GLACIER BANCORP, INC. - Quarter Report: 2011 March (Form 10-Q)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2011
o | Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from __________ to __________
COMMISSION FILE 0-18911
GLACIER BANCORP, INC.
(Exact name of registrant as specified in its charter)
MONTANA | 81-0519541 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
49 Commons Loop, Kalispell, Montana | 59901 | |
(Address of principal executive offices) | (Zip Code) | |
(406) 756-4200 | ||
Registrants telephone number, including area code | ||
Not Applicable | ||
(Former name, former address, and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ | Accelerated Filer o | Non-Accelerated Filer o | Smaller reporting Company o | |||
(Do not check if a smaller reporting company) |
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). o Yes þ No
The number of shares of Registrants common stock outstanding on April 21, 2011 was 71,915,073. No
preferred shares are issued or outstanding.
GLACIER BANCORP, INC.
Quarterly Report on Form 10-Q
Quarterly Report on Form 10-Q
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EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
Table of Contents
Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Financial Condition
March 31, | December 31, | |||||||
(Dollars in thousands, except per share data) | 2011 | 2010 | ||||||
Assets |
||||||||
Cash on hand and in banks |
$ | 75,471 | 71,465 | |||||
Federal funds sold |
| | ||||||
Interest bearing cash deposits |
22,633 | 33,625 | ||||||
Cash and cash equivalents |
98,104 | 105,090 | ||||||
Investment securities, available-for-sale |
2,706,315 | 2,396,459 | ||||||
Loans held for sale |
23,904 | 76,213 | ||||||
Loans receivable, gross |
3,646,986 | 3,749,289 | ||||||
Allowance for loan and lease losses |
(140,829 | ) | (137,107 | ) | ||||
Loans receivable, net |
3,506,157 | 3,612,182 | ||||||
Premises and equipment, net |
152,922 | 152,492 | ||||||
Other real estate owned |
82,594 | 73,485 | ||||||
Accrued interest receivable |
33,707 | 30,246 | ||||||
Deferred tax asset |
37,962 | 40,284 | ||||||
Core deposit intangible, net |
10,030 | 10,757 | ||||||
Goodwill |
146,259 | 146,259 | ||||||
Non-marketable equity securities |
64,434 | 64,429 | ||||||
Other assets |
47,476 | 51,391 | ||||||
Total assets |
$ | 6,909,864 | 6,759,287 | |||||
Liabilities |
||||||||
Non-interest bearing deposits |
$ | 888,311 | 855,829 | |||||
Interest bearing deposits |
3,663,999 | 3,666,073 | ||||||
Federal Home Loan Bank advances |
960,097 | 965,141 | ||||||
Securities sold under agreements to repurchase |
250,932 | 249,403 | ||||||
Other borrowed funds |
14,135 | 20,005 | ||||||
Accrued interest payable |
6,790 | 7,245 | ||||||
Subordinated debentures |
125,167 | 125,132 | ||||||
Other liabilities |
160,544 | 32,255 | ||||||
Total liabilities |
6,069,975 | 5,921,083 | ||||||
Stockholders Equity |
||||||||
Preferred shares, $0.01 par value per share, 1,000,000 shares authorized, none issued or outstanding |
| | ||||||
Common stock, $0.01 par value per share, 117,187,500 shares authorized |
719 | 719 | ||||||
Paid-in capital |
642,876 | 643,894 | ||||||
Retained earnings substantially restricted |
194,000 | 193,063 | ||||||
Accumulated other comprehensive income |
2,294 | 528 | ||||||
Total stockholders equity |
839,889 | 838,204 | ||||||
Total liabilities and stockholders equity |
$ | 6,909,864 | 6,759,287 | |||||
Number of shares outstanding |
71,915,073 | 71,915,073 | ||||||
Book value per share |
$ | 11.68 | 11.66 |
See accompanying notes to unaudited condensed consolidated financial statements.
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Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Operations
Three Months ended March 31, | ||||||||
(Dollars in thousands, except per share data) | 2011 | 2010 | ||||||
Interest Income |
||||||||
Residential real estate loans |
$ | 8,716 | 11,833 | |||||
Commercial loans |
33,058 | 36,672 | ||||||
Consumer and other loans |
10,450 | 10,640 | ||||||
Investment securities |
16,149 | 14,253 | ||||||
Total interest income |
68,373 | 73,398 | ||||||
Interest Expense |
||||||||
Deposits |
7,088 | 9,331 | ||||||
Federal Home Loan Bank advances |
2,548 | 2,311 | ||||||
Securities sold under agreements to repurchase |
357 | 416 | ||||||
Subordinated debentures |
1,643 | 1,636 | ||||||
Other borrowed funds |
33 | 190 | ||||||
Total interest expense |
11,669 | 13,884 | ||||||
Net Interest Income |
56,704 | 59,514 | ||||||
Provision for loan losses |
19,500 | 20,910 | ||||||
Net interest income after provision for loan losses |
37,204 | 38,604 | ||||||
Non-Interest Income |
||||||||
Service charges and other fees |
10,208 | 9,520 | ||||||
Miscellaneous loan fees and charges |
977 | 1,126 | ||||||
Gain on sale of loans |
4,694 | 3,891 | ||||||
Gain on sale of investments |
124 | 314 | ||||||
Other income |
1,392 | 1,332 | ||||||
Total non-interest income |
17,395 | 16,183 | ||||||
Non-Interest Expense |
||||||||
Compensation, employee benefits and related expense |
21,603 | 21,356 | ||||||
Occupancy and equipment expense |
5,954 | 5,948 | ||||||
Advertising and promotions |
1,484 | 1,592 | ||||||
Outsourced data processing expense |
773 | 694 | ||||||
Core deposit intangibles amortization |
727 | 820 | ||||||
Other real estate owned expense |
2,099 | 2,318 | ||||||
Federal Deposit Insurance Corporation premiums |
2,324 | 2,200 | ||||||
Other expense |
7,512 | 7,033 | ||||||
Total non-interest expense |
42,476 | 41,961 | ||||||
Earnings Before Income Taxes |
12,123 | 12,826 | ||||||
Federal and state income tax expense |
1,838 | 2,756 | ||||||
Net Earnings |
$ | 10,285 | 10,070 | |||||
Basic earnings per share |
$ | 0.14 | 0.16 | |||||
Diluted earnings per share |
$ | 0.14 | 0.16 | |||||
Dividends declared per share |
$ | 0.13 | 0.13 | |||||
Return on average assets (annualized) |
0.62 | % | 0.67 | % | ||||
Return on average equity (annualized) |
4.95 | % | 5.75 | % | ||||
Average outstanding shares basic |
71,915,073 | 62,763,299 | ||||||
Average outstanding shares diluted |
71,915,073 | 62,763,299 |
See accompanying notes to unaudited condensed consolidated financial statements.
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Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income
Year ended December 31, 2010 and Three Months ended March 31, 2011
Year ended December 31, 2010 and Three Months ended March 31, 2011
Retained | Accumulated | Total | ||||||||||||||||||||||
Earnings | Other Comp- | Stock- | ||||||||||||||||||||||
Common Stock | Paid-in | Substantially | rehensive | holders' | ||||||||||||||||||||
(Dollars in thousands, except per share data) | Shares | Amount | Capital | Restricted | Income (Loss) | Equity | ||||||||||||||||||
Balance at January 1, 2010 |
61,619,803 | $ | 616 | 497,493 | 188,129 | (348 | ) | 685,890 | ||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net earnings |
| | | 42,330 | | 42,330 | ||||||||||||||||||
Unrealized gain on securities, net of
reclassification adjustment and taxes |
| | | | 876 | 876 | ||||||||||||||||||
Total comprehensive income |
43,206 | |||||||||||||||||||||||
Cash dividends declared ($0.52 per share) |
| | | (37,396 | ) | | (37,396 | ) | ||||||||||||||||
Stock options exercised |
3,805 | | 58 | | | 58 | ||||||||||||||||||
Public offering of stock issued |
10,291,465 | 103 | 145,493 | | | 145,596 | ||||||||||||||||||
Stock based compensation and tax benefit |
| | 850 | | | 850 | ||||||||||||||||||
Balance at December 31, 2010 |
71,915,073 | $ | 719 | 643,894 | 193,063 | 528 | 838,204 | |||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net earnings |
| | | 10,285 | | 10,285 | ||||||||||||||||||
Unrealized gain on securities, net of
reclassification adjustment and taxes |
| | | | 1,766 | 1,766 | ||||||||||||||||||
Total comprehensive income |
12,051 | |||||||||||||||||||||||
Cash dividends declared ($0.13 per share) |
| | | (9,348 | ) | | (9,348 | ) | ||||||||||||||||
Stock options exercised |
| | | | | | ||||||||||||||||||
Stock based compensation and tax benefit |
| | (1,018 | ) | | | (1,018 | ) | ||||||||||||||||
Balance at March 31, 2011 |
71,915,073 | $ | 719 | 642,876 | 194,000 | 2,294 | 839,889 | |||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months ended March 31 | ||||||||
(Dollars in thousands) | 2011 | 2010 | ||||||
Operating Activities |
||||||||
Net cash provided by operating activities |
$ | 226,910 | 62,937 | |||||
Investing Activities |
||||||||
Proceeds from sales, maturities and prepayments of investments available-for-sale |
104,065 | 107,235 | ||||||
Purchases of investments available-for-sale |
(420,785 | ) | (229,917 | ) | ||||
Principal collected on commercial and consumer loans |
150,052 | 166,829 | ||||||
Commercial and consumer loans originated or acquired |
(163,105 | ) | (166,437 | ) | ||||
Principal collections on real estate loans |
102,977 | 40,490 | ||||||
Real estate loans originated or acquired |
(21,882 | ) | (28,026 | ) | ||||
Net purchase of FHLB and FRB stock |
| (677 | ) | |||||
Proceeds from sale of other real estate owned |
6,033 | 5,689 | ||||||
Net addition of premises and equipment and other real estate owned |
(2,961 | ) | (2,858 | ) | ||||
Net cash used in investment activities |
(245,606 | ) | (107,672 | ) | ||||
Financing Activities |
||||||||
Net increase in deposits |
30,408 | 64,692 | ||||||
Net (decrease) increase in FHLB advances |
(5,044 | ) | 12,519 | |||||
Net increase in securities sold under repurchase agreements |
1,529 | 29,604 | ||||||
Net decrease in Federal Reserve Bank discount window |
| (225,000 | ) | |||||
Net decrease in other borrowed funds |
(5,835 | ) | (6,925 | ) | ||||
Cash dividends paid |
(9,348 | ) | (9,348 | ) | ||||
Proceeds from exercise of stock options and other stock issued |
| 145,705 | ||||||
Net cash provided by financing activities |
11,710 | 11,247 | ||||||
Net decrease in cash and cash equivalents |
(6,986 | ) | (33,488 | ) | ||||
Cash and cash equivalents at beginning of period |
105,090 | 210,575 | ||||||
Cash and cash equivalents at end of period |
$ | 98,104 | 177,087 | |||||
Supplemental Disclosure of Cash Flow Information |
||||||||
Cash paid during the period for interest |
$ | 12,236 | 13,829 | |||||
Cash paid during the period for income taxes |
| | ||||||
Sale and refinancing of other real estate owned |
1,145 | 4,319 | ||||||
Other real estate acquired in settlement of loans |
17,277 | 13,418 |
See accompanying notes to unaudited condensed consolidated financial statements.
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Notes to Unaudited Condensed Consolidated Financial Statements
1) | Basis of Presentation |
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of Glacier Bancorp Inc.s (the Company) financial condition as of March 31, 2011, stockholders equity and comprehensive income for the three months ended March 31, 2011, the results of operations for the three month period ended March 31, 2011 and 2010, and cash flows for the three months ended March 31, 2011 and 2010. The condensed consolidated statement of financial condition and statement of stockholders equity and comprehensive income of the Company as of and for the year ended December 31, 2010 have been derived from the audited consolidated statements of the Company as of that date. | ||
The accompanying condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results anticipated for the year ending December 31, 2011. Certain reclassifications have been made to the 2010 financial statements to conform to the 2011 presentation. | ||
Material estimates that are particularly susceptible to significant change include the determination of the allowance for loan and lease losses (ALLL or allowance) and the valuations related to investments and real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the ALLL and other real estate valuation estimates, management obtains independent appraisals for significant items. Estimates relating to investments are obtained from independent parties. Estimates relating to business combinations are determined based on internal calculations using significant independent party inputs and independent party valuations. |
2) | Organizational Structure |
The Company, headquartered in Kalispell, Montana, is a Montana corporation incorporated in 2004 as a successor corporation to the Delaware corporation incorporated in 1990. The Company is a regional multi-bank holding company that provides a full range of banking services to individual and corporate customers in Montana, Idaho, Wyoming, Colorado, Utah and Washington through its bank subsidiaries (collectively referred to hereafter as the Banks). The bank subsidiaries are subject to competition from other financial service providers. The bank subsidiaries are also subject to the regulations of certain government agencies and undergo periodic examinations by those regulatory authorities. | ||
As of March 31, 2011, the Company is the parent holding company (Parent) for eleven independent wholly-owned community bank subsidiaries: Glacier Bank (Glacier), First Security Bank of Missoula (First Security), Western Security Bank (Western), Valley Bank of Helena (Valley), Big Sky Western Bank (Big Sky), and First Bank of Montana (First Bank-MT), all located in Montana, Mountain West Bank (Mountain West) and Citizens Community Bank (Citizens) located in Idaho, 1st Bank (1st Bank) and First National Bank & Trust (First National) located in Wyoming, and Bank of the San Juans (San Juans) located in Colorado. All significant inter-company transactions have been eliminated in consolidation. |
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In 2010, the Company formed a wholly-owned subsidiary, GBCI Other Real Estate (GORE), to isolate certain bank foreclosed properties for legal protection and administrative purposes. The foreclosed properties were sold to GORE from bank subsidiaries at fair market value and properties remaining are currently held for sale. | ||
In addition, the Company owns seven trust subsidiaries, Glacier Capital Trust II (Glacier Trust II), Glacier Capital Trust III (Glacier Trust III), Glacier Capital Trust IV (Glacier Trust IV), Citizens (ID) Statutory Trust I (Citizens Trust I), Bank of the San Juans Bancorporation Trust I (San Juans Trust I), First Company Statutory Trust 2001 (First Co Trust 01) and First Company Statutory Trust 2003 (First Co Trust 03) for the purpose of issuing trust preferred securities and, in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 810, Consolidation, the trust subsidiaries are not consolidated into the Companys financial statements. | ||
FASB ASC Topic 810, Consolidation, states that a variable interest entity (VIE) exists when either the entitys total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support or the equity investors as a group lack any of the following three characteristics: the power through voting rights or similar rights to direct the activities of an entity that most significantly impact the entitys economic performance, the obligation to absorb the expected losses of the entity, the right to receive the expected residual returns of the entity. A variable interest is a contractual ownership or other interest that changes with changes in the fair value of the VIEs net assets exclusive of variable interests. Under the guidance, the Company is deemed to be the primary beneficiary and required to consolidate a VIE if it has a variable interest in the VIE that provides it with a controlling financial interest. The determination of whether a controlling financial interest exists is based on whether a single party has both the power to direct the VIEs significant activities and has an obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The guidance requires continual reconsideration of conclusions reached regarding which variable interest holder is a VIEs primary beneficiary. | ||
The Company has equity investments in Certified Development Entities (CDE) which have received allocations of new markets tax credits (NMTC). The Company also has equity investments in low-income housing tax credit (LIHTC) partnerships. The CDEs and the LIHTC partnerships are VIEs. The underlying activities of the VIEs are community development projects designed primarily to promote community welfare, such as economic rehabilitation and development of low-income areas by providing housing, services, or jobs for residents. The maximum exposure to loss in the VIEs is the amount of equity invested and credit extended by the Company; however, the Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. The Company has evaluated the variable interests held by the Company in each CDE (NMTC) and LIHTC partnership investments and determined that the Company is the primary beneficiary of such VIEs and has consolidated the VIEs into the bank subsidiary which holds the direct investment in the VIE. For the CDE (NMTC) and LIHTC investments, the creditors and other beneficial interest holders therein have no recourse to the general credit of the bank subsidiaries. As of March 31, 2011, the Company had investments in VIEs of $39,780,000 and $3,263,000 for the CDE (NMTC) and LIHTC partnerships, respectively. The total assets consolidated into the bank subsidiaries approximated the investments in the VIEs. |
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The following abbreviated organizational chart illustrates the various relationships as of March 31, 2011: |
![(FLOWCHART)](https://www.sec.gov/Archives/edgar/data/0000868671/000095012311047950/v58513v5851300.gif)
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3) | Investment Securities, Available-for-Sale | |
A comparison of the amortized cost and estimated fair value of the Companys investment securities designated as available-for-sale is presented below. |
Three Months ended March 31, 2011 | ||||||||||||||||||||
Weighted | Amortized | Gross Unrealized | Fair | |||||||||||||||||
(Dollars in thousands) | Yield | Cost | Gains | Losses | Value | |||||||||||||||
U.S. Government and federal agency |
||||||||||||||||||||
Maturing after one year through five years |
1.62 | % | $ | 206 | 4 | | 210 | |||||||||||||
U.S. Government sponsored enterprises |
||||||||||||||||||||
Maturing after one year through five years |
2.21 | % | 37,202 | 352 | | 37,554 | ||||||||||||||
Maturing after five years through ten
years |
1.89 | % | 86 | | | 86 | ||||||||||||||
Maturing after ten years |
| | | | | |||||||||||||||
2.20 | % | 37,288 | 352 | | 37,640 | |||||||||||||||
State and local governments and other issues |
||||||||||||||||||||
Maturing within one year |
2.70 | % | 1,790 | 20 | (3 | ) | 1,807 | |||||||||||||
Maturing after one year through five years |
2.49 | % | 83,067 | 292 | (79 | ) | 83,280 | |||||||||||||
Maturing after five years through ten
years |
2.76 | % | 38,221 | 235 | (39 | ) | 38,417 | |||||||||||||
Maturing after ten years |
4.88 | % | 763,023 | 8,911 | (14,057 | ) | 757,877 | |||||||||||||
4.56 | % | 886,101 | 9,458 | (14,178 | ) | 881,381 | ||||||||||||||
Collateralized debt obligations |
||||||||||||||||||||
Maturing after ten years |
8.03 | % | 11,178 | | (4,103 | ) | 7,075 | |||||||||||||
Residential mortgage-backed securities |
2.26 | % | 1,767,764 | 15,347 | (3,102 | ) | 1,780,009 | |||||||||||||
Total investment securities |
3.04 | % | $ | 2,702,537 | 25,161 | (21,383 | ) | 2,706,315 | ||||||||||||
Year ended December 31, 2010 | ||||||||||||||||||||
Weighted | Amortized | Gross Unrealized | Fair | |||||||||||||||||
(Dollars in thousands) | Yield | Cost | Gains | Losses | Value | |||||||||||||||
U.S. Government and federal agency |
||||||||||||||||||||
Maturing after one year through five years |
1.62 | % | $ | 207 | 4 | | 211 | |||||||||||||
U.S. Government sponsored enterprises |
||||||||||||||||||||
Maturing after one year through five years |
2.38 | % | 40,715 | 715 | | 41,430 | ||||||||||||||
Maturing after five years through ten
years |
1.94 | % | 84 | | | 84 | ||||||||||||||
Maturing after ten years |
0.73 | % | 4 | | | 4 | ||||||||||||||
2.38 | % | 40,803 | 715 | | 41,518 | |||||||||||||||
State and local governments and other issues |
||||||||||||||||||||
Maturing within one year |
2.62 | % | 1,703 | 20 | (5 | ) | 1,718 | |||||||||||||
Maturing after one year through five years |
3.70 | % | 8,341 | 214 | (10 | ) | 8,545 | |||||||||||||
Maturing after five years through ten
years |
3.73 | % | 18,675 | 379 | (56 | ) | 18,998 | |||||||||||||
Maturing after ten years |
4.91 | % | 639,364 | 5,281 | (15,873 | ) | 628,772 | |||||||||||||
4.86 | % | 668,083 | 5,894 | (15,944 | ) | 658,033 | ||||||||||||||
Collateralized debt obligations |
||||||||||||||||||||
Maturing after ten years |
8.03 | % | 11,178 | | (4,583 | ) | 6,595 | |||||||||||||
Residential mortgage-backed securities |
2.23 | % | 1,675,319 | 17,569 | (2,786 | ) | 1,690,102 | |||||||||||||
Total investment securities |
3.00 | % | $ | 2,395,590 | 24,182 | (23,313 | ) | 2,396,459 | ||||||||||||
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Included in the residential mortgage-backed securities is $63,556,000 and $68,051,000 as of March 31, 2011 and December 31, 2010, respectively, of non-guaranteed private label whole loan mortgage-backed securities of which none of the underlying collateral is subprime. Maturities of securities do not reflect repricing opportunities present in adjustable rate securities, nor do they reflect expected shorter maturities based upon early prepayment of principal. Weighted yields are based on the constant yield method taking into account premium amortization and discount accretion. Weighted yields on tax-exempt investment securities exclude the tax effect. |
Interest income from investment securities consists of the following: |
(Dollars in thousands) | 2011 | 2010 | ||||||
Taxable interest |
$ | 9,370 | 8,685 | |||||
Tax-exempt interest |
6,779 | 5,568 | ||||||
Total interest income |
$ | 16,149 | 14,253 | |||||
The cost of each investment sold is determined by specific identification. Gain and loss on sale of investments consists of the following: |
Three Months | ||||||||
ended March 31, | ||||||||
(Dollars in thousands) | 2011 | 2010 | ||||||
Gross proceeds |
$ | 4,134 | 9,058 | |||||
Less amortized cost |
(4,010 | ) | (8,744 | ) | ||||
Net gain on sale of investments |
$ | 124 | 314 | |||||
Gross gain on sale of investments |
$ | 184 | 390 | |||||
Gross loss on sale of investments |
(60 | ) | (76 | ) | ||||
Net gain on sale of investments |
$ | 124 | 314 | |||||
At March 31, 2011 and December 31, 2010, the Company had investment securities with carrying values of $760,444,000 and $879,330,000, respectively, pledged as collateral for Federal Home Loan Bank (FHLB) advances, securities sold under agreements to repurchase, U.S. Treasury Tax and Loan borrowings and deposits of several local government units. |
