Intermountain Community Bancorp Reports Second Quarter Earnings

SANDPOINT, Idaho, July 25, 2012 (GLOBE NEWSWIRE) -- Intermountain Community Bancorp (OTCBB:IMCB), the holding company for Panhandle State Bank, reported $301,000, or $0.01 per share, in net income applicable to common shareholders for the second quarter 2012, as higher net interest and other income and lower operating expenses were offset by a higher loan loss provision than in the first quarter of 2012. The second quarter 2012 income compares to net income applicable to common shareholders of $335,000, or $0.01 per share in the first quarter of 2012, and a loss applicable to common shareholders of $1.1 million, or $0.13 per share, in the second quarter of 2011.

Income applicable to common shareholders improved to $636,000, or $0.01 per share, for the first six months of 2012, compared to a loss of $1.5 million, or $0.18 per share, in the comparable 2011 period, as decreases in interest expense, operating expense and the provision for loan loss offset decreases in interest and other income.

"These results demonstrate our ongoing success in executing our plans to further strengthen the Company and generate long-term earnings by serving our local customers and communities," said Chief Executive Officer Curt Hecker. "We have also accelerated efforts to remove remaining problem loans during the quarter, and still increased loans outstanding and maintained a positive earnings stream."

Second Quarter 2012 Highlights (at or for the period ended June 30, 2012, compared to March 31, 2012, and June 30, 2011)

• Net loans receivable increased by $17.7 million, or 3.6% from March 31, 2012, reflecting Company efforts to stabilize loan volumes.
• Nonperforming assets (NPAs) dropped to 1.23% of total assets at June 30, 2012 from 1.55% in the sequential quarter and 1.93% at June 30, 2011, as the Company focused on resolving remaining problem credits and other real estate owned.
• Loan delinquencies (30 days past due and over) continue to remain very low, at 0.25% of total loans compared to 0.19% in the first quarter and 0.32% in the second quarter of 2011.
• Interest expense continued to drop, totaling $1.3 million for the second quarter, compared to $1.5 million in the first quarter of 2012 and $1.8 million in the second quarter of 2011. The Company's cost of interest bearing liabilities totaled 0.64% for the quarter, down from 0.71% in the first quarter and 0.82% in the June 2011 quarter.
• The Company successfully completed an $8.7 million shareholder rights offering during the quarter, which when added to the $47.3 million capital investment raised earlier this year, results in the Company having stronger capital ratios than most of its national and northwest peer group.
• Operating expenses continued to decrease, down $76,000 from the prior quarter and $1.4 million from the second quarter of 2011, as the Company continues its long-term effort to boost efficiency in a tough revenue environment.
• Powered by Community partnerships focused on economic development and education as the Bank continued to assist its communities through volunteerism, seed grants and direct support of far-reaching initiatives.

Assets and Loan Portfolio Summary

Assets totaled $963.1 million at June 30, 2012, up from $958.6 million at March 31, 2012, and from $960.7 million at June 30, 2011. The increase from last quarter reflected the additional capital raised in the Company's rights offering. Net loans receivable increased by $17.7 million during the quarter due to increases in the Company's commercial real estate and agricultural portfolios. Growth in these categories offset declines in construction, land development and municipal loans. Investments available for sale increased by $20.8 million during the quarter, as the Company continued to reinvest cash into higher yielding loans and investments. "We are actively pursuing prudent opportunities to develop our loan portfolio and assist our local communities in expanding local economic growth," Hecker said. "Our capital and liquidity position puts us in a strong position to do so."

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 $6.6 million at June 30, 2012, down from $8.0 million at March 31, 2012 and $10.7 mil1ion at the end of the same period last year. The allowance for loan loss coverage of non-performing loans increased to 155.2% in the second quarter, up from 142.2% at March 31, 2012 and 127.5% at June 30, 2011, respectively.

Total nonperforming assets (NPAs) were $11.9 million at quarter end, compared to $14.9 million at March 31, 2012, and $18.6 million at June 30, 2011. Troubled debt restructure loans totaled $5.2 million, down from $6.5 million at March 31, 2012 and June 30, 2011, respectively. 

Classified loans totaled $35.8 million at quarter end, a 27.8% decrease from March 31, 2012 and a 39.1% decrease from a year ago. 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.

"Our credit team created opportunities to significantly reduce problem credit exposure in the second quarter at minimal additional loss, and we capitalized on them," said Hecker. "The remaining risk in the portfolio is down significantly, which allows us to shift more focus to generating increased earnings in future periods."

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

The Company's delinquent, non-performing and classified loan totals continue to trend down from prior periods in virtually all segments. Although land and land development loans still comprise the greatest proportion of NPA totals, the remaining exposure is substantially reduced. One large relationship comprises the majority of the remaining balance in this category. Commercial NPAs increased modestly in the second quarter, but are still relatively low compared to 2009 and 2010 totals. Most of the remaining NPAs are in the North Idaho/Eastern Washington region, reflecting the Company's higher loan totals in these areas, and the presence of the one larger relationship noted above in this market area.

OREO balances totaled $5.3 million at June 30, 2012, compared to $6.9 million at March 31, 2012 and $7.8 million at June 30, 2011. The Company sold 9 properties totaling $1.6 million in the second quarter, had net valuation adjustments of $50,000 and added 2 properties totaling $74,000. A total of 7 properties remained in the OREO portfolio at quarter end, consisting of $5.1 million in construction and land development properties, and $158,000 in residential real estate. 

