Intermountain Community Bancorp Reports Third Quarter 2011 Results

SANDPOINT, Idaho, Oct. 28, 2011 (GLOBE NEWSWIRE) -- Intermountain Community Bancorp (OTCBB:IMCB), the holding company for Panhandle State Bank, reported third quarter results that reflected a stable net interest margin, decreased loan loss provision and continued improvements in credit quality. The net loss applicable to common shareholders for the third quarter totaled $1.2 million, or $0.14 per common share, compared to a net loss applicable to common shareholders of $1.1 million, or $0.13 per common share in the second quarter of 2011, and a net loss of $24.7 million, or $2.95 per common share in the third quarter of 2010. Before dividends on preferred stock outstanding, the Company's net loss was $760,000 for the third quarter of 2011, compared to a net loss of $605,000 in the second quarter of 2011, and a net loss of $24.3 million in the third quarter of 2010.

The slightly increased loss reported in this quarter primarily reflects lower non-interest income, which is a result of the implementation of new regulatory guidance. This loss was offset by a decrease in the loan loss provision. In the third quarter of 2010, the Company wrote off $11.7 million in goodwill and established a $7.4 million allowance against its deferred tax assets, expenses which were not repeated in the third quarter of 2011. In addition, the Company recorded a lower loan loss provision and operating expenses in the most recent quarter compared to the prior year.

For the first nine months of 2011, Intermountain recorded a net loss applicable to common shareholders of $2.7 million, or $0.32 per share, a significant improvement over the net loss applicable to common shareholders of $32.4 million, or $3.86 per share recorded during the first nine months of 2010.

"Third quarter results were consistent with the two prior quarters and are on target with expectations in this difficult economic cycle," said Chief Executive Officer Curt Hecker. "We continued to make challenging, proactive credit and expense reduction decisions in the third quarter to strengthen the Bank, and position it for future opportunity in our markets," he added.

Third Quarter 2011 Highlights (at or for the period ended September 30, 2011, compared to September 30, 2010, or June 30, 2011)

• Net interest margin remained steady at 4.14% in the quarter ended September 30, 2011, compared to 4.14% in the second quarter of 2011 ("the sequential quarter") and 3.85% in the third quarter of 2010.
• Low cost transaction deposits increased by $21.8 million or 4.5% over the sequential quarter, largely as a result of increases in non-interest bearing demand deposit accounts.
• Transaction deposits now comprise 67.2% of total deposits, compared to 63.5% a year ago, as the Company continues to phase out higher cost funding instruments, such as wholesale, single-service and collateralized certificates of deposit.
• Intermountain's cost of deposits remained steady at 0.62% as compared to the prior quarter and down from 0.93% one year ago, even after taking a $107,000 charge for restructuring $37 million in CDs at a substantially lower rate during the quarter.
• Nonperforming assets (NPAs) at September 30, 2011 decreased by $843,000, or 4.5% from the end of the second quarter and by $5.1 million, or 22.3% from September 30, 2010. At 1.91% of total assets versus 1.93% in the sequential quarter and 2.30% at September 30, 2010, the Company's NPA/Total Asset ratio continues to trend down and be relatively low compared to peer group averages.
• The provision for loan losses for the three months ended September 30, 2011 was $2.2 million compared to $2.7 million in the previous quarter and $10.1 million for the quarter ended September 30, 2010. The provision for loan losses for the nine months ended September 30, 2011 dropped by $15.2 million to $6.6 million compared to the nine months ended September 30, 2010. The decrease in the provision from the previous quarter and year reflected continued stabilization of portfolio credit quality.
• Reserves for potential loan losses stood at $14.4 million, or 2.66% of total loans, compared to $13.7 million, or 2.44% of total loans in the sequential quarter and $14.3 million, or 2.36% of total loans at the end of September 2010. The loan loss allowance to non-performing loans coverage ratio improved to 139.1% from 127.5% at the end of the sequential quarter and 87.6% at September 30, 2010.
• Loan delinquencies (30 days past due and over) have trended down to 0.30% of total loans compared to 0.32% in the second quarter of 2011 and 0.69% in the third quarter of 2010.
• Capital ratios improved slightly during the third quarter. The Company's estimated Tier 1 Leverage and Total Risk Based Capital ratios were 7.1% and 11.7% in the third quarter, respectively, as compared to 7.0% and 11.4% in the second quarter, and 6.8% and 11.0% in September 2010.
• Liquidity continues at historically high levels represented by cash and cash equivalents, marketable securities, loan-to-deposit ratios and the availability of alternative funding sources.

