineer a hybrid security for tax and regulatory benefits. While most likely within the letter of the law, such dealings make us uncomfortable as investors.

Moreover, these unconsolidated VIEs have no other assets, money, or purpose other than issuing trust preferred securities. Also confusing, Glacier states that it “reports the trust preferred securities issued to the [VIEs] as subordinated debentures…” but that seems backwards. If the whole point of the VIE is to issue trust preferred securities, it is unclear why Glacier would issue the same thing “to” the VIE.

Perhaps most concerning, Glacier fully guarantees all obligations of the unconsolidated VIEs. This means Glacier is potentially liable for whatever the VIEs owe, an amount that is unknown because the VIEs are unconsolidated. Given that the VIEs have no real assets or operations, it is not implausible that any one (or several) of them could default on some unidentified obligation, leaving Glacier on the hook. In simplest terms, as long as Glacier fully guarantees obligations of VIEs that are completely left off the balance sheet, we have no idea what Glacier’s true liability exposure actually is.

We are quite alarmed by the nature of Glacier’s VIEs. Unfortunately, we cannot directly account for them in our model because they’re unconsolidated. Nevertheless, we will certainly consider this VIE factor in our overall evaluation of Glacier’s stock.

RECENT DEVELOPMENTS

Recent Earnings

Glacier has struggled to meet analyst estimates recently. Specifically, in Q2, Q3, Q4 2015, Glacier has missed the mean analyst EPS estimate by 2 cents, 3 cents, and 1 cent, respectively.xi Additionally, analysts have revised their EPS forecasts for FY2016 over the past year, from a $1.78 mean estimate last April to a $1.65 mean estimate this month.xii

We forecast a $1.63 EPS for Glacier in FY2016, which seems in line with recent history and analyst sentiment. As for FY2017, we project a $1.71 EPS, which is currently 7 cents lower than the mean analyst estimate.xiii However, this gap may be overstated if analysts end up revising their FY2017 downward, as they have for FY2016 this past year.

Source: Glacier 10K; model projections; FactSet

Glacier’s recent inability to meet analyst EPS estimates further bolsters our case that Glacier will not achieve rapid growth in the next 5 years. Relatedly, we see slow and steady EPS growth for Glacier, averaging 4.32% annually for the next 5 years.

It’s also worth noting that Glacier paid a “special dividend” of $0.30 in 2014 and 2015. This bumped the annual dividend up to $0.98 and $1.05 respectively. Going forward, management has specified that earnings, asset quality, and regulations, will dictate the size and type of dividend Glacier pays out.xiv Additionally, Glacier announced in March that it will increase its Q1 2016 dividend 1 cent, to $0.20.xv Glacier has paid a dividend for 124 consecutive quarters and increased its dividend in 40 of those quarters.xvi In short, Glacier is generous with its dividends and we expect it to remain so for the next 5 years.


The increasing trend in Glacier’s payout ratios also strengthens our case for slow growth moving ahead. In other words, this indicates that Glacier is becoming more of a “mature” company, and needs to pay its shareholders in dividends what its unable to return in growth/price appreciation.

Acquisitions

Glacier bought two banks in 2013, one in 2014, and two in 2015. Relative to the size of Glacier’s balance sheet, approx. $9.1B currently, these acquisitions were not large. Specifically, the transaction value for each was: $43M, $35M, $31M, $23M, and $32M.xvii The targets were all smaller regional and/or community banks in Wyoming, Washington, Montana, and Colorado (2x).

All of these deals seem to have integrated smoothly, and from what we can glean, have not had an adverse impact on Glacier’s balance sheet. Strategically, Glacier wants to increase its Colorado presence.xviii Hence, the two acquisitions there in the past two years. This makes sense given Colorado’s 2014 GDP of 4.7% (most recent data), relative to 2.4% for the US.xix The acquisition of a community bank in Montana last year stems from Glacier’s

desire to increase the scale of its larger bank holdings in existing markets.xx

Although these deals have gone well and seem to have smart strategic reasoning behind them, over-reliance on acquisitions for growth is not sustainable. Since acquisitions are impossible to predict, we have not forecasted any in our asset growth projections. However, if Glacier begins to use acquisitions as its main impetus for growth, this would indicate that Glacier is unable to grow organically at an accelerating rate. Accordingly, our assumptions about steady, but slower, organic growth for Glacier are more likely to be correct.

Managerial Change

Although it’s unclear what impact, if any, this will have on the share price, it is worth noting that Glacier will be changing CEOs soon. Michael Blodnick, the CEO of 18 years, is set to retire, and Randy Chesler will take over effective January 1, 2017.xxi Mr. Chesler joined Glacier in August 2015 as a President, with the full intention of him succeeding Mr. Blodnick. In other words, the succession plan has been in place for months already, and ideally this should help smoothen the transition.

Mr. Chesler has 31 years of experience in banking and credit card services, including stints at Visa and Citi.

xxiii

xxii He was also the CEO of a start-up tech company that was eventually acquired by First Data. And perhaps, most relevant, he was a President at CIT Group, helping it grow from $300M to $20B in loans, where he spent time in Salt Lake City, UT – a state where Glacier has several offices.xxiv

On paper, Mr. Chesler appears well-equipped to take over. While we are unsure how well this move will translate, and thus have not accounted for it in our forecasts, a CEO change is still significant enough to warrant a mention.

INDUSTRY TRENDS

Consolidation

The US commercial banking industry is currently more consolidated than at any point in modern history. For example, in 1975 there were 14,268 commercial banks in the US, 10,451 in 1994, 7,283 in 2007, and 5,410 as of September 2015.xxv

2013 2014 2015 2016E 2017E 2018E 2019E 2020EDividend per share 0.60 0.98 1.05 1.11 1.20 1.25 1.33 1.37Dividend Payout Ratio 46% 65% 68% 68% 70% 70% 72% 72%

Source: S&P Capital

This long-term trend is further illustrated by the revenue allocation within this historically small volume of banks. Specifically, of the 82 banks in the S&P 1500 banks industry, the six largest banks (JPMorgan Chase, Wells Fargo, Bank of America, US Bank, Citi, and PNC Financial) produced 79% of the US banking industry revenue, vs. 21% for the 76 regional banks. xxvi

Source: S&P Capital

Bank M&A activity is also related to this trend. While such activity took a slight dip in 2015 relative to 2014, it is still on an upward trajectory since the financial crisis.

S&P Capital

It is clear that consolidation in this industry is not merely a transient occurrence but a multi-decade trend. Going forward, we anticipate that continued M&A activity as a

vehicle for growth, combined with higher regulatory costs, will further concentrate the broader US banking industry. However, the impact this will have on Glacier specifically is unclear. Historically, Glacier has been a buyer, but it is not out of the realm of possibility that a larger bank could eye the Rocky Mountains and make Glacier a potential target.

Digital Dash

We are living in a digital world, where consumers increasingly prefer to handle payments and banking electronically. More specifically, fewer people are using branches and ATM, while more people are using online and mobile banking.

Source: Statista

The banking industry has responded accordingly. Per the most recent data, the top 15 banks, by number of branches, combined to close 794 branches in 2014.

Source: St. Louis Federal Reserve; FDIC

Rank (2014) Bank Name2013-14

change in branches

1 Wells Fargo 172 JPMorgan Chase -153 Bank of America -3054 US Bank 985 PNC Bank -1276 Branch Banking and Trust -87 Regions Bank -368 SunTrust Bank -699 Fifth Third Bank -22

10 TD Bank -711 KeyBank -4112 Citibank -7313 Capital One -3814 Citizens Bank -14015 Woodforest National Bank -28

Additionally, North American banks are expected to increase their investments in new technology by about 17% in 2017, relative to 2015.

Source: Celent

Also, while we could not find a delineated number, it seems that just about every bank now has a mobile application. In short, as the customer becomes increasingly digital, banks are cutting unnecessary physical presences and investing more in new tech – including mobile apps.

Glacier seems to be somewhat resilient to branch reduction and tech development. For example, Glacier has consistently increased its number of branches by about 35% the past 5 years (106 to 144). We see growth here continuing for the next five years but not as aggressively (i.e., 12.5% or 144 to 162).

This is reasonable because the higher rate of branch expansion in 2013-2015 stems from acquisitions, and we are unable to forecast those.


As for technology, Glacier does not report any related line items, so we cannot discern its level of tech investment. Also, while Glacier does have a mobile banking app, the app does not seem to be widely used. iPhone data was not

available, but the app only has 5,000-10,000 installs on android software.xxvii

xxviii

The app does seem to be somewhat well-received though, as its average rating is 4/5 stars, based on a sample-size of 95.