Investments with an unrealized loss position at March 31, 2011: |
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
(Dollars in thousands) | Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||
State and local governments and other
issues |
$ | 354,109 | 12,400 | 15,477 | 1,778 | 369,586 | 14,178 | |||||||||||||||||
Collateralized debt obligations |
| | 7,074 | 4,103 | 7,074 | 4,103 | ||||||||||||||||||
Residential mortgage-backed securities |
324,957 | 2,307 | 16,258 | 795 | 341,215 | 3,102 | ||||||||||||||||||
Total temporarily impaired securities |
$ | 679,066 | 14,707 | 38,809 | 6,676 | 717,875 | 21,383 | |||||||||||||||||
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Investments with an unrealized loss position at December 31, 2010: |
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
(Dollars in thousands) | Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||
State and local governments and other
issues |
$ | 365,164 | (14,680 | ) | 13,129 | (1,264 | ) | 378,293 | (15,944 | ) | ||||||||||||||
Collateralized debt obligations |
| | 6,595 | (4,583 | ) | 6,595 | (4,583 | ) | ||||||||||||||||
Residential mortgage-backed securities |
364,925 | (1,585 | ) | 19,304 | (1,201 | ) | 384,229 | (2,786 | ) | |||||||||||||||
Total temporarily impaired securities |
$ | 730,089 | (16,265 | ) | 39,028 | (7,048 | ) | 769,117 | (23,313 | ) | ||||||||||||||
The Company assesses individual securities in its investment securities portfolio for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant. An investment is impaired if the fair value of the security is less than its carrying value at the financial statement date. If impairment is determined to be other-than-temporary, an impairment loss is recognized by reducing the amortized cost for the credit loss portion of the impairment with a corresponding charge to earnings of a like amount. |
For fair value estimates provided by third party vendors, management also considered the models and methodology for appropriate consideration of both observable and unobservable inputs, including appropriately adjusted discount rates and credit spreads for securities with limited or inactive markets, and whether the quoted prices reflect orderly transactions. For certain securities, the Company obtained independent estimates of inputs, including cash flows, in supplement to third party vendor provided information. The Company also reviewed financial statements of select issuers, with follow up discussions with issuers management for clarification and verification of information relevant to the Companys impairment analysis. |
In evaluating securities for other-than-temporary impairment losses, management assesses whether the Company intends to sell or if it is more likely-than-not that it will be required to sell impaired securities. In so doing, management considers contractual constraints, liquidity, capital, asset/liability management and securities portfolio objectives. With respect to its impaired securities at March 31, 2011, management determined that it does not intend to sell and that there is no expected requirement to sell any of its impaired securities. |
Based on an analysis of its impaired securities as of March 31, 2011, the Company determined that none of such securities had other-than-temporary impairment. |
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4) | Loans Receivable, Net |
The following is a summary of the recorded investment in loans and ALLL for the periods ended March 31, 2011 and December 31, 2010 on a portfolio class basis: |
At or for the Three Months ended March 31, 2011 | ||||||||||||||||||||||||
Residential | Commercial | Other | Home | |||||||||||||||||||||
(Dollars in thousands) | Total | Real Estate | Real Estate | Commercial | Equity | Consumer | ||||||||||||||||||
Allowance for loan and lease
losses |
||||||||||||||||||||||||
Balance at beginning of period |
$ | 137,107 | 20,957 | 76,147 | 19,932 | 13,334 | 6,737 | |||||||||||||||||
Provision for loan losses |
19,500 | (2,260 | ) | 14,267 | 2,638 | 2,121 | 2,734 | |||||||||||||||||
Charge-offs |
(16,504 | ) | (1,769 | ) | (10,628 | ) | (1,753 | ) | (1,332 | ) | (1,022 | ) | ||||||||||||
Recoveries |
726 | 76 | 312 | 143 | 83 | 112 | ||||||||||||||||||
Balance at end of period |
$ | 140,829 | 17,004 | 80,098 | 20,960 | 14,206 | 8,561 | |||||||||||||||||
Allowance for loan and lease
losses |
||||||||||||||||||||||||
Individually evaluated for
impairment |
$ | 15,402 | 601 | 8,786 | 4,069 | 974 | 972 | |||||||||||||||||
Collectively evaluated for
impairment |
125,427 | 16,403 | 71,312 | 16,891 | 13,232 | 7,589 | ||||||||||||||||||
Total ALLL |
$ | 140,829 | 17,004 | 80,098 | 20,960 | 14,206 | 8,561 | |||||||||||||||||
Loans receivable |
||||||||||||||||||||||||
Individually evaluated for
impairment |
$ | 218,741 | 19,055 | 158,144 | 26,183 | 9,889 | 5,470 | |||||||||||||||||
Collectively evaluated for
impairment |
3,428,245 | 524,174 | 1,601,737 | 618,667 | 459,245 | 224,422 | ||||||||||||||||||
Total Loans receivable |
$ | 3,646,986 | 543,229 | 1,759,881 | 644,850 | 469,134 | 229,892 | |||||||||||||||||
December 31, 2010 | ||||||||||||||||||||||||
Residential | Commercial | Other | Home | |||||||||||||||||||||
(Dollars in thousands) | Total | Real Estate | Real Estate | Commercial | Equity | Consumer | ||||||||||||||||||
Allowance for loan
and lease losses |
||||||||||||||||||||||||
Individually
evaluated for
impairment |
$ | 16,871 | 2,793 | 10,184 | 2,649 | 504 | 741 | |||||||||||||||||
Collectively
evaluated for
impairment |
120,236 | 18,164 | 65,963 | 17,283 | 12,830 | 5,996 | ||||||||||||||||||
Total ALLL |
$ | 137,107 | 20,957 | 76,147 | 19,932 | 13,334 | 6,737 | |||||||||||||||||
Loans receivable |
||||||||||||||||||||||||
Individually
evaluated for
impairment |
$ | 225,052 | 29,480 | 165,784 | 21,358 | 6,138 | 2,292 | |||||||||||||||||
Collectively
evaluated for
impairment |
3,524,237 | 603,397 | 1,630,719 | 633,230 | 476,999 | 179,892 | ||||||||||||||||||
Total Loans receivable |
$ | 3,749,289 | 632,877 | 1,796,503 | 654,588 | 483,137 | 182,184 | |||||||||||||||||
Substantially all of the Companys loan receivables are with customers within the Companys market areas. Although the Company has a diversified loan portfolio, a substantial portion of its customers ability to honor their obligations is dependent upon the economic performance in the Companys market areas. Net deferred fees, premiums, and discounts are included in the loan receivable balances of $5,165,000 and $6,001,000 at March 31, 2011 and December 31, 2010, respectively. |
The following is a summary of activity in the ALLL for the periods ended March 31, 2011 and March 31, 2010: |
March 31, | March 31, | |||||||
(Dollars in thousands) | 2011 | 2010 | ||||||
Balance at the beginning of the year |
$ | 137,107 | 142,927 | |||||
Charge-offs |
(16,504 | ) | (21,477 | ) | ||||
Recoveries |
726 | 1,240 | ||||||
Provision |
19,500 | 20,910 | ||||||
Balance at the end of the period |
$ | 140,829 | 143,600 | |||||
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The following is a summary of the impaired loans by portfolio class of loans for the periods ended March 31, 2011 and December 31, 2010: |
At or for the Three Months ended March 31, 2011 | ||||||||||||||||||||||||
Residential | Commercial | Other | Home | |||||||||||||||||||||
(Dollars in thousands) | Total | Real Estate | Real Estate | Commercial | Equity | Consumer | ||||||||||||||||||
Loans with a specific
valuation allowance |
||||||||||||||||||||||||
Recorded balance |
$ | 61,141 | 4,736 | 39,106 | 11,457 | 1,778 | 4,064 | |||||||||||||||||
Unpaid principal balance |
64,971 | 4,714 | 41,925 | 12,470 | 1,793 | 4,069 | ||||||||||||||||||
Valuation allowance |
15,402 | 601 | 8,786 | 4,069 | 974 | 972 | ||||||||||||||||||
Average impaired loans |
63,155 | 8,604 | 41,722 | 8,678 | 1,255 | 2,896 | ||||||||||||||||||
Loans without a
specific valuation
allowance |
||||||||||||||||||||||||
Recorded balance |
$ | 157,600 | 14,319 | 119,038 | 14,726 | 8,111 | 1,406 | |||||||||||||||||
Unpaid principal balance |
190,136 | 15,993 | 145,976 | 17,261 | 9,029 | 1,877 | ||||||||||||||||||
Average impaired loans |
158,742 | 15,663 | 120,242 | 15,093 | 6,759 | 985 | ||||||||||||||||||
Totals |
||||||||||||||||||||||||
Recorded balance |
$ | 218,741 | 19,055 | 158,144 | 26,183 | 9,889 | 5,470 | |||||||||||||||||
Unpaid principal balance |
255,107 | 20,707 | 187,901 | 29,731 | 10,822 | 5,946 | ||||||||||||||||||
Valuation allowance |
15,402 | 601 | 8,786 | 4,069 | 974 | 972 | ||||||||||||||||||
Average impaired loans |
221,897 | 24,267 | 161,964 | 23,771 | 8,014 | 3,881 |
At or for the Year ended December 31, 2010 | ||||||||||||||||||||||||
Residential | Commercial | Other | Home | |||||||||||||||||||||
(Dollars in thousands) | Total | Real Estate | Real Estate | Commercial | Equity | Consumer | ||||||||||||||||||
Loans with a specific valuation allowance |
||||||||||||||||||||||||
Recorded balance |
$ | 65,170 | 12,473 | 44,338 | 5,898 | 732 | 1,729 | |||||||||||||||||
Unpaid principal balance |
73,195 | 12,970 | 50,614 | 6,934 | 945 | 1,732 | ||||||||||||||||||
Valuation allowance |
16,871 | 2,793 | 10,184 | 2,649 | 504 | 741 | ||||||||||||||||||
Average impaired loans |
71,192 | 10,599 | 51,627 | 5,773 | 1,514 | 1,679 | ||||||||||||||||||
Loans without a specific valuation
allowance |
||||||||||||||||||||||||
Recorded balance |
$ | 159,882 | 17,007 | 121,446 | 15,460 | 5,406 | 563 | |||||||||||||||||
Unpaid principal balance |
186,280 | 20,399 | 142,141 | 16,909 | 6,204 | 627 | ||||||||||||||||||
Average impaired loans |
152,364 | 18,402 | 109,136 | 17,412 | 5,696 | 1,718 | ||||||||||||||||||
Totals |
||||||||||||||||||||||||
Recorded balance |
$ | 225,052 | 29,480 | 165,784 | 21,358 | 6,138 | 2,292 | |||||||||||||||||
Unpaid principal balance |
259,475 | 33,369 | 192,755 | 23,843 | 7,149 | 2,359 | ||||||||||||||||||
Valuation allowance |
16,871 | 2,793 | 10,184 | 2,649 | 504 | 741 | ||||||||||||||||||
Average impaired loans |
223,556 | 29,001 | 160,763 | 23,185 | 7,210 | 3,397 |
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The following is a loan portfolio aging analysis as of March 31, 2011 and December 31, 2010: |
At March 31, 2011 | ||||||||||||||||||||||||
Residential | Commercial | Other | Home | |||||||||||||||||||||
(Dollars in thousands) | Total | Real Estate | Real Estate | Commercial | Equity | Consumer | ||||||||||||||||||
Accruing loans 30-59 days or more past due |
$ | 41,701 | 11,337 | 16,122 | 4,689 | 2,946 | 6,607 | |||||||||||||||||
Accruing loans 60-89 days or more past due |
10,701 | 404 | 8,317 | 1,040 | 484 | 456 | ||||||||||||||||||
Accruing loans 90 days or more past due |
6,578 | 191 | 2,171 | 1,378 | 2,383 | 455 | ||||||||||||||||||
Non-accual loans |
178,402 | 16,949 | 126,071 | 25,219 | 6,810 | 3,353 | ||||||||||||||||||
Total past due and non-accrual loans |
237,382 | 28,881 | 152,681 | 32,326 | 12,623 | 10,871 | ||||||||||||||||||
Current loans receivable |
3,409,604 | 514,348 | 1,607,200 | 612,524 | 456,511 | 219,021 | ||||||||||||||||||
Total loans receivable |
$ | 3,646,986 | 543,229 | 1,759,881 | 644,850 | 469,134 | 229,892 | |||||||||||||||||
At December 31, 2010 | ||||||||||||||||||||||||
Residential | Commercial | Other | Home | |||||||||||||||||||||
(Dollars in thousands) | Total | Real Estate | Real Estate | Commercial | Equity | Consumer | ||||||||||||||||||
Accruing loans 30-59 days or more past due |
$ | 36,545 | 13,450 | 11,399 | 6,262 | 3,031 | 2,403 | |||||||||||||||||
Accruing loans 60-89 days or more past due |
8,952 | 1,494 | 4,424 | 1,053 | 1,642 | 339 | ||||||||||||||||||
Accruing loans 90 days or more past due |
4,531 | 506 | 731 | 2,320 | 910 | 64 | ||||||||||||||||||
Non-accual loans |
192,505 | 23,095 | 142,334 | 18,802 | 5,431 | 2,843 | ||||||||||||||||||
Total past due and non-accrual loans |
242,533 | 38,545 | 158,888 | 28,437 | 11,014 | 5,649 | ||||||||||||||||||
Current loans receivable |
3,506,756 | 594,332 | 1,637,615 | 626,151 | 472,123 | 176,535 | ||||||||||||||||||
Total loans receivable |
$ | 3,749,289 | 632,877 | 1,796,503 | 654,588 | 483,137 | 182,184 | |||||||||||||||||
Interest income recognized on impaired loans for the periods ended March 31, 2011 and December 31, 2010 was not significant. The Companys TDR loans are included in the amount of impaired loans. As of March 31, 2011, the Company had TDR loans of $62,371,000 of which $36,686,000 was on non-accrual status. |
The Company generally sells its long-term mortgage loans originated, retaining servicing only when required by certain lenders. The sale of loans in the secondary mortgage market reduces the Companys risk of holding residential fixed rate loans in the loan portfolio. The amount of loans sold and serviced for others at March 31, 2011 and December 31, 2010 was $170,009,000 and $173,446,000, respectively. |
The Company occasionally purchases and sells other loan participations, the majority of which are large commercial loans. For participation transactions, the bank subsidiaries originate and sell the loan participations at fair value on a proportionate ownership basis, with no recourse conditions. |
The Company considers its impaired loans to be the primary credit quality indicator for monitoring the credit quality of the loan portfolio. Loans are designated impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement; and therefore, the Company has serious doubts as to the ability of such borrowers to fulfill the contractual obligation. Impaired loans include non-performing loans (i.e., non-accrual loans and accruing loans 90 days or more past due) and accruing loans under ninety days past due where it is probable payments will not be received according to the loan agreement (e.g., troubled debt restructuring (TDR) loans). Loan impairment is measured in the same manner for each class within the loan portfolio. |
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5) | Other Intangible Assets |
The following table sets forth information regarding the Companys core deposit intangibles: |
(Dollars in thousands) | March 31, 2011 | |||
Gross carrying value |
$ | 31,847 | ||
Accumulated amortization |
(21,817 | ) | ||
Net carrying value |
$ | 10,030 | ||
Weighted-average amortization period |
||||
(Period in years) |
9.1 | |||
Aggregate amortization expense |
||||
For the three months ended March 31, 2011 |
$ | 727 | ||
Estimated amortization expense |
||||
For the year ended December 31, 2011 |
$ | 2,473 | ||
For the year ended December 31, 2012 |
2,111 | |||
For the year ended December 31, 2013 |
1,860 | |||
For the year ended December 31, 2014 |
1,611 | |||
For the year ended December 31, 2015 |
1,368 |
6) | Deposits |
The following table identifies the amount outstanding at March 31, 2011 for deposits of $100,000 and greater, according to the time remaining to maturity. Included in certificates of deposit are brokered certificates of deposit and deposits issued through the Certificate of Deposit Account Registry System of $368,012,000. Included in demand deposits are brokered deposits of $196,193,000. |
Certificates | Demand | |||||||||||
(Dollars in thousands) | of Deposit | Deposits | Totals | |||||||||
Within three months |
$ | 319,570 | 1,810,386 | 2,129,956 | ||||||||
Three months to six months |
236,951 | | 236,951 | |||||||||
Seven months to twelve months |
191,102 | | 191,102 | |||||||||
Over twelve months |
151,791 | | 151,791 | |||||||||
Totals |
$ | 899,414 | 1,810,386 | 2,709,800 | ||||||||
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7) | Short-term Borrowings |
The following table provides information relating short-term borrowings which includes borrowings that mature within one year of period end: |
At or for the Three | At or for the | |||||||
Months ended | Year ended | |||||||
(Dollars in thousands) | March 31, 2011 | December 31, 2010 | ||||||
FHLB advances |
||||||||
Amount outstanding at end of period |
$ | 733,028 | 761,064 | |||||
Weighted interest rate on outstanding amount |
0.44 | % | 0.32 | % | ||||
Maximum outstanding at any month-end |
$ | 777,052 | 773,076 | |||||
Average balance |
$ | 754,647 | 488,044 | |||||
Weighted average interest rate |
0.45 | % | 0.39 | % | ||||
Repurchase agreements |
||||||||
Amount outstanding at end of period |
$ | 250,932 | 249,403 | |||||
Weighted interest rate on outstanding amount |
0.60 | % | 0.63 | % | ||||
Maximum outstanding at any month-end |
$ | 250,932 | 252,083 | |||||
Average balance |
$ | 240,579 | 227,202 | |||||
Weighted average interest rate |
0.60 | % | 0.71 | % | ||||
Total FHLB advances, repurchase agreements,
and Federal Reserve Bank discount window |
||||||||
Amount outstanding at end of period |
$ | 983,960 | 1,010,467 | |||||
Weighted interest rate on outstanding amount |
0.48 | % | 0.40 | % | ||||
Maximum outstanding at any month-end |
$ | 1,027,984 | 1,025,159 | |||||
Average balance |
$ | 995,226 | 715,246 | |||||
Weighted average interest rate |
0.49 | % | 0.49 | % |
8) | Comprehensive Income |
The Companys only component of comprehensive income other than net earnings is the unrealized gain or loss, net of tax, on available-for-sale securities. |
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Three Months | ||||||||
ended March 31, | ||||||||
(Dollars in thousands) | 2011 | 2010 | ||||||
Net earnings |
$ | 10,285 | 10,070 | |||||
Unrealized holding gains arising during the period |
3,028 | 9,953 | ||||||
Tax expense |
(1,186 | ) | (3,900 | ) | ||||
Net after tax |
1,842 | 6,053 | ||||||
Reclassification adjustment for gains
included in net earnings |
(124 | ) | (314 | ) | ||||
Tax expense |
48 | 123 | ||||||
Net after tax |
(76 | ) | (191 | ) | ||||
Net unrealized gain on securities |
1,766 | 5,862 | ||||||
Total comprehensive income |
$ | 12,051 | 15,932 | |||||
9) | Federal and State Income Taxes |
The Company and its bank subsidiaries join together in the filing of consolidated income tax returns in the following jurisdictions: federal, Montana, Idaho, Colorado and Utah. Although 1st Bank and First National have operations in Wyoming and Mountain West has operations in Washington, neither Wyoming nor Washington imposes a corporate-level income tax. All required income tax returns have been timely filed. The following schedule summarizes the years that remain subject to examination as of March 31, 2011: |
Years ended December 31, | ||||
Federal |
2007, 2008 and 2009 | |||
Montana |
2007, 2008 and 2009 | |||
Idaho |
2007, 2008 and 2009 | |||
Colorado |
2007, 2008 and 2009 | |||
Utah |
2007, 2008 and 2009 |
The Company has investments in CDEs which received NMTC allocations. Administered by the Community Development Financial Institutions Fund of the U.S. Department of the Treasury, the NMTC program is aimed at stimulating economic and community development and job creation in low-income communities. The federal income tax credits received are claimed over a seven-year credit allowance period. The Company also has made investments in LIHTCs which are indirect federal subsidies used to finance the development of affordable rental housing for low-income households. The federal income tax credits received are claimed over a ten-year credit allowance period. The Company has investments in Qualified Zone Academy and Qualified School Construction bonds whereby the Company receives quarterly federal income tax credits in lieu of taxable interest income until the bonds mature. The federal income tax credits on these bonds are subject to federal and state income tax. |
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Table of Contents
Following is a list of expected federal income tax credits to be received in the years indicated. |
New | Low-Income | Investment | ||||||||||||||
Years ended | Markets | Housing | Securities | |||||||||||||
(Dollars in thousands) | Tax Credits | Tax Credits | Tax Credits | Total | ||||||||||||
2011 |
$ | 2,000 | 1,176 | 953 | 4,129 | |||||||||||
2012 |
2,306 | 1,270 | 939 | 4,515 | ||||||||||||
2013 |
2,400 | 1,270 | 921 | 4,591 | ||||||||||||
2014 |
2,400 | 1,270 | 899 | 4,569 | ||||||||||||
2015 |
2,400 | 1,174 | 875 | 4,449 | ||||||||||||
Thereafter |
564 | 5,379 | 5,263 | 11,206 | ||||||||||||
$ | 12,070 | 11,539 | 9,850 | 33,459 | ||||||||||||
The Company had no unrecognized tax benefit as of March 31, 2011 and 2010. The Company recognizes interest related to unrecognized income tax benefits in interest expense and penalties are recognized in other expense. During the three months ended March 31, 2011 and 2010, the Company did not recognize interest expense or penalties with respect to income tax liabilities. The Company had no accrued liabilities for the payment of interest or penalties at March 31, 2011 and 2010. |
10) | Earnings Per Share |
Basic earnings per common share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares as if dilutive outstanding stock options were exercised, using the treasury stock method. |
The following schedule contains the data used in the calculation of basic and diluted earnings per share: |
Three Months | ||||||||
ended March 31, | ||||||||
2011 | 2010 | |||||||
Net earnings available to common
stockholders, basic and diluted |
$ | 10,285,000 | 10,070,000 | |||||
Average outstanding shares basic |
71,915,073 | 62,763,299 | ||||||
Add: dilutive stock options |
| | ||||||
Average outstanding shares diluted |
71,915,073 | 62,763,299 | ||||||
Basic earnings per share |
$ | 0.14 | 0.16 | |||||
Diluted earnings per share |
$ | 0.14 | 0.16 | |||||
There were 1,746,472 and 2,408,381 stock options excluded from the diluted average outstanding share calculation for the three months ended March 31, 2011 and 2010, respectively, due to the option exercise price exceeding the market price. |
11) | Fair Value of Financial Instruments |
FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires the Company to disclose information relating to fair value. Fair value is defined as the price that would be received to sell an |
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Table of Contents
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Topic establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: |
Level 1 | Quoted prices in active markets for identical assets or liabilities |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities |
The following is a description of the inputs and valuation methodologies used for financial assets measured at fair value on a recurring basis. There have been no significant changes in the valuation techniques during the period ended March 31, 2011. |