Deposit, Investment Portfolio and Equity Summary

Deposits totaled $726.0 million at June 30, 2012, compared to $731.5 million at March 31, 2012 and $736.0 million at the end of the second quarter last year. The decrease from the first quarter reflects continued reductions in CDs and a modest decrease in non-interest bearing demand deposits, as commercial and agricultural customers accessed some funds for operating purposes and to pay taxes during the quarter. Non-interest bearing demand deposits have grown by $27.0 million, or 16.3% over June of last year, largely offsetting planned reductions in CDs and other higher cost deposits. They now comprise 26.6% of the deposit portfolio, as compared to 22.6% a year ago. Overall, low-cost transaction deposits now represent 70.7% of the deposit portfolio, up from 65.5% at June 30, 2011. 

Available-for-sale investments totaled $285.1 million at June 30, 2012 or 29.6% of total assets, an increase over the sequential quarter where such investments represented 27.6% of total assets and an increase over the second quarter of 2011 where such investments represented 21.9% of total assets.   The increase reflects the investment of the proceeds of our recent rights offering and the continued redeployment of the Company's cash position into securities to maintain higher levels of interest income and earning asset yield than could be realized in cash. 

Stockholders' equity totaled $111.7 million at June 30, 2012, compared to $102.9 million at March 31, 2012 and $60.4 million at June 30, 2011, reflecting the additions of capital raised in the January private placement and the May rights offering. During the second quarter, the Company raised $8.1 million in new capital, consisting of $4.9 million in voting common stock and $3.2 million in non-voting common stock, and net of $600,000 in transaction expenses. In addition, preferred shares totaling $28.7 million automatically converted to non-voting common shares after shareholders approved an amendment to the Company's Articles of Incorporation authorizing non-voting common stock in May, 2012. Tangible book value per common share totaled $1.32 compared to $2.30 at March 31, 2012 and $4.07 at June 30, 2011. The decrease reflected the increased number of shares outstanding as a result of the rights offering and conversion of preferred shares to non-voting common shares during the second quarter. Tangible stockholders' equity to tangible assets was 11.6%, compared to 10.7% at March 31, 2012 and 6.3% at the end of June last year. Tangible common equity to tangible assets was 8.9%, compared to 5.0% at March 31, 2012 and 3.6% at the end of June last year. 

Income Statement Summary

Net income applicable to common shareholders for the second quarter totaled $301,000, or $0.01 per common share, compared to a net income applicable to common shareholders of $335,000, or $0.01 per common share in the first quarter of 2012, and a net loss applicable to common shareholders of $1.1 million, or $0.13 per common share in the second quarter of 2011. Income applicable to common shareholders improved to $636,000, or $0.01 per share for the first six months of 2012, compared to a loss of $1.5 million, or $0.18 per share, in the comparable 2011 period.

Second quarter 2012 net interest income before provision totaled $7.8 million, up from $7.6 million in the first quarter 2012, and down from $9.0 million in the second quarter last year. The increase from the first quarter largely reflects decreased deposit and borrowing costs, although interest income also stabilized during the quarter. The decrease from last year is a result of both lower loan volumes and lower asset yields. 

Reflective of the same factors, net interest margin improved modestly during the quarter to 3.67% from 3.56% in the first quarter of 2012, but was down from 4.14% in the same period last year. The yield on earning assets was 4.28% during the quarter, compared to 4.26% and 4.97% for the quarters ended March 31, 2012 and June 30, 2011, respectively. The cost on interest-bearing liabilities continued to drop, from 0.82% in the comparable period last year to 0.71% in the first quarter of 2012 and 0.64% in the most recent quarter. "Historically low market rates and strong competition for both loans and fixed income investments continue to pressure net interest income," said Chief Financial Officer Doug Wright. "We've been able to offset some of this impact in the most recent quarter by redeploying cash into loans and investments that have higher relative yields. However, investing in the current market remains challenging, and the Company continues to approach investment opportunities cautiously to mitigate higher credit or interest rate risk exposure." 

Intermountain recorded a $1.6 million provision for loan losses in the second quarter, up modestly from the $1.0 million expense recorded in the first quarter of 2012, but down from the $2.7 million provision recorded in the comparable period last year. Net chargeoffs totaled $2.7 million during the quarter, compared to $2.3 million in the sequential quarter and $1.5 million in the second quarter of 2011. "As noted previously, we capitalized on opportunities during the quarter to significantly reduce remaining credit risk exposure at a moderate additional cost," Hecker said. "This resulted in higher net chargeoffs and provision expense during the quarter, but should position the Company for lower future exposure."

Other income in the first quarter was $2.8 million, up from $2.4 million in the first quarter of 2012 and $2.7 million in the same period last year. Increases in mortgage lending income and positive fair value adjustments on the Company's outstanding warrants and a cash flow hedge offset decreases in gains on security sales and secured savings contract income. 

The Company continued to execute on its cost reduction plans, resulting in a $76,000 reduction in operating expenses over the prior quarter and a $1.4 million reduction over second quarter last year. 

At $3.9 million, compensation and benefits expense was down $265,000 from the first quarter of 2012, and $1.0 million from the comparable 2011 period. Most other operating expense categories were roughly comparable to first quarter results, and down from second quarter 2011 totals. The increase in other expenses from the first quarter reflected moderate increases in fraud losses, credit filing and recording fees, and audit expenses.   "After completing a number of expense reduction efforts already, we are now working on a full new set of efficiency plans," said Hecker, "culminating with a full evaluation of our data processing systems. We expect that these new efforts will result in additional significant cost savings in future periods." 

Given its current tax position, the Company did not record an income tax provision or benefit during the quarter as it offset taxable income with net operating losses that it has carried forward from prior years.   The Company continues to maintain an $8.8 million tax valuation allowance, resulting in a net deferred tax asset of $13.2 million. 

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, 2011; 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.