Asset Quality

Nonperforming loans totaled $10.3 million at September 30, 2011, down from $10.7 million at the end of June, and from $16.4 mi1lion at the end of the same period last year. The allowance for loan loss coverage of non-performing loans totaled 139.1% in the third quarter, up from 127.5% in the second quarter and 87.6% at September 30, 2010. 

Total nonperforming assets (NPAs) were $17.7 million at quarter end, down from $18.6 million at June 30, 2011, and down from $22.8 million at September 30, 2010. At quarter end, the ratio of NPAs to total assets was 1.91% versus 1.93% at June 30, 2011 and 2.30% at September 30, 2010. At 0.30%, loan delinquencies (30 days or more past due) were down from 0.32% in the prior quarter and down from the 0.69% rate experienced a year ago.

Classified loans totaled $58.0 million at quarter end, compared to $58.7 million for the sequential quarter and $62.4 million a year ago. Classified loans are loans in which the Bank anticipates potential problems in obtaining repayment of principal and interest per the contractual terms, but does not necessarily believe that losses will occur.

The following tables summarize nonperforming assets by type and geographic region, and provide trending information over the prior year.

NPAs trended down from both last year and the second quarter, and one large OREO property comprises $5.7 million or 32.4% of the remaining total. "Continued decreases in NPA levels reflect our aggressive focus on reducing credit risk for the past several years," noted Hecker. "While uncertain economic conditions continue to challenge borrowers, our overall credit risk profile is substantially lower."  

At $7.4 million, OREO balances decreased by $400,000 from June 30, 2011, as the Company continued to liquidate its OREO properties. The Company sold 10 properties totaling $734,000 in the third quarter, had net valuation adjustments of $503,000 and added 6 properties totaling $797,000. For the first nine months of 2011, the Company sold 49 properties totaling $5.1 million, wrote off $829,000 and added 24 properties totaling $8.9 million for the nine months ended September 30, 2011. The dollar additions for nine-month periods primarily reflect the addition of a larger land development property totaling $5.9 million. A total of 22 properties remained in the OREO portfolio at quarter end, consisting of $6.2 million in construction and land development properties, $967,000 in commercial real estate properties, and $207,000 in residential real estate.

Assets and Loan Portfolio Summary

Assets totaled $926.5 million at September 30, 2011, down from $960.7 million at June 30, 2011, and from $991.2 million at September 30, 2010. Net loans receivable of $525.5 million at September 30, 2011 decreased $22.7 million, or 4.1% from the sequential quarter and were down $67.1 million, or 11.3% year-over-year. The decreases over the second quarter primarily reflect planned decreases in land and land development loans and reductions in commercial borrowers' operating line balances. Since September 30, 2010, land development and commercial construction loans have decreased by $29.1 million, or 32.4%, as a result of management's ongoing efforts to reduce these higher-risk assets. Year-over-year reductions during the last twelve months in most other portfolio categories continue to reflect the difficult economic climate, along with higher payments and reduced loan demand from cautious borrowers. Reductions in the agricultural portfolio reflect very strong market conditions within the industry, resulting in high profit levels, higher cash levels and lower borrowing needs. "National economic conditions continued to dampen lending activity in the third quarter and will likely do so for the foreseeable future," said Hecker. "That said, we do see targeted opportunities in our markets for loan production, including agribusiness, health care, assisted living and multi-family sectors, export-driven manufacturing, technology and professional services companies, and more generally, strong commercial borrowers seeking to take advantage of current market conditions to buy or build owner-occupied properties."

