Intermountain Community Bancorp Reports First Quarter Earnings

SANDPOINT, Idaho, April 24, 2014 (GLOBE NEWSWIRE) -- Intermountain Community Bancorp (Nasdaq:IMCB), the holding company for Panhandle State Bank, reported $1.0 million, or $0.16 per diluted share, in net income applicable to common shareholders for the quarter ended March 31, 2014, as compared to net income of $6.1 million, or $0.93 per share, and $1.1 million, or $0.16 per share, in the fourth and first quarters of 2013, respectively. Lower interest and operating expenses and a lower loan loss provision offset lower interest and other income to produce comparable results to the first quarter of last year. Fourth quarter 2013 results were positively impacted by the $6.1 million reversal of the Company's deferred tax asset valuation allowance.

"These results demonstrate ongoing improvement in lowering operating expenses and credit costs amidst a continued challenging interest rate environment," said Chief Executive Officer Curt Hecker. "Momentum in many of our local markets is starting to accelerate, loan balances improved over last year's first quarter, and we anticipate that seasonal and other activity will strengthen over the next couple quarters," he added.

First Quarter 2014 Highlights (at or for the period ended March 31, 2014, compared to December 31, 2013, and March 31, 2013)

• Operating expense declined to $7.4 million from $9.6 million in the fourth quarter of 2013 and $8.2 million in first quarter of 2013, respectively. This represents a 9.1% drop from the first quarter last year.
• Interest expense continued to remain at low levels, totaling $782,000 for the first quarter of 2014, compared to $761,000 for the fourth quarter of 2013 and $985,000 in the first quarter of 2013.
• Loan loss provision totaled $103,000, down from $214,000 and $179,000 in the fourth and first quarters of 2013, respectively. Net chargeoffs were $10,000 for the quarter, compared to $557,000 and $444,000 for the fourth and first quarters of last year, respectively.
• Although at a seasonal low point, loans receivable increased by $8.2 million over the first quarter of 2013, and both origination activity and the pipeline of pending loans increased significantly in March.
• Low cost checking, savings and money market deposits increased by $6.4 million over December 31, 2013 and by $2.1 million over the same quarter last year.
• Commercial Loan Officer Dan Sample was honored with the 2014 Idaho Governor's Award in Agriculture in recognition of outstanding leadership, education, mentorship and contributions to the region. Sample serves the agricultural and commercial business communities from our Nampa, Idaho branch.

Assets and Loan Portfolio Summary

Assets totaled $910.5 million at March 31, 2014, compared to $939.6 million at December 31, 2013 and $933.9 million at March 31, 2013, respectively. The reduction from prior periods primarily reflects seasonal reductions and the use of cash to redeem the Company's Capital Purchase Program ("CPP") preferred stock. Net loans receivable decreased by $7.8 million from December 31, 2013, reflecting the resolution and payoff of several commercial real estate loans and seasonal reductions in agricultural and commercial credit lines, but were up $8.2 million over March 31, 2013. Increases in commercial construction and agricultural loans led to the improvement over last year, as the Company is experiencing stronger loan demand in its markets.

"Some of our markets have been slower in recovering from the recession, and as such, our borrowers have been cautious in taking on new debt," noted Hecker. "However, we are now seeing conditions change as our regional economies improve and business activities surge. This is leading to an expansion in loan demand, and our pipeline is stronger than it has been for several years."

The following tables summarize the Company's loan portfolio by type and geographic region, and provide trending information over the prior year.

Asset Quality

Nonperforming loans totaled $4.5 million at March 31, 2014, up slightly from $2.7 million at December 31, 2013, but down from $5.1 million at the end of the same period last year. The allowance for loan loss coverage of non-performing loans was 172.2% in the first quarter, compared to 288.1% at December 31, 2013 and 149.5% at March 31, 2013, respectively. The increase in non-performing loans from year end reflected the addition of several commercial SBA loans that are expected to be resolved in the near future.

Nonperforming assets ("NPAs") were $8.3 million at quarter end, compared to $6.4 million at December 31, 2013, and $9.8 million at March 31, 2013. Outstanding troubled debt restructured loans totaled $9.9 million, down from $10.0 million at December 31, 2013, but up from $7.8 million at March 31, 2013.

The following table summarizes nonperforming assets by type and provides trending information over the prior year.

Commercial real estate and land development NPAs showed decreases from last year, reflecting continued loan resolution activity. The increase in commercial NPAs from year end reflected the inclusion of several commercial SBA loans that are expected to be resolved in the near future, while the increase in agricultural loans resulted from moderately increased stress on this portfolio. Land and land development loans still comprise the greatest proportion of NPA totals, primarily as a result of one large OREO asset, which was sold on an installment sale contract. The majority of NPAs are in the North Idaho/Eastern Washington region, reflecting the Company's higher loan totals in these areas.

Classified loans totaled $19.6 million at quarter end, down from $23.1 million at December 31, 2013 and $25.3 million at March 31, 2013. The reductions reflect both loan resolution efforts and customers' improved financial strength. Classified loans are loans in which the Company anticipates potential problems in obtaining repayment of principal and interest per the contractual terms, but does not necessarily believe that losses will occur.