Investment securities: fair value for available-for-sale securities is estimated by obtaining quoted market prices for identical assets, where available. If such prices are not available, fair value is based on independent asset pricing services and models, the inputs of which are market-based or independently sourced market parameters, including but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections, and cash flows. For those securities where greater reliance on unobservable inputs occurs, such securities are classified as Level 3 within the hierarchy. |
The following schedule discloses the major class of assets measured at fair value on a recurring basis during the three month period ended March 31, 2011 and the year ended December 31, 2010. |
Assets/ | Quoted Prices | Significant | ||||||||||||||
Liabilities | in Active Markets | Other | Significant | |||||||||||||
Measured at | for Identical | Observable | Unobservable | |||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
(Dollars in thousands) | 03/31/11 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Financial assets |
||||||||||||||||
U.S. Government and federal agency |
$ | 210 | | 210 | | |||||||||||
Government sponsored enterprises |
37,640 | | 37,640 | | ||||||||||||
State and local governments and other issues |
881,381 | | 881,381 | | ||||||||||||
Collateralized debt obligations |
7,075 | | | 7,075 | ||||||||||||
Residential mortgage-backed securities |
1,780,009 | | 1,779,811 | 198 | ||||||||||||
Total financial assets |
$ | 2,706,315 | | 2,699,042 | 7,273 | |||||||||||
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Assets/ | Quoted Prices | Significant | ||||||||||||||
Liabilities | in Active Markets | Other | Significant | |||||||||||||
Measured at | for Identical | Observable | Unobservable | |||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
(Dollars in thousands) | 12/31/10 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Financial assets |
||||||||||||||||
U.S. Government and federal agency |
$ | 211 | | 211 | | |||||||||||
Government sponsored enterprises |
41,518 | | 41,518 | | ||||||||||||
State and local governments and other issues |
658,033 | | 658,033 | | ||||||||||||
Collateralized debt obligations |
6,595 | | | 6,595 | ||||||||||||
Residential mortgage-backed securities |
1,690,102 | | 1,689,946 | 156 | ||||||||||||
Total financial assets |
$ | 2,396,459 | | 2,389,708 | 6,751 | |||||||||||
The following schedules reconcile the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three month periods ended March 31, 2011 and 2010. |
Significant Unobservable Inputs (Level 3) | ||||||||||||||||
State and Local | Collateralized | Residential | ||||||||||||||
Government and | Debt | Mortgage-backed | ||||||||||||||
(Dollars in thousands) | Total | Other Issues | Obligations | Securities | ||||||||||||
Balance as of December 31, 2010 |
$ | 6,751 | | 6,595 | 156 | |||||||||||
Total unrealized gains included
in other comprehensive income |
522 | | 480 | 42 | ||||||||||||
Amortization, accretion and
principal payments |
| | | | ||||||||||||
Sales, maturities and calls |
| | | | ||||||||||||
Transfers out of Level 3 |
| | | | ||||||||||||
Balance as of March 31, 2011 |
$ | 7,273 | | 7,075 | 198 | |||||||||||
Significant Unobservable Inputs (Level 3) | ||||||||||||||||
State and Local | Collateralized | Residential | ||||||||||||||
Government and | Debt | Mortgage-backed | ||||||||||||||
(Dollars in thousands) | Total | Other Issues | Obligations | Securities | ||||||||||||
Balance as of December 31, 2009 |
$ | 9,988 | 2,088 | 6,789 | 1,111 | |||||||||||
Total unrealized gains included in
other comprehensive income |
2,842 | | 2,385 | 457 | ||||||||||||
Amortization, accretion and
principal payments |
| | | | ||||||||||||
Purchases |
| | | | ||||||||||||
Transfers out of Level 3 |
(2,088 | ) | (2,088 | ) | | | ||||||||||
Balance as of March 31, 2010 |
$ | 10,742 | | 9,174 | 1,568 | |||||||||||
The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis. There have been no significant changes in the valuation techniques during the period ended March 31, 2011. |
Other real estate owned: other real estate owned is carried at the lower of fair value at acquisition date or estimated fair value, less estimated cost to sell. Estimated fair value of other real estate owned is based on appraisals or evaluations. Other real estate owned is classified within Level 3 of the fair value hierarchy. |
Collateral-dependent impaired loans, net of ALLL: loans included in the Companys financials for which it is probable that the Company will not collect all principal and interest due according to |
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contractual terms are considered impaired in accordance with FASB ASC Topic 310, Receivables. Estimated fair value of collateral-dependent impaired loans is based on the fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy. |
In determining fair values of other real estate owned and the collateral-dependent impaired loan, the Company considers the appraisal or evaluation as the starting point for determining fair value and the Company also considers other factors and events in the environment that may affect the fair value. |
The following schedule discloses the major classes of assets with a recorded change during the year in the consolidated financial statements resulting from re-measuring the assets at fair value on a non-recurring basis for the periods ending March 31, 2011 and December 31, 2010. |
Assets/ | Quoted Prices | Significant | ||||||||||||||
Liabilities | in Active Markets | Other | Significant | |||||||||||||
Measured at | for Identical | Observable | Unobservable | |||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
(Dollars in thousands) | 03/31/11 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Financial assets |
||||||||||||||||
Other real estate owned |
$ | 1,393 | | | 1,393 | |||||||||||
Collateral-dependent impaired loans,
net of allowance for loan and lease
losses |
33,930 | | | 33,930 | ||||||||||||
Total financial assets |
$ | 35,323 | | | 35,323 | |||||||||||
Assets/ | Quoted Prices | Significant | ||||||||||||||
Liabilities | in Active Markets | Other | Significant | |||||||||||||
Measured at | for Identical | Observable | Unobservable | |||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
(Dollars in thousands) | 12/31/10 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Financial assets |
||||||||||||||||
Other real estate owned |
$ | 17,492 | | | 17,492 | |||||||||||
Collateral-dependent impaired loans,
net of allowance for loan and lease
losses |
47,283 | | | 47,283 | ||||||||||||
Total financial assets |
$ | 64,775 | | | 64,775 | |||||||||||
The following is a description of the methods used to estimate the fair value of all other financial instruments recognized at amounts other than fair value. |
Financial Assets |
The estimated fair value of cash, federal funds sold, interest bearing cash deposits, and accrued interest receivable is the book value of such financial assets. |
The estimated fair value of FHLB and FRB stock is book value due to the restrictions that such stock may only be sold to another member institution or the FHLB or FRB at par value. These assets are included in non-marketable equity securities reported on the Companys balance sheet. |
Loans held for sale: fair value is estimated at book value due to the insignificant time between origination date and sale date. |
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Loans receivable, net of ALLL: fair value for loans, net of ALLL, is estimated by discounting the future cash flows using the rates at which similar notes would be written for the same remaining maturities. |
Financial Liabilities |
The estimated fair value of accrued interest payable is the book value of such financial liabilities. |
Deposits: fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The estimated fair value of demand, NOW, savings, and money market deposits is the book value since rates are regularly adjusted to market rates. |
Advances from FHLB: fair value of advances is estimated based on borrowing rates currently available to the Company for advances with similar terms and maturities. |
Repurchase agreements and other borrowed funds: fair value of term repurchase agreements and other term borrowings is estimated based on current repurchase rates and borrowing rates currently available to the Company for repurchases and borrowings with similar terms and maturities. The estimated fair value for overnight repurchase agreements and other borrowings is book value. |
Subordinated debentures: fair value of the subordinated debt is estimated by discounting the estimated future cash flows using current estimated market rates for subordinated debt issuances with similar characteristics. |
Off-balance sheet financial instruments: commitments to extend credit and letters of credit represent the principal categories of off-balance sheet financial instruments. Rates for these commitments are set at time of loan closing, such that no adjustment is necessary to reflect these commitments at market value. The Company has immaterial off-balance sheet financial instruments. |
The following presents the carrying amounts and estimated fair values as of March 31, 2011 and December 31, 2010: |
March 31, 2011 | December 31, 2010 | |||||||||||||||
(Dollars in thousands) | Amount | Fair Value | Amount | Fair Value | ||||||||||||
Financial assets |
||||||||||||||||
Cash and cash equivalents |
$ | 98,104 | 98,104 | 105,090 | 105,090 | |||||||||||
Investment securities |
2,706,315 | 2,706,315 | 2,396,459 | 2,396,459 | ||||||||||||
Loans held for sale |
23,904 | 23,904 | 76,213 | 76,213 | ||||||||||||
Loans receivable, net of allowance for loan and lease losses |
3,506,157 | 3,551,031 | 3,612,182 | 3,631,716 | ||||||||||||
Non-marketable equity securities |
64,434 | 64,434 | 64,429 | 64,429 | ||||||||||||
Accrued interest receivable |
33,707 | 33,707 | 30,246 | 30,246 | ||||||||||||
Total financial assets |
$ | 6,432,621 | 6,477,495 | 6,284,619 | 6,304,153 | |||||||||||
Financial liabilities |
||||||||||||||||
Deposits |
$ | 4,552,310 | 4,563,339 | 4,521,902 | 4,533,974 | |||||||||||
FHLB advances |
960,097 | 969,977 | 965,141 | 974,853 | ||||||||||||
Repurchase agreements and other borrowed funds |
265,067 | 265,072 | 269,408 | 269,414 | ||||||||||||
Subordinated debentures |
125,167 | 70,806 | 125,132 | 70,404 | ||||||||||||
Accrued interest payable |
6,790 | 6,790 | 7,245 | 7,245 | ||||||||||||
Total financial liabilities |
$ | 5,909,431 | 5,875,984 | 5,888,828 | 5,855,890 | |||||||||||
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12) | Operating Segment Information |
FASB ASC Topic 280, Segment Reporting, requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers in deciding how to allocate resources and in assessing performance. The Company defines operating segments and evaluates segment performance internally based on individual bank charters, with the exception of GORE. If required, VIEs are consolidated into the operating segment which invested in the entities. | ||
The accounting policies of the individual operating segments are the same as those of the Company. Transactions between operating segments are conducted at fair value, resulting in profits that are eliminated for reporting consolidated results of operations. Intersegment revenues primarily represents interest income on intercompany borrowings, management fees, and data processing fees received by individual banks or the Parent. Intersegment revenues, expenses and assets are eliminated in order to report results in accordance with accounting principles generally accepted in the United States of America. Expenses for centrally provided services are allocated based on the estimated usage of those services. | ||
The following schedules provide selected financial data for the Companys operating segments: |
At or for the Three Months ended March 31, 2011 | ||||||||||||||||||||||||||||||||
Mountain | First | First | ||||||||||||||||||||||||||||||
(Dollars in thousands) | Glacier | West | Security | Western | 1st Bank | Valley | Big Sky | National | ||||||||||||||||||||||||
External revenues |
$ | 17,334 | 17,469 | 12,657 | 8,194 | 7,613 | 4,969 | 4,741 | 3,261 | |||||||||||||||||||||||
Intersegment revenues |
66 | 142 | 20 | 55 | 3 | 59 | 3 | 35 | ||||||||||||||||||||||||
Expenses |
(15,041 | ) | (18,509 | ) | (10,714 | ) | (6,305 | ) | (6,515 | ) | (3,493 | ) | (3,782 | ) | (2,753 | ) | ||||||||||||||||
Net Earnings (Loss) |
$ | 2,359 | (898 | ) | 1,963 | 1,944 | 1,101 | 1,535 | 962 | 543 | ||||||||||||||||||||||
Total Assets |
$ | 1,387,078 | 1,172,141 | 1,062,765 | 764,396 | 746,074 | 398,690 | 363,805 | 360,346 | |||||||||||||||||||||||
First Bank | San | |||||||||||||||||||||||||||||||
Citizens | of MT | Juans | GORE | Parent | Eliminations | Consolidated | ||||||||||||||||||||||||||
External revenues |
$ | 4,156 | 2,314 | 2,629 | 30 | 401 | | 85,768 | ||||||||||||||||||||||||
Intersegment revenues |
18 | 35 | 44 | | 14,686 | (15,166 | ) | | ||||||||||||||||||||||||
Expenses |
(3,583 | ) | (1,481 | ) | (2,210 | ) | (324 | ) | (4,862 | ) | 4,089 | (75,483 | ) | |||||||||||||||||||
Net Earnings (Loss) |
$ | 591 | 868 | 463 | (294 | ) | 10,225 | (11,077 | ) | 10,285 | ||||||||||||||||||||||
Total Assets |
$ | 317,353 | 254,958 | 234,195 | 21,232 | 984,190 | (1,157,359 | ) | 6,909,864 | |||||||||||||||||||||||
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At or for the Three Months ended March 31, 2010 | ||||||||||||||||||||||||||||
Mountain | First | |||||||||||||||||||||||||||
(Dollars in thousands) | Glacier | West | Security | Western | 1st Bank | Valley | Big Sky | |||||||||||||||||||||
External revenues |
$ | 18,735 | 18,950 | 12,556 | 8,128 | 7,976 | 5,092 | 4,836 | ||||||||||||||||||||
Intersegment revenues |
48 | 19 | 18 | 132 | 91 | 36 | | |||||||||||||||||||||
Expenses |
(17,735 | ) | (18,484 | ) | (10,160 | ) | (6,317 | ) | (6,501 | ) | (3,631 | ) | (4,504 | ) | ||||||||||||||
Net Earnings (Loss) |
$ | 1,048 | 485 | 2,414 | 1,943 | 1,566 | 1,497 | 332 | ||||||||||||||||||||
Total Assets |
$ | 1,337,314 | 1,246,716 | 912,266 | 625,791 | 633,025 | 318,270 | 376,947 | ||||||||||||||||||||
First | First Bank | San | ||||||||||||||||||||||||||
National | Citizens | of MT | Juans | Parent | Eliminations | Consolidated | ||||||||||||||||||||||
External revenues |
$ | 4,040 | 4,148 | 2,420 | 2,637 | 63 | | 89,581 | ||||||||||||||||||||
Intersegment revenues |
8 | | 50 | | 14,636 | (15,038 | ) | | ||||||||||||||||||||
Expenses |
(3,676 | ) | (3,570 | ) | (1,691 | ) | (2,461 | ) | (4,629 | ) | 3,848 | (79,511 | ) | |||||||||||||||
Net Earnings (Loss) |
$ | 372 | 578 | 779 | 176 | 10,070 | (11,190 | ) | 10,070 | |||||||||||||||||||
Total Assets |
$ | 305,986 | 256,681 | 211,717 | 176,832 | 981,417 | (1,157,094 | ) | 6,225,868 | |||||||||||||||||||
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Form 10-Q may contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to,
statements about managements plans, objectives, expectations and intentions that are not
historical facts, and other statements identified by words such as expects, anticipates,
intends, plans, believes, should, projects, seeks, estimates or words of similar
meaning. These forward-looking statements are based on current beliefs and expectations of
management and are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Companys control. In addition, these
forward-looking statements are subject to assumptions with respect to future business strategies
and decisions that are subject to change. The following factors, among others, could cause actual
results to differ materially from the anticipated results or other expectations in the
forward-looking statements, including those set forth in this Form 10-Q:
| the risks associated with lending and potential adverse changes of the credit quality of loans in the Companys portfolio, including as a result of declines in the housing and real estate markets in its geographic areas; | ||
| increased loan delinquency rates; | ||
| the risks presented by a continued economic downturn, which could adversely affect credit quality, loan collateral values, other real estate owned values, investment values, liquidity and capital levels, dividends and loan originations; | ||
| changes in market interest rates, which could adversely affect the Companys net interest income and profitability; | ||
| legislative or regulatory changes that adversely affect the Companys business, ability to complete pending or prospective future acquisitions, limit certain sources of revenue, or increase cost of operations; | ||
| costs or difficulties related to the integration of acquisitions; | ||
| the goodwill we have recorded in connection with acquisitions could become impaired, which may have an adverse impact on our earnings and capital; | ||
| reduced demand for banking products and services; | ||
| the risks presented by public stock market volatility, which could adversely affect the market price of our common stock and our ability to raise additional capital in the future; | ||
| competition from other financial services companies in our markets; |
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| loss of services from the senior management team; and | ||
| the Companys success in managing risks involved in the foregoing. |
Additional factors that could cause actual results to differ materially from those expressed in the
forward-looking statements are discussed in Risk Factors in Item 1A. Please take into account that
forward-looking statements speak only as of the date of this Form 10-Q. The Company does not
undertake any obligation to publicly correct or update any forward-looking statement if it later
becomes aware that actual results are likely to differ materially from those expressed in such
forward-looking statement.
Financial Condition Analysis
Assets
$ Change from | $ Change from | |||||||||||||||||||
March 31, | December 31, | March 31, | December 31, | March 31, | ||||||||||||||||
(Unaudited - Dollars in thousands) | 2011 | 2010 | 2010 | 2010 | 2010 | |||||||||||||||
Cash on hand and in banks |
$ | 75,471 | 71,465 | 93,242 | 4,006 | (17,771 | ) | |||||||||||||
Investments, interest bearing deposits,
and fed funds |
2,728,948 | 2,430,084 | 1,658,230 | 298,864 | 1,070,718 | |||||||||||||||
Loans |
||||||||||||||||||||
Residential real estate |
543,229 | 632,877 | 717,306 | (89,648 | ) | (174,077 | ) | |||||||||||||
Commercial |
2,404,731 | 2,451,091 | 2,593,266 | (46,360 | ) | (188,535 | ) | |||||||||||||
Consumer and other |
699,026 | 665,321 | 704,789 | 33,705 | (5,763 | ) | ||||||||||||||
Loans receivable |
3,646,986 | 3,749,289 | 4,015,361 | (102,303 | ) | (368,375 | ) | |||||||||||||
Allowance for loan and lease losses |
(140,829 | ) | (137,107 | ) | (143,600 | ) | (3,722 | ) | 2,771 | |||||||||||
Loans receivable, net |
3,506,157 | 3,612,182 | 3,871,761 | (106,025 | ) | (365,604 | ) | |||||||||||||
Other assets |
599,288 | 645,556 | 602,635 | (46,268 | ) | (3,347 | ) | |||||||||||||
Total assets |
$ | 6,909,864 | 6,759,287 | 6,225,868 | 150,577 | 683,996 | ||||||||||||||
Total assets at March 31, 2011 were $6.910 billion, which is $151 million, or 2 percent
greater than total assets of $6.759 billion at December 31, 2010 and $684 million, or 11 percent
greater than total assets of $6.226 billion at March 31, 2010.
Investment securities, including interest bearing deposits and federal funds sold, have increased
$299 million, or 12 percent, from December 31, 2010 and increased $1.071 billion, or 65 percent,
since March 31, 2010. The Company continues to purchase investment securities, predominately
mortgage-backed securities issued by Freddie Mac and Fannie Mae, with short weighted-average-lives
to offset the current lack of loan growth. The Company also continues to selectively purchase and
diversify its tax-exempt investment securities. Investment securities represent 39 percent of
total assets at March 31, 2011 versus 36 percent of total assets at March 31, 2010.
At March 31, 2011, loans receivable were $3.647 billion, a decrease of $102 million, or 3 percent,
over loans receivable of $3.749 billion at December 31, 2010. Excluding net charge-offs of $15.8
million and loans transferred to other real estate of $16.7 million, loans decreased $69.5
million, or 2 percent from December 31, 2010. During the past twelve months, gross loans decreased
$368 million, or 9 percent, over gross loans of $4.015 billion at March 31, 2010. The largest
decrease in dollars was in commercial loans which decreased $189 million, or 7 percent, from March
31, 2010.
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Table of Contents
Liabilities
$ Change from | $ Change from | |||||||||||||||||||
March 31, | December 31, | March 31, | December 31, | March 31, | ||||||||||||||||
(Unaudited Dollars in thousands) | 2011 | 2010 | 2010 | 2010 | 2010 | |||||||||||||||
Non-interest bearing deposits |
$ | 888,311 | 855,829 | 828,141 | 32,482 | 60,170 | ||||||||||||||
Interest bearing deposits |
3,663,999 | 3,666,073 | 3,336,703 | (2,074 | ) | 327,296 | ||||||||||||||
FHLB advances |
960,097 | 965,141 | 802,886 | (5,044 | ) | 157,211 | ||||||||||||||
Securities sold under agreements to
repurchase and other borrowed funds |
265,067 | 269,408 | 248,894 | (4,341 | ) | 16,173 | ||||||||||||||
Other liabilities |
167,334 | 39,500 | 45,765 | 127,834 | 121,569 | |||||||||||||||
Subordinated debentures |
125,167 | 125,132 | 125,024 | 35 | 143 | |||||||||||||||
Total liabilities |
$ | 6,069,975 | 5,921,083 | 5,387,413 | 148,892 | 682,562 | ||||||||||||||
As of March 31, 2011, non-interest bearing deposits of $888 million increased $32 million, or
4 percent, since December 31, 2010 and increased $60 million, or 7 percent, since March 31, 2010.
Interest bearing deposits of $3.664 billion at March 31, 2011 include $181 million issued through
the Certificate of Deposit Account Registry System (CDARS). Interest bearing deposits decreased
$2 million, or .1 percent, from the prior quarter, which includes a $3.4 million reduction in
wholesale deposits. Interest bearing deposits increased $327 million, or 10 percent from March 31,
2010 which included $184 million from wholesale deposits and CDARS. The increase in non-interest
bearing deposits from both the prior quarter and the same quarter last year was driven by growth in
the number of personal and business customers, as well as existing customers retaining cash
deposits because of the uncertainty in the current interest rate environment and for liquidity
purposes. The decrease in interest bearing deposits from the prior quarter resulted primarily from
seasonal decreases that typically occur during the first quarter.
Increases in deposits have reduced the Companys reliance on the amount of borrowings necessary to
fund investment security growth. Federal Home Loan Bank advances decreased $5 million, or 1
percent, from December 31, 2010 and increased $157 million, or 20 percent, from March 31, 2010.
