Glacier Bancorp seems at first glance to be just another bank. The most outwardly extraordinary thing about it is that its hometown of Kalispell, Montana, sits at the center of the Flathead Valley, a picturesque seam cut into the Western slope of the Rocky Mountains. You expect to find hikers, kayakers, skiers and fly-fishing enthusiasts bustling around Kalispell. What you don’t expect to find tucked away in a nondescript building on a nondescript commercial loop on the northern edge of town is the top performing bank in the country over the past three decades. But appearances can be deceiving.
Based on all-time total shareholder return-the ultimate arbiter of corporate performance-no other U.S. bank measures up to Glacier’s track record. It ranks first among all publicly traded banks in the country. A $10,000 investment in its initial public offering 34 years ago is worth upwards of $1.9 million today.
Multiple ingredients have contributed to Glacier’s success. It has been one of the most astute and disciplined acquirers in the banking industry over the past three decades. It is a disciplined lender, rarely departing from time-tested edicts of prudent risk management. It operates in a geographic niche where bigger banks prefer not to venture. And it employs a business model that captures the spirit of community banking while also fostering efficiency and profitability.
But more than anything, Glacier’s remarkable run has been a product of its leadership, specifically that of its long-time chief executive officer, Michael “Mick” Blodnick, who spent 38 years at the bank, the last 18 of which as its CEO, before retiring at the end of 2016.
“If you were to ask Mick about the success of Glacier through the last few decades, he would point to three things: the distinctive business model, the proven track record in acquiring quality community banks, and the Glacier culture steeped in a commitment to its people, customers and values,” says Mark Semmens, a former managing director and founder of the investment banking division at D.A. Davidson, who served as the lead investment banking advisor to Glacier for 25 years and today sits on the bank’s board of directors. “Yet, there is no question that Glacier’s success and Mick’s leadership were closely intertwined.”
If you were to meet Blodnick in the checkout line at a grocery store in Kalispell, you’d think he’s a rancher. He wears practical, durable clothes. He talks in a deep, gravelly voice. He refers to his pickup truck as a “rig.” And while he’s outwardly amiable and buoyant, just beneath the surface lies the subtle wear from a lifetime spent traversing the treacherous highways of the Rocky Mountains to build the region’s leading branch network.
“Mick didn’t accomplish what he accomplished by luck,” says Steve Klein, a partner at Miller Nash Graham & Dunn who represented Glacier on every acquisition it completed since 1996. “He did it by hard work.”
Blodnick was hardly destined at birth to be a banker. His father was a third-generation smelterman, driving a forklift for 40 years at the copper smelter in Anaconda, Montana. When Blodnick went to college in 1970, he was the first in his family to do so. After graduating five years later with a degree in sociology, he moved to Kalispell. He then spent three years in a series of odd jobs before a friend’s wife encouraged him in 1978 to apply for a job managing the savings department at First Federal Savings and Loan of Kalispell, a $72 million asset thrift with six branches throughout the Flathead Valley.
It was an inauspicious time to start a career in banking, especially at a savings and loan. Within two years, the Federal Reserve would raise short-term interest rates to nearly 20 percent. A crisis for thrifts ensued. Their cost of funds soared into the double digits while their assets, mainly 30-year fixed-rate mortgages, were stuck at a mere 8 percent.
First Federal began hemorrhaging money. At one point in early 1981, while delivering sandwiches to the boardroom, Blodnick overheard one director say to another that there was only enough capital to last for six more months. First Federal did survive, although just barely, after interest rates retreated by the end of 1981. But Blodnick would never forget the experience.
“What we learned was that we could defend ourselves against credit risk by making good loans, but the only way we could defend ourselves against interest rate risk was to hold more capital,” says Blodnick.
From that day forward, Blodnick never wavered from the philosophy that capital is king. The catch was that, as a mutual savings bank owned by depositors, the only way First Federal could build capital would be to go public. So that’s what it did. Three years later, it joined a rush of savings and loans across the country by filing an initial public offering.
