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| GBCI > SEC Filings for GBCI > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
Performance Summary
The Company reported net earnings of $10.652 million for the second quarter, a decrease of $7.807 million, or 42 percent, from the $18.459 million for the second quarter of 2008. Diluted earnings per share of $.17 for the quarter decreased 50 percent from the diluted earnings per share of $.34 for the same quarter of 2008. Annualized return on average assets and return on average equity for the second quarter were .77 percent and 6.18 percent, which compares with prior year returns for the second quarter of 1.51 percent and 13.51 percent, respectively.
REVENUE SUMMARY
Three months ended
---------------------------------------
June 30, March 31, June 30,
2009 2009 2008
(UNAUDITED - DOLLARS IN THOUSANDS) (unaudited) (unaudited) (unaudited)
---------------------------------- ----------- ----------- -----------
Net interest income
Interest income $74,420 $75,532 $74,573
Interest expense 13,939 15,154 22,273
------- ------- -------
Net interest income 60,481 60,378 52,300
Non-interest income
Service charges, loan fees, and other fees 11,377 10,179 12,223
Gain on sale of loans 9,071 6,150 4,245
Other income 870 1,048 913
------- ------- -------
Total non-interest income 21,318 17,377 17,381
------- ------- -------
$81,799 $77,755 $69,681
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Tax equivalent net interest margin 4.87% 4.92% 4.75%
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$ change from $ change from % change from % change from
March 31, June 30, March 31, June 30,
(UNAUDITED - DOLLARS IN THOUSANDS) 2009 2008 2009 2008
---------------------------------- ------------- ------------- ------------- -------------
Net interest income
Interest income $(1,112) $ (153) -1% 0%
Interest expense $(1,215) $(8,334) -8% -37%
------- -------
Net interest income 103 8,181 0% 16%
Non-interest income
Service charges, loan fees, and other fees 1,198 (846) 12% -7%
Gain on sale of loans 2,921 4,826 47% 114%
Other income (178) (43) -17% -5%
------- -------
Total non-interest income 3,941 3,937 23% 23%
------- -------
$ 4,044 $12,118 5% 17%
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Net Interest Income
Net interest income for the quarter increased $8 million, or 16 percent, with interest expense decreasing $8 million, or 37 percent, over the same period in 2008. Interest income for the current quarter decreased $1 million, or 1 percent, with interest expense also decreasing $1 million, or 8 percent, compared to the prior quarter. 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 4.87 percent which is 5 basis points lower than the 4.92 percent achieved for the prior quarter and 12 basis points higher than the 4.75 percent result for the second quarter of 2008.
Non-interest Income
Non-interest income for the quarter increased $4 million, or 23 percent, from the prior quarter, and increased $4 million, or 23 percent, over the same period in 2008. Gain on sale of loans increased $3 million, or 47 percent, for the quarter and increased $5 million, or 114 percent, over the same period last year, primarily the result of increased refinancing of residential loans originated and sold in the secondary market. Fee income increased $1 million, or 12 percent, during the quarter, compared to the decrease of $846 thousand, or 7 percent, over the same period last year.
NON-INTEREST EXPENSE SUMMARY
Three months ended
---------------------------------------
June 30, March 31, June 30,
2009 2009 2008
(UNAUDITED - DOLLARS IN THOUSANDS) (unaudited) (unaudited) (unaudited)
---------------------------------- ----------- ----------- -----------
Compensation and employee benefits $20,710 $21,944 $20,967
Occupancy and equipment expense 5,611 5,895 5,116
Advertising and promotion expense 1,722 1,724 1,833
Outsourced data processing 680 671 647
Core deposit intangibles amortization 762 774 767
Other expenses 13,478 8,618 7,113
------- ------- -------
Total non-interest expense $42,963 $39,626 $36,443
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$ change from $ change from % change from % change from
March 31, June 30, March 31, June 30,
(UNAUDITED - DOLLARS IN THOUSANDS) 2009 2008 2009 2008
---------------------------------- ------------- ------------- ------------- -------------
Compensation and employee benefits $(1,234) $ (257) -6% -1%
Occupancy and equipment expense (284) 495 -5% 10%
Advertising and promotion expense (2) (111) 0% -6%
Outsourced data processing 9 33 1% 5%
Core deposit intangibles amortization (12) (5) -2% -1%
Other expenses 4,860 6,365 56% 89%
------- ------
Total non-interest expense $ 3,337 $6,520 8% 18%
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Non-interest Expense
Non-interest expense increased by $3 million, or 8 percent from the prior quarter. Compensation and employee benefits decreased $1 million, or 6 percent, from prior quarter and $257 thousand, or 1 percent from prior year's second quarter. The current quarter compensation and employee benefits included significant reductions in bonuses and employee benefits tied to Company performance. The current quarter decrease in compensation and employee benefits also reflects decreased staffing with the number of full-time equivalent employees decreasing from 1,610 to 1,597 during the quarter, and increasing from 1,537 since the end of the 2008 second quarter. The increase of $5 million in other expenses includes increases of $2.7 million in FDIC insurance premiums, $362 thousand in outside legal, accounting, and audit firm expense, $1.5 million of loss from sales of other real estate owned, and $288 thousand in expenses associated with repossessed assets.