Repurchase agreements and other borrowed funds were $265 million at March 31, 2011, a decrease of
$4.3 million, or 2 percent, from December 31, 2010. Included in Other Liabilities at March 31,
2011 is a $128.9 million obligation for securities purchased in March that will settle in April.
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Stockholders Equity
$ Change from | $ Change from | |||||||||||||||||||
March 31, | December 31, | March 31, | December 31, | March 31, | ||||||||||||||||
(Unaudited Dollars in thousands, except per share data) | 2011 | 2010 | 2010 | 2010 | 2010 | |||||||||||||||
Common equity |
$ | 837,595 | 837,676 | 832,941 | (81 | ) | 4,654 | |||||||||||||
Accumulated other comprehensive income |
2,294 | 528 | 5,514 | 1,766 | (3,220 | ) | ||||||||||||||
Total stockholders equity |
839,889 | 838,204 | 838,455 | 1,685 | 1,434 | |||||||||||||||
Goodwill and core deposit intangible, net |
(156,289 | ) | (157,016 | ) | (159,376 | ) | 727 | 3,087 | ||||||||||||
Tangible stockholders equity |
$ | 683,600 | 681,188 | 679,079 | 2,412 | 4,521 | ||||||||||||||
Stockholders equity to total assets |
12.15 | % | 12.40 | % | 13.47 | % | ||||||||||||||
Tangible stockholders equity to total tangible assets |
10.12 | % | 10.32 | % | 11.19 | % | ||||||||||||||
Book value per common share |
$ | 11.68 | 11.66 | 11.66 | 0.02 | 0.02 | ||||||||||||||
Tangible book value per common share |
$ | 9.51 | 9.47 | 9.44 | 0.04 | 0.07 | ||||||||||||||
Market price per share at end of year |
$ | 15.05 | 15.11 | 15.23 | (0.06 | ) | (0.18 | ) |
Total stockholders equity and book value per share increased $1.7 million and $0.02 per
share, respectively, from the prior quarter resulting from the increase in accumulated other
comprehensive income representing net unrealized gains or losses (net of tax) on the securities
portfolio. Tangible stockholders equity in that same period increased $2.4 million, or $0.04 per
share. Total stockholders equity and book value per share increased $1.4 million and $0.02 per
share, respectively, from March 31, 2010, the increase largely the result of higher undivided
profits. Tangible stockholders equity increased $4.5 million, or $0.07 per share since March 31,
2010 resulting in tangible stockholders equity to tangible assets of 10.12 percent and tangible
book value per share of $9.51 as of March 31, 2011.
On March 30, 2011, the board of directors declared a cash dividend of $0.13 per share, payable
April 21, 2011 to shareholders of record on April 12, 2011. Future cash dividends will depend on a
variety of factors, including net income, capital, asset quality and general economic conditions.
Results of Operations The three months ended March 31, 2011
Compared to December 31, 2010 and March 31, 2010
Compared to December 31, 2010 and March 31, 2010
Performance Summary
The Company reported net earnings of $10.3 million for the first quarter of 2011, an increase of
$215 thousand, or 2 percent, from the $10.1 million for the first quarter of 2010. The diluted
earnings per share of $0.14 for the quarter represented a 12.5 percent decrease from the diluted
earnings per share of $0.16 for the same quarter of 2010. There were no non recurring income or
expense items impacting this quarters earnings per share. Annualized return on average assets and
return on average equity for the first quarter were 0.62 percent and 4.95 percent, respectively,
which compares with prior year returns for the first quarter of 0.67 percent and 5.75 percent,
respectively.
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Table of Contents
Revenue Summary
Three Months ended | ||||||||||||
March 31, | December 31, | March 31, | ||||||||||
(Unaudited Dollars in thousands) | 2011 | 2010 | 2010 | |||||||||
Net interest income |
||||||||||||
Interest income |
$ | 68,373 | 69,083 | 73,398 | ||||||||
Interest expense |
11,669 | 12,420 | 13,884 | |||||||||
Total net interest income |
56,704 | 56,663 | 59,514 | |||||||||
Non-interest income |
||||||||||||
Service charges, loan fees, and other fees |
11,185 | 12,178 | 10,646 | |||||||||
Gain on sale of loans |
4,694 | 9,842 | 3,891 | |||||||||
Gain on sale of investments |
124 | 2,225 | 314 | |||||||||
Other income |
1,392 | 1,715 | 1,332 | |||||||||
Total non-interest income |
17,395 | 25,960 | 16,183 | |||||||||
$ | 74,099 | 82,623 | 75,697 | |||||||||
Net interest margin (tax-equivalent) |
3.91 | % | 3.91 | % | 4.43 | % | ||||||
$ Change from | $ Change from | %Change from | % Change from | |||||||||||||
December 31, | March 31, | December 31, | March 31, | |||||||||||||
(Unaudited Dollars in thousands) | 2010 | 2010 | 2010 | 2010 | ||||||||||||
Net interest income |
||||||||||||||||
Interest income |
$ | (710 | ) | (5,025 | ) | -1 | % | -7 | % | |||||||
Interest expense |
(751 | ) | (2,215 | ) | -6 | % | -16 | % | ||||||||
Total net interest income |
41 | (2,810 | ) | 0 | % | -5 | % | |||||||||
Non-interest income |
||||||||||||||||
Service charges, loan fees, and other fees |
(993 | ) | 539 | -8 | % | 5 | % | |||||||||
Gain on sale of loans |
(5,148 | ) | 803 | -52 | % | 21 | % | |||||||||
Gain on sale of investments |
(2,101 | ) | (190 | ) | -94 | % | -61 | % | ||||||||
Other income |
(323 | ) | 60 | -19 | % | 5 | % | |||||||||
Total non-interest income |
(8,565 | ) | 1,212 | -33 | % | 7 | % | |||||||||
$ | (8,524 | ) | (1,598 | ) | -10 | % | -2 | % | ||||||||
Net Interest Income
Net interest income increased $41 thousand from the prior quarter as the reduction in interest
expense outpaced the decrease in interest income. The current quarter net interest margin as a
percentage of earning assets, on a tax-equivalent basis, was 3.91 percent unchanged from the prior
quarter. The net interest margin figure includes a 2 basis points reduction from the reversal of
interest on non-accrual loans. The decrease in funding expense this past quarter was the result of
the Companys banks continuing to aggressively manage their cost of funds. The decrease in
interest income for the quarter was due to the continued low interest rate environment and
reduction in loan balances which put further pressure on earning assets yields. In addition,
premium amortization on Collateralized Mortgage Obligations (CMOs) this quarter increased by $1.2
million putting further pressure on interest income. As mortgage refinance activity continues to
drop off, premium amortization should decline in future quarters.
Non-interest Income
Non-interest income for the quarter totaled $17.4 million, a decrease of $8.6 million over the
prior quarter end and an increase of $1.2 million over the same quarter last year. Service charge
fee income of $11.2 million decreased $1.0 million, or 8 percent, during the quarter. The decrease
from the prior quarter was primarily due to seasonal factors and a shorter number of days in the
quarter. Gain on sale of loans decreased $5.1 million, or 52 percent, over the prior quarter
primarily the result of the dramatic drop off in refinances. Gain on sale of loans increased $1
million, or 21 percent, over the prior years first quarter which was positively impacted by the
first time home buyer tax credit. Net gain on the sale of investments was $124 thousand for the
current quarter compared to $2.2 million
29
Table of Contents
for the previous quarter and $314 thousand for the prior
years first quarter. Such sales were executed with the proceeds used to purchase additional
securities that enable the investment portfolio to perform well across varying interest rate
scenarios. Other income of $1.4 million for the current quarter is a decrease of $323 thousand
from the prior quarter. In the prior quarter there was a $194 thousand gain on 1st
Banks merchant card servicing portfolio that accounted for a majority of the difference.
Non-interest Expense
Three Months ended | ||||||||||||
March 31, | December 31, | March 31, | ||||||||||
(Unaudited Dollars in thousands) | 2011 | 2010 | 2010 | |||||||||
Compensation, employee benefits and
related expense |
$ | 21,603 | 22,485 | 21,356 | ||||||||
Occupancy and equipment expense |
5,954 | 6,291 | 5,948 | |||||||||
Advertising and promotions |
1,484 | 1,683 | 1,592 | |||||||||
Outsourced data processing expense |
773 | 852 | 694 | |||||||||
Core deposit intangibles amortization |
727 | 758 | 820 | |||||||||
Other real estate owned expense |
2,099 | 2,847 | 2,318 | |||||||||
Federal Deposit Insurance
Corporation premiums |
2,324 | 2,123 | 2,200 | |||||||||
Other expenses |
7,512 | 8,697 | 7,033 | |||||||||
Total non-interest expense |
$ | 42,476 | 45,736 | 41,961 | ||||||||
$ Change from | $ Change from | %Change from | %Change from | |||||||||||||
December 31, | March 31, | December 31, | March 31, | |||||||||||||
(Unaudited Dollars in thousands) | 2010 | 2010 | 2010 | 2010 | ||||||||||||
Compensation, employee benefits and
related expense |
$ | (882 | ) | 247 | -4 | % | 1 | % | ||||||||
Occupancy and equipment expense |
(337 | ) | 6 | -5 | % | 0 | % | |||||||||
Advertising and promotions |
(199 | ) | (108 | ) | -12 | % | -7 | % | ||||||||
Outsourced data processing expense |
(79 | ) | 79 | -9 | % | 11 | % | |||||||||
Core deposit intangibles amortization |
(31 | ) | (93 | ) | -4 | % | -11 | % | ||||||||
Other real estate owned expense |
(748 | ) | (219 | ) | -26 | % | -9 | % | ||||||||
Federal Deposit Insurance
Corporation premiums |
201 | 124 | 9 | % | 6 | % | ||||||||||
Other expenses |
(1,185 | ) | 479 | -14 | % | 7 | % | |||||||||
Total non-interest expense |
$ | (3,260 | ) | 515 | -7 | % | 1 | % | ||||||||
Non-interest expense of $42.5 million for the quarter decreased by $3.3 million, or 7 percent,
from the prior quarter and increased $515 thousand, or 1 percent, from the prior year first
quarter. During the quarter all the major expense categories decreased with the exception of FDIC
premiums which increased as a result of higher deposit levels. Compensation and employee benefits
increased by $247 thousand, or 1 percent, to $21.6 million from the prior year first quarter. The
Company and all eleven banks continue to closely manage this expense and control the number of full
time equivalents.
Occupancy and equipment expense decreased $337 thousand, or 5 percent, from the prior quarter and
increased $6 thousand, or .1 percent, from the prior year first quarter. Advertising and promotion
expense decreased $199 thousand, or 12 percent, from the prior quarter and decreased $108 thousand,
or 7 percent, from the first quarter of 2010. Other real estate owned expense of $2.1 million
decreased $748 thousand, or 26 percent, from the prior quarter and decreased $219 thousand, or 9
percent, from prior year first quarter. The current quarter other real estate owned expense of
$2.1 million included $881 thousand of operating expenses, $758 thousand of fair value write-downs,
and $453 thousand of loss on sale of other real estate owned. FDIC premiums increased $201
thousand, or 9 percent, from prior quarter and increased $124 thousand, or 6 percent, from the
prior year first quarter, the result of the increased amount of dollars on deposit. Other expenses
decreased $1.2 million, or 14 percent, from the prior quarter and increased $479 thousand, or 1
percent, from the prior year first quarter.
30
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Efficiency Ratio
The efficiency ratio is calculated as non-interest expense before other real estate owned expenses,
core deposit intangible amortization, and non-recurring expense items as a percentage of fully
taxable-equivalent net interest income and non-interest income, excluding gains and losses on sale
of investment securities, other real estate owned income, and non-recurring income items. The
efficiency ratio for the quarter was 52 percent compared to 50 percent for the prior year first
quarter. The increase resulted from continuing pressure on net interest income in the current low
interest rate environment.
Provision for Loan Losses
Credit Quality Trends
(Unaudited $ in thousands)
(Unaudited $ in thousands)
Accruing | ||||||||||||||||||||
Loans 30-89 | Non-Performing | |||||||||||||||||||
Provision | ALLL | Days Overdue | Assets to | |||||||||||||||||
for Loan | Net | as a Percent | as a Percent of | Total Subsidiary | ||||||||||||||||
Losses | Charge-Offs | of Loans | Loans | Assets | ||||||||||||||||
Q1 2011 |
$ | 19,500 | 15,778 | 3.86 | % | 1.44 | % | 3.78 | % | |||||||||||
Q4 2010 |
27,375 | 24,525 | 3.66 | % | 1.21 | % | 3.91 | % | ||||||||||||
Q3 2010 |
19,162 | 26,570 | 3.47 | % | 1.06 | % | 4.03 | % | ||||||||||||
Q2 2010 |
17,246 | 19,181 | 3.58 | % | 0.92 | % | 4.01 | % | ||||||||||||
Q1 2010 |
20,910 | 20,237 | 3.58 | % | 1.53 | % | 4.19 | % | ||||||||||||
Q4 2009 |
36,713 | 19,116 | 3.52 | % | 2.15 | % | 4.13 | % | ||||||||||||
Q3 2009 |
47,050 | 19,094 | 3.14 | % | 1.09 | % | 4.10 | % | ||||||||||||
Q2 2009 |
25,140 | 11,543 | 2.41 | % | 1.55 | % | 3.06 | % |
The current quarter provision for loan loss expense was $19.5 million, a decrease of $7.9
million from the prior quarter and a decrease of $1.4 million from the first quarter in 2010. Net
charged-off loans for the current quarter were $15.8 million compared to $24.5 million for the
prior quarter and $20.2 million for the first quarter in 2010.
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 managements
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
Additional Managements Discussion and Analysis Allowance for Loan and Lease Losses.
Additional Managements Discussion and Analysis
Loan Portfolio
The following tables summarize selected information by bank and regulatory classification on the
Companys loan portfolio.
31
Table of Contents
Loans Receivable by Bank | % Change | % Change | ||||||||||||||||||
Balance | Balance | Balance | from | from | ||||||||||||||||
(Dollars in thousands) | 03/31/11 | 12/31/10 | 03/31/10 | 12/31/10 | 03/31/10 | |||||||||||||||
Glacier |
$ | 829,571 | 857,177 | 911,668 | -3 | % | -9 | % | ||||||||||||
Mountain West |
754,491 | 788,028 | 918,668 | -4 | % | -18 | % | |||||||||||||
First Security |
557,986 | 567,303 | 579,529 | -2 | % | -4 | % | |||||||||||||
Western |
274,142 | 295,613 | 306,725 | -7 | % | -11 | % | |||||||||||||
1st Bank |
261,067 | 264,513 | 283,296 | -1 | % | -8 | % | |||||||||||||
Valley |
182,395 | 179,005 | 182,649 | 2 | % | 0 | % | |||||||||||||
Big Sky |
246,452 | 246,337 | 261,757 | 0 | % | -6 | % | |||||||||||||
First National |
138,178 | 141,827 | 147,406 | -3 | % | -6 | % | |||||||||||||
Citizens |
155,379 | 160,416 | 159,750 | -3 | % | -3 | % | |||||||||||||
First Bank-MT |
110,025 | 109,309 | 115,425 | 1 | % | -5 | % | |||||||||||||
San Juans |
141,113 | 143,574 | 148,488 | -2 | % | -5 | % | |||||||||||||
Eliminations |
(3,813 | ) | (3,813 | ) | | 0 | % | n/m | ||||||||||||
Total |
$ | 3,646,986 | 3,749,289 | 4,015,361 | -3 | % | -9 | % | ||||||||||||
Land, Lot and Other Construction Loans by Bank | % Change | % Change | ||||||||||||||||||
Balance | Balance | Balance | from | from | ||||||||||||||||
(Dollars in thousands) | 03/31/11 | 12/31/10 | 03/31/10 | 12/31/10 | 03/31/10 | |||||||||||||||
Glacier |
$ | 133,164 | 148,319 | 160,171 | -10 | % | -17 | % | ||||||||||||
Mountain West |
130,074 | 147,991 | 206,953 | -12 | % | -37 | % | |||||||||||||
First Security |
56,873 | 72,409 | 81,068 | -21 | % | -30 | % | |||||||||||||
Western |
28,748 | 29,535 | 30,893 | -3 | % | -7 | % | |||||||||||||
1st Bank |
31,438 | 29,714 | 30,272 | 6 | % | 4 | % | |||||||||||||
Valley |
15,234 | 12,816 | 14,204 | 19 | % | 7 | % | |||||||||||||
Big Sky |
55,369 | 53,648 | 64,484 | 3 | % | -14 | % | |||||||||||||
First National |
10,615 | 12,341 | 10,635 | -14 | % | 0 | % | |||||||||||||
Citizens |
9,491 | 12,187 | 13,168 | -22 | % | -28 | % | |||||||||||||
First Bank-MT |
818 | 830 | 982 | -1 | % | -17 | % | |||||||||||||
San Juans |
27,894 | 30,187 | 36,152 | -8 | % | -23 | % | |||||||||||||
Total |
$ | 499,718 | 549,977 | 648,982 | -9 | % | -23 | % | ||||||||||||
Land, Lot and Other Construction Loans by Bank, by Type at 03/31/11 | ||||||||||||||||||||||||
Consumer | Developed | Commercial | ||||||||||||||||||||||
Land | Land or | Unimproved | Lots for | Developed | Other | |||||||||||||||||||
(Dollars in thousands) | Development | Lot | Land | Operative Builders | Lot | Construction | ||||||||||||||||||
Glacier |
$ | 62,671 | 26,922 | 28,275 | 8,480 | 5,756 | 1,060 | |||||||||||||||||
Mountain West |
32,954 | 57,860 | 8,554 | 14,865 | 4,301 | 11,540 | ||||||||||||||||||
First Security |
25,094 | 6,327 | 18,654 | 4,016 | 495 | 2,287 | ||||||||||||||||||
Western |
13,418 | 4,964 | 3,469 | 589 | 1,769 | 4,539 | ||||||||||||||||||
1st Bank |
6,734 | 9,183 | 3,423 | 276 | 2,211 | 9,611 | ||||||||||||||||||
Valley |
2,311 | 4,899 | 1,234 | | 3,356 | 3,434 | ||||||||||||||||||
Big Sky |
21,541 | 15,140 | 9,137 | 979 | 2,573 | 5,999 | ||||||||||||||||||
First National |
1,867 | 3,900 | 1,620 | 293 | 602 | 2,333 | ||||||||||||||||||
Citizens |
2,384 | 1,257 | 2,384 | 45 | 680 | 2,741 | ||||||||||||||||||
First Bank-MT |
| 78 | 461 | | | 279 | ||||||||||||||||||
San Juans |
3,160 | 14,355 | 2,023 | | 7,591 | 765 | ||||||||||||||||||
Total |
$ | 172,134 | 144,885 | 79,234 | 29,543 | 29,334 | 44,588 | |||||||||||||||||
32
Table of Contents
The following tables summarize selected information by bank and regulatory classification on
the Companys loan portfolio.
Custom & | ||||||||||||||||||||||||||||
Residential Construction Loans by Bank, by Type | % Change | % Change | Owner | Pre-Sold | ||||||||||||||||||||||||
Balance | Balance | Balance | from | from | Occupied | & Spec | ||||||||||||||||||||||
(Dollars in thousands) | 03/31/11 | 12/31/10 | 03/31/10 | 12/31/10 | 03/31/10 | 03/31/11 | 03/31/11 | |||||||||||||||||||||
Glacier |
$ | 28,090 | 34,526 | 53,824 | -19 | % | -48 | % | $ | 6,703 | 21,387 | |||||||||||||||||
Mountain West |
18,712 | 21,375 | 43,725 | -12 | % | -57 | % | 8,153 | 10,559 | |||||||||||||||||||
First Security |
8,967 | 10,123 | 17,321 | -11 | % | -48 | % | 4,013 | 4,954 | |||||||||||||||||||
Western |
877 | 1,350 | 3,196 | -35 | % | -73 | % | 460 | 417 | |||||||||||||||||||
1st Bank |
4,437 | 6,611 | 14,914 | -33 | % | -70 | % | 2,631 | 1,806 | |||||||||||||||||||
Valley |
3,825 | 4,950 | 5,109 | -23 | % | -25 | % | 3,000 | 825 | |||||||||||||||||||
Big Sky |
11,745 | 11,004 | 17,608 | 7 | % | -33 | % | 634 | 11,111 | |||||||||||||||||||
First National |
1,726 | 1,958 | 2,583 | -12 | % | -33 | % | 1,340 | 386 | |||||||||||||||||||
Citizens |
8,799 | 9,441 | 11,553 | -7 | % | -24 | % | 4,577 | 4,222 | |||||||||||||||||||
First Bank-MT |
749 | 502 | 265 | 49 | % | 183 | % | 599 | 150 | |||||||||||||||||||
San Juans |
5,731 | 7,018 | 6,957 | -18 | % | -18 | % | 5,731 | | |||||||||||||||||||
Total |
$ | 93,658 | 108,858 | 177,055 | -14 | % | -47 | % | $ | 37,841 | 55,817 | |||||||||||||||||
Single Family Residential Loans by Bank, by Type | % Change | % Change | 1st | Junior | ||||||||||||||||||||||||
Balance | Balance | Balance | from | from | Lien | Lien | ||||||||||||||||||||||
(Dollars in thousands) | 03/31/11 | 12/31/10 | 03/31/10 | 12/31/10 | 03/31/10 | 03/31/11 | 03/31/11 | |||||||||||||||||||||
Glacier |
$ | 173,946 | 187,683 | 194,253 | -7 | % | -10 | % | $ | 152,466 | 21,480 | |||||||||||||||||
Mountain West |
253,094 | 282,429 | 284,456 | -10 | % | -11 | % | 215,455 | 37,639 | |||||||||||||||||||
First Security |
87,441 | 92,011 | 84,665 | -5 | % | 3 | % | 73,552 | 13,889 | |||||||||||||||||||
Western |
34,881 | 42,070 | 43,413 | -17 | % | -20 | % | 32,809 | 2,072 | |||||||||||||||||||
1st Bank |
57,089 | 59,337 | 60,576 | -4 | % | -6 | % | 52,532 | 4,557 | |||||||||||||||||||
Valley |
56,349 | 60,085 | 64,268 | -6 | % | -12 | % | 46,160 | 10,189 | |||||||||||||||||||
Big Sky |
30,794 | 32,496 | 32,715 | -5 | % | -6 | % | 27,839 | 2,955 | |||||||||||||||||||
First National |
13,229 | 13,948 | 17,580 | -5 | % | -25 | % | 10,204 | 3,025 | |||||||||||||||||||
Citizens |
13,959 | 19,885 | 21,020 | -30 | % | -34 | % | 12,426 | 1,533 | |||||||||||||||||||
First Bank-MT |
8,295 | 8,618 | 9,902 | -4 | % | -16 | % | 7,235 | 1,060 | |||||||||||||||||||
San Juans |
30,301 | 29,124 | 30,804 | 4 | % | -2 | % | 28,802 | 1,499 | |||||||||||||||||||
Total |
$ | 759,378 | 827,686 | 843,652 | -8 | % | -10 | % | $ | 659,480 | 99,898 | |||||||||||||||||
Commercial Real Estate Loans by Bank, by Type | % Change | % Change | Owner | Non-Owner | ||||||||||||||||||||||||
Balance | Balance | Balance | from | from | Occupied | Occupied | ||||||||||||||||||||||
(Dollars in thousands) | 03/31/11 | 12/31/10 | 03/31/10 | 12/31/10 | 03/31/10 | 03/31/11 | 03/31/11 | |||||||||||||||||||||
Glacier |
$ | 219,656 | 224,215 | 230,338 | -2 | % | -5 | % | $ | 113,522 | 106,134 | |||||||||||||||||
Mountain West |
205,842 | 206,732 | 231,804 | 0 | % | -11 | % | 125,792 | 80,050 | |||||||||||||||||||
First Security |
241,817 | 227,662 | 225,168 | 6 | % | 7 | % | 163,002 | 78,815 | |||||||||||||||||||
Western |
103,719 | 103,443 | 105,358 | 0 | % | -2 | % | 57,683 | 46,036 | |||||||||||||||||||
1st Bank |
55,585 | 58,353 | 64,363 | -5 | % | -14 | % | 40,961 | 14,624 | |||||||||||||||||||
Valley |
51,467 | 50,325 | 49,601 | 2 | % | 4 | % | 32,935 | 18,532 | |||||||||||||||||||
Big Sky |
87,305 | 88,135 | 87,446 | -1 | % | 0 | % | 54,935 | 32,370 | |||||||||||||||||||
First National |
26,435 | 27,609 | 25,706 | -4 | % | 3 | % | 19,784 | 6,651 | |||||||||||||||||||
Citizens |
59,861 | 61,737 | 57,733 | -3 | % | 4 | % | 38,234 | 21,627 | |||||||||||||||||||
First Bank-MT |
17,229 | 17,492 | 18,367 | -2 | % | -6 | % | 9,692 | 7,537 | |||||||||||||||||||
San Juans |
50,747 | 50,066 | 48,166 | 1 | % | 5 | % | 28,944 | 21,803 | |||||||||||||||||||
Total |
$ | 1,119,663 | 1,115,769 | 1,144,050 | 0 | % | -2 | % | $ | 685,484 | 434,179 | |||||||||||||||||
33
Table of Contents
The following tables summarize selected information by bank and regulatory classification on
the Companys loan portfolio.
