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| GBCI > SEC Filings for GBCI > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
Performance Summary
The Company reported net earnings of $15.779 million for the first quarter, a decrease of $1.620 million, or 9 percent, from the $17.399 million for the first quarter of 2008. Diluted earnings per share of $.26 for the quarter decreased 19 percent from the diluted earnings per share of $.32 for the same quarter of 2008, reflecting the increase of 7.434 million shares, or 14 percent, in average outstanding shares on a diluted basis over last year's first quarter. Annualized return on average assets and return on average equity for the first quarter were 1.15 percent and 9.27 percent, which compares with prior year returns for the first quarter of 1.46 percent and 12.98 percent, respectively.
REVENUE SUMMARY
Three months ended
----------------------------------------
March 31, December 31, March 31,
2009 2008 2008
(UNAUDITED - $ IN THOUSANDS) (unaudited) (unaudited) (unaudited)
---------------------------- ----------- ------------ -----------
Net interest income
Interest income $75,532 $76,707 $76,016
Interest expense 15,154 18,599 27,387
------- ------- -------
Net interest income 60,378 58,108 48,629
Non-interest income
Service charges, loan fees, and other fees 10,179 11,522 10,961
Gain on sale of loans 6,150 3,195 3,880
Gain on sale of investments -- -- 248
Other income 1,048 920 1,173
------- ------- -------
Total non-interest income 17,377 15,637 16,262
------- ------- -------
$77,755 $73,745 $64,891
======= ======= =======
Tax equivalent net interest margin 4.92% 4.81% 4.54%
======= ======= =======
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$ change from $ change from % change from % change from
December 31, March 31, December 31, March 31,
(UNAUDITED - $ IN THOUSANDS) 2008 2008 2008 2008
---------------------------- ------------- ------------- ------------- -------------
Net interest income
Interest income $(1,175) $ (484) -2% -1%
Interest expense $(3,445) $(12,233) -19% -45%
------- --------
Net interest income 2,270 11,749 4% 24%
Non-interest income
Service charges, loan fees, and other fees (1,343) (782) -12% -7%
Gain on sale of loans 2,955 2,270 92% 59%
Gain on sale of investments -- (248) n/m -100%
Other income 128 (125) 14% -11%
------- --------
Total non-interest income 1,740 1,115 11% 7%
------- --------
$ 4,010 $ 12,864 5% 20%
======= ========
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n/m - not measurable
Net Interest Income
Net interest income for the quarter increased $12 million, or 24 percent, over the same period in 2008. Interest income for the current quarter increased $2 million, or 4 percent, with interest expense decreasing $3 million, or 19 percent, compared to the prior quarter. While total interest income has decreased by $484 thousand, or 1 percent, from the same period last year, total interest expense has decreased by $12 million, or 45 percent, from the same period last year. The decrease in total interest expense is primarily attributable to rate decreases in interest bearing deposits and lower cost borrowings. The net interest margin as a percentage of earning assets, on a tax equivalent basis, was 4.92 percent which is 11 basis points higher than the 4.81 percent achieved for the prior quarter and 38 basis points higher than the 4.54 percent result for the first quarter of 2008.
Non-interest Income
Non-interest income for the quarter increased $2 million, or 11 percent, from the prior quarter, and increased $1 million, or 7 percent, over the same period in 2008. Fee income decreased $1.3 million, or 12 percent, during the quarter, compared to the decrease of $782 thousand, or 7 percent, over the same period last year. Gain on sale of loans increased $3 million, or 92 percent, for the quarter and increased $2 million, or 59 percent, over the same period last year.
NON-INTEREST EXPENSE SUMMARY
Three months ended
----------------------------------------
March 31, December 31, March 31,
2009 2008 2008
(UNAUDITED - $ IN THOUSANDS) (unaudited) (unaudited) (unaudited)
---------------------------- ----------- ------------ -----------
Compensation and employee benefits $21,944 $18,775 $21,097
Occupancy and equipment expense 5,895 5,923 5,133
Advertising and promotion expense 1,724 1,675 1,539
Outsourced data processing 671 638 667
Core deposit intangibles amortization 774 741 779
Other expenses 8,618 8,340 6,398
------- ------- -------
Total non-interest expense $39,626 $36,092 $35,613
======= ======= =======
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$ change from $ change from % change from % change from
December 31, March 31, December 31, March 31,
(UNAUDITED - $ IN THOUSANDS) 2008 2008 2008 2008
---------------------------- ------------- ------------- ------------- -------------
Compensation and employee benefits $3,169 $ 847 17% 4%
Occupancy and equipment expense (28) 762 0% 15%
Advertising and promotion expense 49 185 3% 12%
Outsourced data processing 33 4 5% 1%
Core deposit intangibles amortization 33 (5) 4% -1%
Other expenses 278 2,220 3% 35%
------ ------
Total non-interest expense $3,534 $4,013 10% 11%
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Non-interest Expense
Non-interest expense increased by $3.5 million, or 10 percent from the prior quarter, including a $3.2 million, or 17 percent increase in compensation and employee benefits expense. The prior quarter compensation and employee benefits included significant reductions in commissions tied to production, as well as significant reductions in bonuses and employee benefits tied to Company performance. The current quarter increase in compensation and employee benefits also reflects increased staffing with the number of full-time equivalent employees increasing from 1,571 to 1,610 during the quarter, and increasing from 1,510 since the end of the 2008 first quarter.
