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| GBCI > SEC Filings for GBCI > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
Performance Summary
The Company reported a net loss of $1.531 million for the third quarter, a decrease of $14.316 million, or 112 percent, from the $12.785 million net income reported for the third quarter of 2008. The diluted loss per share of $.03 for the quarter represented a 113 percent decrease from the diluted earnings per share of $.24 for the same quarter of 2008. Annualized return on average assets and return on average equity for the third quarter were (.11) percent and (.88) percent, which compares with prior year returns for the third quarter of 1.01 percent and 9.15 percent, respectively.
REVENUE SUMMARY
Three months ended
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September 30, June 30, September 30,
2009 2009 2008
(UNAUDITED - DOLLARS IN THOUSANDS) (unaudited) (unaudited) (unaudited)
---------------------------------- ------------- ----------- -------------
Net interest income
Interest income $74,430 $74,420 $75,689
Interest expense 13,801 13,939 22,113
------- ------- -------
Net interest income 60,629 60,481 53,576
Non-interest income
Service charges, loan fees, and other fees 12,103 11,377 12,800
Gain on sale of loans 5,613 9,071 3,529
Gain (loss) on investments 2,667 - (7,593)
Other income 1,317 870 3,018
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Total non-interest income 21,700 21,318 11,754
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$82,329 $81,799 $65,330
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Tax equivalent net interest margin 4.80% 4.87% 4.65%
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$ change from $ change from % change from % change from
June 30, September 30, June 30, September 30,
(UNAUDITED - DOLLARS IN THOUSANDS) 2009 2008 2009 2008
---------------------------------- ------------- -------------- ------------- -------------
Net interest income
Interest income $ 10 $(1,259) 0% -2%
Interest expense (138) (8,312) -1% -38%
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Net interest income 148 7,053 0% 13%
Non-interest income
Service charges, loan fees, and other fees 726 (697) 6% -5%
Gain on sale of loans (3,458) 2,084 -38% 59%
Gain on investments 2,667 10,260 n/m 135%
Other income 447 (1,701) 51% -56%
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Total non-interest income 382 9,946 2% 85%
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$ 530 $ 16,999 1% 26%
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n/m - not measurable
Net Interest Income
Net interest income for the quarter increased $7 million, or 13 percent, with interest expense decreasing $8 million, or 38 percent, over the same period in 2008. Net interest income for the current quarter increased $148 thousand with interest expense decreasing $138 thousand, or 1 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 4.80 percent which is 7 basis points lower than the 4.87 percent achieved for the prior quarter; however 15 basis points higher than the 4.65 percent result for the third quarter of 2008.
Non-interest Income
Non-interest income for the quarter increased $382 thousand, or 2 percent, from the prior quarter, and increased $10 million, or 85 percent, over the same period in 2008. Fee income increased $726 thousand, or 6 percent, during the quarter, compared to the decrease of $697 thousand, or 5 percent, over the same period last year. Gain on sale of loans decreased $3.5 million, or 38 percent, for the quarter a result of the slowdown in refinance activity from a very active second quarter. Gain on sale of loans from the prior year increased $2 million, or 59 percent, primarily the result of increased refinancing of residential loans originated and sold in the secondary market. Investments sold during the quarter resulted in a $2.7 million gain compared to the prior year loss of $7.6 million from an other than temporary impairment on investments in Federal Home Loan Mortgage Corporation ("Freddie Mac") preferred stock and Federal National Mortgage Association ("Fannie Mae") common stock. Other income decreased $1.7 million from prior year, the result of a $1.7 million gain from the sale and relocation of Mountain West Bank's office facility in Ketchum, Idaho during the third quarter of 2008.