Our inclination is that Glacier’s size and geographic footprint explains this. Glacier is a much smaller bank, relative to the top 15 highlighted above, with a focus on non-metropolitan areas. In other words, rural area bank customers are not as tech driven as those in metropolitan areas. In fact, 32% of bank customers who owned a mobile phone and lived in “remote areas of the US” used mobile banking in 2015, vs. 39% in “non-remote areas.”xxix

MARKETS AND COMPETITION

The overall US commercial banking market stands at approximately $460B as of 2015.xxx We know that this revenue is split about 80/20 diversified and regionals (see Industry Trends section above). Accordingly, Glacier, at total revenue of about $419M only represents 0.09% of the of the overall market, and about 0.45% of the more relevant regional banking market. Thus, Glacier is a very minor player in the banking world, even by regional bank standards.

It is unlikely that Glacier will ever be able to compete on a national scale with the large regional banks, let alone the diversified conglomerates. Part of this is by design, and part of this is by circumstance. Glacier will never have the investment banking deals or trading desks that the big banks have. But it does not appear that Glacier desires such activities to be part of its operations.

In terms of its geographic niche, Glacier seems to be doing decent. As of June 2015, Glacier had the following share of FDIC insured deposits:

Given Glacier’s size and the rurality of its markets, its main competitors are smaller savings banks, community banks, and credit unions. This indicates that Glacier’s particular space is more fragmented and competitive than the broader commercial banking industry. Such competition could put a squeeze on Glacier’s profitability, especially for non-interest items such as fees. This is why we have

Glacier Deposit Share (per county presence) Wyoming Montana Utah Idaho Colorado Washington

Counties 8 13 3 9 9 6Deposit share 26% 24% 11% 7% 5% 4%

forecasted “misc. fees” to grow 0% for the next 5 years (vs. the 2.75% historical average), and “service fees” at 4% (vs. the 6.75% historical average).


Glacier also notes that it is facing increasing competition from “internet-based competitors.” Younger tech companies are now offering an assortment of services that were historically provided by banks only.

xxxii

xxxi For example, Lending Club is an online platform that enables peer-to-peer personal loans, business loans, and elective medical procedure financing. Such companies are collectively referred to as “FinTech.”

While the exact magnitude of the FinTech threat is uncertain, the increasing money pouring into the companies shows that it is worth keeping in mind.

Source: Accenture

It will be interesting to see whether banks respond to the FinTech boom competitively or attempt to form partnerships with FinTech to prevent destructive competition. As noted in the “Digital Dash” trend above, banks are increasingly investing more in new technology. It is reasonable to assume that such investments are not

only a response to customer preferences, but also a tool for mitigating the FinTech threat.

One the one hand, given Glacier’s size and geographic profile, it could be somewhat insulated from the effects of FinTech. On the other, the fact that Glacier mentions competition from “internet-based competitors” in its annual report indicates that it is cognizant of FinTech. Nonetheless, without a word on tech strategy or a line item dedicated to technology, it is impossible to predict how Glacier will respond – let alone account for suchresponse(s) in our model.

Peer Comparisons

We defined Glacier’s peer group as other regional banks that have comparable market caps (+/- $2B), asset amounts (+/- $5B), trade multiples and offer the same services. This narrowed the field to 4 peers: CVB Financial(“CVBF”), Cathay General (“CATY”), First Interstate(“FIBK”) and Western Alliance (“WAL”). CVBF operates exclusively in California; CATY operates in California, Illinois, Massachusetts, Maryland, New Jersey, New York, Nevada, and Washington; FIBK operates in Montana, Wyoming, and South Dakota; WAL operates in Arizona, California, and Nevada.

Source: FactSet

Other than WAL, which is clearly crushing the competition, Glacier outperforms its peers. Per NIM, the best measure of bank profitability, Glacier is more profitable than 3 of the 4 by at least 16 bps. This may not sound like a lot, but for banks every 1 bps matters. Looking at ROE, again Glacier does well against 3 of the 4, and this holds even when adjusted for leverage, as evident by the ROA numbers. It does seem odd that Glacier is the most levered

GBCI CVBF CATY FIBK WALMarket Cap (billions) 1.86 1.78 2.29 1.24 3.4Assets FY15 (billions) 9 8 13 9 14Loans FY15 (billions) 5.08 4.02 10.16 5.25 11.1

LLP FY15 (as % of loans) 0.05% -0.14% -0.11% 0.13% 0.03%ALL FY15 (as % of loans) 2.56% 1.47% 1.37% 1.47% 1.07%

ROE FY15 11.04% 10.95% 9.62% 9.34% 14.99%Debt:Equity FY15 88% 83% 47% 65% 25%

ROA FY15 1.33% 1.31% 1.30% 1.00% 1.68%NIM FY15 3.68% 3.52% 3.39% 3.46% 4.51%P/B FY15 1.87 1.95 1.45 1.39 2.32

in this group since it far surpasses Basel’s “well-capitalized” standard. In other words, Glacier would not be considered too levered in absolute terms, but appears to be relative to its peers.

In terms of lending standards, while Glacier is becoming a more prudent lender (see Company Description above), it is still not as prudent as its peers. This is indicated by Glacier’s highest ALL number, and second highest LLP number, among its four closest comparables.

In sum, Glacier stacks up well versus every competitor but WAL. It appears that WAL is benefiting from its focus on tech lending – something none of the other peer members do.xxxiii

xxxiv

More specifically, its presence in Silicon Valley enables it to provide loans to tech companies, which seems to be quite profitable. The market seems to appreciate WAL’s performance, hence its relatively high P/B. Unfortunately for Glacier, none of its geographic markets present the growth opportunities that tech in Silicon Valley does. Thus, while Glacier performs solidly overall, unless a particular sector takes off that is unique to Glacier’s territory, it will suffer an inherent disadvantage versus the likes of WAL.

ECONOMIC OUTLOOK

Bank performance largely hinges the state of the overall economy. For regional banks, such as Glacier, the 6 state economies, in which it operates, are also crucial. Key variables such as housing, commercial real estate, and the fed funds rate have been covered sufficiently above. Therefore, this section will focus on GDP and unemployment, both nationally and regionally.

GDP

Real US GDP has grown at 2.4% the past 2 years, and economists project it to grow at 2.1%, 2.4%, and 2.0% the next 3 years.xxxv The Henry Fund’s most recent 2-year outlook produced a median of 2.3% real US GDP. In other words, the post-crisis status quo of sluggish growth is likely to endure. Such expectations support our case for very gradual and modest rate hikes, and in turn, slight EAY increases for Glacier moving forward.

Regionally, forecasts are unavailable and the most recent data we have the six Glacier states is 3Q 2015. In 2013-2015 these states, per a simple average, have

outperformed the US, but in 2010-2012 the US fared better.

Source: FactSet; US Joint Economic Committee

Therefore, there is a bit of conflict in the available data, making it nearly impossible to predict which relationship will hold. Thus, we assume that the states’ GDP will grow in line with the US overall, further bolstering our case of moderate organic growth for Glacier.

Unemployment

Unemployment has decreased drastically, nationally and in the Glacier region, since recession. More specifically, national unemployment has dropped by 5% and the 6 Glacier states, on average, dropped by 4.38%.xxxvi

xxxvii

Currently, the average unemployment rate of the 6 Glacier states stands at 4.22% versus the US at 5%.

Source: US Joint Economic Committee

Given the capacity of labor markets, we believe we are at, or near, full employment nationally, hence our median unemployment forecast of 4.80% for the next 2 years. Since the Glacier states’ average unemployment rate is even lower than the national rate, it is likely that it has even less room to budge. In other words, we do not believe that the regional unemployment rate will decrease much more during our forecast period.

In sum, national and regional GDP will continue to plod along, and unemployment will remain stable at or near its current level. This economic view contributes to our belief that Glacier will grow, organically, at a slow and steady pace for the next five years.

CATALYSTS FOR GROWTH

• Interest rate hikes • Higher GDP growth, nationally and regionally • Continued low unemployment • Accretive acquisitions • Increase in housing starts and commercial real

estate activity

INVESTMENT POSITIVES

• Glacier is very well-capitalized, with a Basel leverage ratio that is double the “well-capitalized” standard (12% vs. 5%).

• Glacier has shown an ability to execute successful acquisitions, including 5 in the last 3 years.

• Glacier is becoming a more prudent lender, as evidenced by its lower LLP and ALL percentages in recent years.

• Glacier fares well in terms of profitability (i.e., NIM, ROE, ROA) relative to 3 of its closest peers.

• Even modest, infrequent, rate hikes should help boost Glacier’s interest income.

• Regional GDP has recently outpaced US GDP, potentially creating a geographic competitive advantage for Glacier.

INVESTMENT NEGATIVES

• Acquisitions have masked Glacier’s lack of organic growth. For example, in 2015, organic loan growth was 3.5% vs. 8% when accounting for acquisitions.

• Glacier has missed analyst EPS estimates for 3 consecutive quarters now.

• National GDP continues to be sluggish, impeding rate hikes and lending activity (both of which boost interest income).

• While regional GDP has outperformed national GDP the last 3 years, over a larger sample size, that trend does not hold up.

• Both us and management expect Glacier to surpass the $10B assets mark in 2017. This mark is

significant in that it brings additional regulatory pressures that will cost $8M-$12M annually.

• The commercial real estate market appears to be growing at a decelerating rate, which will likely hurt Glacier’s growth prospects in its largest loan portfolio segment.