Non-interest expense increased by $4.0 million, or 11 percent from the same quarter of 2008, including a $2.2 million, or 35 percent increase in other expenses. The increase in other expenses includes $931 thousand in FDIC insurance premiums, $395 thousand in outside legal, accounting, and audit firm expense, $263 thousand loss from sales of other real estate owned, $190 thousand expense associated with repossessed assets, and a non-recurring payment of $169 thousand to the pension plan of the former North Side State Bank prior to terminating the plan in March 2009. North Side State Bank was acquired in April 2007 and immediately merged into 1st Bank, the Company's subsidiary in Evanston, Wyoming. Occupancy and equipment expense has increased $762 thousand, or 15 percent, since March 31, 2008, reflecting the cost of additional branch locations and facility upgrades. Advertising and promotion expense increased $185 thousand, or 12 percent, from the same quarter of 2008, such increase attributable to branch promotions and the banks continuing focus on attracting and retaining non-interest bearing and other low cost deposits.
The efficiency ratio (non-interest expense / net interest income plus non-interest income) was 51 percent for the quarter, compared to 55 percent for the 2008 first quarter, a four percentage point improvement.
Provision for Loan Losses
The Company recorded a provision for loan losses of $15.7 million, an increase of $13.2 million from the same quarter in 2008. Net charged-off loans during the three months ended March 31, 2009 were $8.7 million.
The determination of the allowance for loan and lease losses ("ALLL") and the related provision for loan losses is a critical accounting estimate that involves management's judgments about current environmental factors which affect loan losses, such factors including economic conditions, changes in collateral values, net charge-offs, and other factors discussed in "Financial Condition Analysis" - Allowance for Loan and Lease Losses.
FINANCIAL CONDITION ANALYSIS
As reflected in the following table, total assets at March 31, 2009 were $5.581
billion, which is $27 million greater than the total assets of $ 5.554 billion
at December 31, 2008 and an increase of $746 million, or 15 percent, over the
total assets of $4.835 billion at March 31, 2008.
March 31, December 31, March 31, $ change from $ change from
2009 2008 2008 December 31, March 31,
ASSETS ($ IN THOUSANDS) (unaudited) (audited) (unaudited) 2008 2008
----------------------- ----------- ------------ ----------- ------------- -------------
Cash on hand and in banks $ 110,220 125,123 113,016 (14,903) (2,796)
Investment securities, interest bearing
deposits, FHLB stock, FRB stock, and
fed funds 1,007,283 1,000,224 764,067 7,059 243,216
Loans:
Real estate 847,245 838,375 720,108 8,870 127,137
Commercial 2,607,655 2,575,828 2,312,359 31,827 295,296
Consumer and other 705,805 715,990 649,401 (10,185) 56,404
---------- --------- --------- ------ -------
Total loans 4,160,705 4,130,193 3,681,868 30,512 478,837
Allowance for loan and lease losses (83,777) (76,739) (56,680) (7,038) (27,097)
---------- --------- --------- ------ -------
Total loans, net of allowance for
loan and lease losses 4,076,928 4,053,454 3,625,188 23,474 451,740
---------- --------- --------- ------ -------
Other assets 386,369 375,169 332,601 11,200 53,768
---------- --------- --------- ------ -------
Total Assets $5,580,800 5,553,970 4,834,872 26,830 745,928
========== ========= ========= ====== =======
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At March 31, 2009, total loans were $4.161 billion, an increase of $31 million, or 74 basis points (3 percent annualized) over total loans of $4.130 billion at December 31, 2008. Commercial loans grew the most with an increase of $32 million, or 1 percent, followed by real estate loans, increasing by $9 million, or 1 percent, while consumer loans, which are primarily comprised of home equity loans, decreased $10 million, or 1 percent from the fourth quarter of 2008. Total loans increased $479 million, or 13 percent from March 31, 2008. Since prior year, commercial loans have increased $295 million, or 13 percent, real estate loans grew by $127 million, or 18 percent, and consumer loans increased $56 million, or 9 percent.