NON-INTEREST EXPENSE
Three months ended
-------------------------------------------
September 30, June 30, September 30,
2009 2009 2008
(UNAUDITED - DOLLARS IN THOUSANDS) (unaudited) (unaudited) (unaudited)
---------------------------------- ------------- ------------ -------------
Compensation and employee benefits $20,935 $20,710 $21,188
Occupancy and equipment expense 5,835 5,611 5,502
Advertising and promotion expense 1,596 1,722 1,942
Outsourced data processing 830 680 556
Core deposit intangibles amortization 758 762 764
Other expenses 11,942 13,478 7,809
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Total non-interest expense $41,896 $42,963 $37,761
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$ change from $ change from % change from % change from
June 30, September 30, June 30, September 30,
(UNAUDITED - DOLLARS IN THOUSANDS) 2009 2008 2009 2008
---------------------------------- ------------- ------------- ------------- -------------
Compensation and employee benefits $ 225 $ (253) 1% -1%
Occupancy and equipment expense 224 333 4% 6%
Advertising and promotion expense (126) (346) -7% -18%
Outsourced data processing 150 274 22% 49%
Core deposit intangibles amortization (4) (6) -1% -1%
Other expenses (1,536) 4,133 -11% 53%
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Total non-interest expense $(1,067) $4,135 -2% 11%
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Non-interest expense decreased by $1 million, or 2 percent from the prior quarter and increased $4 million, or 11 percent, from prior year's third quarter. Compensation and employee benefits increased $225 thousand, or 1 percent, from prior quarter and decreased $253 thousand, or 1 percent, from prior year's third quarter. The current quarter increase in compensation and employee benefits is a result of prior quarter's significant reductions in
bonuses and employee benefits tied to Company performance. The number of full-time equivalent employees decreased from 1,597 to 1,577 during the quarter, and increased from 1,539 since the end of the 2008 third quarter. Occupancy and equipment expense has increased $224 thousand, or 4 percent, and $333 thousand, or 6 percent, from prior quarter and prior year's third quarter, respectively, reflecting the cost of additional branch locations and facility upgrades. Advertising and promotion expense decreased $126 thousand, or 7 percent, from prior quarter and decreased $346 thousand, or 18 percent, from the same quarter of 2008. The decrease of $1.5 million, or 11 percent, in other expense from prior quarter is a result of a decrease in $2.1 million in FDIC insurance and an increase of $565 thousand in expenses associated with repossessed assets. The increase of $4.1 million, or 53 percent, in other expense from prior year's third quarter is a result of an increase of $1.3 million in FDIC insurance, $1.8 million of loss from sales of other real estate owned, and $830 thousand in expenses associated with repossessed assets.
The efficiency ratio (non-interest expense / net interest income plus non-interest income) was 51 percent for the quarter, compared to 53 percent, excluding the effects of the other than temporary impairment on investments and gain on sale of branch, for the 2008 third quarter.
Allowance for Loan and Lease Losses
The current quarter provision for loan loss expense was $47 million, an increase of $38 million from the same quarter in 2008. Net charged-off loans for the quarter were $19 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 nine months ended September 30, 2009 were $24.900 million, which is a decrease of $23.743 million, or 49 percent, over the prior year. Diluted earnings per share of $.40, is a decrease of 56 percent from the $.90 earned in 2008.
REVENUE SUMMARY
Nine months ended
-----------------------------
September 30, September 30,
2009 2008
(UNAUDITED - DOLLARS IN THOUSANDS) (unaudited) (unaudited) $ change % change
---------------------------------- ------------- ------------- -------- ----------
Interest income $224,382 $226,278 $ (1,896) -1%
Interest expense 42,894 71,773 (28,879) -40%
-------- -------- --------
Net interest income 181,488 154,505 26,983 17%
Non-interest income
Service charges, loan fees, and other fees 33,659 35,984 (2,325) -6%
Gain on sale of loans 20,834 11,654 9,180 79%
Gain (loss) on investments 2,667 (7,345) 10,012 136%
Other income 3,235 5,104 (1,869) -37%
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Total non-interest income 60,395 45,397 14,998 33%
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$241,883 $199,902 $ 41,981 21%
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Tax equivalent net interest margin 4.87% 4.65%
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Net Interest Income
Net interest income for the nine months increased $27 million, or 17 percent, over the same period in 2008. Total interest income decreased $1.9 million, or 1 percent, while total interest expense decreased $29 million, or 40 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 4.87 percent, an increase of 22 basis points from the 4.65 percent for the same period in 2008.
Non-interest Income
Total non-interest income for the nine months increased $15 million, or 33 percent over the same period in 2008. Fee income for the year decreased $2.3 million, or 6 percent, as compared to 2008. Gain on sale of loans increased $9 million, or 79 percent, from the first nine months of last year, primarily the result of increased refinancing of residential loans originated and sold in the secondary market. Gain on investments during 2009 included a $2.7 million gain on sale of securities. Loss from investments during 2008 included a $7.6 million other than temporary impairment on investments in Freddie Mac preferred stock and Fannie Mae common stock and a $248 thousand combined gain from the sale of Principal Financial Group stock and mandatory redemption of a portion of Visa, Inc. Other income decreased $1.9 million from prior year, the result of a $1.7 million gain from the sale and relocation of Mountain West Bank's office facility in Ketchum, Idaho during the third quarter of 2008.