VALUATION

Glacier currently trades at a market price of $24.36, and none of our models produce an intrinsic value above $23.64. Hence, our SELL recommendation.

Projections already covered: Our predictions and underlying reasoning for assets, loan portfolio, deposits, EAY/interest income, profitability, and LLP/ALL have been explained at length in the Company Description.

PP&E: Branch growth, which was discussed in the Industry Trends, drives the relevant property asset projections. This is because the number of branches dictates the land, space, furniture, etc. needed for Glacier. We took the 4 related balance sheet accounts (land, office buildings, furniture, and leasehold improvements) and examined the value per branch ratio. For example, land per location had a historical average ratio of 224, but a declining trend (from 236 to 209 the past five years). Therefore, we used an average ratio of 205 to arrive at our “land” projections. The same process was used for the three other related accounts. It’s also important to note that branch size drives two income statement items (“compensation” and “occupancy and equipment”). For example, equipped with the historical numbers for employees and branches, we were able to discern an employee per branch ratio and project accordingly.

Remaining assets: We forecasted “other real estate owned” (a label for foreclosures) as a percentage of beginning loans receivable because foreclosures tend to be related to the loans used to purchase the real estate. The historical average here was 0.84%, but has declined from 1.30% to 0.60% the past five years. Therefore, we projected this item at 0.55% of loans receivable in our model.

“Accrued interest receivable” was measured as a percentage of interest income, since it is essentially interest income owed to Glacier that has yet to be repaid. The historical average has been stable around 14%. Thus,

we projected this item at 14.14% of interest income in our model.

We forecasted “other assets” as a percentage of beginning total assets to avoid a circular reference. The historical average was 0.75%, but has grown from 0.58% to 0.86% over the past five years. Therefore, we projected “other assets” at 0.95% of beginning total assets in our model.

We amortized the “core deposit intangible” according to the schedule provided in Glacier’s most recent 10K. This also led to the related amortization expense on the income statement.

We forecasted “non-marketable equity securities” at 50M going forward. There is very little information about this account in Glacier’s footnotes, and no relationship to base a solid projection on here. However, in four of the past five years this account has stayed between $48-$53M, therefore $50M seemed like a safe bet.

Non-deposit liabilities: We projected a CAGR of 5% for “repurchase agreements” in line with deposit growth, since it is another form short-term funding. Additionally, this number is in line with the 7% outlier-adjusted historical growth rate. “Subordinated debentures” has grown exactly at 0.11% every year the past five years, and we saw no reason to change that growth rate for our model. The remaining liabilities were all projected as a percentage of beginning total liabilities to avoid circular reference, and in line with the historical averages.

Non-interest income: The two fee account projections and assumptions were explained adequately in the Markets and Competition section. “Gain on sale of loans” and “other income” are unpredictable accounts, and displayed no useful trends. Therefore, we used a 3-year rolling average for these two accounts in our model forecasts. “Gain (loss) on sale of investments” was even more volatile and impossible to predict so we set that at 0 in our model.

Interest expense: Each interest expense item was projected as a percentage of the corresponding average liability. For example, “deposits” historically represented about 0.30% of average “interest bearing deposits”, we adjusted this up five bps to 0.35% in our forecast because of the expected modest rate hikes. The remaining accounts were projected the same way.

Non-interest expense: “Compensation and employee benefits” and “occupancy and equipment” projections

were already discussed above. As was “core deposit intangible amortization.” The remaining accounts in this section were projected in line with historical averages adjusted for any consistent trend displayed or a rolling average if no trend existed.

Risk premium: The Henry Fund consensus is 5%.

Beta: We used a Beta of 1.20 because this was the median of the weekly Betas over the last five years, as calculated by Bloomberg.

CV growth: We believe long-term nominal US GDP will be about 3.30%-3.60%. Thus, we set Glacier’s CV growth rate at 2.50% since we do not expect it outgrow the economy. US GDP is the appropriate benchmark as Glacier has no international operations.

DDM: The DDM produced a price of $21.15, just lower than the Formal FCFE and Simple FCFE/EEP numbers of $22.61 and $21.84, respectively. This likely stems from slightly higher FCFE growth projections relative to dividend growth projections. We analyzed the payout ratio in the Recent Developments section. Such analysis is also supported by our cash projections – as Glacier has more cash, it will look to distribute it accordingly.

Relative valuation: As a bank, price-to-book (“P/B”) is the most appropriate relative valuation model here. This produces a price of $23.64, the highest of all our models. This likely means that the market is slightly more optimistic about the regional bank industry’s growth prospects than we are. However, this difference is insignificant given that our Formal FCFE model gives a price of $22.61 – about a $1 difference. The peer group used to arrive at the P/B multiple was explained in the Markets and Competition section.

Henry Fund vs. other analysts: Our EPS projections relative to analyst estimates was analyzed in the Recent Development sections. While our target prices differ a bit, $23 vs. a median analyst target of $26.50, some of our key projections are pretty close. For example, we project a net income of about $124M next year, while analysts project $125M. The gap slightly increases for 2017, as we foresee net income of $130M, while analysts are a bit more optimistic at $135M. In terms of total assets, both us and analysts expect Glacier to reach about $9.5B in 2016, and about $10B in 2017. In short, both parties are envisioning similar growth for Glacier regarding overall size, but

analysts believe that Glacier will be able to churn a bit more income from such assets going forward.

Model evaluation: We used the Formal FCFE model to determine our target price. The Formal FCFE model is the most comprehensive model, and thus best captures the underlying economics of Glacier and its operations. More specifically, it accounts for the value that banks create using both sides of the balance sheet. Additionally, the model is quite robust – as can be seen in our sensitivity analysis. We tested several variables, including beta, risk premium, EAYs, growth rates, etc., and in the vast majority of scenarios the price was lower than the current market price. For example, it would take a 100 bps decrease in risk premium, at the same beta level, for the price to turn bullish. Another scenario, would require an investment securities yield, for the next five years, 80 bps higher than the previous five years – a big jump given how precious every 1 bps is in today’s rate environment.

In sum, the Formal FCFE best reflects the fundamentals of Glacier’s business and our beliefs about its future. Accordingly, we used the Formal FCFE price of $22.61 as the benchmark for our $23 target price. This represents about a 6.50% discount to current market price.

KEYS TO MONITOR

• Randy Chesler – how the new CEO handles managing Glacier, what his vision is, how he implements it, etc. will have a major impact on Glacier’s future.

• Analyst expectations – whether Glacier will continue to miss analyst EPS estimates and/or whether analysts continue to revise their EPS estimates downward.

• The Fed Funds rate – the rate at which it rises will largely dictate how Glacier’s income and net interest margin perform.

• National and regional GDP, housing, commercial real estate, and unemployment – these variables largely influence Glacier’s lending activity and overall growth trajectory.

• Consolidation (or lack thereof) relating to VIEs – if Glacier beings to take more VIEs off the balance-sheet it could present red flags about its true liability exposure.

• Customers and technology – if Glacier’s customers being to prefer a more digital banking experience,

Glacier will have to increase its investments in that area accordingly.

• Regulatory environment adaptability – as Glacier surpasses the $10B in asset mark, how it manages the associated regulatory costs will be imperative.

• Credit quality – whether Glacier’s LLP and ALL numbers continue to signal a firm belief in high underwriting standards, or if Glacier will begin to sacrifice such standards in favor of easier growth.

• Continued M&A activity – whether Glacier continues to be a buyer in the bank M&A market or becomes a target at some point.

Ultimately, we are not confident that Glacier will achieve the accelerated growth, organically, necessary to justify its current market price. This belief is founded in the sluggish macro-economic growth environment, the expected pace of small rate hikes, a lack of comfort with Glacier’s VIEs, and the associated costs that come with a bigger balance sheet. While it is plausible that Glacier could undertake acquisitions that amplify its growth enough to potentially alter this recommendation, we cannot base our reasoning on such inherent uncertainties. Hence, Glacier is currently overvalued at $24.36, by about 6.50%, and we recommend a SELL.