Deposit, Investment Portfolio and Equity Summary

Deposits totaled $750.0 million at September 30, 2011, up from $736.0 million at June 30, 2011 and down from $788.5 million at September 30, 2010. The increase over second quarter was comprised largely of an increase in non interest bearing demand deposit accounts, with smaller increases in NOW and money market balances. Transaction deposits now represent 67.2% of total deposits, up from 65.5% at June 30, 2011 and 63.5% at September 30, 2010. Jumbo, brokered and collateralized deposits continued to decline, both in absolute terms and as a percent of the overall portfolio, reflecting the ongoing strategy to build lower cost core deposits. 

Available-for-sale investments totaled $193.2 million at September 30, 2011, a decrease of 8.0% from June 30, 2011. The decrease reflects partial paydowns on existing mortgage backed securities, and limited sales and call activity during the quarter. "We anticipate conservative re-deployment of funds into investment securities over the next few quarters to enhance returns over current cash holdings," said Doug Wright, Chief Financial Officer.

Stockholders' equity totaled $60.6 million at September 30, 2011, compared to $60.4 million at June 30, 2011, and $60.3 million at September 30, 2010. Tangible book value per common share totaled $4.08 compared to $4.07 in the second quarter 2011 and $4.08 at September 30, 2010. Tangible stockholders' equity to tangible assets was 3.70% compared to 3.56% at June 30, 2011 and 3.46% at the end of the third quarter 2010. 

Income Statement Summary

The net loss applicable to common shareholders for the third quarter totaled $1.2 million, or $0.14 per common share, compared to net loss applicable to common shareholders of $1.1 million, or $0.13 per common share in the second quarter of 2011, and a net loss applicable to common shareholders of $24.7 million, or $2.95 per common share in the third quarter of 2010.   Before dividends on preferred stock outstanding, the Company's net loss was $760,000 for the third quarter of 2011, compared to a net loss of $605,000 in the second quarter of 2011, and a net loss of $24.3 million in the third quarter of 2010.

Third quarter 2011 net interest income before provision totaled $8.8 million, down from $9.0 million in the second quarter 2011, and down from $9.0 million in the third quarter last year. The slight decrease from prior periods reflects lower loan balances and a $107,000 charge in interest expense to restructure $37 million in CDs during the quarter, a move that will save the Company approximately $380,000 in annualized interest expense going forward.

Net interest margin remained static at 4.14% for the third quarter, compared to the sequential quarter, and increased from 3.85% for the same period last year. The increase in margin from a year ago reflects a substantial decrease in the Bank's interest cost on deposits, which is now at 0.62% versus 0.93% in the third quarter of 2010. The yield on earning assets remained stable, at 4.99%, up from 4.97% in June and down slightly from 5.00% at September 30 last year, as slightly lower loan yields were offset by deployment of cash assets into higher yielding investments. The continued reduction in the cost of deposits and interest-bearing liabilities reflects ongoing efforts to reduce non-core deposits and re-price the remaining liabilities down. "Amid a very challenging and compressed rate market, we continue to work diligently to preserve loan yields by combining strong relationship banking with informed decision-making, while we take advantage of opportunities to re-deploy cash assets and reduce deposit and borrowing costs to protect our margin," noted Wright.

Intermountain recorded a $2.2 million provision for loan losses in the third quarter, down from $2.7 million in the sequential quarter and down from $10.1 million in the same period a year ago. For the third quarter, net charge-offs (NCOs) were $1.6 million compared to $1.5 million in the prior quarter and $9.5 million in the third quarter of 2010.

Other income in the third quarter was $2.5 million, down from $2.7 million in the sequential quarter and $2.8 million in the same period a year ago. The decreases largely reflect lower overdraft fee income as a result of new regulatory guidelines in place at the beginning of the quarter. Other income, including trust and investment service fees, improved from the second quarter and offset lower loan-related income. The Company recorded an $81,000 other-than-temporary impairment (OTTI) credit loss in the third quarter of 2011. The Company did not record an OTTI credit loss in the second quarter of 2011 or third quarter of 2010. 