The decision by First Federal to go public in 1984, at which point Blodnick was overseeing most of the thrift’s backroom operations, came at an ideal time. A massive, multi-decade consolidation cycle was getting underway in the banking industry. Publicly traded shares gave First Federal an attractive currency with which to finance acquisitions. It would prove to be a potent competitive advantage.
First Federal bought its first bank in 1989, acquiring Glacier National Bank in nearby Columbia Falls. In doing so, it became one of the first thrifts in the country, if not the first, to purchase a healthy commercial bank. The decision to buy a commercial bank, as opposed to a thrift, was motivated by the same rationale that led First Federal to go public five years earlier-it was a defensive move to combat interest rate risk. The deal diversified First Federal’s balance sheet into commercial loans, which generated a higher yield than residential mortgages, had shorter maturity schedules and offered variable rates.
And because First Federal was a savings and loan, not bound by Montana’s prohibition on branch banking, it was free to fold Glacier’s location into its branch network. It was an obvious move when viewed from the context of efficiency, which most bankers associate with cutting costs, but Blodnick would soon come to see things differently.
“Between 1989 and 1991, we had an epiphany,” says Blodnick. “We had branches in all these towns in northwest Montana, but we would look around, and the community banks we competed against were growing like crazy, while we were stagnate. They had staffs of 15 to 20 people, compared to our branches, which had only three to four employees. We were efficient, but we weren’t growing. When it came to being involved in the community, which is critical if you want to grow a bank, we didn’t have the manpower to compete. So we just decided, ‘Hey, if we’re going to acquire these banks, we need to look at this differently. We can’t do this like everybody else is doing it and just turn these banks into branches. Let’s buy them, keep them separate, let them keep doing what they’re doing, and we’ll just add to it-give them more capital, bigger lending limits and take care of their back-office work.‘”
The significance of this insight can’t be overstated.
“Mick could say to an acquisition target, ‘Hey, take a lower price and we’re going to let you keep your autonomy because we’ll run you as a separate subsidiary. We’ll handle all the administrative stuff, and you just go and be a banker,’” says Brad Milsaps, a research analyst at Sandler O’Neill + Partners who covered Glacier from 2004 to 2014. “That appealed to people. It’s one reason Mick could get deals done at such good valuations.”
Glacier applied this model for the first time in its 1991 acquisition of Evergreen Bancorp., a two-bank holding company with commercial banks in a pair of nearby towns. The banks continued to operate as separate entities, retaining their names, charters, management teams and boards of directors. Only the back-office work was centralized.
It was the Evergreen deal that proved Blodnick’s thesis. And it was that thesis, catalyzed by First Federal’s coveted common stock and Blodnick’s burgeoning skills as an acquirer, accentuated by those of Semmens, which would transform First Federal into the preferred acquirer of banks and thrifts throughout the Rocky Mountain region.
“Mick and I believed in a couple of core principles,” says Semmens. “One was pricing discipline. The second was transparency, which included sharing what we felt we could achieve in terms of cost saves, revenue growth, management structuring issues and so forth. What Mick and I came to appreciate was that the process of transparency, paired with pricing discipline, proved to be a great filter in sorting out who would be a good partner. If the other side was only interested in the biggest bag of cash, and didn’t care about the impact of the deal on their employees and customers, that told us right away they weren’t the right partner for us. Or if they cared only about the value on the day of closing and not on the value of Glacier’s shares two or five or 10 years down the road-that told us the same thing.”
First Federal didn’t buy another bank for five years, but the period from 1991 through 1996 nevertheless marked a coming of age for the then $200 million asset thrift.
The day after Christmas in 1991, when Blodnick happened to be the senior executive in the office that day, a call came in. It was Peter Lynch, the most prominent investor in the world at the time. Lynch had just retired from managing Fidelity’s Magellan Fund, and was combing through the wreckage of the savings and loan crisis for personal investments.
“Holidays are an excellent time to do this sort of work,” Lynch wrote in his book “Beating the Street,” which came out in 1994 and included a chapter on Blodnick’s bank. “I’m always impressed when I find executives who are sitting at their desks on Dec. 26.”