REFERENCES

i Glacier Bancorp 10K, February 2016 ii Note all the historical facts and explanations in this section relating to Glacier, its structure, loan definitions/categories, Basel, management, VIEs, etc. are from its most recent 10K iii FactSet, Economics, US, Estimates, Country Summary, April 2016 iv IBISWorld, US Commercial Real Estate Key Statistics v ThompsonONE, Piper Jaffray Company Note, “More Selective Appetite Calls for Slower Growth Outlook; Trimming Estimates and Price Target”, February 2016 vi Federal Reserve Bank of St. Louis, Economic Research, March 2016, https://research.stlouisfed.org/fred2/series/FEDFUNDS vii Torres, Craig. “Yellen Says Caution in Raising Rates is ‘Especially Warranted’”, Bloomberg, March 2016, http://www.bloomberg.com/news/articles/2016-03-29/yellen-says-caution-in-raising-rates-is-especially-warranted-imdmq9pu viii Buckley, Phil. “What does the $10 billion asset barrier mean for banks?”, Precision Lender, March 2016, https://precisionlender.com/blog/resources/podcast/10-billion-asset-barrier-for-banks/ ix Net Advantage, S&P Capital Industry Surveys, “Banks”, February 2016 x Investopedia, Trust Preferred Securities – TruPS, April 2016, http://www.investopedia.com/terms/t/trustpreferredsecurity.asp xi FactSet, Company/Security, GBCI-US, Estimate History, April 2016 xii FactSet, see viii xiii FactSet, see viii xiv Glacier 10K, see i xv GlobeNewswire, “Glacier Bancorp Inc. Increases Quarterly Dividend”, March 2016, http://finance.yahoo.com/news/glacier-bancorp-inc-increases-quarterly-221410759.html xvi GlobeNewswire, see xii xvii FactSet, Company/Security, GBCI-US, Transactions, Deal Summary, April 2016 xviii Glacier 10K, see i xix FactSet, Economics, US, National Accounts, GDP by State, April 2016 xx Glacier 10K, see i xxi Glacier 10K, see i xxii LinkedIn, Randy Chesler, April 2016, https://www.linkedin.com/in/randallchesler xxiii LinkedIn, see xix xxiv LinkedIn, see xix xxv S&P Capital, see viii xxvi S&P Capital, see viii

xxvii Google Play, April 2016, https://play.google.com/store/apps/details?id=com.fi6205.godough&hl=en xxviii Google Play, see xxvi xxix Heggestuen, John. “Mobile banking adoption lags in rural areas”, Business Insider, April 2015, http://www.businessinsider.com/mobile-banking-adoption-lags-in-rural-areas-2015-4 xxx S&P Capital, see viii xxxi Hart, Patricia. “Banks Are Right To Be Afraid of the FinTech Boom”, Time Magazine, July 2015, http://time.com/3949469/financial-technology-boom/ xxxii Lendingclub.com, https://www.lendingclub.com/public/about-us.action xxxiii Nasdaq, “Tech Lending Gives New Lift To Western Alliance Bank”, November 2015, http://www.nasdaq.com/article/tech-lending-gives-new-lift-to-western-alliance-bank-cm538498 xxxiv Nasdaq, see xxxiii xxxv FactSet, see iii xxxvi State Economic Snapshots, Joint Economic Committee, United States Congress, March 2016, http://www.jec.senate.gov/public/_cache/files/d34ae724-6397-42bb-96a9-980e306b2b92/jec-state-economic-snapshots-march-2016.pdf xxxvii United States Congress, see xxxvi

IMPORTANT DISCLAIMER

Henry Fund reports are created by student enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa’s Tippie School of Management. These reports are intended to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.

https://research.stlouisfed.org/fred2/series/FEDFUNDS

http://www.bloomberg.com/news/articles/2016-03-29/yellen-says-caution-in-raising-rates-is-especially-warranted-imdmq9pu



https://precisionlender.com/blog/resources/podcast/10-billion-asset-barrier-for-banks/

https://precisionlender.com/blog/resources/podcast/10-billion-asset-barrier-for-banks/

http://www.investopedia.com/terms/t/trustpreferredsecurity.asp

http://www.investopedia.com/terms/t/trustpreferredsecurity.asp

http://finance.yahoo.com/news/glacier-bancorp-inc-increases-quarterly-221410759.html

http://finance.yahoo.com/news/glacier-bancorp-inc-increases-quarterly-221410759.html

https://www.linkedin.com/in/randallchesler

https://play.google.com/store/apps/details?id=com.fi6205.godough&hl=en

https://play.google.com/store/apps/details?id=com.fi6205.godough&hl=en

http://www.businessinsider.com/mobile-banking-adoption-lags-in-rural-areas-2015-4

http://www.businessinsider.com/mobile-banking-adoption-lags-in-rural-areas-2015-4

http://time.com/3949469/financial-technology-boom/

https://www.lendingclub.com/public/about-us.action

http://www.nasdaq.com/article/tech-lending-gives-new-lift-to-western-alliance-bank-cm538498

http://www.nasdaq.com/article/tech-lending-gives-new-lift-to-western-alliance-bank-cm538498

http://www.jec.senate.gov/public/_cache/files/d34ae724-6397-42bb-96a9-980e306b2b92/jec-state-economic-snapshots-march-2016.pdf



Glacier BancorpRevenue Decomposition (in thousands)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E (CV)Avg. earning assets (beg. + ending/2)Investment securities 3,452,917 3,065,627 3,110,629 3,370,807 3,488,785 3,602,020 3,700,943 3,793,466YOY growth 1.41% ‐11.22% 1.47% 8.36% 3.50% 3.25% 2.75% 2.50%

Residential real estate 547,028 594,526 650,188 711,302 757,536 804,823 851,041 897,849YOY growth 5.88% 8.68% 9.36% 9.40% 6.50% 6.24% 5.74% 5.50%

Commercial 2,590,094 3,082,366 3,498,483 3,817,521 3,989,310 4,158,636 4,314,381 4,465,384YOY growth 13.23% 19.01% 13.50% 9.12% 4.50% 4.24% 3.75% 3.50%

Consumer and other 593,010 598,575 634,718 674,299 711,385 748,686 784,202 819,492YOY growth ‐5.53% 0.94% 6.04% 6.24% 5.50% 5.24% 4.74% 4.50%Total avg. earning assets 7,183,049 7,341,094 7,894,017 8,573,928 8,947,016 9,314,164 9,650,567 9,976,191YOY growth 5.07% 2.20% 7.53% 8.61% 4.35% 4.10% 3.61% 3.37%

Interest income (net of tax effects, as reported on income statement) Investment securities 74,512 93,052 91,086 101,124 104,664 108,061 111,028 113,804

YOY growth 12.24% 24.88% ‐2.11% 11.02% 3.50% 3.25% 2.75% 2.50% Residential real estate loans 29,525 30,721 32,153 36,988 39,392 41,851 44,254 46,688

YOY growth ‐4.29% 4.05% 4.66% 15.04% 6.50% 6.24% 5.74% 5.50% Commercial loans 127,450 145,631 164,966 185,150 193,482 201,694 209,247 216,571

YOY growth 4.96% 14.27% 13.28% 12.24% 4.50% 4.24% 3.75% 3.50% Consumer and other loans 32,089 30,515 31,476 35,064 36,992 38,932 40,779 42,614

YOY growth ‐8.57% ‐4.91% 3.15% 11.40% 5.50% 5.24% 4.74% 4.50% Total interest income 263,576 299,919 319,681 358,325 374,529 390,537 405,308 419,677

YOY growth 3.87% 13.79% 6.59% 12.09% 4.52% 4.27% 3.78% 3.55%

Interest income yield (interest income/avg. earning asset)Investment securities yield 2.16% 3.04% 2.93% 3.00% 3.00% 3.00% 3.00% 3.00%Residential real estate yield 5.40% 5.17% 4.95% 5.20% 5.20% 5.20% 5.20% 5.20%Commercial yield 4.92% 4.72% 4.72% 4.85% 4.85% 4.85% 4.85% 4.85%Consumer and other yield 5.41% 5.10% 4.96% 5.20% 5.20% 5.20% 5.20% 5.20%Total interest income yield 3.67% 4.09% 4.05% 4.18% 4.19% 4.19% 4.20% 4.21%

Non‐Interest Income Service charges and other fees 49,478 54,089 57,321 59613.84 61998.3936 64478.32934 67057.46252 69739.76102 Miscellaneous loan fees and charges 4,982 4,696 4,276 4276 4276 4276 4276 4276 Gain on sale of loans 28,517 19,797 26,389 24901 23696 24995 24531 24407 Gain (loss) on sale of investments (299) (188) 19 0 0 0 0 0 Other income 10,369 11,908 10,756 11,011 11,225 10,997 11,078 11,100 Total non‐interest income 93,047 90,302 98,761 99,802 101,195 104,747 106,942 109,523

Total revenue (total interest + total non‐interest) 356,623 390,221 418,442 458,127 475,724 495,284 512,250 529,200YOY growth 3.29% 9.42% 7.23% 9.48% 3.84% 4.11% 3.43% 3.31%

Net Interest Income 234,818 272,953 290,406 328,471 343,450 357,995 371,342 384,309YOY growth 7.69% 16.24% 6.39% 13.11% 4.56% 4.23% 3.73% 3.49% Provision for loan losses 6,887 1,912 2,284 5,203 5,458 5,712 5,950 6,183 Net interest income after provision for loan losses 227,931 271,041 288,122 323,268 337,992 352,283 365,392 378,126YOY growth 15.98% 18.91% 6.30% 12.20% 4.55% 4.23% 3.72% 3.49%

MarginsNet interest margin (net interest income/avg. earning assets) 3.27% 3.72% 3.68% 3.83% 3.84% 3.84% 3.85% 3.85%Net interest margin after provision for loan losses 3.17% 3.69% 3.65% 3.77% 3.78% 3.78% 3.79% 3.79%

