Thread #672897367 (Rec: 0)
Rainier Pacific Financial Group, Inc. Reports Fourth Quarter and Annual Results
TACOMA, WA, Feb 01, 2010 (MARKETWIRE via COMTEX) --
Rainier Pacific Financial Group, Inc. (the "Company") (NASDAQ: RPFG), the holding company for Rainier Pacific Bank (the "Bank"), announced today its fourth quarter and annual results for the periods ended December 31, 2009. For the quarter ended December 31, 2009, the Company recognized a net loss of $26.5 million, or $4.40 per basic and diluted share, compared to a net loss of $14.1 million, or $2.36 per basic and diluted share, for the same period in 2008. For the year ended December 31, 2009, the Company recognized a net loss of $69.9 million, or $11.64 per basic and diluted share, compared to a net loss of $14.6 million, or $2.44 per diluted share, for the same period in 2008.
The net losses for both the quarter and the year ended December 31, 2009 resulted primarily from the continued deterioration in the Company"s holdings of trust preferred collateralized debt obligation ("trust preferred CDO") securities, and to a lesser degree, the deterioration in the Company"s portfolio of land development and construction loans. For the quarter ended December 31, 2009, the Company recognized non-cash pre-tax other-than-temporary impairment ("OTTI") charges of $11.2 million on its portfolio of trust preferred CDO securities and a $2.7 million provision for loan losses. For the year ended December 31, 2009, the Company recognized non-cash pre-tax OTTI charges of $43.5 million on its portfolio of trust preferred CDO securities and a $14.7 million provision for loan losses. Due primarily to the magnitude of the non-cash pre-tax OTTI charges and the provisions for loan losses recognized during 2009, the Company"s capital position was significantly impacted making it highly unlikely that the Company would be able to realize its remaining deferred tax assets. Accordingly, the Company recorded a $10.8 million charge against earnings in the fourth quarter of 2009 to increase the valuation allowance for its deferred tax assets to a total of $27.5 million, resulting in the Company"s remaining $7.9 million in income tax assets as of December 31, 2009 being comprised solely of net operating loss carry-backs for taxes paid in prior years.
The net losses experienced during 2009 have significantly reduced capital levels and resulted in both the Company and the Bank being considered "critically undercapitalized" by regulatory definition, with the Bank"s regulatory capital ratios falling to the following levels as of December 31, 2009: a Tier I leverage ratio of 1.69% (compared to an "adequately capitalized" threshold of 4.00%); a Tier I risk-based capital ratio of 1.55% (compared to an "adequately capitalized" threshold of 4.00%); and a total risk-based capital ratio of 2.80% (compared to an "adequately capitalized" threshold of 8.00%). As previously reported, the Bank is currently operating under a Supervisory Prompt Corrective Action Directive from the Federal Deposit Insurance Corporation ("FDIC"), and has also consented to the issuance of an Order to Cease and Desist that became effective September 30, 2009. In addition, depository institutions that are "critically undercapitalized" must be placed into conservatorship or receivership within 90 days of becoming critically undercapitalized, unless the institution"s primary federal regulatory authority, in the Bank"s case the FDIC, determines and documents that "other action" is more appropriate. If conservatorship or receivership were to occur, the Bank"s assets would likely be liquidated, including a sale of such assets to another institution. As a result, the Company would suffer a complete loss of the value of its ownership interest in the Bank, and it would be unlikely that any assets would be distributed to holders of the Company"s common stock. The above factors, and because it is highly unlikely that the Company will be able to recapitalize, raise substantial doubt about the Company"s and the Bank"s ability to continue as going concerns.
The trust preferred CDO securities held by the Company have experienced considerable stress as a result of the effects of the continued financial and economic crisis, resulting in a number of the bank and insurance company issuers of the underlying trust preferred security collateral either defaulting on their debt obligations or electing to defer their quarterly payments. As of December 31, 2009, all of the 15 trust preferred CDO securities held by the Company, with an aggregate par value of $108.8 million, were determined to involve OTTI with the aggregate amount of the credit-related impairment charges recognized by the Company now totaling $48.0 million.
The trust preferred CDO securities continue to be substantially illiquid, and their evaluation for impairment and the determination of fair value remains highly complex and judgmental in nature. As part of the evaluation, the Company completes an analysis of projected cash flows for each trust preferred CDO security, which incorporates both known and projected defaults and payment deferrals on the underlying debt obligations of the trust preferred CDO securities, to determine each security"s net present value. The net present values were calculated in a manner consistent with the methodology used in the prior quarter"s evaluation; although, the cash flow projections used in the net present value calculations for the current period were further reduced by additional increases in the cumulative level of actual and projected payment deferrals by the bank and insurance company issuers of the underlying debt obligations. Accordingly, the lower net present values, when compared to the securities" amortized costs, resulted in additional impairment charges. The nine securities determined to have incurred a credit loss during the quarter resulted in total non-cash pre-tax impairment charges of $11.2 million for the quarter ended December 31, 2009, compared to 11 securities that incurred $22.1 million in impairment charges for the quarter ended September 30, 2009. To determine the fair value of the trust preferred CDO securities, the Company considered indications of value using both a "market approach" and "present value techniques" available under generally accepted accounting principles. Based upon management"s quarterly evaluation, management determined that all 15 trust preferred CDO securities held by the Company at December 31, 2009 had an aggregate fair value of $17.1 million, compared to an aggregate fair value of $23.4 million at September 30, 2009.