Non-interest expense increased by $7 million, or 18 percent from the same quarter of 2008, including a $6 million, or 89 percent increase in other expenses. The increase in other expenses includes $3.5 million in Federal Deposit Insurance Corporation ("FDIC") insurance premiums, $749 thousand in outside legal, accounting, and audit firm
expense, $1.8 million of loss from sales of other real estate owned, and $451 thousand of expense associated with repossessed assets. Occupancy and equipment expense has increased $495 thousand, or 10 percent, since June 30, 2008, reflecting the cost of additional branch locations and facility upgrades. Advertising and promotion expense decreased $111 thousand, or 6 percent, from the same quarter of 2008.
In the second quarter of 2009, the FDIC increased the deposit insurance premiums for all financial institutions and also imposed a special premium insurance assessment based on financial institutions' total assets as of June 30, 2009. Of the increase in FDIC insurance premiums, $2.5 million is attributable to the second quarter asset-based special assessment. The Company expects the heightened FDIC deposit insurance premiums to continue, and the FDIC has indicated that another special assessment is probable in the fourth quarter of the current year.
Excluding the $2.5 million special FDIC insurance assessment, the efficiency ratio (non-interest expense / net interest income plus non-interest income) was 49 percent for the quarter, compared to 52 percent for the 2008 second quarter, a three percentage point improvement.
Allowance for Loan and Lease Losses
The current quarter provision for loan loss expense was $25 million, an increase of $20 million from the same quarter in 2008. Charged-off loans for the current quarter exceeded recoveries of previously charged-off loans by $12 million.
The determination of the allowance for loan and lease losses ("ALLL" or "Allowance") and the related provision for loan losses is a critical accounting estimate that involves management's judgments about current environmental factors which affect loan losses, such factors including economic conditions, changes in collateral values, net charge-offs, and other factors discussed in "Financial Condition Analysis" - Allowance for Loan and Lease Losses.
Performance Summary
Net earnings for the six months ended June 30, 2009 were $26.431 million, which is a decrease of $9.427 million, or 26 percent, over the prior year. Diluted earnings per share of $.43, is a decrease of 35 percent from the $.66 earned in 2008.
REVENUE SUMMARY
Six months ended
-------------------------
June 30, June 30,
2009 2008
(UNAUDITED - DOLLARS IN THOUSANDS) (unaudited) (unaudited) $ change % change
---------------------------------- ----------- ----------- -------- --------
Interest income $149,952 $150,589 $ (637) 0%
Interest expense 29,093 49,660 (20,567) -41%
-------- -------- --------
Net interest income 120,859 100,929 19,930 20%
Non-interest income
Service charges, loan fees, and other fees 21,556 23,184 (1,628) -7%
Gain on sale of loans 15,221 8,125 7,096 87%
Gain on investments -- 248 (248) -100%
Other income 1,918 2,086 (168) -8%
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Total non-interest income 38,695 33,643 5,052 15%
-------- -------- --------
$159,554 $134,572 $ 24,982 19%
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Tax equivalent net interest margin 4.90% 4.65%
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Net Interest Income
Net interest income for the six months increased $20 million, or 20 percent, over the same period in 2008. Total interest income decreased $637 thousand, or 42 basis points, while total interest expense decreased $21 million, or 41 percent. The decrease in interest expense is primarily attributable to the rate decreases on interest bearing deposits and lower cost borrowings. The net interest margin as a percentage of earning assets, on a tax equivalent basis, was 4.90 percent, an increase of 25 basis points from the 4.65 percent for the same period in 2008.
Non-interest Income
Total non-interest income increased $5 million, or 15 percent in 2009. Fee income for the first half of 2009 decreased $2 million, or 7 percent, over the first half of 2008. Gain on sale of loans increased $7 million, or 87 percent, from the first six months of last year, primarily the result of increased refinancing of residential loans originated and sold in the secondary market. Gain from the sale of investments during the first half of 2008 included a first quarter mandatory redemption of a portion of Visa, Inc. shares from its initial public offering, and the sale of shares in Principal Financial Group.
NON-INTEREST EXPENSE SUMMARY
Six months ended
-------------------------
June 30, June 30,
2009 2008
(UNAUDITED - DOLLARS IN THOUSANDS) (unaudited) (unaudited) $ change % change
---------------------------------- ----------- ----------- -------- --------
Compensation and employee benefits $42,654 $42,064 $ 590 1%
Occupancy and equipment expense 11,506 10,249 1,257 12%
Advertising and promotion expense 3,446 3,372 74 2%
Outsourced data processing 1,351 1,314 37 3%
Core deposit intangibles amortization 1,536 1,546 (10) -1%
Other expenses 22,096 13,511 8,585 64%
------- ------- -------
Total non-interest expense $82,589 $72,056 $10,533 15%
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Non-interest Expense
Non-interest expense increased by $11 million, or 15 percent, from the first six months of 2008. Compensation and employee benefit expense increased $590 thousand, or 1 percent, from the first half of 2008, due to the increased number of employees added since June 30, 2008, which was partially offset by the reductions in bonuses and employee benefits. Occupancy and equipment expense increased $1 million, or 12 percent, reflecting the cost of additional locations and facility upgrades. Advertising and promotion expense increased $74 thousand, or 2 percent, from the first half of 2008. Other expenses increased $9 million, or 64 percent, since June 30, 2008. The increase in other expenses includes $4.4 million in FDIC insurance premiums, $1.1 million in outside legal, accounting, and audit firm expense, $2 million loss from sales of other real estate owned, and $641 thousand expense associated with repossessed assets. Of the increase in FDIC insurance premiums year-to-date, $2.5 million is attributable to the second quarter asset-based special assessment.