Glacier Bancorp Income Statement (in thousands, except share data)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E (CV)Interest Income Investment securities 74,512 93,052 91,086 101,124 104,664 108,061 111,028 113,804 Residential real estate loans 29,525 30,721 32,153 36,988 39,392 41,851 44,254 46,688 Commercial loans 127,450 145,631 164,966 185,150 193,482 201,694 209,247 216,571 Consumer and other loans 32,089 30,515 31,476 35,064 36,992 38,932 40,779 42,614 Total interest income 263,576 299,919 319,681 358,325 374,529 390,537 405,308 419,677

Interest Expense Deposits 13,870 13,195 16,138 18,077 19,072 20,071 21,024 21,970 Securities sold under agreements to repurchase 867 865 1,021 1,305 1,377 1,449 1,518 1,586 Federal Home Loan Bank advances 10,610 9,570 8,841 7,047 7,178 7,556 7,947 8,321Other borrowed funds 206 199 81 151 175 184 193 202

Subordinated debentures 3,205 3,137 3,194 3,274 3,277 3,281 3,285 3,288 Total interest expense 28,758 26,966 29,275 29,854 31,079 32,542 33,967 35,368

Net Interest Income 234,818 272,953 290,406 328,471 343,450 357,995 371,342 384,309 Provision for loan losses 6,887 1,912 2,284 5,203 5,458 5,712 5,950 6,183 Net interest income after provision for loan losses 227,931 271,041 288,122 323,268 337,992 352,283 365,392 378,126

Non‐Interest Income Service charges and other fees 49,478 54,089 57,321 59,614 61,998 64,478 67,057 69,740 Miscellaneous loan fees and charges 4,982 4,696 4,276 4,276 4,276 4,276 4,276 4,276 Gain on sale of loans 28,517 19,797 26,389 24,901 23,696 24,995 24,531 24,407 Gain (loss) on sale of investments (299) (188) 19 0 0 0 0 0 Other income 10,369 11,908 10,756 11,011 11,225 10,997 11,078 11,100 Total non‐interest income 93,047 90,302 98,761 99,802 101,195 104,747 106,942 109,523

Non‐Interest Expense Compensation and employee benefits 104,221 118,571 134,409 153,000 157,080 162,495 165,600 170,100 Occupancy and equipment 24,875 27,498 31,149 31,275 31,835 32,407 32,958 33,406 Advertising and promotions 6,913 7,912 8,661 9,318 9,794 10,282 10,750 11,214 Data processing 4,493 6,607 5,833 6,523 6,856 7,197 7,525 7,850 Other real estate owned 7,196 2,568 3,693 4,486 3,582 3,920 3,996 3,833 Regulatory assessments and insurance 6,362 5,064 5,283 6,523 6,856 7,197 7,525 7,850 Core deposit intangible amortization 2,401 2,811 2,964 2,923 2,027 1,598 1,512 1,458Goodwill impairment charge 0 0 0 0 0 0 0 0

Other expenses 38,856 41,648 44,765 48,100 51,683 55,534 59,671 64,117 Total non‐interest expense 195,317 212,679 236,757 262,148 269,714 280,630 289,536 299,827

Income Before Income Taxes 125,661 148,664 150,126 160,922 169,473 176,400 182,798 187,823 Federal and state income tax expense 30,017 35,909 33,999 37,173 39,148 40,748 42,226 43,387

Net Income 95,644 112,755 116,127 123,749 130,325 135,651 140,572 144,436

Weighted avg. shares outstanding ‐ basic 73,191,713 74,641,957 75,542,455 76,086,288 76,086,288 76,086,288 76,086,288 76,086,288Year end shares outstanding 74,373,296 75,026,092 76,086,288 76,086,288 76,086,288 76,086,288 76,086,288 76,086,288EPS ‐ basic 1.31 1.51 1.54 1.63 1.71 1.78 1.85 1.90

Dividends per common share 0.60 0.98 1.05 1.11 1.20 1.25 1.33 1.37

Glacier BancorpBalance Sheet (in thousands)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E (CV)Assets Cash and cash equivalents 155,657 442,409 193,253 242,299 343,434 462,162 589,078 724,289 Total investment securities 3,222,829 2,908,425 3,312,832 3,428,781 3,548,788 3,655,252 3,746,633 3,840,299Loans held for sale 46,738 46,726 56,514 58,492 60,539 62,355 63,914 65,512Residential real estate loans 577,589 611,463 688,912 733,691 781,381 828,264 873,819 921,879Commercial loans 2,901,283 3,263,448 3,733,517 3,901,525 4,077,094 4,240,178 4,388,584 4,542,184Consumer and other loans 583,966 613,184 656,252 692,346 730,425 766,946 801,459 837,524Loans receivable 4,062,838 4,488,095 5,078,681 5,327,562 5,588,900 5,835,388 6,063,861 6,301,587Allowance for loan & lease losses 130,351 129,753 129,697 133,189 139,722 145,885 151,597 157,540Loans receivable, net 3,932,487 4,358,342 4,948,984 5,194,373 5,449,177 5,689,503 5,912,265 6,144,048Total loans, net 3,979,225 4,405,068 5,005,498 5,252,865 5,509,717 5,751,859 5,976,179 6,209,560

Land 27,260 27,605 30,108 30,750 31,570 32,185 32,800 33,210Office buildings & construction in progress 159,391 172,544 187,787 195,000 200,200 204,100 208,000 210,600Furniture, fixtures & equipment 66,375 70,622 78,803 81,750 83,930 85,565 87,200 88,290Leasehold improvements 7,589 7,813 8,028 8,250 8,470 8,635 8,800 8,910Less: accumulated depreciation 92,944 99,409 110,696 118,843 123,143 126,426 128,889 131,352Premises & equipment, net 167,671 179,175 194,030 196,907 201,028 204,059 207,911 209,658

Other real estate owned 26,860 27,804 26,815 27,933 29,302 30,739 32,095 33,351Accrued interest receivable 41,898 40,587 44,524 50,683 52,975 55,239 57,328 59,361Deferred tax asset 43,549 41,737 58,475 59,498 65,053 68,509 71,310 73,896Core deposit intangible, net 9,512 10,900 14,555 11,632 9,605 8,007 6,495 5,037Goodwill 129,706 129,706 140,638 140,638 140,638 140,638 140,638 140,638Non‐marketable equity securities 52,192 52,868 27,495 50,000 50,000 50,000 50,000 50,000Other assets 55,251 67,828 71,117 86,348 90,702 95,392 99,958 104,287

Total Assets 7,884,350 8,306,507 9,089,232 9,547,584 10,041,240 10,521,855 10,977,625 11,450,377

Liabilities Non‐interest bearing deposits 1,374,419 1,632,403 1,918,310 2,023,817 2,135,127 2,241,883 2,342,768 2,448,193 Interest bearing deposits 4,205,548 4,712,809 5,026,698 5,303,166 5,594,841 5,874,583 6,138,939 6,415,191 Securities sold under agreements to repurchase 313,394 397,107 423,414 446,702 471,270 494,834 517,101 540,371 Federal Home Loan Bank advances 840,182 296,944 394,131 388,829 408,771 430,829 452,177 472,385 Other borrowed funds 8,387 7,311 6,602 8,516 8,953 9,436 9,903 10,346 Subordinated debentures 125,562 125,705 125,848 125,986 126,125 126,264 126,403 126,542 Accrued interest payable 3,505 4,155 3,517 4,674 4,913 5,178 5,435 5,678 Other liabilities 50,103 102,026 114,062 121,841 128,090 135,002 141,692 148,024Total Liabilities 6,921,100 7,278,460 8,012,582 8,423,531 8,878,090 9,318,009 9,734,418 10,166,728

SH EquityShare capital & APIC 691,662 709,106 737,129 737,129 737,129 737,129 737,129 737,129Retained earnings 261,943 301,197 337,532 377,132 416,229 456,925 496,285 536,727

Accumulated other comprehensive income 9,645 17,744 1,989 9,793 9,793 9,793 9,793 9,793Total stockholders' equity 963,250 1,028,047 1,076,650 1,124,053 1,163,151 1,203,846 1,243,206 1,283,648Total liabilities and equity 7,884,350 8,306,507 9,089,232 9,547,584 10,041,240 10,521,855 10,977,625 11,450,377