Operating expenses for the third quarter of 2011 totaled $9.8 million, up $200,000 from the second quarter of 2011 and down $12.1 million from the third quarter last year.   Excluding the $11.7 million goodwill impairment charge taken in the third quarter of 2010, operating expenses decreased $444,000 in the third quarter of 2011 as compared to the same period one year ago.   Continued staffing adjustments led to reductions of $108,000 and $163,000 over the sequential quarter and same quarter last year in compensation and benefit expense. Most other expense categories were also down from the two prior periods, reflecting the Company's ongoing cost reduction efforts. Third quarter expense totals include $602,000 in non-recurring restructuring charges. Hecker states, "Difficult reduction efforts that we completed in the third quarter will result in additional substantial cost savings in future periods as we continue to adjust to a new economic climate."

Expenses related to OREO increased to $735,000 in the third quarter, as the Company liquidated a substantial portion of its remaining properties by direct sale or auction in order to reduce ongoing carrying costs and valuation risk.

The Company did not record a tax provision or benefit for the third quarter. The net deferred tax asset was reduced by $800,000 from June 30, 2011, primarily due to the increase in the unrealized gain on investment securities, after tax. The Company has an $8.8 million valuation allowance, which reduces the net deferred tax asset to $13.0 million. 

Planned Capital Raise

On September 22, 2011, the Company announced that two of the investors participating in the previously announced private capital placement had terminated their securities purchase agreements to purchase a portion of a planned $70 million private raise. The investors exercised their right to terminate the agreements because the closing did not occur by August 31, 2011. Currently the Company is working with its placement agent and prospective investors to complete a capital raise as soon as possible.  

About Intermountain Community Bancorp:

Intermountain is headquartered in Sandpoint, Idaho, and operates as four separate divisions with nineteen banking locations in three states. Its banking subsidiary, Panhandle State Bank, offers financial services through northern Idaho offices in Sandpoint, Ponderay, Bonners Ferry, Priest River, Coeur d'Alene, Post Falls, Rathdrum and Kellogg. Intermountain Community Bank, a division of Panhandle State Bank, operates branches in southwest Idaho in Weiser, Payette, Nampa, Caldwell and Fruitland, as well as in Ontario, Oregon. Intermountain Community Bank Washington, a division of Panhandle State Bank, operates branches in downtown Spokane and Spokane Valley, Washington. Magic Valley Bank, a division of Panhandle State Bank, operates branches in Twin Falls and Gooding, Idaho. 

All data contained in this report have been prepared on a consolidated basis for Intermountain Community Bancorp. IMCB's shares are quoted on the OTC Bulletin Board, ticker symbol IMCB. Additional information on Intermountain Community Bancorp, and its internet banking services, can be found at www.intermountainbank.com.

The Intermountain Community Bancorp logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=8745

Forward Looking Statements

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include but are not limited to statements about the Company's plans, objectives, expectations and intentions and other statements contained in this report that are not historical facts. These forward-looking statements are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control. Actual results may differ materially from the results discussed in these forward-looking statements because of numerous possible risks and uncertainties. These include but are not limited to the following and the other risks described in the "Risk Factors," "Business," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections, as applicable, of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2011; any failure to complete a capital raise of sufficient size to address the Company's capital needs; the possibility of adverse economic developments that may, among other things, increase default and delinquency risks in the Company's loan portfolio; shifts in interest rates that may result in lower interest rate margins; shifts in the demand for the Company's loan and other products; a continued decline in the housing and real estate market; a continued increase in unemployment or sustained high levels of unemployment; changes in accounting policies; changes in the monetary and fiscal policies of the federal government; and changes in laws, regulations and the competitive environment. Readers are cautioned that forward-looking statements in this release speak only as of the date of this release. The Company does not undertake any obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

Additional Information

This news release does not constitute an offer to sell or a solicitation of an offer to buy any securities, nor shall there be any sale of securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.