Investment securities, including interest bearing deposits in other financial institutions and federal funds sold, have increased $243 million, or 32 percent, from March 31, 2008 and have increased $7 million, or 1 percent, from December 31, 2008. Investment securities represented 18 percent of total assets at March 31, 2009 versus 16 percent of total assets the prior year.
The Company typically sells a majority of long-term mortgage loans originated, retaining servicing only on loans sold to certain lenders. The sale of loans in the secondary mortgage market reduces the Company's risk of holding long-term fixed rate loans in the loan portfolio. Mortgage loans sold with servicing released for the three months ended March 31, 2009 and 2008 were $313 million and $176 million, respectively. The Company has also been active in originating commercial SBA loans, some of which are sold to investors. The amount of loans sold and serviced for others at March 31, 2009 was approximately $174 million.
Allowance for Loan and Lease Losses
The Company is committed to a conservative management of the credit risk within the loan and lease portfolios, including the early recognition of problem loans. The Company's credit risk management includes stringent credit policies, individual loan approval limits, limits on concentrations of credit, and committee approval of larger loan requests. Management practices also include regular internal and external credit examinations, identification and review of individual loans and leases experiencing deterioration of credit quality, procedures for the collection of non-performing assets, quarterly monitoring of the loan and lease portfolios, semi-annual review of loans by industry, and periodic stress testing of the loans secured by real estate.
Determining the adequacy of the ALLL involves a high degree of judgment and is inevitably imprecise as the risk of loss is difficult to quantify. The ALLL methodology is designed to reasonably estimate the probable loan and lease losses within each bank subsidiary's loan and lease portfolios. Accordingly, the ALLL is maintained within a range of estimated losses. The determination of the ALLL and the related provision for credit losses is a critical accounting estimate that involves management's judgments about all known relevant internal and external environmental factors that affect loan losses, including the credit risk inherent in the loan and lease portfolios, economic conditions nationally and in the local markets in which the Banks operate, changes in collateral values, delinquencies, non-performing assets and net charge-offs. Although the Company and the banks continue to actively monitor economic trends, a softening of economic conditions combined with declines in the values of real estate that collateralize most of the Company's loan and lease portfolios may adversely affect the credit risk and potential for loss to the Company.
The Company considers the ALLL balance of $83.8 million adequate to cover inherent losses in the loan and lease portfolios as of March 31, 2009. However, no assurance can be given that the Company will not, in any particular period, sustain losses that are significant relative to the amount reserved, or that subsequent evaluations of the loan and lease portfolios applying management's judgment about then current factors, including economic and regulatory developments, will not require significant changes in the ALLL. Under such circumstances, this could result in enhanced provisions for credit losses. See additional risk factors in Part II - Other information, Item 1A - Risk Factors.
The Company's model of ten wholly-owned, independent community banks, each with its own loan committee, chief credit officer and Board of Directors, provides substantial local oversight to the lending and credit
management function. Unlike a traditional, single-bank holding company, the Company's decentralized business model affords multiple reviews of larger loans before credit is extended, a significant benefit in mitigating and managing the Company's credit risk. The geographic dispersion of the market areas in which the Company and the community bank subsidiaries operate further mitigates the risk of credit loss. While this process is intended to limit credit exposure, there can be no assurance that problem credits will not arise and loan losses incurred, particularly in periods of rapid economic downturns.
At the end of each quarter, each of the subsidiary community banks analyzes its loan and lease portfolio and maintain an ALLL at a level that is appropriate and determined in accordance with accounting principles generally accepted in the United States of America. The ALLL balance covers estimated credit losses on individually evaluated loans, including those which are determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolios.
The ALLL evaluation is well documented and approved by each bank subsidiary's Board of Directors and reviewed by the Parent's Board of Directors. In addition, the policy and procedures for determining the balance of the ALLL are reviewed annually by each bank subsidiary's Board of Directors, the Parent's Board of Directors, independent credit reviewer and state and federal bank regulatory agencies. Each of the Bank's ALLL is generally available to absorb losses from any segment of its loan and lease portfolio.
The primary responsibility for credit risk assessment and identification of problem loans rests with the loan officer of the account. This continuous process, utilizing each of the Bank's internal credit risk rating process, is necessary to support management's evaluation of the ALLL adequacy. An independent loan review function verifying credit risk ratings evaluates the loan officer and management's evaluation of the loan portfolio credit quality. The loan review function also assesses the evaluation process and provides an independent analysis of the adequacy of the ALLL.