Glacier BancorpCash Flow Statement

Fiscal Years Ending Dec. 31 2013 2014 2015Operating Activities Net income 95,644 112,755 116,127 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses 6,887 1,912 2,284 Net amortization of investment securities premiums and discounts 64,066 27,491 26,709 Federal Home Loan Bank stock dividends 0 0 0 Loans held for sale originated or acquired (918,451) (669,144) (888,676) Proceeds from sales of loans held for sale 1,084,799 705,178 925,353 Gain on sale of loans (28,517) (19,797) (26,389) (Gain) loss on sale of investments 299 188 (19) Bargain purchase gain 0 (680) 0 Stock‐based compensation expense, net of tax benefits 1,011 859 1,087 Excess tax (benefits) deficiencies from stock‐based compensation 223 (138) (102) Depreciation of premises and equipment 10,485 12,108 14,365 Loss (gain) on sale of other real estate owned and write‐downs, net 1,450 (937) 938 Amortization of core deposit intangibles 2,401 2,811 2,964 Goodwill impairment charge 0 0 0 Deferred tax (benefit) expense 4,633 5,931 (4,080) Net (increase) decrease in accrued interest receivable (265) 2,648 (2,377) Net (increase) decrease in other assets 19,881 (5,702) (793) Net (decrease) increase in accrued interest payable (1,354) 567 (828) Net increase (decrease) in other liabilities (9,097) 6,684 4,903 Net cash provided by operating activities 334,095 182,734 171,466Investing Activities Proceeds from sales, maturities, and prepayments of available‐for‐sale securities 1,864,334 797,610 800,605 Purchases of available‐for‐sale securities (1,426,262) (281,332) (961,224) Maturities, prepayments and calls of held‐to‐maturity securities 0 8,930 20,997 Purchases of held‐to‐maturity securities 0 (49,691) (203,554) Principal collected on loans 1,224,222 1,418,517 1,737,508 Loans originated or acquired (1,559,353) (1,735,155) (2,112,154) Net addition of premises and equipment and other real estate owned (8,977) (14,389) (18,224) Proceeds from sale of other real estate owned 28,535 15,714 10,278 Net proceeds from sale of non‐marketable equity securities 583 801 27,770 Net cash received (paid) in acquisitions 26,155 (2,112) 21,427 Net cash (used in) provided by investing activities 149,237 158,893 (676,571)Financing Activities Net increase (decrease) in deposits (334,672) 455,604 215,650 Net increase in securities sold under agreements to repurchase 23,886 83,713 24,951 Net increase (decrease) in short‐term Federal Home Loan Bank advances (204,467) (421,000) 140,000 Proceeds from long‐term Federal Home Loan Bank advances 1,147,451 192,500 50,000 Repayments of long‐term Federal Home Loan Bank advances (1,105,282) (314,738) (94,749) Net decrease in other borrowed funds (1,502) (933) (566) Cash dividends paid (44,232) (50,944) (79,456) Excess tax benefits (deficiencies) from stock‐based compensation (223) 138 102 Stock‐based compensation activity 4,326 785 17 Net cash provided by (used in) financing activities (514,715) (54,875) 255,949 Net (decrease) increase in cash and cash equivalents (31,383) 286,752 (249,156) Cash and cash equivalents at beginning of period 187,040 155,657 442,409 Cash and cash equivalents at end of period 155,657 442,409 193,253

Glacier BancorpCash Flow Statement

Fiscal Years Ending Dec. 312016E 2017E 2018E 2019E 2020E (CV)

Operating Activities Net income 123,749 130,325 135,651 140,572 144,436 Adjustments to reconcile net income to net cash provided by operating activities Depreciation of premises and equipment 8,147 4,299 3,284 2,463 2,463 Amortization of core deposit intangibles 2,923 2,027 1,598 1,512 1,458 Change in deferred tax assets (1,023) (5,554) (3,457) (2,800) (2,586) Net (increase) decrease in accrued interest receivable (6,159) (2,292) (2,264) (2,089) (2,032) Net (increase) decrease in other assets (15,231) (4,354) (4,690) (4,566) (4,330) Net (decrease) increase in accrued interest payable 1,157 240 265 257 243 Net increase (decrease) in other liabilities 7,779 6,249 6,912 6,690 6,332

Net cash provided by operating activities 121,342 130,939 137,300 142,037 145,983Investing Activities Change in investment securities (115,949) (120,007) (106,464) (91,381) (93,666) Change in loans (247,367) (256,851) (242,142) (224,320) (233,381)Change in gross PP&E (11,024) (8,420) (6,315) (6,315) (4,210)Change in other real estate owned (1,118) (1,369) (1,437) (1,356) (1,257)Change in non‐marketable securities (22,505) 0 0 0 0

Net cash (used in) provided by investing activities (397,963) (386,648) (356,358) (323,372) (332,513)Financing Activities Net increase (decrease) in deposits 381,975 402,984 386,498 365,241 381,677 Net increase in securities sold under agreements to repurchase 23,288 24,569 23,564 22,268 23,270 Net increase (decrease) in short‐term Federal Home Loan Bank advances (5,302) 19,942 22,058 21,348 20,207 Change in other borrowed funds 1,914 437 483 468 443 Change in subordinated debentures 138 139 139 139 139 Cash dividends paid (84,149) (91,227) (94,956) (101,212) (103,994)Change in AOCI 7,804 0 0 0 0Change in share capital and APIC 0 0 0 0 0

Net cash provided by (used in) financing activities 325,667 356,843 337,786 308,251 321,741

Net (decrease) increase in cash and cash equivalents 49,046 101,134 118,728 126,916 135,211 Cash and cash equivalents at beginning of period 193,253 242,299 343,434 462,162 589,078 Cash and cash equivalents at end of period 242,299 343,434 462,162 589,078 724,289

Glacier BancorpCommon Size Income Statement (as % of assets)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E (CV)Interest incomeInvestment securities 0.95% 1.12% 1.00% 1.06% 1.04% 1.03% 1.01% 0.99%Residential real estate loans 0.37% 0.37% 0.35% 0.39% 0.39% 0.40% 0.40% 0.41%Commercial loans 1.62% 1.75% 1.81% 1.94% 1.93% 1.92% 1.91% 1.89%Consumer & other loans 0.41% 0.37% 0.35% 0.37% 0.37% 0.37% 0.37% 0.37%Total interest income 3.34% 3.61% 3.52% 3.75% 3.73% 3.71% 3.69% 3.67%

Interest expense Deposits 0.18% 0.16% 0.18% 0.19% 0.19% 0.19% 0.19% 0.19% Securities sold under agreements to repurchase 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% Federal Home Loan Bank advances 0.13% 0.12% 0.10% 0.07% 0.07% 0.07% 0.07% 0.07% Federal funds purchased and other borrowed funds 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Subordinated debentures 0.04% 0.04% 0.04% 0.03% 0.03% 0.03% 0.03% 0.03%

Total interest expense 0.36% 0.32% 0.32% 0.31% 0.31% 0.31% 0.31% 0.31%

Net Interest Income 2.98% 3.29% 3.20% 3.44% 3.42% 3.40% 3.38% 3.36% Provision for loan losses 0.09% 0.02% 0.03% 0.05% 0.05% 0.05% 0.05% 0.05%

Net interest income after provision for loan losses 2.89% 3.26% 3.17% 3.39% 3.37% 3.35% 3.33% 3.30%

Non-Interest Income Service charges and other fees 0.63% 0.65% 0.63% 0.62% 0.62% 0.61% 0.61% 0.61% Miscellaneous loan fees and charges 0.06% 0.06% 0.05% 0.04% 0.04% 0.04% 0.04% 0.04% Gain on sale of loans 0.36% 0.24% 0.29% 0.26% 0.24% 0.24% 0.22% 0.21% Gain (loss) on sale of investments 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other income 0.13% 0.14% 0.12% 0.12% 0.11% 0.10% 0.10% 0.10%

Total non-interest income 1.18% 1.09% 1.09% 1.05% 1.01% 1.00% 0.97% 0.96%

Non-Interest Expense Compensation and employee benefits 1.32% 1.43% 1.48% 1.60% 1.56% 1.54% 1.51% 1.49% Occupancy and equipment 0.32% 0.33% 0.34% 0.33% 0.32% 0.31% 0.30% 0.29% Advertising and promotions 0.09% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% Data processing 0.06% 0.08% 0.06% 0.07% 0.07% 0.07% 0.07% 0.07% Other real estate owned 0.09% 0.03% 0.04% 0.05% 0.04% 0.04% 0.04% 0.03% Regulatory assessments and insurance 0.08% 0.06% 0.06% 0.07% 0.07% 0.07% 0.07% 0.07% Core deposit intangible amortization 0.03% 0.03% 0.03% 0.03% 0.02% 0.02% 0.01% 0.01%

Goodwill impairment charge 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other expenses 0.49% 0.50% 0.49% 0.50% 0.51% 0.53% 0.54% 0.56%

Total non-interest expense 2.48% 2.56% 2.60% 2.75% 2.69% 2.67% 2.64% 2.62%

Income Before Income Taxes 1.59% 1.79% 1.65% 1.69% 1.69% 1.68% 1.67% 1.64% Federal and state income tax expense 0.38% 0.43% 0.37% 0.39% 0.39% 0.39% 0.38% 0.38%

Net Income 1.21% 1.36% 1.28% 1.30% 1.30% 1.29% 1.28% 1.26%

Glacier BancorpCommon Size Balance Sheet (as % of assets)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E (CV)Assets