Consumer Loans by Bank, by Type | % Change | % Change | Home Equity | Other | ||||||||||||||||||||||||
Balance | Balance | Balance | from | from | Line of Credit | Consumer | ||||||||||||||||||||||
(Dollars in thousands) | 03/31/11 | 12/31/10 | 03/31/10 | 12/31/10 | 03/31/10 | 03/31/11 | 03/31/11 | |||||||||||||||||||||
Glacier |
$ | 144,537 | 150,082 | 163,345 | -4 | % | -12 | % | $ | 130,762 | 13,775 | |||||||||||||||||
Mountain West |
68,358 | 70,304 | 72,329 | -3 | % | -5 | % | 60,223 | 8,135 | |||||||||||||||||||
First Security |
69,214 | 71,677 | 76,276 | -3 | % | -9 | % | 45,042 | 24,172 | |||||||||||||||||||
Western |
41,338 | 43,081 | 47,836 | -4 | % | -14 | % | 29,355 | 11,983 | |||||||||||||||||||
1st Bank |
38,700 | 40,021 | 42,953 | -3 | % | -10 | % | 15,872 | 22,828 | |||||||||||||||||||
Valley |
23,444 | 23,745 | 25,105 | -1 | % | -7 | % | 14,383 | 9,061 | |||||||||||||||||||
Big Sky |
27,119 | 27,733 | 28,054 | -2 | % | -3 | % | 24,304 | 2,815 | |||||||||||||||||||
First National |
24,018 | 24,217 | 25,810 | -1 | % | -7 | % | 14,750 | 9,268 | |||||||||||||||||||
Citizens |
28,961 | 29,040 | 30,314 | 0 | % | -4 | % | 23,296 | 5,665 | |||||||||||||||||||
First Bank-MT |
7,538 | 8,005 | 7,896 | -6 | % | -5 | % | 3,763 | 3,775 | |||||||||||||||||||
San Juans |
14,221 | 14,848 | 15,359 | -4 | % | -7 | % | 13,199 | 1,022 | |||||||||||||||||||
Total |
$ | 487,448 | 502,753 | 535,277 | -3 | % | -9 | % | $ | 374,949 | 112,499 | |||||||||||||||||
n/m not measurable |
Non-performing Assets
The following tables summarize information regarding non-performing assets at the dates indicated,
including breakouts by regulatory and bank subsidiary classification:
March 31, | December 31, | March 31, | ||||||||||
(Unaudited-Dollars in thousands) | 2011 | 2010 | 2010 | |||||||||
Non-accrual loans |
||||||||||||
Residential real estate |
$ | 16,949 | 23,095 | 23,287 | ||||||||
Commercial |
151,290 | 161,136 | 167,831 | |||||||||
Consumer and other |
10,163 | 8,274 | 7,051 | |||||||||
Total |
178,402 | 192,505 | 198,169 | |||||||||
Accruing loans 90 days or more overdue |
||||||||||||
Residential real estate |
191 | 506 | 304 | |||||||||
Commercial |
3,550 | 3,051 | 7,943 | |||||||||
Consumer and other |
2,837 | 974 | 2,242 | |||||||||
Total |
6,578 | 4,531 | 10,489 | |||||||||
Other real estate owned |
82,594 | 73,485 | 59,481 | |||||||||
Total non-performing loans and real
estate and other assets owned |
$ | 267,574 | 270,521 | 268,139 | ||||||||
Allowance for loan and lease losses as a
percentage of non-performing loans |
76 | % | 70 | % | 69 | % | ||||||
Non-performing assets as a percentage
of total subsidiary assets |
3.78 | % | 3.91 | % | 4.19 | % | ||||||
Accruing loans 30-89 days overdue |
$ | 52,402 | 45,497 | 61,255 | ||||||||
Interest income 1 |
$ | 2,471 | 10,987 | 2,831 |
1 | Amounts represent estimated interest income that would have been recognized on loans accounted for on a non-accrual basis for the three months ended March 31, 2011, year ended December 31, 2010 and three months ended March 31, 2010 had such loans performed pursuant to contractual terms. |
34
Table of Contents
The following tables summarize selected information by bank and regulatory classification on
the Companys loan portfolio.
Non- | Accruing | Other | ||||||||||||||||||||||
Non-performing Assets, by Loan Type | Accruing | Loans 90 Days | Real Estate | |||||||||||||||||||||
Balance | Balance | Balance | Loans | or More Overdue | Owned | |||||||||||||||||||
(Dollars in thousands) | 03/31/11 | 12/31/10 | 03/31/10 | 03/31/11 | 03/31/11 | 03/31/11 | ||||||||||||||||||
Custom and owner
occupied construction |
$ | 2,362 | 2,575 | 1,842 | 1,439 | | 923 | |||||||||||||||||
Pre-sold and spec
construction |
12,410 | 16,071 | 30,339 | 4,632 | | 7,778 | ||||||||||||||||||
Land development |
82,465 | 83,989 | 76,254 | 54,434 | 122 | 27,909 | ||||||||||||||||||
Consumer land or lots |
12,763 | 12,543 | 12,245 | 6,802 | 651 | 5,310 | ||||||||||||||||||
Unimproved land |
42,755 | 44,116 | 38,585 | 23,361 | 759 | 18,635 | ||||||||||||||||||
Developed lots for
operative
builders |
7,079 | 7,429 | 11,626 | 2,823 | | 4,256 | ||||||||||||||||||
Commercial lots |
2,630 | 3,110 | 1,705 | 787 | | 1,843 | ||||||||||||||||||
Other construction |
4,302 | 3,837 | 3,485 | 4,302 | | | ||||||||||||||||||
Commercial real estate |
35,798 | 36,978 | 35,222 | 26,705 | 1,103 | 7,990 | ||||||||||||||||||
Commercial and
industrial |
17,577 | 13,127 | 13,055 | 16,314 | 258 | 1,005 | ||||||||||||||||||
Agriculture loans |
7,112 | 5,253 | 5,293 | 6,595 | 112 | 405 | ||||||||||||||||||
Municipal loans |
| | 4,495 | | | | ||||||||||||||||||
1-4 family |
32,904 | 34,791 | 25,151 | 24,846 | 3,447 | 4,611 | ||||||||||||||||||
Home equity lines of
credit |
5,697 | 4,805 | 7,083 | 4,994 | 84 | 619 | ||||||||||||||||||
Consumer |
641 | 446 | 850 | 368 | 42 | 231 | ||||||||||||||||||
Other |
1,079 | 1,451 | 909 | | | 1,079 | ||||||||||||||||||
Total |
$ | 267,574 | 270,521 | 268,139 | 178,402 | 6,578 | 82,594 | |||||||||||||||||
Non-Accrual & | ||||||||||||||||||||||||
Accruing 30-89 Days Delinquent Loans and | Accruing | Accruing Loans | Other | |||||||||||||||||||||
Non-Performing Assets, by Bank | 30-89 Days | 90 Days or | Real Estate | |||||||||||||||||||||
Balance | Balance | Balance | Overdue | More Overdue | Owned | |||||||||||||||||||
(Dollars in thousands) | 03/31/11 | 12/31/10 | 03/31/10 | 03/31/11 | 03/31/11 | 03/31/11 | ||||||||||||||||||
Glacier |
$ | 82,529 | 75,869 | 92,315 | 19,808 | 55,133 | 7,588 | |||||||||||||||||
Mountain West |
82,852 | 83,872 | 94,952 | 14,020 | 52,565 | 16,267 | ||||||||||||||||||
First Security |
58,289 | 59,770 | 57,775 | 9,955 | 34,244 | 14,090 | ||||||||||||||||||
Western |
9,739 | 11,237 | 8,427 | 1,134 | 4,974 | 3,631 | ||||||||||||||||||
1st Bank |
22,306 | 16,686 | 21,244 | 3,468 | 11,274 | 7,564 | ||||||||||||||||||
Valley |
2,145 | 1,900 | 2,123 | 687 | 1,331 | 127 | ||||||||||||||||||
Big Sky |
20,785 | 21,739 | 34,090 | 1,003 | 11,552 | 8,230 | ||||||||||||||||||
First National |
9,539 | 9,901 | 9,009 | 892 | 7,319 | 1,328 | ||||||||||||||||||
Citizens |
6,345 | 8,000 | 5,909 | 976 | 3,555 | 1,814 | ||||||||||||||||||
First Bank MT |
219 | 553 | 1,394 | 168 | 51 | | ||||||||||||||||||
San Juans |
5,297 | 6,549 | 2,156 | 291 | 2,982 | 2,024 | ||||||||||||||||||
GORE |
19,931 | 19,942 | | | | 19,931 | ||||||||||||||||||
Total |
$ | 319,976 | 316,018 | 329,394 | 52,402 | 184,980 | 82,594 | |||||||||||||||||
Non-performing assets as a percentage of the total subsidiary assets at March 31, 2011 were
3.78 percent, down from 3.91 percent at December 31, 2010 and down from 4.19 percent at March 31,
2010. The allowance for loan and lease losses (ALLL or allowance) was 76 percent of
non-performing loans at March 31, 2011, an increase from 70 percent for the prior quarter end and
from 69 percent at March 31, 2010. Most of the Companys non-performing
assets are secured by real estate and, based on the most current information available to
management, including updated appraisals or evaluations, the Company believes the value of the
underlying real estate collateral is adequate to minimize significant charge-offs or loss to the
Company. Each bank subsidiary evaluates the level of its non-performing assets, the values of the
underlying real estate and other collateral, and related trends in net charge-offs in determining
the adequacy of the ALLL. Through pro-
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active credit administration, the Banks work closely with borrowers to seek favorable
resolution to the extent possible, thereby attempting to minimize net charge-offs or losses to the
Company.
Loans that are thirty days or more past due based on payments received and applied to the loan are
considered delinquent. Loans are designated non-accrual and the accrual of interest is
discontinued when the collection of the contractual principal or interest is unlikely. A loan is
typically placed on non-accrual when principal or interest is due and has remained unpaid for
ninety days or more. When a loan is placed on non-accrual status, interest previously accrued but
not collected is reversed against current period interest income. Subsequent payments are applied
to the outstanding principal balance if doubt remains as to the ultimate collectability of the
loan. Interest accruals are not resumed on partially charged-off impaired loans. For other loans
on non-accrual, interest accruals are resumed on such loans only when they are brought fully
current with respect to interest and principal and when, in the judgment of management, the loans
are estimated to be fully collectible as to both principal and interest.
Loans are designated impaired when, based upon current information and events, it is probable that
the Company will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement; and therefore, the Company has serious
doubts as to the ability of such borrowers to fulfill the contractual obligation. Impaired loans
include non-performing loans (i.e., non-accrual loans and accruing loans 90 days or more past due)
and accruing loans under ninety days past due where it is probable payments will not be received
according to the loan agreement (e.g., troubled debt restructuring loans). The Company measures
impairment on a loan-by-loan basis. An insignificant delay or shortfall in the amounts of
payments would not cause a loan or lease to be considered impaired. The Company determines the
significance of payment delays and shortfalls on a case-by-case basis, taking into consideration
all of the facts and circumstances surrounding the loan and the borrower, including the length and
reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in
relation to the principal and interest due. At the time a loan is identified as impaired, it is
measured for impairment and thereafter reviewed and measured on at least a quarterly basis for
additional impairment.
The amount of the impairment is measured based on the present value of expected future cash flows
discounted at the loans effective interest rate, except when it is determined that repayment of
the loan is expected to be provided solely by the underlying collateral. For impairment based on
expected future cash flows, the Company considers all information available as of a measurement
date, including past events, current conditions, potential prepayments, and estimated cost to sell
when such costs are expected to reduce the cash flows available to repay or otherwise satisfy the
loan. For alternative ranges of cash flows, the likelihood of the possible outcomes is considered
in determining the best estimate of expected future cash flows. The effective interest rate for a
loan restructured in a troubled debt restructuring is based on the original contractual rate.
For collateral-dependent loans and real estate loans for which foreclosure or a deed-in-lieu of
foreclosure is probable, impairment is measured by the fair value of the collateral, less estimated
cost to sell. The fair value of the collateral is determined primarily based upon appraisal or
evaluation (new or updated) of the underlying property value. The Company reviews appraisals or
evaluations, giving consideration to the highest and best use of the collateral, with values
reduced by discounts to consider lack of marketability and estimated cost to sell. Appraisals or
evaluations (new or updated) are reviewed at least quarterly and more frequently based on current
market conditions, including deterioration in a borrowers financial condition and when property
values may be subject to significant volatility. After review and acceptance of the collateral
appraisal or evaluation (new or updated), adjustments to an impaired loans value may occur.
In deciding whether to obtain a new or updated appraisal or evaluation, the Company considers the
impact of the following factors and environmental events:
| passage of time; | ||
| improvements to, or lack of maintenance of, the collateral property; |
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| stressed and volatile economic conditions, including market values; | ||
| changes in the performance, risk profile, size and complexity of the credit exposure; | ||
| limited or specific use collateral property; | ||
| high loan-to-value credit exposures; | ||
| changes in the adequacy of the collateral protections, including loan covenants and financially responsible guarantors; | ||
| competing properties in the market area; | ||
| changes in zoning and environmental contamination; | ||
| the nature of subsequent transactions (e.g., modification, restructuring, refinancing); and | ||
| the availability of alternative financing sources. |
The Company also takes into account (1) the Companys experience with whether the appraised values
of impaired collateral-dependent loans are actually realized, and (2) the timing of cash flows
expected to be received from the underlying collateral to the extent such timing is significantly
different than anticipated in the most recent appraisal.
The Company generally obtains new or updated appraisals or evaluations annually for collateral
underlying impaired loans. For collateral-dependent loans for which the appraisal of the
underlying collateral is more than twelve months old, the Company updates collateral valuations
through procedures that include obtaining current inspections of the collateral property, broker
price opinions, comprehensive market analyses and current data for conditions and assumptions
(e.g., discounts, comparable sales and trends) underlying the appraisals valuation techniques.
The Companys impairment/valuation procedures take into account new and updated appraisals on
similar properties in the same area in order to capture current market valuation changes,
unfavorable and favorable.
When the ultimate collectability of the total principal of an impaired loan is in doubt and
designated as non-accrual, all payments are applied to principal under the cost recovery method.
When the ultimate collectability of the total principal on an impaired loan is not in doubt,
contractual interest is generally credited to interest income when received under the cash basis
method. Impaired loans were $218.7 million and $225.1 million as of March 31, 2011 and December
31, 2010, respectively. The ALLL includes valuation allowances of $15.4 million and $16.9 million
specific to impaired loans as of March 31, 2011 and December 31, 2010, respectively. Of the total
impaired loans at March 31, 2011, there were 40 commercial real estate and other commercial loans,
each exceeding $1 million, such loans aggregating $105.6 million, or 48 percent, of the impaired
loans. The 40 loans were collateralized by 164 percent of the loan value, the majority of which
had appraisals (new or updated) in 2010, such appraisals reviewed at least quarterly taking into
account current market conditions. Of the total impaired loans at March 31, 2011, there were 244
loans aggregating to $130.2 million, or 59 percent, whereby the borrowers had more than one
impaired loan. The amount of impaired loans that have had partial charge-offs during the year for
which the Company continues to have concern about the collectability of the remaining loan balance
was $24.0 million. Of these loans, there were charge-offs of $10.7 million during the first
quarter of 2011.
A restructured loan is considered a troubled debt restructuring (TDR) if the creditor, for
economic or legal reasons related to the debtors financial difficulties, grants a concession to
the debtor that it would not otherwise consider. The Company made the following types of loan
modifications, some of which were considered TDR:
| Reduction of the stated interest rate for the remaining term of the debt; | ||
| Extension of the maturity date(s) at a stated rate of interest lower than the current market rate for newly originated debt having similar risk characteristics; and | ||
| Reduction of the face amount of the debt as stated in the debt agreements. |
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Each restructured debt is separately negotiated with the borrower and includes terms and conditions
that reflect the borrowers prospective ability to service the debt as modified. The Company
discourages the multiple loan strategy when restructuring loans regardless of whether or not the
notes are TDR loans. The Companys TDR loans are considered impaired loans of which the majority
are designated as nonaccrual. The Company does not have any commercial TDR loans as of March 31,
2011 that have repayment dates extended at or near the original maturity date for which the Company
has not classified as impaired. The Company had TDR loans of $62.4 million as of March 31, 2011 of
which $36.7 million were on non-accrual status. The Company has TDR loans of $16.4 million that
are in non-accrual status or that have had partial charge-offs during the year, the borrowers of
which continue to have $29.2 million in other loans that are on accrual status.
The Company recognizes that while borrowers may experience deterioration in their financial
condition, many continue to be creditworthy customers who have the willingness and capacity for
debt repayment. In determining whether non-restructured or unimpaired loans issued to a single or
related party group of borrowers should continue to accrue interest when the borrower has other
loans that are impaired or troubled debt restructurings, the Company on a quarterly or more
frequent basis performs an updated and comprehensive assessment of the willingness and capacity of
the borrowers to timely and ultimately repay their total debt obligations, including contingent
obligations. Such analysis takes into account current financial information about the borrowers
and financially responsible guarantors, if any, including for example:
| analysis of global, i.e., aggregate debt service for total debt obligations; | ||
| assessment of the value and security protection of collateral pledged using current market conditions and alternative market assumptions across a variety of potential future situations; and | ||
| loan structures and related covenants. |
For non-performing construction loans involving residential structures, the percentage of
completion exceeds 95 percent at March 31, 2011. For construction loans involving commercial
structures, the percentage of completion ranges from projects not started to projects completed at
March 31, 2011. During the construction loan term, all construction loan collateral properties are
inspected at least monthly, or more frequently as needed, until completion. Draws on construction
loans are predicated upon the results of the inspection and advanced based upon a percentage of
completion basis versus original budget percentages. When construction loans become non-performing
and the associated project is not complete, the Company on a case-by-case basis makes the decision
to advance additional funds or to initiate collection/foreclosure proceedings. Such decision
includes obtaining as-is and at completion appraisals for consideration of potential increases
or decreases in the collaterals value. The Company also considers the increased costs of
monitoring progress to completion, and the related collection/holding period costs should
collateral ownership be transferred to the Company. With very limited exception, the Company does
not disburse additional funds on non-performing loans; instead, the Company has proceeded to
collection and foreclosure actions in order to reduce the Companys exposure to loss on such loans.
Interest Reserves
Interest reserves are used to periodically advance loan funds to pay interest charges on the
outstanding balance of the related loan. As with any extension of credit, the decision to
establish a loan-funded interest reserve upon origination of construction loans, including
residential construction and land, lot and other construction loans, is based on prudent
underwriting, including the feasibility of the project, expected cash flow, creditworthiness of the
borrower and guarantors, and the protection provided by the real estate and other underlying
collateral. Interest reserves provide an effective means for addressing the cash flow
characteristics of construction loans. In response to the downturn in the housing market and
potential impact upon construction lending, the Company discourages the creation or continued use
of interest reserves.
The Companys loan policy and credit administration practices establish standards and limits for
all extensions of credit that are secured by interests in or liens on real estate, or made for the
purpose of financing the
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construction of real property or other improvements. Ongoing monitoring and review of the loan
portfolio is based on current information, including: the borrowers and guarantors
creditworthiness, value of the real estate and other collateral, the projects performance against
projections, and monthly inspections by employees or external parties until the real estate project
is complete.