After talking on the phone with Blodnick, Lynch not only bought First Federal’s stock and wrote about it in his book, which remains a must-read for serious investors, he also recommended it a month later in Barron’s magazine, where he appeared on the cover holding brochures from the Flathead Valley sent by Blodnick.
One year later, First Federal changed its name to Glacier Bancorp. It was an important step in Glacier’s transition from a thrift to a commercial bank, though the process wouldn’t formally happen for another six years. The name change also positioned the newly-branded Glacier to expand beyond the Flathead Valley.
And two years after that, Blodnick brought in Ralph Haberfeld, the founder of Haberfeld Associates. Partnering with an outside vendor does not ordinarily serve as a seminal event in the history of most banks. But Haberfeld was different. It wasn’t until the 1980s that thrifts could offer checking accounts. And it was Haberfeld who pioneered a checking account product for the thrift industry that was totally free.
“It was a turnkey product,” says Blodnick. “It had everything you needed to offer free checking accounts-pricing, sales, back-office procedures, the questions you asked customers to get them into the right account.”
Every other bank in Glacier’s markets charged a fee for checking accounts, so when Glacier began offering them free of charge, it attracted a deluge of new business. Almost immediately, it quadrupled its number of checking accounts. To this day, if you drive by Glacier’s branch in downtown Kalispell, its original headquarters, you see a sign on its exterior extolling “totally free checking”-an obvious artifact of Haberfeld.
Glacier gained notoriety as a result of this progress, but it was a pair of deals in 1996 and 1997 that put it firmly on the map of Montana banking.
The first was its acquisition of First Security Bank in Missoula, run at the time by Bill Bouchee, an icon in Montana banking circles. The second was Glacier’s purchase the following year of Valley National Bank in Helena, run by Fred Flanders, another highly respected banker in the state who had previously served as the Commissioner of Banking in Montana.
“Acquiring First Security, which was probably the top performing bank in the state, established a threshold level of credibility for Glacier, especially as a savings bank out buying commercial banks,” says Semmens, who advised on both deals. “The acquisition of Valley Bank, which was also a top performing bank run by a well-known banker, served as affirmation. If First Security opened eyes, the Valley deal proved that Glacier was for real.”
Blodnick became CEO of Glacier a year later, in 1998, succeeding his long-time mentor, John MacMillan. A central component of Blodnick’s strategy was to do a deal a year. And he didn’t waste any time putting that strategy to the test. Over the next two years, Glacier bought a bank in the fast-growing Bozeman market and completed its first out-of-state deal, buying a thrift led by a prominent banker in Coeur d’Alene, a tony and fast-growing town at the base of the Idaho panhandle.
Glacier’s next watershed deal came in 2001, with its purchase of WesterFed Financial Corp., a large thrift with operations in multiple Montana markets. “That was a seminal deal because it doubled Glacier’s size to $2 billion in assets,” says Klein.
Because Glacier was large enough in the wake of the WesterFed acquisition to attract the interest of institutional investors, the deal set in motion a trend that would ultimately flip Glacier’s share ownership on its head. Institutional investors owned 15 percent of Glacier’s outstanding common stock when Blodnick became CEO. By the time he retired 18 years later, the number had climbed to 85 percent.
“When we took Mick on road shows to meet with investors, everyone loved him,” says Milsaps. “Mick is salt of the earth, one of the most genuine people you’ll ever meet. He’s Montana through and through. That’s how Mick told the story to investors, and it resonated with them.”
Glacier kept up the pace of acquisitions over the next six years, doing eight more deals and growing to $5.5 billion in assets by the time the financial crisis struck with full force in 2008. Yet, it was the dozens of deals Glacier didn’t do that had a bigger impact on the bank’s future direction-literally and figuratively.
Blodnick set out originally to build a regional bank throughout the Pacific Northwest, stretching from Montana and Wyoming, through Utah and Idaho, and into Washington and Oregon. But the further Glacier went to the west, the stiffer the competition it faced for deals, especially in Oregon and Washington, where it ran up against bigger banks in Portland and Seattle.