Cash and cash equivalents 1.97% 5.33% 2.13% 2.54% 3.42% 4.39% 5.37% 6.33% Total investment securities 40.88% 35.01% 36.45% 35.91% 35.34% 34.74% 34.13% 33.54%Loans held for sale 0.59% 0.56% 0.62% 0.61% 0.60% 0.59% 0.58% 0.57%Residential real estate loans 7.33% 7.36% 7.58% 7.68% 7.78% 7.87% 7.96% 8.05%Commercial loans 36.80% 39.29% 41.08% 40.86% 40.60% 40.30% 39.98% 39.67%Consumer and other loans 7.41% 7.38% 7.22% 7.25% 7.27% 7.29% 7.30% 7.31%Loans receivable 51.53% 54.03% 55.88% 55.80% 55.66% 55.46% 55.24% 55.03%Allowance for loan & lease losses 1.65% 1.56% 1.43% 1.40% 1.39% 1.39% 1.38% 1.38%

Loans receivable, net 49.88% 52.47% 54.45% 54.41% 54.27% 54.07% 53.86% 53.66%Total loans, net 50.47% 53.03% 55.07% 55.02% 54.87% 54.67% 54.44% 54.23%

Land 0.35% 0.33% 0.33% 0.32% 0.31% 0.31% 0.30% 0.29%Office buildings & construction in progress 2.02% 2.08% 2.07% 2.04% 1.99% 1.94% 1.89% 1.84%Furniture, fixtures & equipment 0.84% 0.85% 0.87% 0.86% 0.84% 0.81% 0.79% 0.77%Leasehold improvements 0.10% 0.09% 0.09% 0.09% 0.08% 0.08% 0.08% 0.08%Less: accumulated depreciation 1.18% 1.20% 1.22% 1.24% 1.23% 1.20% 1.17% 1.15%

Premises & equipment, net 2.13% 2.16% 2.13% 2.06% 2.00% 1.94% 1.89% 1.83%Other real estate owned 0.34% 0.33% 0.30% 0.29% 0.29% 0.29% 0.29% 0.29%Accrued interest receivable 0.53% 0.49% 0.49% 0.53% 0.53% 0.52% 0.52% 0.52%Deferred tax asset 0.55% 0.50% 0.64% 0.62% 0.65% 0.65% 0.65% 0.65%Core deposit intangible, net 0.12% 0.13% 0.16% 0.12% 0.10% 0.08% 0.06% 0.04%Goodwill 1.65% 1.56% 1.55% 1.47% 1.40% 1.34% 1.28% 1.23%Non-marketable equity securities 0.66% 0.64% 0.30% 0.52% 0.50% 0.48% 0.46% 0.44%Other assets 0.70% 0.82% 0.78% 0.90% 0.90% 0.91% 0.91% 0.91%Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Liabilities Non-interest bearing deposits 17.43% 19.65% 21.11% 21.20% 21.26% 21.31% 21.34% 21.38% Interest bearing deposits 53.34% 56.74% 55.30% 55.54% 55.72% 55.83% 55.92% 56.03% Securities sold under agreements to repurchase 3.97% 4.78% 4.66% 4.68% 4.69% 4.70% 4.71% 4.72% Federal Home Loan Bank advances 10.66% 3.57% 4.34% 4.07% 4.07% 4.09% 4.12% 4.13% Other borrowed funds 0.11% 0.09% 0.07% 0.09% 0.09% 0.09% 0.09% 0.09% Subordinated debentures 1.59% 1.51% 1.38% 1.32% 1.26% 1.20% 1.15% 1.11% Accrued interest payable 0.04% 0.05% 0.04% 0.05% 0.05% 0.05% 0.05% 0.05% Other liabilities 0.64% 1.23% 1.25% 1.28% 1.28% 1.28% 1.29% 1.29%

Total Liabilities 87.78% 87.62% 88.15% 88.23% 88.42% 88.56% 88.68% 88.79%

SH EquityShare capital & APIC 8.77% 8.54% 8.11% 7.72% 7.34% 7.01% 6.71% 6.44%

Retained earnings - substantially restricted 3.32% 3.63% 3.71% 3.95% 4.15% 4.34% 4.52% 4.69% Accumulated other comprehensive income 0.12% 0.21% 0.02% 0.10% 0.10% 0.09% 0.09% 0.09%

Total stockholders' equity 12.22% 12.38% 11.85% 11.77% 11.58% 11.44% 11.32% 11.21% Total liabilities and equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Glacier BancorpValue Driver Estimation (in thousands)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E (CV)Key assumptions:

ROE (NI/beg. TSE) 10.62% 11.71% 11.30% 11.49% 11.59% 11.66% 11.68% 11.62%Cost of equity 8.55% 8.55% 8.55% 8.55% 8.55% 8.55% 8.55% 8.55%

Net Income 95,644 112,755 116,127 123,749 130,325 135,651 140,572 144,436Beg. SH equity 900,949 963,250 1,028,047 1,076,650 1,124,053 1,163,151 1,203,846 1,243,206Ending SH equity 963,250 1,028,047 1,076,650 1,124,053 1,163,151 1,203,846 1,243,206 1,283,648Beg. Total assets 7,747,440 7,884,350 8,306,507 9,089,232 9,547,584 10,041,240 10,521,855 10,977,625Ending total assets 7,884,350 8,306,507 9,089,232 9,547,584 10,041,240 10,521,855 10,977,625 11,450,377Change in total assets 136,910 422,157 782,725 458,352 493,656 480,615 455,769 472,752Beg. Total liabilities 6,846,491 6,921,100 7,278,460 8,012,582 8,423,531 8,878,090 9,318,009 9,734,418Ending total liabilities 6,921,100 7,278,460 8,012,582 8,423,531 8,878,090 9,318,009 9,734,418 10,166,728Change in total liabilities 74,609 357,360 734,122 410,949 454,559 439,919 416,409 432,310

Simple FCFE (NI ‐ (change in TA) + (change in TL)) 33,343 47,958 67,524 76,346 91,227 94,956 101,211 103,994

Non‐cash items Depreciation 10,485 12,108 14,365 8,147 4,299 3,284 2,463 2,463Loan loss provision 6887 1912 2284 5203 5458 5712 5950 6183Extraordinary items 0 0 0 0 0 0 0 0Cash from operations (NI + non‐cash items) 113,016 126,775 132,776 137,099 140,082 144,647 148,984 153,081

Sources of cash Change in deposits 215,506 765,245 599,796 381,975 402,984 386,498 365,241 381,677Change in external debt (134,446) (460,458) 122,928 20,038 45,086 46,244 44,222 44,058Change in accrued interest payable (1,170) 650 (638) 1,157 240 265 257 243Change in other liabilities (5,281) 51,923 12,036 7,779 6,249 6,912 6,690 6,332Total sources of cash 74,609 357,360 734,122 410,949 454,559 439,919 416,409 432,310

Uses of cashNew loans 567,153 425,843 600,430 247,367 256,851 242,142 224,320 233,381Change in cash (31,383) 286,752 (249,156) 49,046 101,134 118,728 126,916 135,211Change in securities held (460,176) (314,404) 404,407 115,949 120,007 106,464 91,381 93,666Change in premises and equipment, net 8,682 11,504 14,855 2,877 4,121 3,031 3,852 1,747Change in other real estate owned, net (18,255) 944 (989) 1,118 1,369 1,437 1,356 1,257Change in accrued interest receivable 4,128 (1,311) 3,937 6,159 2,292 2,264 2,089 2,032Change in other assets 13,282 12,577 3,289 15,231 4,354 4,690 4,566 4,330Total uses of cash 83,431 421,905 776,773 437,747 490,129 478,756 454,481 471,624

Formal FCFE (cash from ops. + sources ‐ uses) 104,194 62,230 90,125 110,301 104,512 105,811 110,912 113,768

Equity Economic Profit (Beg. TSE*(ROE ‐ Cost of Equity)) 18,613 30,397 28,229 31,695 34,218 36,202 37,643 38,142

Glacier BancorpCost of Equity Estimation

Weekly Beta (Bloomberg) Cost of equity (CAPM) 8.55%1 yr. 1.16 Risk Free Rate 2.55%2 yr. 1.25 Beta 1.203 yr. 1.15 Market Risk Premium 5.00%4 yr. 1.205 yr. 1.27 CAPM = RFR + B * MRP

Glacier BancorpEquity Discounted Cash Flow (EDCF) and Equity Economic Profit (EEP) Valuation Models

Key Inputs: CV Growth 2.50% CV ROE 11.62% Cost of Equity 8.55% Net Income CV 144436

Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020EPeriod 1 2 3 4 5EDCF ModelFormal FCFE 110301 104512 105811 110912 113768CV 1873645Discounted FCFE 101613 88697 82726 79884 1349484

PV of FCFE 1702404PV of ESOP 0PV of Equity 1702404Shares outstanding at end of year 76086288Intrinsic value 12/31/2015 $22.37Price today $22.61

Fiscal Years Ending 2016E 2017E 2018E 2019E 2020EPeriod 1 2 3 4 5EDCF ModelSimple FCFE 76346 91227 94956 101211 103994CV 1873645Discounted FCFE 70333 77422 74239 72897 1349484