Interest reserves are advanced provided the related construction loan is performing as expected.
Loans with interest reserves may be extended, renewed or restructured only when the related loan
continues to perform as expected and meets the prudent underwriting standards identified above.
Such renewals, extension or restructuring are not permitted in order to keep the related loan
current.
In monitoring the performance and credit quality of a construction loan, the Company assesses the
adequacy of any remaining interest reserve, and whether the use of an interest reserve remains
appropriate in the presence of emerging weakness and associated risks in the construction loan.
The ongoing accrual and recognition of uncollected interest as income continues only when facts and
circumstances continue to reasonably support the contractual payment of principal or interest.
Loans are typically designated as non-accrual when the collection of the contractual principal or
interest is unlikely and has remained unpaid for ninety days or more. For such loans, the accrual
of interest and its capitalization into the loan balance will be discontinued.
The Company had loans of $121.3 million and $141.1 million with remaining interest reserves of $629
thousand and $879 thousand as of March 31, 2011 and December 31, 2010, respectively.
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 subsidiarys loan and lease
portfolios. Accordingly, the ALLL is maintained within a range of estimated losses. The
determination of the ALLL, including the provision for loan losses and net charge-offs, is a
critical accounting estimate that involves managements 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 Banks continue to actively monitor economic trends, soft economic
conditions combined with potential declines in the values of real estate that collateralize most of
the Companys 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 subsidiarys Board of Directors
and reviewed by the Parents Board of Directors. In addition, the policy and procedures for
determining the balance of the ALLL are reviewed annually by each bank subsidiarys Board of
Directors, the Parents Board of Directors, the internal audit department, independent credit
reviewers 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 allowance consists
of a specific allocation component and a general allocation component. The specific allocation
component relates to loans that are determined to be impaired. A valuation allowance is
established when the fair value of a collateral-dependent loan or the present value of the loans
expected future cash flows (discounted at the loans effective interest rate) is lower than the
carrying value of the impaired loan. The general allocation component relates to probable credit
losses inherent in the balance of the portfolio based on prior loss experience, adjusted for
changes in trends and conditions of qualitative or environmental factors.
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When applied to each bank subsidiarys historical loss experience, the environmental factors result
in the provision for loan losses being recorded in the period in which the loss has probably
occurred. When the loss is confirmed at a later date, a charge-off is recorded.
Management of each bank subsidiary exercises significant judgment when evaluating the effect of
applicable qualitative or environmental factors on each bank subsidiarys historical loss
experience for loans not identified as impaired. Quantification of the impact upon each subsidiary
banks ALLL is inherently subjective as data for any factor may not be directly applicable,
consistently relevant, or reasonably available for management to determine the precise impact of a
factor on the collectability of the banks unimpaired loan portfolio as of each evaluation date.
Bank management documents its conclusions and rationale for changes that occur in each applicable
factors weight, i.e., measurement and ensures that such changes are directionally consistent based
on the underlying current trends and conditions for the factor.
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 Companys 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 Companys model of eleven independent wholly-owned 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
Companys decentralized business model affords multiple reviews of larger loans before credit is
extended, a significant benefit in mitigating and managing the Companys 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 further problem credits will not arise and additional 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 Banks
internal credit risk rating process, is necessary to support managements evaluation of the ALLL
adequacy. An independent loan review function verifying credit risk ratings evaluates the loan
officer and managements 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 $141 million adequate to cover inherent losses in the
loan and lease portfolios as of March 31, 2011. However, no assurance can be given that the
Company will not, in any particular period, sustain losses that are significant relative to the
ALLL amount, or that subsequent evaluations of the loan and lease portfolios applying managements
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 loan losses. See additional risk factors in Part II, ITEM 1A. Risk Factors.
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The following table summarizes the allocation of the ALLL:
March 31, 2011 | December 31, 2010 | March 31, 2010 | ||||||||||||||||||||||
Allowance | Percent | Allowance | Percent | Allowance | Percent | |||||||||||||||||||
for Loan and | of Loans in | for Loan and | of Loans in | for Loan and | of Loans in | |||||||||||||||||||
(Unaudited Dollars in thousands) | Lease Losses | Category | Lease Losses | Category | Lease Losses | Category | ||||||||||||||||||
Residential real estate |
$ | 17,004 | 14.9 | % | 20,957 | 16.9 | % | 13,363 | 19.3 | % | ||||||||||||||
Commercial real estate |
80,098 | 48.3 | % | 76,147 | 47.9 | % | 66,929 | 46.2 | % | |||||||||||||||
Other commercial |
20,960 | 17.6 | % | 19,932 | 17.4 | % | 40,186 | 17.6 | % | |||||||||||||||
Home equity |
14,206 | 12.9 | % | 13,334 | 12.9 | % | 13,431 | 12.1 | % | |||||||||||||||
Other consumer |
8,561 | 6.3 | % | 6,737 | 4.9 | % | 9,691 | 4.8 | % | |||||||||||||||
Totals |
$ | 140,829 | 100.0 | % | 137,107 | 100.0 | % | 143,600 | 100.0 | % | ||||||||||||||
The following tables summarize the ALLL experience at the dates indicated, including breakouts
by regulatory and bank subsidiary classification:
Three Months ended | Year ended | Three Months ended | ||||||||||
March 31, | December 31, | March 31, | ||||||||||
(Unaudited Dollars in thousands) | 2011 | 2010 | 2010 | |||||||||
Balance at beginning of period |
$ | 137,107 | 142,927 | 142,927 | ||||||||
Charge-offs |
||||||||||||
Residential real estate |
(5,281 | ) | (16,575 | ) | (2,830 | ) | ||||||
Commercial loans |
(10,098 | ) | (69,595 | ) | (17,229 | ) | ||||||
Consumer and other loans |
(1,125 | ) | (7,780 | ) | (1,418 | ) | ||||||
Total charge-offs |
(16,504 | ) | (93,950 | ) | (21,477 | ) | ||||||
Recoveries |
||||||||||||
Residential real estate |
95 | 749 | 9 | |||||||||
Commercial loans |
439 | 2,203 | 1,165 | |||||||||
Consumer and other loans |
192 | 485 | 66 | |||||||||
Total recoveries |
726 | 3,437 | 1,240 | |||||||||
Charge-offs, net of recoveries |
(15,778 | ) | (90,513 | ) | (20,237 | ) | ||||||
Provision for loan losses |
19,500 | 84,693 | 20,910 | |||||||||
Balance at end of period |
$ | 140,829 | 137,107 | 143,600 | ||||||||
Allowance for loan and lease losses as a
percentage of total loan and leases |
3.86 | % | 3.66 | % | 3.58 | % | ||||||
Net charge-offs as a percentage of total loans |
0.43 | % | 2.41 | % | 0.50 | % |
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Provision for | ||||||||||||||||||||||||
Provision for | the Year-to-Date | ALLL | ||||||||||||||||||||||
Allowance for Loan and Lease Losses | Year-to-Date | Ended 03/31/11 | as a Percent | |||||||||||||||||||||
Balance | Balance | Balance | Ended | Over Net | of Loans | |||||||||||||||||||
(Dollars in thousands) | 03/31/11 | 12/31/10 | 03/31/10 | 03/31/11 | Charge-Offs | 03/31/11 | ||||||||||||||||||
Glacier |
$ | 35,904 | 34,701 | 37,618 | 5,850 | 1.3 | 4.33 | % | ||||||||||||||||
Mountain West |
35,380 | 35,064 | 35,858 | 7,500 | 1.0 | 4.69 | % | |||||||||||||||||
First Security |
20,072 | 19,046 | 18,913 | 3,300 | 1.5 | 3.60 | % | |||||||||||||||||
Western |
7,603 | 7,606 | 8,737 | 300 | 1.0 | 2.77 | % | |||||||||||||||||
1st Bank |
11,411 | 10,467 | 11,310 | 1,000 | 17.9 | 4.37 | % | |||||||||||||||||
Valley |
4,588 | 4,651 | 4,634 | | | 2.52 | % | |||||||||||||||||
Big Sky |
10,551 | 9,963 | 11,144 | 650 | 10.5 | 4.28 | % | |||||||||||||||||
First National |
2,312 | 2,527 | 2,212 | | | 1.67 | % | |||||||||||||||||
Citizens |
5,501 | 5,502 | 5,554 | 700 | 1.0 | 3.54 | % | |||||||||||||||||
First Bank MT |
3,018 | 3,020 | 2,965 | | | 2.74 | % | |||||||||||||||||
San Juans |
4,489 | 4,560 | 4,655 | 200 | 0.7 | 3.18 | % | |||||||||||||||||
Total |
$ | 140,829 | 137,107 | 143,600 | 19,500 | 1.2 | 3.86 | % | ||||||||||||||||
Net Charge-Offs, Year-to-Date Period Ending, By Bank | ||||||||||||||||||||
Balance | Balance | Balance | Charge-Offs | Recoveries | ||||||||||||||||
(Dollars in thousands) | 03/31/11 | 12/31/10 | 03/31/10 | 03/31/11 | 03/31/11 | |||||||||||||||
Glacier |
$ | 4,647 | 24,327 | 10,560 | 4,718 | 71 | ||||||||||||||
Mountain West |
7,183 | 47,487 | 5,693 | 7,434 | 251 | |||||||||||||||
First Security |
2,274 | 7,296 | 1,629 | 2,336 | 62 | |||||||||||||||
Western |
303 | 2,106 | 325 | 363 | 60 | |||||||||||||||
1st Bank |
56 | 2,578 | 335 | 253 | 197 | |||||||||||||||
Valley |
63 | 216 | 33 | 71 | 8 | |||||||||||||||
Big Sky |
62 | 4,048 | 1,192 | 95 | 33 | |||||||||||||||
First National |
216 | 605 | 237 | 221 | 5 | |||||||||||||||
Citizens |
701 | 1,363 | 61 | 740 | 39 | |||||||||||||||
First Bank-MT |
2 | 149 | 104 | 2 | | |||||||||||||||
San Juans |
271 | 338 | 68 | 271 | | |||||||||||||||
Total |
$ | 15,778 | 90,513 | 20,237 | 16,504 | 726 | ||||||||||||||
Net Charge-Offs (Recoveries), Year-to-Date | ||||||||||||||||||||
Period Ending, By Loan Type | ||||||||||||||||||||
Balance | Balance | Balance | Charge-Offs | Recoveries | ||||||||||||||||
(Dollars in thousands) | 03/31/11 | 12/31/10 | 03/31/10 | 03/31/11 | 03/31/11 | |||||||||||||||
Residential construction |
$ | 2,832 | 7,147 | 853 | 2,852 | 20 | ||||||||||||||
Land, lot
and other construction |
7,434 | 51,580 | 12,090 | 7,572 | 138 | |||||||||||||||
Commercial real estate |
890 | 10,181 | 1,532 | 1,046 | 156 | |||||||||||||||
Commercial and industrial |
1,344 | 5,612 | 2,459 | 1,480 | 136 | |||||||||||||||
1-4 family |
2,924 | 9,897 | 2,517 | 3,035 | 111 | |||||||||||||||
Home equity lines of credit |
285 | 4,496 | 614 | 337 | 52 | |||||||||||||||
Consumer |
31 | 951 | 188 | 135 | 104 | |||||||||||||||
Other |
38 | 649 | (16 | ) | 47 | 9 | ||||||||||||||
Total |
$ | 15,778 | 90,513 | 20,237 | 16,504 | 726 | ||||||||||||||
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The allowance determined by each of the eleven community bank subsidiaries is combined
together into a single allowance for the Company. As of March 31, 2011, December 31, 2010 and
March 31, 2010, the Companys allowance consisted of the following components:
March 31, | December 31, | March 31, | ||||||||||
(Unaudited Dollars in thousands) | 2011 | 2010 | 2010 | |||||||||
Specific allowance |
$ | 15,402 | 16,871 | 17,036 | ||||||||
General allowance |
125,427 | 120,236 | 126,564 | |||||||||
Total allowance |
$ | 140,829 | 137,107 | 143,600 | ||||||||
Each of the Banks ALLL is considered adequate to absorb losses from any class of its loan and
lease portfolio. For the quarter ended March 31, 2011 and throughout 2010, the Company believes the allowance is
commensurate with the risk in the Companys loan and lease portfolio and is directionally
consistent with the change in the quality of the Companys loan and lease portfolio as determined
at each bank subsidiary.
In total, the ALLL has decreased $2.8 million, or 1.9 percent, from a year ago. The ALLL of $141
million is 3.86 percent of total loans outstanding at March 31, 2011, up from 3.66 percent of total
loans at year end 2010, and up from 3.58 percent of total loans at prior year first quarter end.
While the overall amount of the ALLL has decreased from a year ago, the increase in the ALLL as a
percent of loans is the result of a continuing overall upward increase in environmental factors
upon each bank subsidiarys historical loss experience. Despite the upward increase in
environmental factors upon each bank subsidiarys historical loss experience, the general
allocation of the Companys allowance decreased by $1.1 million due to the decrease of $368
million, or 9 percent, in total loans at March 31, 2011 compared to the prior year first quarter
end.
During the first quarter of 2011, the overall total of the ALLL increased by $3.7 million, the net
result of a $1.5 million decrease in the specific allocation and a $5.2 million increase in the
general allocation of the allowance. The increase in the general allocation during the current
quarter is due to an increase in the bank subsidiaries overall historical loss experience during
the quarter although total loans decreased by $102 million during the quarter.
Presented below are select aggregated statistics that were also considered when determining the
adequacy of the Companys ALLL at March 31, 2011:
Positive Trends | |||
| The provision for loan losses in the first quarter of 2011 was $19.5 million, a decrease of $7.9 million from the prior quarter. | ||
| Charge-offs, net of recoveries, in the first quarter of 2011 were $15.8 million, a decrease of $8.7 million from the prior quarter. | ||
| Non-accrual construction loans (i.e., residential construction and land, lot and other construction) were $98.6 million, or 55 percent, of the $178.4 million of non-accrual loans at March 31, 2011, a reduction of $19.1 million during the current quarter. Non-accrual construction loans at year end 2010 accounted for 61 percent of the $192.5 million of non-accrual loans. | ||
| The allowance as a percent of non-performing loans at March 31, 2011 was 76 percent versus 70 percent at year end 2010. | ||
| Non-performing loans as a percent of total loans decreased to 5.07 percent during the first quarter of 2011 as compared to 5.26 percent at year end 2010. |
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Negative Trends | |||
| Net charge-offs of construction loans were $10.3 million, or 66 percent, of the $15.8 million of net charge-offs during the current quarter compared to net charge-offs of construction loans of $13.7 million, or 56 percent, of the $24.5 million of net charge-offs in fourth quarter 2010. | ||
| Impaired loans as a percent of total loans were 6 percent at March 31, 2011, the same percent at year end 2010. | ||
| Early stage delinquencies (accruing loans 30-89 days past due) increased to $52.4 million at quarter end from $45.5 million at year end 2010. |
The eleven bank subsidiaries provide commercial services to individuals, small to medium size
businesses, community organizations and public entities from 105 locations, including 96 branches,
across Montana, Idaho, Wyoming, Colorado, Utah, and Washington. The Rocky Mountain areas in which
the bank subsidiaries operate have diverse economies and markets that are tied to commodities
(crops, livestock, minerals, oil and natural gas), tourism, real estate and land development and an
assortment of industries, both manufacturing and service-related. Thus, the downturn in the
global, national, and local economies is not uniform across each of the bank subsidiaries.
Though stabilized, the soft economic conditions during much of 2010 continued in the current
quarter, including declining sales of existing real property (e.g., single family residential,
multi-family, commercial buildings and land), an increase in existing inventory of real property,
increase in real property delinquencies and foreclosures, and corresponding decrease in absorption
rates, and lower values of real property that collateralize most of the Companys loan and lease
portfolios, among other factors. While the national unemployment rate increased steadily from 7.4
percent at the start of 2009 to 10.0 percent at year end 2009, dropping to 9.4 percent at year end
2010 and 8.8 percent at March 31, 2011, the unemployment rates for the states in which the
community bank subsidiaries conduct operations were significantly lower throughout this time period
compared to the national unemployment rate. Agricultural price declines in livestock and grain in
2009 have recovered significantly. Concurrently, prices for oil have held strong, while prices for
natural gas remain below the exceptionally high price levels of 2008. The decline in the cost of
living, as reflected in CPI measures, helped buffer the general softening of the economy
nationally, regionally and locally, and the impact of lower real property values. The tourism
industry and related lodging continues to be a source of strength for those banks whose market
areas have national parks and similar recreational areas in the market areas served. Such changes
affected the bank subsidiaries in distinctly different ways as each bank has its own geographic
area and local economy influences over both a short-term and long-term horizon.
The specific allowance allocation of $15.4 million pertains to total impaired loans of $218.7
million. Included in the impaired loans is $157.6 million of loans which have no specific
allowance allocation since the fair value of collateral-dependent loans or the present value of the
loans expected future cash flows (discounted at the loans effective interest rate) is higher than
the carrying value of such impaired loans. In determining the need for a specific allowance
allocation on impaired loans, the effects of decreases in the fair value of the underlying
collateral were considered.
In evaluating the need for a specific or general valuation allowance for impaired and unimpaired
loans, respectively, within the Companys construction loan portfolio, including residential
construction and land, lot and other construction loans, the credit risk related to such loans was
considered in the ongoing monitoring of such loans, including assessments based on current
information, including new or updated appraisals or evaluations of the underlying collateral,
expected cash flows and the timing thereof, as well as the estimated costs to sell when such costs
are expected to reduce the cash flows available to repay or otherwise satisfy the construction
loan. Construction loans are 16 percent of the Companys total loan portfolio and account for 55
percent of the Companys non-accrual loans at March 31, 2011. Collateral securing construction
loans include residential buildings (e.g., single/multi-family and condominiums), commercial
buildings, and associated land (multi-acre parcels and individual lots, with and without
shorelines). Outstanding balances are centered in Western Montana
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and Northern Idaho, as well as Boise, Sun Valley, Idaho. None of the individual bank subsidiaries
have a concentration of construction loans exceeding 5 percent of the Companys total loan
portfolio.
As identified below, the following four bank subsidiaries had non-accrual construction loans that
aggregated 5 percent or more of the Companys $98.6 million of non-accrual construction loans at
March 31, 2011. The Company had $117.7 million of non-accrual construction loans at December 31,
2010, a decrease of $19.1 million, or 16 percent. Also identified below are the principal areas of
the bank subsidiaries operations in which the collateral properties of such non-accrual
construction loans are located:
Mountain West
|
33 percent | Northern Idaho and Boise and Sun Valley, Idaho | ||
Glacier
|
32 percent | Western Montana | ||
First Security
|
17 percent | Western Montana | ||
Big Sky
|
10 percent | Western Montana |
Residential non-accrual construction loans are 6 percent of the total construction loans on
non-accrual status as of March 31, 2011. Unimproved land and land development loans collectively
account for the bulk of the non-accrual commercial construction loans at each of the four bank
subsidiaries. With locations and operations in the contiguous northern Rocky Mountain states of
Idaho and Montana, the geography and economies of each of the four bank subsidiaries are
predominantly tied to real estate development given the sprawling abundance of timbered valleys and
mountainous terrain with significant lakes, streams and watershed areas. Consistent with the
general economic downturn, the market for upscale primary, secondary and other housing as well as
the associated construction and building industries have stalled after years of significant growth.
As the housing market (rental and owner-occupied) and related industries continue to recover from
the downturn, the Company continues to reduce its exposure to loss in the construction loan and
other segments of the total loan portfolio.
Other-Than-Temporary Impairment on Securities Accounting Policy and Analysis
The Company views the determination of whether an investment security is temporarily or
other-than-temporarily impaired as a critical accounting policy, as the estimate is susceptible to
significant change from period to period because it requires management to make significant
judgments, assumptions and estimates in the preparation of its consolidated financial statements.
The Company assesses individual securities in its investment securities portfolio for impairment at
least on a quarterly basis, and more frequently when economic or market conditions warrant. An
investment is impaired if the fair value of the security is less than its carrying value at the
financial statement date. If impairment is determined to be other-than-temporary, an impairment
loss is recognized by reducing the amortized cost for the credit loss portion of the impairment
with a corresponding charge to earnings for a like amount.
For fair value estimates provided by third party vendors, management also considered the models and
methodology for appropriate consideration of both observable and unobservable inputs, including
appropriately adjusted discount rates and credit spreads for securities with limited or inactive
markets, and whether the quoted prices reflect orderly transactions. For certain securities, the
Company obtained independent estimates of inputs, including cash flows, in supplement to third
party vendor provided information. The Company also reviewed financial statements of select
issuers, with follow up discussions with issuers management for clarification and verification of
information relevant to the Companys impairment analysis.
Equity securities owned at March 31, 2011 primarily consisted of stock issued by the FHLB of
Seattle, FHLB of Topeka and the FRB, such shares measured at cost in recognition of the
transferability restrictions imposed by the issuers. Other equity securities include Federal
Agriculture Mortgage Corporation and Bankers Bank of the West Bancorporation, Inc. The fair value
of other equity securities in an unrealized loss position was $8 thousand, with unrealized losses
of $4 thousand or 44 percent of fair value, at March 31, 2011.
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With respect to FHLB stock, the Company evaluates such stock for other-than-temporary impairment.
Such evaluation takes into consideration (1) FHLB deficiency, if any, in meeting applicable
regulatory capital targets, including risk-based capital requirements, (2) the significance of any decline in net assets of the
FHLB as compared to the capital stock amount for the FHLB and the time period for any such decline,
(3) commitments by the FHLB to make payments required by law or regulation and the level of such
payments in relation to the operating performance of the FHLB, (4) the impact of legislative and
regulatory changes on the FHLB, and (5) the liquidity position of the FHLB.
Based on the analysis of its impaired equity securities as of March 31, 2011, the Company
determined that none of such securities had other-than-temporary impairment.
The Company believes that macroeconomic conditions occurring the first three months of 2011 and in
2010 have unfavorably impacted the fair value of certain debt securities in its investment
portfolio. For debt securities with limited or inactive markets, the impact of these macroeconomic
conditions upon fair value estimates includes higher risk-adjusted discount rates and downgrades in
credit ratings provided by nationally recognized credit rating agencies, (e.g., Moodys, S&P,
Fitch, and DBRS).