So at a board meeting in 2006, Blodnick proposed redirecting Glacier’s focus. Instead of going after banks in the Pacific Northwest, it would look to the south, acquiring small banks in remote towns throughout the Rocky Mountain region.
It marked a major inflection point in Glacier’s story. First, it meant that Glacier had steered clear of some of the areas hit hardest by the financial crisis-namely, major cities along the Pacific coast. And second, it meant the then $5.5 billion asset bank would be a big fish in a small pond.
Glacier immediately started executing on this shift. Using its richly valued stock, which at various times traded for as much as four times book value, it bought a succession of banks over the next three years throughout Utah, Wyoming and Colorado.
And in 2009, in one of Blodnick’s most creatively structured deals, Glacier acquired First National Bank & Trust in Powell, Wyoming. The $283 million asset bank had invested in out-of-market loan participations and was careening toward failure. Glacier had no interest in the participations, so it distributed them to the bank’s previous owners, similar to how the Federal Deposit Insurance Corp. retains a failed bank’s bad assets. When all was said and done, and excluding the capital it injected into the bank, Glacier paid well below book value for First National’s operations and remaining good assets.
By the end of 2009, Glacier had grown tenfold since Blodnick became CEO. Yet, while his deal-making fueled this exceptional growth, it was Glacier’s performance through the financial crisis that proved the strength of its diversified and decentralized business model.
Glacier’s credit losses were modest compared to its competitors and concentrated in loans originated by its Mountain West Bank in Coeur d’Alene, Idaho. Its charge-offs were also partially offset by gains in Glacier’s other banks, especially those in areas benefiting from a surge at the time in energy and commodity prices. The net result was that Glacier earned a profit through the entire crisis, with a performance that ranked first and third among the country’s 150 largest banks by Bank Director magazine in 2008 and 2009, respectively.
More than anything, however, it was a brazen move by Blodnick during the most acute stage of the crisis that proved beyond any doubt how bright Glacier’s star shined in the minds of analysts and investors.
In October 2008, just one month after the investment bank Lehman Brothers filed for bankruptcy-which is widely considered to be the beginning of the financial crisis-Blodnick went on the road to raise $100 million in capital through a secondary stock offering. It seemed foolhardy at the time-it seems foolhardy even in hindsight. But not only was the offering successful, the shares priced at more than two times tangible book value. The added capital made Glacier one of the most strongly capitalized banks in the country and enabled it to resist the regulators’ exhortations to take Troubled Asset Relief Program (TARP) funds.
“It was Mick’s philosophy toward capital-that capital is king-combined with Glacier’s credit discipline that allowed it to perform as well as it did through the crisis,” says Annie Goodwin, who served as Montana’s Commissioner of Banking and Financial Institutions from 2001 to 2010, and now sits on Glacier’s board of directors.
From 2013 to 2016, Blodnick and Semmens teamed up to do seven more deals, filling out Glacier’s footprint in Wyoming, Colorado and Montana, and expanding it into Washington and Arizona. By the time Blodnick retired on Dec. 31, 2016, after nearly four decades at the bank-almost half of which as its CEO-he had emerged as the principal force behind Glacier’s transformation from a savings and loan with $72 million in assets and a half-dozen locations in the Flathead Valley into a $9.5 billion asset commercial bank with 13 separately branded divisions and 142 locations spanning seven states throughout the Rocky Mountain region.
“When you look back at the history of this company, one of the themes is that it has had great leaders, starting with Chuck Mercord, John MacMillan and, of course, Mick,” says Randy Chesler, Glacier’s CEO since the beginning of 2017.
The simplest way to sum up Blodnick’s legacy as a banker is to point to the value he created for Glacier’s shareholders. He made millionaires out of residents up and down the Flathead Valley. And he padded the pockets of portfolio managers and institutional investors who knew a good thing when they saw it.
Blodnick was so revered by the end of his career that his wife stood in amazement as she watched analysts and investors queue up for an hour to shake his hand following his speech at an investors conference in New York City during his final year as CEO. It wasn’t an accident. Indeed, a powerful case can be made that Blodnick is the greatest bank acquirer of the modern era.