PV of FCFE 1644375PV of ESOP 0PV of Equity 1644375Shares outstanding at end of year 76086288Intrinsic value 12/31/2015 $21.61Price today $21.84

Fiscal Years Ending 2016E 2017E 2018E 2019E 2020EPeriod 1 2 3 4 5EEP Model EEP 31695 34218 36202 37643 38142CV 630438Discounted EEP 29199 29040 28304 27112 454071

PV of EEP 1644375PV of ESOP 0PV of Equity 1644375Shares outstanding at end of year 76086288Intrinsic value 12/31/2015 $21.61Price today $21.84

Glacier BancorpDividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020EPeriod 1 2 3 4 5EPS 1.63 1.71 1.78 1.85 1.90

Key Assumptions CV growth 2.50% CV ROE 11.62% Cost of Equity 8.55%

Future Cash Flows P/E Multiple (CV Year) 12.97 EPS (CV Year) 1.90 Future Stock Price 24.63 Dividends Per Share 1.11 1.20 1.25 1.33 1.37 Future Cash Flows

Discounted Cash Flows 1.02 1.02 0.98 0.96 17.74

Intrinsic Value 12/31/2015 $20.69Price today $21.15

Glacier BancorpRelative Valuation Models

EPS EPSTicker Company Market Cap (B) Price 2016E 2017E P/E 16 P/E 17 P/B 16 P/B 17 P/TBV 17 P/TBV 17CVBF CVB Financial Corporation 1.85 $17.44 $1.02 $1.07 17.1 16.3 1.90 1.80 2.10 2.00CATY Cathay General Bancorp 2.25 $28.52 $2.06 $2.21 13.8 12.9 1.30 1.20 1.60 1.50FIBK First Interstate BancSystem, In 1.27 $28.76 $2.14 $2.27 13.4 12.7 1.30 1.20 1.60 1.50WAL Western Alliance Bancorporation 3.40 $33.92 $2.47 $2.81 13.7 12.1 1.90 1.60 2.20 1.90Average $1.92 $2.09 14.5 13.5 1.60 1.45 1.88 1.73

GBCI Glacier Bancorp 1.86B $24.36 $1.63 $1.71 15.0 14.2 1.65 1.59 1.91 1.83

Implied Value: Relative P/E (EPS16) $23.63 Relative P/E (EPS17) $23.10 Relative P/B (EPS16) $23.64 Relative P/B (EPS17) $22.17 Relative P/TBV (EPS16) $23.95 Relative P/TBV (EPS17) $22.96

Glacier BancorpKey Management Ratios

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Margins, Spreads and ProfitabilityNet interest margin (net interest income/avg. earning assets) 3.27% 3.72% 3.68% 3.83% 3.84% 3.84% 3.85% 3.85%Net interest spread (interest income/ avg earning assets ‐ interest expense/avg interest paying liabilities)

3.15% 3.60% 3.54% 3.69% 3.70% 3.71% 3.72% 3.73%

Interest income/avg earning assets 3.67% 4.09% 4.05% 4.18% 4.19% 4.19% 4.20% 4.21%Interest expense/avg interest paying liabilities 0.52% 0.49% 0.51% 0.49% 0.48% 0.48% 0.48% 0.48%Interest expense/avg total liabilities 0.42% 0.38% 0.38% 0.36% 0.36% 0.36% 0.36% 0.36%Efficiency (non‐interest expense/net interest income + non‐interest income)

59.57% 58.55% 60.84% 61.21% 60.66% 60.65% 60.54% 60.71%

Provision for loan losses/avg loans outstanding 0.18% 0.04% 0.05% 0.10% 0.10% 0.10% 0.10% 0.10%Avg. ROA (NI/avg assets) 1.22% 1.39% 1.34% 1.33% 1.33% 1.32% 1.31% 1.29%Avg. ROE (NI/avg SH equity) 10.26% 11.32% 11.04% 11.25% 11.40% 11.46% 11.49% 11.43%

Leverage RatiosBasel leverage ratio ((SH equity‐AOCI)/avg total assets) 12.20% 12.48% 12.36% 11.96% 11.78% 11.61% 11.47% 11.36%Non‐deposit debt/total assets 16.33% 9.96% 10.45% 10.16% 10.11% 10.09% 10.07% 10.04%Non‐deposit debt/SH equity 133.66% 80.45% 88.24% 86.30% 87.27% 88.16% 88.93% 89.56%Total debt to assets (all debt/total assets) 87.10% 86.35% 86.86% 86.90% 87.09% 87.23% 87.33% 87.45%Total debt to equity (all debt/SH equity) 7.13 6.98 7.33 7.38 7.52 7.62 7.71 7.80Liabilities to assets (total liabilities/total assets) 87.78% 87.62% 88.15% 88.23% 88.42% 88.56% 88.68% 88.79%Liabilities to equity (total liabilities/SH equity) 7.19 7.08 7.44 7.49 7.63 7.74 7.83 7.92

B/S Metrics Avg. earning assets/total assets 91.90% 90.68% 90.76% 92.01% 91.35% 90.59% 89.77% 88.96%Total loans/total assets 52.12% 54.59% 56.50% 56.41% 56.26% 56.05% 55.82% 55.61%Loan loss allowance/total loans 3.17% 2.86% 2.53% 2.47% 2.47% 2.47% 2.47% 2.47%Loan growth ((total loan t/total loans t‐1)‐1) 15.99% 10.35% 13.24% 4.89% 4.89% 4.40% 3.90% 3.91%Total asset growth 1.77% 5.35% 9.42% 5.04% 5.17% 4.79% 4.33% 4.31%Deposit growth 4.02% 13.71% 9.45% 5.50% 5.50% 5.00% 4.50% 4.50%Book value per share (SH equity/shares outstanding) 12.95 13.70 14.15 14.77 15.29 15.82 16.34 16.87Tangible book value per share ((SH equity ‐ (goodwill+core deposit intangibles))/shares outstanding)

11.08 11.83 12.11 12.77 13.31 13.87 14.41 14.96

Payout Policy RatiosPayout ratio 46% 65% 68% 68% 70% 70% 72% 72%Retention ratio 54% 35% 32% 32% 30% 30% 28% 28%

Glacier BancorpSensitivity Analysis

Beta Investment Securities Yield (2016E‐2020E)$22.61 1 1.1 1.2 1.3 1.4 $22.61 2.00% 2.50% 3.00% 3.50% 4.00%4.00% $32.74 $29.90 $27.51 $25.48 $23.74 Residential 3.00% $14.13 $16.80 $19.47 $22.14 $24.804.50% $29.26 $26.71 $24.58 $22.77 $21.21 Real Estate Yield 4.00% $15.38 $18.05 $20.72 $23.39 $26.04

Risk Premium 5.00% $26.46 $24.15 $22.61 $20.58 $19.17 (2016E‐2020E) 5.20% $16.88 $19.56 $22.61 $24.88 $27.535.50% $24.15 $22.04 $20.28 $18.78 $17.49 6.00% $17.89 $20.56 $23.22 $25.88 $28.536.00% $22.22 $20.28 $18.66 $17.28 $16.09 7.00% $19.14 $21.80 $24.46 $27.12 $29.77

CV Growth Commercial Loan Yield$22.61 1.50% 2% 2.50% 3% 3.50% $22.61 3.00% 4.00% 4.85% 6.00% 7.00%7.50% $25.55 $26.32 $27.24 $28.37 $29.77 Consumer and 3.00% $8.07 $14.37 $19.70 $26.88 $33.09

Cost of Equity 8.00% $23.58 $24.14 $24.80 $25.60 $26.57 Other Yield 4.00% $9.23 $15.52 $20.85 $28.02 $34.228.65% $21.42 $21.79 $22.61 $22.72 $23.33 5.20% $10.61 $16.90 $22.61 $29.38 $35.589.00% $20.42 $20.71 $21.05 $21.44 $21.90 6.00% $11.53 $17.82 $23.13 $30.29 $36.489.50% $19.14 $19.34 $19.57 $19.84 $20.15 7.00% $12.69 $18.96 $24.28 $31.43 $37.61

Tax Rate Loan Loss Allowance as % of Loans Receivable $22.61 19.00% 21.00% 23.10% 26.00% 28.00% $22.61 1.00% 2.00% 2.50% 3.00% 4.00%1.50% $28.79 $28.03 $27.24 $26.15 $25.39 Provision for 0.010% $23.15 $23.18 $23.19 $23.20 $23.22

Risk‐Free Rate 2.00% $26.19 $25.51 $24.80 $23.82 $23.14 Loan Losses 0.050% $22.90 $22.92 $22.93 $22.94 $22.962.65% $23.44 $22.85 $22.61 $21.35 $20.76 as % of Loans 0.100% $22.58 $22.60 $22.61 $22.62 $22.653.00% $22.19 $21.63 $21.05 $20.23 $19.67 Receivable 0.150% $22.26 $22.29 $22.30 $22.31 $22.333.50% $20.62 $20.11 $19.57 $18.82 $18.31 0.200% $21.95 $21.97 $21.98 $21.99 $22.01

glacier revised

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