The following table summarizes the allocation of the ALLL:
March 31, 2009 December 31, 2008 March 31, 2008
-------------------------- -------------------------- --------------------------
Allowance Percent Allowance Percent Allowance Percent
for loan and of loans in for loan and of loans in for loan and of loans in
(Dollars in thousands) lease Losses category lease Losses category lease Losses category
---------------------- ------------ ----------- ------------ ----------- ------------ -----------
Real estate loans $ 7,832 20.4% 7,233 20.3% 4,913 19.6%
Commercial real estate loans 39,045 47.0% 35,305 46.8% 24,298 45.2%
Other commercial loans 23,497 15.7% 21,590 15.6% 17,965 17.6%
Consumer and other loans 13,403 16.9% 12,611 17.3% 9,504 17.6%
------- ----- ------ ----- ------ -----
Totals $83,777 100.0% 76,739 100.0% 56,680 100.0%
======= ===== ====== ===== ====== =====
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The following table summarizes ALLL experience:
Three Three
months ended Year ended months ended
March 31, December 31, March 31,
(Dollars in thousands) 2009 2008 2008
---------------------- ------------ ------------ ------------
Balance at beginning of period $ 76,739 54,413 54,413
Charge-offs:
Real estate loans (1,087) (3,233) (50)
Commercial loans (6,408) (4,957) (202)
Consumer and other loans (1,499) (1,649) (156)
-------- ------ ------
Total charge-offs $ (8,994) (9,839) (408)
-------- ------ ------
Recoveries:
Real estate loans 40 23 40
Commercial loans 158 716 82
Consumer and other loans 119 321 53
-------- ------ ------
Total recoveries $ 317 1,060 175
-------- ------ ------
Net (charge-offs) recoveries (8,677) (8,779) (233)
Acquisition (1) -- 2,625 --
Provision 15,715 28,480 2,500
-------- ------ ------
Balance at end of period $ 83,777 76,739 56,680
======== ====== ======
Allowance for loan and lease losses as a
percentage of total loan and leases 2.01% 1.86% 1.54%
Net charge-offs as a percentage of total loans 0.209% 0.213% 0.006%
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(1) Acquisition of Bank of the San Juans in 2008
The increase in the ALLL was primarily due to the increase in non-performing assets since December 31, 2008 and a downturn in global, national and local economies.
At March 31, 2009, the ALLL was $83.777 million, an increase of $27 million, or 48 percent, from a year ago. The allowance was 2.01 percent of total loans outstanding at March 31, 2009, up from 1.54 percent at the prior year quarter end, and up from 1.86 percent at December 31, 2008. The current quarter provision for loan loss expense was $15.7 million, an increase of $13.2 million from the same quarter in 2008. Charged-off loans for the current quarter exceeded recoveries of previously charged-off loans by $8.7 million. Loan portfolio growth, composition, average loan size, credit quality considerations, and other environmental factors will determine the level of additional provision expense.
The Banks' charge-off policy is consistent with bank regulatory standards. Consumer loans generally are charged off when the loan becomes over 120 days delinquent. Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until such time as it is sold. When such property is acquired, it is recorded at estimated fair value, less estimated cost to sell. Any write-down at the time of recording real estate owned is charged to the ALLL. Any subsequent write-downs are charged to current expense.
Non-performing Assets
At At At
(Dollars in thousands) 3/31/2009 12/31/2008 3/31/2008
---------------------- --------- ---------- ---------
Non-accrual loans:
Real estate loans $ 9,641 3,575 3,356
Commercial loans 79,374 58,454 17,368
Consumer and other loans 3,273 2,272 1,023
-------- ------ ------
Total $92,288 64,301 21,747
Accruing Loans 90 days or more overdue:
Real estate loans 2,056 4,103 341
Commercial loans 1,473 2,897 4,129
Consumer and other loans 910 1,613 247
-------- ------ ------
Total $4,439 8,613 4,717
Real estate and other assets owned, net 18,985 11,539 2,098
-------- ------ ------
Total non-performing loans and real estate
and other assets owned, net $115,712 84,453 28,562
======== ====== ======
Allowance for loan and lease losses as a
percentage of non-performing assets 72% 91% 198%
Non-performing assets as a percentage of total bank assets 1.97% 1.46% 0.57%
Accruing Loans 30-89 days or more overdue $66,534 54,787 32,152
Interest Income (1) $1,374 4,434 402
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(1) Amounts represent estimated interest income that would have been recognized on loans accounted for on a non-accrual basis for the three months ended March 31, 2009, year ended December 31, 2008 and three months ended March 31, 2008 had such loans performed pursuant to contractual terms. . . .
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