OREO balances totaled $3.8 million at March 31, 2014, compared to $3.7 million at December 31, 2013 and $4.7 million at March 31, 2013. One small property was added to the OREO portfolio during the quarter.   As noted above, the bulk of the OREO balance is one development property, which is being sold in an installment sales agreement over a five-year period.

Investment Portfolio, Deposit, Borrowings and Equity Summary

Investments available-for-sale increased by $9.5 million during the quarter, as the Company reinvested cash into a mix of shorter term government agency securities and longer municipal bonds. The portfolio is down $21.7 million, however, from the same period a year ago, as the Company moved some investments to held-to-maturity and sold securities to redeem the CPP preferred stock. The value of the Company's bond holdings improved modestly during the first quarter as market rates fell slightly. Prepayments on the Company's mortgage-backed securities have slowed significantly, but one municipal security was unexpectedly called during the quarter, resulting in a $60,000 reduction in interest income from the acceleration of premium amortization on the security. "Finding reasonably priced new investments in this market remains challenging as demand for all types of fixed income securities is very high," said Chief Financial Officer Doug Wright. "Given these conditions, we continue to approach the markets cautiously," he added.

Deposits totaled $710.6 million at March 31, 2014, compared to $706.1 million at December 31, 2013 and $719.5 million at the end of the first quarter last year. The table below provides information on both current composition and trends in the deposit portfolio. 

Both non-interest and interest bearing demand deposit account balances were relatively stable over both time periods. They total a combined 47.9% of the deposit base and represent a strong, low-cost funding base for the Company. Money market account balances have also been stable, while savings account balances have increased. The Company continues to redeem or reprice higher cost CDs to reduce interest expense and has no brokered or other wholesale CDs outstanding.

Stockholders' equity totaled $95.9 million at March 31, 2014, compared to $94.0 million at December 31, 2013 and $115.9 million at March 31, 2013. The increase over last quarter reflects earnings improvement and a reduction in the unrealized loss on the Company's securities portfolio. The redemption of the Company's CPP preferred stock offset earnings contributions, resulting in the decrease in stockholders' equity from March 31, 2013. Tangible book value per common share totaled $14.77 at March 31, 2014, compared to $14.48 at December 31, 2013 and $13.85 at March 31, 2013.

Tangible stockholders' equity to tangible assets was 10.5%, compared to 10.0% at December 31, 2013 and 12.4% at the end of March last year. Tangible common equity to tangible assets was 10.5%, compared to 10.0% at December 31, 2013 and 9.6% at March 31, 2013.

Income Statement Summary

Net income applicable to common shareholders for the first quarter totaled $1.0 million, or $0.16 per common diluted share, compared to net income applicable to common shareholders of $6.1 million, or $0.93 per common diluted share in the fourth quarter of 2013, and $1.1 million, or $0.16 per common diluted share in the first quarter of 2013.

First quarter 2014 net interest income before provision totaled $7.0 million, down from $7.4 million and $7.3 million in the fourth and first quarters of 2013, respectively. The decrease from prior quarters reflects lower loan interest income as both loan balances and loan yield dropped modestly during the quarter. Stabilizing investment interest income and decreasing interest expense partially offset the decrease in loan income. The net interest margin was 3.43% for the first quarter, compared to 3.49% in the fourth quarter of 2013 and 3.44% in the first quarter of 2013. The yield on interest earning assets was 3.81% for the first quarter of 2014, versus 3.85% and 3.90% in the fourth and first quarters of 2013, respectively. The cost on interest-bearing liabilities was 0.39% for the quarter ended March 31, 2014, up slightly from 0.37% in the fourth quarter of 2013, but down from 0.49% in the first quarter of 2013.

The provision for loan loss decreased to $103,000 from $214,000 and $179,000 in the fourth and first quarters of last year, respectively. The Company experienced net chargeoffs of $10,000 during the first quarter of 2014, down from $557,000 and $444,000 in the fourth and first quarters of 2013, respectively.

The table below provides information on other income for the current three-month period in comparison to prior periods. 

Other income in the first quarter of 2014 was $2.0 million, down from $2.7 million and $2.5 million in the fourth quarter and first quarter of 2013, respectively. Lower mortgage origination income and a negative fair value adjustment on the Company's unexercised warrant liability created most of the decrease.   Reflecting higher mortgage rates and winter slowdowns, mortgage refinance and purchase activity slowed for both the Company and the industry during the quarter.

The table below provides information on operating expenses for the current three-month period in comparison to prior periods. 

Operating expenses decreased to $7.4 million in the first quarter of 2014, compared to $9.6 million in the fourth quarter and $8.2 million in the first quarter of 2013, respectively. Decreases in employee compensation, technology, OREO and operational loss expense produced most of the reduction. Most other expense categories were relatively stable. The Company's ongoing expense reduction and credit improvement initiatives continue to result in lower operating and credit expenses.

The Company recorded income tax provision of $400,000 during the first quarter compared to a $6.1 million benefit in the fourth quarter of 2013 and no provision in the first quarter of 2013, respectively. The Company reversed its tax valuation allowance in the fourth quarter, resulting in the benefit noted above.

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 NASDAQ, ticker symbol IMCB. Additional information on Intermountain Community Bancorp, and its internet banking services, can be found at www.intermountainbank.com.

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, 2013: 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; declines in the housing and real estate market; increases 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.