In evaluating debt securities for other-than-temporary impairment losses, management assesses
whether the Company intends to sell the security or if it is more likely-than-not that the Company
will be required to sell the debt security. In so doing, management considers contractual
constraints, liquidity, capital, asset / liability management and securities portfolio objectives.
The Company sold 7 debt securities during the first three months of 2011, including 3 sold at a
realized gain of $184 thousand and 4 sold at a realized loss of $60 thousand resulting in a net
realized gain of $124 thousand. Debt securities sold during 2010, included 119 securities of which
108 were sold at a realized gain of $7.8 million and 11 were sold at a realized loss of $3.0
million. Of the securities sold at a realized loss, none had previously been subject to an
other-than-temporary impairment charge, and none were subject to an expectation or requirement to
sell. With respect to its impaired debt securities at March 31, 2011, management determined that
it does not intend to sell and that there is no expected requirement to sell any of its impaired
debt securities.
As of March 31, 2011, there were 556 investments in an unrealized loss position of which 554 were
debt securities and 2 were equity securities. With respect to the 554 debt securities, state and
local government securities have the largest unrealized loss. The fair value of the residential
mortgage-backed securities, which have underlying collateral consisting of U.S. government
sponsored enterprise guaranteed mortgages and non-guaranteed private label whole loan mortgages,
were $341.2 million at March 31, 2011 of which $115.9 million was purchased during 2011, the
remainder of which had a fair market value of $225.3 million at March 31, 2011. For the securities
purchased in 2011, there has been an unrealized loss of $688 thousand since purchase. Of the
remaining residential mortgage-backed securities in a loss position, the unrealized loss increased
from .89 percent of fair value at December 31, 2010 to 1.07 percent of fair value at March 31,
2011. The fair value of Collateralized Debt Obligation (CDO) securities in an unrealized loss
position is $7.1 million, with unrealized losses of $4.1 million at March 31, 2011; the unrealized
loss decreased from 69.48 percent of fair value at December 31, 2010 to 58 percent of fair value at
March 31, 2011. The fair value of state and local government securities in an unrealized loss
position were $338.6 million at March 31, 2011 of which $21.2 million was purchased during 2011,
the remainder of which had a fair market value of $317.4 million at December 31, 2010. For the
securities purchased in 2011, there has been an unrealized loss of $291 thousand since purchase.
Of the remaining state and local government securities in a loss position, the unrealized loss
decreased from 4.68 percent of fair value at December 31, 2010 to 4.35 percent of fair value at
March 31, 2011. With respect to severity, the following table provides the number of securities
and amount of unrealized loss in the various ranges of unrealized loss as a percent of book value.
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Number of | Number of | |||||||||||
Unrealized | Debt | Equity | ||||||||||
(Dollars in thousands) | Loss | Securities | Securities | |||||||||
Greater than 40.0% |
$ | 4,106 | 6 | 1 | ||||||||
30.1% to 40.0% |
| | | |||||||||
20.1% to 30.0% |
290 | 1 | | |||||||||
15.1% to 20.0% |
731 | 3 | | |||||||||
10.1% to 15.0% |
863 | 6 | | |||||||||
5.1% to 10.0% |
8,006 | 116 | 1 | |||||||||
0.1% to 5.0% |
7,388 | 422 | | |||||||||
Total |
$ | 21,384 | 554 | 2 | ||||||||
With respect to the duration of the impaired debt securities, the Company identified 35
securities which have been continuously impaired for the twelve months ending March 31, 2011. The
valuation history of such securities in the prior year(s) was also reviewed to determine the number
of months in prior year(s) in which the identified securities was in an unrealized loss position.
Of the 35 securities, 18 are state and local tax-exempt securities with an unrealized loss of $1.8
million, the most notable of which had an unrealized loss of $522 thousand. Of the 35 securities,
6 are identical CDO securities with an aggregate unrealized loss of $4.1 million, the most notable
of which had an unrealized loss of $1 million.
With respect to the CDO securities, each is in the form of a pooled trust preferred structure of
which the Company owns a portion of the Senior Notes tranche. All of the assets underlying the
pooled trust preferred structure are capital securities issued by trust subsidiaries of holding
companies of banks and thrifts. Since December 31, 2009, the Senior Notes have been rated A3 by
Moodys. The Senior Notes have also been rated as of March 31, 2011 by Fitch as BBB, such rating
effective September 21, 2010. Prior to such downgrade, Fitch had rated the Senior Notes as A.
As of March 31, 2011 and December 31, 2010, 9 of the 26 trust subsidiaries were treated by the
Trustee as in default, either because of an actual default or elective deferral of interest
payments on their respective obligations. As of the end of the third and second quarters of 2010,
8 of the 26 trust subsidiaries were treated by the Trustee as in default on their respective
obligations underlying the CDO structure. As of the end of the first quarter of 2010 and the
fourth quarter of 2009, 6 of the 26 trust subsidiaries were treated as in default compared to 3 of
the 26 trust subsidiaries treated as in default on their respective obligations as of the end of
the first three quarters of 2009. In accordance with the prospectus for the CDO structure, the
priority of payments favors holders of the Senior Notes over holders of the Mezzanine Notes and
Income Notes. Though the maturity of the CDO structure is June 15, 2031, 25.28 percent of the
outstanding principle of the Senior Notes has been prepaid through March 31, 2011. More
specifically, at any time the Senior Notes are outstanding, if either the Senior Principle or
Senior Interest Coverage Tests (the Senior Coverage Tests) are not satisfied as of a calculation
date, then funds that would have otherwise been used to make payments on the Mezzanine Notes or
Income Notes shall instead be applied as principle prepayments on the Senior Notes. For the first
quarter of 2011 and the preceding five quarters, the Senior Principle Coverage Test was below its
threshold level, while the Senior Interest Coverage Test exceeded its threshold level. The Senior
Coverage Tests exceeded the threshold levels for each of the first three quarters of 2009. In its
assessment of the Senior Notes for potential other-than-temporary impairment, the Company evaluated
the underlying issuers and engaged a third party vendor to stress test the performance of the
underlying capital securities and related obligors. Such stress testing has been performed as of
the first quarter of 2011 and at the end of each quarter of 2010 and 2009. In each instance of
stress testing, the results reflect no credit loss for the Senior Notes. In evaluating such
results, the Company reviewed with the third party vendor the stress test assumptions and concurred
with the analyses in concluding that the impairment at March 31, 2011 and at the end of each of the
prior quarters of 2010 and 2009 was temporary, and not other-than-temporary.
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Table of Contents
Of the 35 securities temporarily impaired continuously for the three months ended March 31, 2011, 6
are non-guaranteed private label whole loan mortgages with an aggregate unrealized loss of $793
thousand, the most notable of which had an unrealized loss of $414 thousand. Of the 6
non-guaranteed private label whole loan mortgages, 2 are collateralized by 30-year fixed rate
residential mortgages considered to be Prime and 4 are collateralized by 30-year fixed rate
residential mortgages considered to be ALT A. Moreover, none of the underlying mortgage
collateral is considered subprime.
The Company engages a third-party to perform detailed analysis for other-than-temporary impairment
of such securities. Such analysis takes into consideration original and current data for the
tranche and CMO structure, the non-guaranteed classification of each CMO tranche, current and deal
inception credit ratings, credit support (protection) afforded the tranche through the
subordination of other tranches in the CMO structure, the nature of the collateral (e.g., Prime or
Alt-A) underlying each CMO tranche, and realized cash flows since purchase. When available, the
collateral loss estimates are compared against loss estimates obtained from the credit rating
agencies for the CMO structure and the resulting impact upon the tranche.
The analysis includes performance projections based upon cash flow assumptions designed to assess
risk by capturing key performance data and trends such as delinquencies, severity of defaults,
severity of collateral loss, and a range of prepayment speeds taking into account both voluntary
(CRR) and involuntary (CDR) payments and the seniority of the CMO tranche within the CMO deal.
The projected cash flows incorporate a range of macroeconomic trends, including for example,
interest rates, gross domestic product and employment, as well as home price
appreciation/depreciation (HPA) and geographic affordability (Geo Aff).
HPA is a primary driver of credit performance in addition to loan characteristics. Negative HPA
refers to declining house price appreciation (i.e., depreciation in essence). HPA scenarios are
performed at loan-level capturing characteristics such as loan-to-value, credit scores (e.g.,
FICO), loan type, occupancy, purpose, and geography. Geo Aff is also a house price appreciation
scenario and such refers to house price affordability levels by geography (relative to income).
Prior to performing any HPA or Geo Aff-based analysis, significant fine-tuning adjustments are made
to factor in the current state of the housing market. Tuning adjustments include delinquency roll
rates, cure rates, voluntary prepayments, loan-to-values, and credit scores. Additionally, other
factors used in the analyses are updated for current market conditions and trends, including loss
severities and collateral loss estimates provided by the credit rating agencies for the CMO
structures.
Based on the analysis of its impaired debt securities as of March 31, 2011, the Company determined
that none of such securities had other-than-temporary impairment.
Income Tax Expense
Income tax expense for the three months ended March 31, 2011 and 2010 was $1.8 million and $2.8
million, respectively. The Companys effective tax rate for the three months ended March 31, 2011
and 2010 was 15.2 percent and 21.5 percent, respectively. The primary reason for the low effective
rate is the amount of tax-exempt investment income and federal tax credits. The tax-exempt income
was $6.8 million and $5.6 million for the three months ended March 31, 2011 and 2010, respectively.
The federal tax credit benefits were $418 thousand and $229 thousand for the three ended March 31,
2011 and March 31, 2010, respectively. The Company continues its investments in select municipal
securities and various VIEs whereby the Company receives federal tax credits. For additional
information on income taxes, see Note 9, Federal and State Income Taxes, in ITEM 1. Financial
Statements.
Average Balance Sheet
The following schedule provides 1) the total dollar amount of interest and dividend income of the
Company for earning assets and the average yield; 2) the total dollar amount of interest expense on
interest-bearing liabilities and the average rate; 3) net interest and dividend income and interest
rate spread; and 4) net interest margin and
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net interest margin tax-equivalent; and 5) return on
average assets and return on average equity. Non-accrual loans are included in the average balance
of the loans.
Three Months ended 03/31/11 | Three Months ended 03/31/10 | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Average | Interest & | Yield/ | Average | Interest & | Yield/ | |||||||||||||||||||
(Dollars in thousands) | Balance | Dividends | Rate | Balance | Dividends | Rate | ||||||||||||||||||
Assets |
||||||||||||||||||||||||
Residential real estate loans |
$ | 601,640 | 8,716 | 5.79 | % | $ | 783,177 | 11,833 | 6.04 | % | ||||||||||||||
Commercial loans |
2,411,846 | 33,058 | 5.56 | % | 2,592,529 | 36,672 | 5.74 | % | ||||||||||||||||
Consumer and other loans |
702,248 | 10,450 | 6.03 | % | 691,190 | 10,640 | 6.24 | % | ||||||||||||||||
Total loans and loans held for sale |
3,715,734 | 52,224 | 5.70 | % | 4,066,896 | 59,145 | 5.90 | % | ||||||||||||||||
Tax-exempt investment securities 1 |
583,904 | 6,778 | 4.64 | % | 459,764 | 5,568 | 4.84 | % | ||||||||||||||||
Taxable investment securities 2 |
1,936,316 | 9,371 | 1.94 | % | 1,181,846 | 8,685 | 2.94 | % | ||||||||||||||||
Total earning assets |
6,235,954 | 68,373 | 4.45 | % | 5,708,506 | 73,398 | 2.21 | % | ||||||||||||||||
Goodwill and intangibles |
156,703 | 159,851 | ||||||||||||||||||||||
Non-earning assets |
284,631 | 268,688 | ||||||||||||||||||||||
Total assets |
$ | 6,677,288 | $ | 6,137,045 | ||||||||||||||||||||
Liabilities |
||||||||||||||||||||||||
NOW accounts |
$ | 748,058 | 525 | 0.28 | % | $ | 716,239 | 733 | 0.41 | % | ||||||||||||||
Savings accounts |
374,031 | 148 | 0.16 | % | 331,676 | 204 | 0.25 | % | ||||||||||||||||
Money market demand accounts |
878,391 | 1,106 | 0.51 | % | 811,580 | 1,963 | 0.98 | % | ||||||||||||||||
Certificate accounts |
1,082,083 | 4,483 | 1.68 | % | 1,072,352 | 5,411 | 5.05 | % | ||||||||||||||||
Wholesale deposits 3 |
537,008 | 826 | 0.62 | % | 373,167 | 1,020 | 1.11 | % | ||||||||||||||||
FHLB advances |
946,997 | 2,548 | 1.09 | % | 802,000 | 2,311 | 1.17 | % | ||||||||||||||||
Securities sold under agreements to
repurchase and other borrowed funds |
387,060 | 2,033 | 2.13 | % | 507,963 | 2,242 | 1.79 | % | ||||||||||||||||
Total interest bearing liabilities |
4,953,628 | 11,669 | 0.96 | % | 4,614,977 | 13,884 | 1.22 | % | ||||||||||||||||
Non-interest bearing deposits |
851,900 | 779,998 | ||||||||||||||||||||||
Other liabilities |
29,436 | 31,400 | ||||||||||||||||||||||
Total liabilities |
5,834,964 | 5,426,375 | ||||||||||||||||||||||
Stockholders Equity |
||||||||||||||||||||||||
Common stock |
719 | 628 | ||||||||||||||||||||||
Paid-in capital |
643,937 | 513,808 | ||||||||||||||||||||||
Retained earnings |
194,596 | 193,643 | ||||||||||||||||||||||
Accumulated
other comprehensive income |
3,072 | 2,591 | ||||||||||||||||||||||
Total stockholders equity |
842,324 | 710,670 | ||||||||||||||||||||||
Total liabilities and
stockholders equity |
$ | 6,677,288 | $ | 6,137,045 | ||||||||||||||||||||
Net Interest Income |
$ | 56,704 | $ | 59,514 | ||||||||||||||||||||
Net Interest Spread |
3.49 | % | 3.99 | % | ||||||||||||||||||||
Net Interest Margin |
3.69 | % | 4.23 | % | ||||||||||||||||||||
Net Interest Margin (tax-equivalent) |
3.91 | % | 4.43 | % |
1 | Excludes tax effect of $3,001,000 and $2,465,000 on tax-exempt investment security income for the three months ended March 31, 2011 and 2010, respectively. | |
2 | Excludes tax effect of $392,000 and $312,000 on investment security tax credits for the three months ended March 31, 2011 and 2010, respectively. | |
3 | Wholesale deposits include brokered deposits classified as NOW,money market demand, and CDs. |
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Rate/Volume Analysis
Net interest income can be evaluated from the perspective of relative dollars of change in each
period. Interest income and interest expense, which are the components of net interest income, are
shown in the following table on the basis of the amount of any increases (or decreases)
attributable to changes in the dollar levels of the Companys interest-earning assets and
interest-bearing liabilities (Volume) and the yields earned and rates paid on such assets and
liabilities (Rate). The change in interest income and interest expense attributable to changes
in both volume and rates has been allocated proportionately to the change due to volume and the
change due to rate.
Three Months ended March 31, | ||||||||||||
2011 vs. 2010 | ||||||||||||
Increase (Decrease) Due to: | ||||||||||||
(Dollars in thousands) | Volume | Rate | Net | |||||||||
Interest income |
||||||||||||
Residential real estate loans |
$ | (2,743) | (374 | ) | (3,117 | ) | ||||||
Commercial loans |
(2,556 | ) | (1,058 | ) | (3,614 | ) | ||||||
Consumer and other loans |
170 | (360 | ) | (190 | ) | |||||||
Investment securities |
7,629 | (5,733 | ) | 1,896 | ||||||||
Total interest income |
2,500 | (7,525 | ) | (5,025 | ) | |||||||
Interest expense |
||||||||||||
NOW accounts |
33 | (241 | ) | (208 | ) | |||||||
Savings accounts |
26 | (81 | ) | (55 | ) | |||||||
Money market demand accounts |
162 | (1,019 | ) | (857 | ) | |||||||
Certificate accounts |
48 | (978 | ) | (930 | ) | |||||||
Wholesale deposits |
448 | (641 | ) | (193 | ) | |||||||
FHLB advances |
418 | (181 | ) | 237 | ||||||||
Repurchase
agreements and other borrowed funds |
(534 | ) | 325 | (209 | ) | |||||||
Total interest expense |
601 | (2,816 | ) | (2,215 | ) | |||||||
Net interest income |
$ | 1,899 | (4,709 | ) | (2,810 | ) | ||||||
Liquidity Risk
Liquidity risk is the possibility that the Company will not be able to fund present and future
obligations as they come due because of an inability to liquidate assets or obtain adequate funding
at a reasonable cost. The objective of liquidity management is to maintain cash flows adequate to
meet current and future needs for credit demand, deposit withdrawals, maturing liabilities and
corporate operating expenses. Effective liquidity management entails three elements:
1. | Assessing on an ongoing basis, the current and expected future needs for funds, and ensuring that sufficient funds or access to funds exist to meet those needs at the appropriate time. | ||
2. | Providing for an adequate cushion of liquidity to meet unanticipated cash flow needs that may arise from potential adverse circumstances ranging from high probability/low severity events to low probability/high severity. | ||
3. | Balancing the benefits between providing for adequate liquidity to mitigate potential adverse events and the cost of that liquidity. |
The Banks primary sources of funds are deposits, receipts of principal and interest payments on
loans and investment securities, proceeds from sale of loans and securities, short and long-term
borrowings. In addition, the Company maintains liquidity capacity through secured and unsecured
borrowing programs, brokered
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deposit relationships, and unencumbered securities. The following
table identifies certain liquidity sources and capacity available to the Company at March 31, 2011:
March 31 | ||||
(Dollars in thousands) | 2011 | |||
FHLB advances |
||||
Borrowing capacity |
$ | 1,103,037 | ||
Amount utilized |
(960,097 | ) | ||
Amount available |
$ | 142,940 | ||
FRB discount window |
||||
Borrowing capacity |
$ | 255,764 | ||
Amount utilized |
| |||
Amount available |
$ | 255,764 | ||
Unsecured lines of credit available |
$ | 156,760 | ||
Unencumbered securities |
||||
U.S. government and federal agency |
$ | | ||
U.S. government sponsored enterprises |
5,054 | |||
State and local governments and other stock |
809,822 | |||
Collateralized debt obligations |
7,074 | |||
Residential mortgage-backed securities |
1,083,080 | |||
Total unencumbered securities |
$ | 1,905,030 | ||
The Company and each of the bank subsidiaries has a wide range of versatility in managing the
liquidity and asset/liability mix across each of the bank subsidiaries as well as the Company as a
whole. Asset liability committees (ALCO) are maintained at the Parent and bank subsidiary levels
with the ALCO committees meeting regularly to assess liquidity risk, among other matters. The
Company monitors liquidity and contingency funding alternatives through management reports of
liquid assets (e.g., investment securities), both unencumbered and pledged, as well as borrowing
capacity, both secured and unsecured.
Capital Resources
Maintaining capital strength continues to be a long-term objective. Abundant capital is necessary
to sustain growth, provide protection against unanticipated declines in asset values, and to
safeguard the funds of depositors. Capital also is a source of funds for loan demand and enables
the Company to effectively manage its assets and liabilities. Stockholders equity increased $1.7
million from year end 2010, or .2 percent, the net result of earnings of $10.3 million, an increase
of $1.8 million in unrealized gains on available-for-sale securities, less cash dividend payments
of $9.3 million.
The Federal Reserve Board has adopted capital adequacy guidelines that are used to assess the
adequacy of capital in supervising a bank holding company. Each bank subsidiary was considered
well capitalized by their respective regulator as of March 31, 2011 and December 31, 2010. There
are no conditions or events since quarter end that management believes have changed the Companys
or subsidiaries risk-based capital category. The following table illustrates the Federal Reserve
Boards capital adequacy guidelines and the Companys compliance with those guidelines as of March
31, 2011.
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Tier 1 (Core) | Tier 2 (Total) | Leverage | ||||||||||
(Dollars in thousands) | Capital | Capital | Capital | |||||||||
Total stockholders equity |
$ | 839,889 | 839,889 | 839,889 | ||||||||
Less: |
||||||||||||
Goodwill and intangibles |
(154,434) | (154,434) | (154,434) | |||||||||
Net unrealized gain on AFS debt securities |
(2,294) | (2,294) | (2,294) | |||||||||
Other adjustments |
(80) | (80) | (80) | |||||||||
Plus: |
||||||||||||
Allowance for loan and lease losses |
| 56,541 | | |||||||||
Subordinated debentures |
124,500 | 124,500 | 124,500 | |||||||||
Other adjustments |
4 | |||||||||||
Regulatory capital |
$ | 807,581 | 864,126 | 807,581 | ||||||||
Risk weighted assets |
$ | 4,438,902 | 4,438,902 | |||||||||
Total adjusted average assets |
$ | 6,522,774 | ||||||||||
Capital as % of risk weighted assets |
18.19% | 19.47% | 12.38% | |||||||||
Regulatory well capitalized requirement |
6.00% | 10.00% | ||||||||||
Excess over well capitalized requirement |
12.19% | 9.47% | ||||||||||
Dividend payments were $0.13 per share for the period ended March 31, 2011. The payment of
dividends is subject to government regulation in that regulatory authorities may prohibit banks and
bank holding companies from paying dividends that would constitute an unsafe or unsound banking
practice. Additionally, current guidance from the Federal Reserve provides, among other things,
that dividends per share on the Companys common stock generally should not exceed earnings per
share, measured over the previous four fiscal quarters.
In addition to the primary and safeguard liquidity sources available, the Company has the capacity
to issue 117,187,500 shares of common stock of which 71,915,073 has been issued as of March 31,
2011. The Companys capacity to issue additional shares has been demonstrated with the most recent
stock issuances in 2010 and 2008, although no assurances can be made that future stock issuances
would be as successful. The Company also has the capacity to issue 1,000,000 shares of preferred
shares of which none are currently issued.
Short-term borrowings
A critical component of the Companys liquidity and capital resources is access to short-term
borrowings to fund its operations. Short-term borrowings are accompanied by increased risks
managed by ALCO such as rate increases or unfavorable change in terms which would make it more
costly to obtain future short-term borrowings. The Companys short-term borrowing sources include
FHLB advances, FRB borrowings, federal funds purchased, brokered deposits, and wholesale repurchase
agreements. FHLB advances and certain other short-term borrowings may be extended as long-term
borrowings to decrease certain risks such as liquidity or interest rate risk; however, the
reduction in risks are weighed against the increased costs of funds.