NON-INTEREST EXPENSE
Nine months ended
-----------------------------
September 30, September 30,
2009 2008
(UNAUDITED - DOLLARS IN THOUSANDS) (unaudited) (unaudited) $ change % change
---------------------------------- ------------- ------------- -------- --------
Compensation and employee benefits $ 63,589 $ 63,252 $ 337 1%
Occupancy and equipment expense 17,341 15,751 1,590 10%
Advertising and promotion expense 5,042 5,314 (272) -5%
Outsourced data processing 2,181 1,870 311 17%
Core deposit intangibles amortization 2,294 2,310 (16) -1%
Other expenses 34,038 21,320 12,718 60%
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Total non-interest expense $124,485 $109,817 $14,668 13%
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Non-interest expense increased by $15 million, or 13 percent, from the first nine months of 2008. Compensation and employee benefit expense increased $337 thousand, or 1 percent, from the first nine months of 2008, due to the increased number of employees added since September 30, 2008, which was partially offset by the reductions in bonuses and employee benefits. Occupancy and equipment expense increased $2 million, or 10 percent, reflecting the cost of additional locations and facility upgrades. Advertising and promotion expense decreased $272 thousand, or 5 percent, from 2008. Other expenses increased $13 million, or 60 percent, since September 30, 2008. The increase in other expenses includes $5.7 million in FDIC insurance premiums, $1.3 million in outside legal, accounting, and audit firm expense, $3.8 million loss from sales of other real estate owned, and $1.5 million 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 51 percent for 2009 compared favorably to 55 percent for 2008.
Allowance for Loan and Lease Losses
The provision for loan loss expense was $88 million for the first nine months of 2009, an increase of $72 million, or 441 percent, from the same period in 2008. Net charged-off loans during the nine months ended September 30, 2009 was $39 million, an increase of $34 million from the same period in 2008.
FINANCIAL CONDITION ANALYSIS
As reflected in the following table, total assets at September 30, 2009 were
$5.708 billion, which is $154 million, or 3 percent, greater than the total
assets of $5.554 billion at December 31, 2008 and an increase of $535 million,
or 10 percent, over the total assets of $5.173 billion at September 30, 2008.
September 30, December 31, September 30, $ change from $ change from
2009 2008 2008 December 31, September 30,
ASSETS (DOLLARS IN THOUSANDS) (unaudited) (audited) (unaudited) 2008 2008
----------------------------- ------------- ------------ ------------- ------------- -------------
Cash on hand and in banks $ 93,728 125,123 94,865 (31,395) (1,137)
Investment securities, interest bearing
deposits, FHLB stock, FRB stock, and
fed funds 1,262,542 1,000,224 867,366 262,318 395,176
Loans:
Real estate 787,911 838,375 769,860 (50,464) 18,051
Commercial 2,558,270 2,575,828 2,452,102 (17,558) 106,168
Consumer and other 700,069 715,990 700,658 (15,921) (589)
---------- --------- --------- --------- -------
Total loans 4,046,250 4,130,193 3,922,620 (83,943) 123,630
Allowance for loan and lease losses (125,330) (76,739) (65,633) (48,591) (59,697)
---------- --------- --------- --------- -------
Total loans, net of allowance for
loan and lease losses 3,920,920 4,053,454 3,856,987 (132,534) 63,933
---------- --------- --------- --------- -------
Other assets 431,110 375,169 353,891 55,941 77,219
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Total Assets $5,708,300 5,553,970 5,173,109 154,330 535,191
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At September 30, 2009, total loans were $4.046 billion, a decrease of $84 million, over total loans of $4.130 billion at December 31, 2008, primarily the result of decreased loan demand. Real estate loans decreased $50 million, or 6 percent, from the fourth quarter of 2008. Consumer loans, which are primarily comprised of home equity loans, decreased by $16 million, or 2 percent, while commercial loans decreased $18 million, or less than 1 percent, during the first nine months of 2009. Total loans increased $124 million, or 3 percent from September 30, 2008. Since September 30, 2008, commercial loans increased $106 million, or 4 percent, real estate loans grew by $18 million, or 2 percent, and consumer loans decreased $589 thousand, or less than 1 percent.
Investment securities, including interest bearing deposits in other financial institutions and federal funds sold, have increased $262 million, or 26 percent, from December 31, 2008 and increased $395 million, or 46 percent, from September 30, 2008. Investment securities represented 22 percent of total assets at September 30, 2009 versus 17 percent of total assets at September 30, 2008. The Company continues to purchase investment securities when high quality loan originations slow.
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 nine months ended September 30, 2009 and 2008 were $982 million and $520 million, respectively, and for the three months ended September 30, 2009 and 2008 were $276 million and $164 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 September 30, 2009 was approximately $179 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.
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. Each of the Bank's ALLL is adequate to absorb losses from any segment of its loan and lease portfolio.
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 $125.3 million adequate to cover inherent losses in the loan and lease portfolios as of September 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:
. . .
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