The efficiency ratio (non-interest expense/net interest income plus non-interest income) was 52 percent for the first half of 2009 compared favorably to 54 percent for the first six months of 2008.
Allowance for Loan and Lease Losses
The provision for loan loss expense was $41 million for the first six months of 2009, an increase of $33 million, or 442 percent, from the same period in 2008. Net charged-off loans during the six months ended June 30, 2009 was $20 million, an increase of $19 million from the same period in 2008.
FINANCIAL CONDITION ANALYSIS
As reflected in the following table, total assets at June 30, 2009 were $5.638
billion, which is $84 million, or 2 percent, greater than the total assets of
$5.554 billion at December 31, 2008 and an increase of $611 million, or 12
percent, over the total assets of $5.028 billion at June 30, 2008.
June 30, December 31, June 30, $ change from $ change from
2009 2008 2008 December 31, June 30,
ASSETS (DOLLARS IN THOUSANDS) (unaudited) (audited) (unaudited) 2008 2008
------------------------------ ----------- ------------ ----------- ------------- -------------
Cash on hand and in banks $ 100,773 125,123 123,545 (24,350) (22,772)
Investment securities, interest bearing
deposits, FHLB stock, FRB stock, and
fed funds 1,081,160 1,000,224 800,206 80,936 280,954
Loans:
Real estate 836,917 838,375 746,193 (1,458) 90,724
Commercial 2,591,149 2,575,828 2,396,098 15,321 195,051
Consumer and other 700,693 715,990 678,661 (15,297) 22,032
---------- ---------- ---------- ------- --------
Total loans 4,128,759 4,130,193 3,820,952 (1,434) 307,807
Allowance for loan and lease losses (97,374) (76,739) (60,807) (20,635) (36,567)
---------- ---------- ---------- ------- --------
Total loans, net of allowance for
loan and lease losses 4,031,385 4,053,454 3,760,145 (22,069) 271,240
---------- ---------- ---------- ------- --------
Other assets 425,106 375,169 343,972 49,937 81,134
---------- ---------- ---------- ------- --------
Total Assets $5,638,424 5,553,970 5,027,868 84,454 610,556
========== ========== ========== ======= ========
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At June 30, 2009, total loans were $4.129 billion, a decrease of $1 million, over total loans of $4.130 billion at December 31, 2008. Commercial loans increased $15 million, or 59 basis points, during the first six months of 2009. Consumer loans, which are primarily comprised of home equity loans, decreased by $15 million, or 2 percent, while real estate loans decreased $1 million, or 17 basis points, from the fourth quarter of 2008. Total loans increased $308 million, or 8 percent from June 30, 2008. Since June 30, 2008, commercial loans increased $195 million, or 8 percent, real estate loans grew by $91 million, or 12 percent, and consumer loans increased $22 million, or 3 percent.
Investment securities, including interest bearing deposits in other financial institutions and federal funds sold, have increased $281 million, or 35 percent, from June 30, 2008, and have increased $81 million, or 8 percent, from December 31, 2008. Investment securities represented 19 percent of total assets at June 30, 2009 versus 16 percent of total assets at June 30, 2008.
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 six months ended June 30, 2009 and 2008 were $706 million and $356 million, respectively, and for the three months ended June 30, 2009 and 2008 were $393 million and $180 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 June 30, 2009 was approximately $171 million.
Allowance for Loan and Lease Losses
Determining the adequacy of the ALLL involves a high degree of judgment and is inevitably imprecise as the risk of loss is difficult to quantify. The ALLL methodology is designed to reasonably estimate the probable loan and lease losses within each bank subsidiary's loan and lease portfolios. Accordingly, the ALLL is maintained within a range of estimated losses. The determination of the ALLL and the related provision for 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 community bank subsidiaries 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 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.
At the end of each quarter, each of the community bank subsidiaries 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 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.
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.
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 Company considers the ALLL balance of $97.4 million adequate to cover inherent losses in the loan and lease portfolios as of June 30, 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 following table summarizes the allocation of the ALLL:
June 30, 2009 December 31, 2008 June 30, 2008
-------------------------- -------------------------- --------------------------
Allowance Allowance Allowance
for loan and Percent for loan and Percent for loan and Percent
lease losses of loans in lease losses of loans in lease losses of loans in
(Dollars in thousands) (unaudited) category (audited) category (unaudited) category
. . .
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