Commitments
In the normal course of business, there are various outstanding commitments to extend credit, such
as letters of credit and un-advanced loan commitments, which are not reflected in the accompanying
condensed consolidated financial statements. Management does not anticipate any material losses as
a result of these transactions. The Company has outstanding debt maturities, the largest aggregate
amount of which are FHLB advances.
Effect of inflation and changing prices
Generally accepted accounting principles often require the measurement of financial position
and operating results in terms of historical dollars, without consideration for change in relative
purchasing power over time
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due to inflation. Virtually all assets of the Company and each bank subsidiary are monetary
in nature; therefore, interest rates generally have a more significant impact on a companys
performance than does the effect of inflation.
Impact of Recent Authoritative Accounting Guidance
The Accounting Standards Codification is FASBs officially recognized source of authoritative U.S.
generally accepted accounting principles (GAAP) applicable to all public and non-public
non-governmental entities. Rules and interpretive releases of the Securities and Exchange
Commission (SEC) under the authority of the federal securities laws are also sources of
authoritative GAAP for SEC registrants. All other accounting literature is considered
non-authoritative.
In April 2011, FASB issued an amendment to FASB ASC Topic 310, Receivables. The amendments in this
Update provide additional guidance or clarification regarding a creditors determination of whether
a restructuring is a troubled debt restructuring. In evaluating whether a restructuring
constitutes a troubled debt restructuring, a creditor must separately conclude that both of the
following exist 1) the restructuring constitutes a concession 2) the debtor is experiencing
financial difficulties. The amendment provides further guidance as to when the creditor has
granted a concession and the debtor is experiencing financial difficulties. The amendments in this
Update are effective for the first interim or annual period beginning on or after June 15, 2011,
and should be applied retrospectively to the beginning of the annual period of adoption. As a
result of applying these amendments, an entity may identify receivables that are newly considered
impaired. For purposes of measuring impairment of those receivables, an entity should apply the
amendments prospectively for the first interim or annual period beginning on or after June 15,
2011. An entity should disclose the information relating to troubled debt restructurings
which was deferred in January 2011 by Accounting Standards Update No. 2011-01, Topic 310,
Receivables (Topic 310), for interim and annual periods beginning on or after June 15, 2011. The
Company is currently evaluating the impact of the adoption of this amendment, but does not expect
it to have a material effect on the Companys financial position or results of operations.
In December 2010, FASB issued an amendment to FASB ASC Topic 805, Business Combinations. The
amendments in this Update specify that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as of the beginning of
the comparable prior annual reporting period only. The amendments also expand the supplemental pro
forma disclosures to include a description of the nature and amount of material, nonrecurring pro
forma adjustments directly attributable to the business combination included in the reported pro
forma revenue and earnings. The amendments are effective prospectively for business combinations
for which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2010. The Company has evaluated the impact of the adoption of
this amendment and determined there was not a material effect on the Companys financial position
or results of operations.
In December 2010, FASB issued an amendment to FASB ASC Topic 350, Intangibles Goodwill and
Other. The amendments in this Update affect all entities that have recognized goodwill and have
one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill
impairment test is zero or negative. The amendments in this Update modify Step 1 so that for those
reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is
more likely than not that a goodwill impairment exists. In determining whether it is more likely
than not that a goodwill impairment exists, an entity should consider whether there are any adverse
qualitative factors indicating that an impairment may exist. The amendments are effective for
fiscal years, and interim periods within those years, beginning after December 15, 2010. The
Company has evaluated the impact of the adoption of this amendment and determined there was not a
material effect on the Companys financial position or results of operations.
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ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
The Company believes that there have not been any material changes in information about the
Companys market risk than was provided in the Form 10-K report for the year ended December 31,
2010.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Companys Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the
effectiveness of our disclosure controls and procedures (as required by Exchange Act Rules
240.13a-15(b) and 15d-14(c)) as of the date of this quarterly report. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer have concluded that the Companys current
disclosure controls and procedures are effective and timely, providing them with material
information relating to the Company required to be disclosed in the reports the Company files or
submits under the Exchange Act.
Changes in Internal Controls
There have not been any changes in the Companys internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first quarter
2011, to which this report relates that have materially affected, or are reasonably likely to
materially affect the Companys internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no pending material legal proceedings to which the registrant or its subsidiaries are a
party.
ITEM 1A. Risk Factors
The Company and its eleven independent wholly-owned community bank subsidiaries are exposed to
certain risks. The following is a discussion of the most significant risks and uncertainties that
may affect the Companys business, financial condition and future results.
The continued challenging economic environment could have a material adverse effect on the
Companys future results of operations or market price of stock.
The national economy, and the financial services sector in particular, are still facing significant
challenges. Substantially all of the Companys loans are to businesses and individuals in
Montana, Idaho, Wyoming, Utah, Colorado and Washington, markets facing many of the same challenges
as the national economy, including elevated unemployment and declines in commercial and residential
real estate. Although some economic indicators are improving both nationally and in the Companys
markets, unemployment remains high and there remains substantial uncertainty regarding when and how
strongly a sustained economic recovery will occur. The inability of borrowers to repay loans can
erode earnings by reducing earnings and by requiring the Company to add to its allowance for loan
and lease losses. While the Company cannot accurately predict how long these conditions may exist,
the economic downturn could continue to present risks for some time for the industry and Company.
A further deterioration in economic conditions in the nation as a whole or in the Companys markets
could result in the following consequences, any of which could have an adverse impact,
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which may be material, on the Companys business, financial condition, results of operations and
prospects, and could also cause the market price of the Companys stock to decline:
| loan delinquencies may increase further; | ||
| problem assets and foreclosures may increase further; | ||
| collateral for loans made may decline further in value, in turn reducing customers borrowing power, reducing the value of assets and collateral associated with existing loans and increasing the potential severity of loss in the event of loan defaults; | ||
| demand for banking products and services may decline; and | ||
| low cost or non-interest bearing deposits may decrease. |
The allowance for loan and lease losses may not be adequate to cover actual loan losses, which
could adversely affect earnings.
The Company maintains an ALLL in an amount that it believes is adequate to provide for losses in
the loan portfolio. While the Company strives to carefully manage and monitor credit quality and
to identify loans that may become non-performing, at any time there are loans included in the
portfolio that will result in losses, but that have not been identified as non-performing or
potential problem loans. By closely monitoring credit quality, the Company attempts to identify
deteriorating loans before they become non-performing assets and adjust the ALLL accordingly.
However, because future events are uncertain, and if the economic downturn continues or
deteriorates further, there may be loans that deteriorate to a non-performing status in an
accelerated time frame. As a result, future additions to the ALLL may be necessary. Because the
loan portfolio contains a number of loans with relatively large balances, the deterioration of one
or a few of these loans may cause a significant increase in non-performing loans, requiring an
increase to the ALLL. Additionally, future significant additions to the ALLL may be required based
on changes in the mix of loans comprising the portfolio, changes in the financial condition of
borrowers, which may result from changes in economic conditions, or changes in the assumptions used
in determining the ALLL. Additionally, federal banking regulators, as an integral part of their
supervisory function, periodically review the Companys loan portfolio and the adequacy of the
ALLL. These regulatory agencies may require the Company to recognize further loan loss provisions
or charge-offs based upon their judgments, which may be different from the Companys judgments.
Any increase in the ALLL would have an adverse effect, which could be material, on the Companys
financial condition and results of operations.
The Company has a high concentration of loans secured by real estate, so any further deterioration
in the real estate markets could require material increases in ALLL and adversely affect the
Companys financial condition and results of operations.
The Company has a high degree of concentration in loans secured by real estate. A sluggish
recovery, or a continuation of the downturn in the economic conditions or real estate values, of
the Companys market areas could adversely impact borrowers ability to repay loans secured by real
estate and the value of real estate collateral, thereby increasing the credit risk associated with
the loan portfolio. The Companys ability to recover on these loans by selling or disposing of the
underlying real estate collateral is adversely impacted by declining real estate values, which
increases the likelihood that the Company will suffer losses on defaulted loans secured by real
estate beyond the amounts provided for in the ALLL. This, in turn, could require material
increases in the ALLL which would adversely affect the Companys financial condition and results of
operations, perhaps materially.
A tightening of the credit markets may make it difficult to obtain adequate funding for loan
growth, which could adversely affect earnings.
A tightening of the credit markets and the inability to obtain or retain adequate funds for
continued loan growth at an acceptable cost may negatively affect the Companys asset growth and
liquidity position and, therefore, earnings capability. In addition to core deposit growth,
maturity of investment securities and loan payments, the Company also relies on alternative funding
sources through correspondent banking, and borrowing lines with the FRB and FHLB to fund loans. In
the event the current economic downturn continues, particularly in
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the housing market, these resources could be negatively affected, both as to price and
availability, which would limit and or raise the cost of the funds available to the Company.
There can be no assurance the Company will be able to continue paying dividends on the common stock
at recent levels.
The ability to pay dividends on the Companys common stock depends on a variety of factors. The
Company paid dividends of $0.13 per share in each quarter of 2010 and the first quarter of 2011.
There can be no assurance that the Company will be able to continue paying quarterly dividends
commensurate with recent levels. In that regard, the Federal Reserve now is requiring the Company
to provide prior written notice and related information for staff review before declaring or paying
dividends. In addition, current guidance from the Federal Reserve provides, among other things,
that dividends per share generally should not exceed earnings per share. As a result, future
dividends will depend on sufficient earnings to support them. Furthermore, the Companys ability to
pay dividends depends on the amount of dividends paid to the Company by its subsidiaries, which is
also subject to government regulation, oversight and review. In addition, the ability of some of
the bank subsidiaries to pay dividends to the Company is subject to prior regulatory approval.
The Company may not be able to continue to grow organically or through acquisitions.
Historically, the Company has expanded through a combination of organic growth and acquisitions. If
market and regulatory conditions remain challenging, the Company may be unable to grow organically
or successfully complete potential future acquisitions. In particular, while the Company intends to
focus any near-term acquisition efforts on FDIC-assisted transactions within its existing market
areas, there can be no assurance that such opportunities will become available on terms that are
acceptable to the Company. Furthermore, there can be no assurance that the Company can successfully
complete such transactions, since they are subject to a formal bid process and regulatory review
and approval.
The FDIC has increased insurance premiums to rebuild and maintain the federal deposit insurance
fund and there may be additional future premium increases and special assessments.
In 2009, the FDIC imposed a special deposit insurance assessment of five basis points on all
insured institutions, and also required insured institutions to prepay estimated quarterly
risk-based assessments through 2012.
The Dodd-Frank Act established 1.35% as the minimum deposit insurance fund reserve ratio. The FDIC
has determined that the fund reserve ratio should be 2.0% and has adopted a plan under which it
will meet the statutory minimum fund reserve ratio of 1.35% by the statutory deadline of September
30, 2020. The Dodd-Frank Act requires the FDIC to offset the effect on institutions with assets
less than $10 billion of the increase in the statutory minimum fund reserve ratio to 1.35% from the
former statutory minimum of 1.15%. The FDIC has not announced how it will implement this offset or
how larger institutions will be affected by it.
Despite the FDICs actions to restore the deposit insurance fund, the fund will suffer additional
losses in the future due to failures of insured institutions. There can be no assurance that there
will not be additional significant deposit insurance premium increases, special assessments or
prepayments in order to restore the insurance funds reserve ratio. Any significant premium
increases or special assessments could have a material adverse effect on the Companys financial
condition and results of operations.
The Companys loan portfolio mix increases the exposure to credit risks tied to deteriorating
conditions.
The loan portfolio contains a high percentage of commercial, commercial real estate, real estate
acquisition and development loans in relation to the total loans and total assets. These types of
loans have historically been viewed as having more risk of default than residential real estate
loans or certain other types of loans or investments. In fact, the FDIC has issued pronouncements
alerting banks of its concern about banks with a heavy concentration of commercial real estate
loans. These types of loans also typically are larger than residential real estate loans and other
commercial loans. Because the Companys loan portfolio contains a
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significant number of commercial and commercial real estate loans with relatively large balances,
the deterioration of one or more of these loans may cause a significant increase in non-performing
loans. An increase in non-performing loans could result in a loss of earnings from these loans, an
increase in the provision for loan losses, or an increase in loan charge-offs, which could have an
adverse impact on results of operations and financial condition.
Non-performing assets have increased and could continue to increase, which could adversely affect
the Companys results of operations and financial condition.
Non-performing assets (which include foreclosed real estate) adversely affects the Companys net
income and financial condition in various ways. The Company does not record interest income on
non-accrual loans or other real estate owned, thereby adversely affecting its income. When the
Company takes collateral in foreclosures and similar proceedings, it is required to mark the
related asset to the then fair market value of the collateral, less estimated cost to sell, which
may result in a charge-off of the value of the asset and lead the Company to increase the provision
for loan losses. An increase in the level of non-performing assets also increases the Companys
risk profile and may impact the capital levels its regulators believe is appropriate in light of
such risks. Continued decreases in the value of these assets, or the underlying collateral, or in
these borrowers performance or financial condition, whether or not due to economic and market
conditions beyond the Companys control, could adversely affect the Companys business, results of
operations and financial condition, perhaps materially. In addition to the carrying costs to
maintain other real estate owned, the resolution of non-performing assets increases the Companys
loan administration costs generally, and requires significant commitments of time from management
and the Companys directors, which reduces the time they have to focus on growing the Companys
business. There can be no assurance that the Company will not experience further increases in
non-performing assets in the future.
Decline in the fair value of the Companys investment portfolio could adversely affect earnings.
The fair value of the Companys investment securities could decline as a result of factors
including changes in market interest rates, credit quality and ratings, lack of market liquidity
and other economic conditions. Investment securities are impaired if the fair value of the
security is less than the carrying value. When a security is impaired, the Company determines
whether impairment is temporary or other-than-temporary. If an impairment is determined to be
other-than temporary, an impairment loss is recognized by reducing the amortized cost only for the
credit loss associated with an other-than-temporary loss with a corresponding charge to earnings
for a like amount. Any such impairment charge would have an adverse effect, which could be
material, on the Companys results of operations and financial condition.
Fluctuating interest rates can adversely affect profitability.
The Companys profitability is dependent to a large extent upon net interest income, which is the
difference (or spread) between the interest earned on loans, securities and other
interest-earning assets and interest paid on deposits, borrowings, and other interest-bearing
liabilities. Because of the differences in maturities and repricing characteristics of
interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce
equivalent changes in interest income earned on interest-earning assets and interest paid on
interest-bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect
the Companys interest rate spread, and, in turn, profitability. The Company seeks to manage its
interest rate risk within well established guidelines. Generally, the Company seeks an asset and
liability structure that insulates net interest income from large deviations attributable to
changes in market rates. However, the Companys structures and practices to manage interest rate
risk may not be effective in a highly volatile rate environment.
If the goodwill recorded in connection with acquisitions becomes impaired, it could have an adverse
impact on earnings and capital.
Accounting standards require that the Company account for acquisitions using the acquisition method
of accounting. Under acquisition accounting, if the purchase price of an acquired company exceeds
the fair value of its net assets, the excess is carried on the acquirers balance sheet as
goodwill. In accordance with generally
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accepted accounting principles in the United States of America, goodwill is not amortized but
rather is evaluated for impairment on an annual basis or more frequently if events or circumstances
indicate that a potential impairment exists. Although the Company has not incurred an impairment
of goodwill, there can be no assurance that future evaluations of goodwill will not result in
findings of impairment and write-downs, which could be material. An impairment of goodwill could
have a material adverse affect on the Companys business, financial condition and results of
operations. Furthermore, an impairment of goodwill could subject the Company to regulatory
limitations, including the ability to pay dividends on common stock.
Growth through future acquisitions could, in some circumstances, adversely affect profitability or
other performance measures.
The Company has in recent years acquired other financial institutions. The Company may in the
future engage in selected acquisitions of additional financial institutions, including transactions
that may receive assistance from the FDIC, although there can be no assurance that the Company will
be able to successfully complete any such transactions. There are risks associated with any such
acquisitions that could adversely affect profitability and other performance measures. These risks
include, among other things, incorrectly assessing the asset quality of a financial institution
being acquired, encountering greater than anticipated cost of integrating acquired businesses into
the Companys operations, and being unable to profitably deploy funds acquired in an acquisition.
The Company cannot provide any assurance as to the extent to which the Company can continue to grow
through acquisitions or the impact of such acquisitions on the Companys operating results or
financial condition.
The Company anticipates that it might issue capital stock in connection with future acquisitions.
Acquisitions and related issuances of stock may have a dilutive effect on earnings per share and
the percentage ownership of current shareholders.
The Company may pursue additional capital in the future, which could dilute the holders of the
Companys outstanding common stock and may adversely affect the market price of common stock.
In the current economic environment, the Company believes it is prudent to consider alternatives
for raising capital when opportunities to raise capital at attractive prices present themselves, in
order to further strengthen the Companys capital and better position itself to take advantage of
opportunities that may arise in the future. Such alternatives may include issuance and sale of
common or preferred stock, trust preferred securities, or borrowings by the Company, with proceeds
contributed to the bank subsidiaries. Any such capital raising alternatives could dilute the
holders of the Companys outstanding common stock, and may adversely affect the market price of the
Companys common stock and performance measures such as earnings per share.
Business would be harmed if the Company lost the services of any of the senior
management team.
The Company believes its success to date has been substantially dependent on its Chief Executive
Officer and other members of the executive management team, and on the Presidents of its bank
subsidiaries. The loss of any of these persons could have an adverse effect on the Companys
business and future growth prospects.
Competition in the Companys market areas may limit future success.
Commercial banking is a highly competitive business. The Company competes with other commercial
banks, savings and loan associations, credit unions, finance, insurance and other non-depository
companies operating in its market areas. The Company is subject to substantial competition for
loans and deposits from other financial institutions. Some of its competitors are not subject to
the same degree of regulation and restriction as the Company. Some of the Companys competitors
have greater financial resources than the Company. If the Company is unable to effectively compete
in its market areas, the Companys business, results of operations and prospects could be adversely
affected.
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The Company operates in a highly regulated environment and changes of or increases in, or
supervisory enforcement of, banking or other laws and regulations or governmental fiscal or
monetary policies could adversely affect the Company.
The Company is subject to extensive regulation, supervision and examination by federal and state
banking authorities. In addition, as a publicly-traded company, the Company is subject to
regulation by the Securities and Exchange Commission. Any change in applicable regulations or
federal, state or local legislation or in policies or interpretations or regulatory approaches to
compliance and enforcement, income tax laws and accounting principles could have a substantial
impact on the Company and its operations. Changes in laws and regulations may also increase
expenses by imposing additional fees or taxes or restrictions on operations. Additional legislation
and regulations that could significantly affect powers, authority and operations may be enacted or
adopted in the future, which could have a material adverse effect on the Companys financial
condition and results of operations. Failure to appropriately comply with any such laws,
regulations or principles could result in sanctions by regulatory agencies or damage to the
Companys reputation, all of which could adversely affect the Companys business, financial
condition or results of operations.
In that regard, sweeping financial regulatory reform legislation was enacted in July 2010. Among
other provisions, the new legislation 1) creates a new Bureau of Consumer Financial Protection with
broad powers to regulate consumer financial products such as credit cards and mortgages, 2) creates
a Financial Stability Oversight Council comprised of the heads of other regulatory agencies, 3)
will lead to new capital requirements from federal banking agencies, 4) places new limits on
electronic debt card interchange fees, and 5) will require the Securities and Exchange Commission
and national stock exchanges to adopt significant new corporate governance and executive
compensation reforms. The new legislation and regulations are expected to increase the overall
costs of regulatory compliance.
Further, regulators have significant discretion and authority to prevent or remedy unsafe or
unsound practices or violations of laws or regulations by financial institutions and holding
companies in the performance of their supervisory and enforcement duties. Recently, these powers
have been utilized more frequently due to the serious national, regional and local economic
conditions the Company is facing. The exercise of regulatory authority may have a negative impact
on the Companys financial condition and results of operations. Additionally, the Companys
business is affected significantly by the fiscal and monetary policies of the U.S. federal
government and its agencies, including the Federal Reserve Board.
The Company cannot accurately predict the full effects of recent legislation or the various other
governmental, regulatory, monetary and fiscal initiatives which have been and may be enacted on the
financial markets, on the Company and on its bank subsidiaries. The terms and costs of these
activities, or the failure of these actions to help stabilize the financial markets, asset prices,
market liquidity and a continuation or worsening of current financial market and economic
conditions could materially and adversely affect the Companys business, financial condition,
results of operations, and the trading price of the Companys common stock.
The Company has various anti-takeover measures that could impede a takeover.
The Companys articles of incorporation include certain provisions that could make more difficult
the acquisition of the Company by means of a tender offer, a proxy contest, merger or otherwise.
These provisions include a requirement that any Business Combination (as defined in the articles
of incorporation) be approved by at least 80 percent of the voting power of the then-outstanding
shares, unless it is either approved by the Board of Directors or certain price and procedural
requirements are satisfied. In addition, the authorization of preferred stock, which is intended
primarily as a financing tool and not as a defensive measure against takeovers, may potentially be
used by management to make more difficult uninvited attempts to acquire control of the Company.
These provisions may have the affect of lengthening the time required for a person to acquire
control of the Company through a tender offer, proxy contest or otherwise, and may deter any
potentially unfriendly offers or other efforts to obtain control of the Company. This could deprive
the Companys
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shareholders of opportunities to realize a premium for their Glacier common stock, even in
circumstances where such action is favored by a majority of the Companys shareholders.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
ITEM 3. Defaults upon Senior Securities
(a) Not Applicable
(b) Not Applicable
ITEM 5. Other Information
(a) Not Applicable
(b) Not Applicable
ITEM 6. Exhibits
Exhibit 31.1
|
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | ||
Exhibit 31.2
|
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | ||
Exhibit 32
|
| Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 | ||
Exhibit 101
|
| The following financial information from Glacier Bancorp, Incs Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 is formatted in XBRL: (i) the Unaudited Condensed Consolidated Statements of Financial Condition, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income, (iv) the Unaudited Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
GLACIER BANCORP, INC. |
||||
May 10, 2011 | /s/ Michael J. Blodnick | |||
Michael J. Blodnick | ||||
President/CEO |
May 10, 2011 | /s/ Ron J. Copher | |||
Ron J. Copher | ||||
Senior Vice President/CFO | ||||
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