The effects of the trust preferred CDO securities on the Company"s earnings and capital position continue to be influenced by external market conditions and other factors outside of the Company"s control, including but not limited to: specific issuer credit deterioration, deferral and default rates of specific issuer financial institutions, failure or government seizure of the underlying financial institution or insurance company issuers, rating agency actions, regulatory actions, and the prices at which observable market transactions in these types of securities occur. While management closely monitors the performance of the trust preferred CDO securities and does not intend to sell these securities prior to their recovery in value, the current market environment significantly limits the Company"s ability to mitigate its exposure to future impairment conditions and valuation changes in these securities. Accordingly, if the previously described market conditions deteriorate further or other detrimental factors occur, it is likely that the Company would then determine that additional impairment charges on its holdings of trust preferred CDO securities portfolio would be recognized, and such charges would correspondingly have a further material adverse affect on the Company"s earnings, shareholders" equity, and regulatory capital.
The Company"s net interest income for the quarter and year ended December 31, 2009 was $5.0 million and $20.8 million, respectively, compared to $6.2 million and $25.3 million, respectively, for the same periods a year ago. The decrease in net interest income for the quarter and the year ended December 31, 2009 was primarily due to a reduction in average interest-earning assets of $118.8 million and $71.3 million, respectively; along with a reduction in the net interest margin earned.
The Company"s net interest margin was 2.96% for the quarter ended December 31, 2009, compared to 2.75% and 3.14% for the quarters ended September 30, 2009 and December 31, 2008, respectively. The yield on the Company"s interest-earning assets was 5.66% for the quarter ended December 31, 2009, compared to 5.34% and 6.32% for the quarters ended September 30, 2009 and December 31, 2008, respectively. The Company"s cost of interest-bearing liabilities was 2.65% for the quarter ended December 31, 2009, compared to 2.65% and 3.34% for the quarters ended September 30, 2009 and December 31, 2008, respectively. The decline in asset yields for the quarter ended December 31, 2009 compared to the same period in 2008 related primarily to the loss of relatively higher loan yields that were being earned on the VISA credit card portfolio that was sold in February 2009, the increased level of non-performing assets during 2009 resulting in forgone interest, lower yields on trust preferred CDO securities, and a higher level of low-rate interest-bearing deposits currently being maintained by the Company to provide enhanced liquidity. The decline in the cost of interest-bearing liabilities relates primarily to reductions in the rates of interest paid on retail customer deposits reflecting the general decline in market interest rates and the removal of relatively higher cost brokered deposits during the quarter and the year ended December 31, 2009.
Non-interest income for the quarter ended December 31, 2009 was $1.0 million, compared to $2.7 million for the same period in 2008, excluding the $11.2 million and $21.7 million of OTTI impairment charges related to the Bank"s trust preferred CDO securities portfolio for the quarters ended December 31, 2009 and 2008, respectively. Including the impairment charges, the Company had a non-interest loss of $10.1 million and $19.0 million for the quarters ended December 31, 2009 and 2008, respectively. For the years ended December 31, 2009 and 2008, non-interest income, excluding $43.5 million and $21.7 million of OTTI impairment charges, was $12.0 million and $10.6 million, respectively. Including the impairment charges, the Company had a non-interest loss of $31.5 million and $11.1 million for the years ended December 31, 2009 and 2008, respectively. Gains on the sale of loans were $367,000 for the quarter ended December 31, 2009, compared to $303,000 for the same period in 2008. For the year ended December 31, 2009, gains on the sale of loans were $5.5 million, compared to $1.2 million for the same period in 2008. On January 11, 2010, the Bank was notified by Freddie Mac that the Bank was no longer an eligible seller/servicer of loans on behalf of Freddie Mac, and the Bank immediately transferred the servicing of $186.1 million in loans to an alternate servicer selected by Freddie Mac. Accordingly, the Company recognized a valuation allowance for the entire $1.3 million in recorded value of the mortgage servicing rights associated with loans that the Bank was servicing for Freddie Mac. For the quarter and year ended December 31, 2009, the Company recognized $114,000 and $408,000 in loan service fee income from Freddie Mac.
Non-interest expenses were $7.4 million for the quarter ended December 31, 2009, compared to $7.9 million incurred during the same period in 2008. For the year ended December 31, 2009, non-interest expenses were $30.1 million or $1.3 million more than the $28.8 million incurred during the same period in 2008. The increase in non-interest expenses for 2009 compared to 2008 was primarily attributable to a $3.0 million increase in FDIC deposit insurance premiums and assessments, a $946,000 increase in other operating expenses due primarily to a $750,000 increase in write-downs and holding costs associated with foreclosed real estate owned, and a $360,000 increase in legal and other professional services expenses. These increases in expenses were partially offset by a $2.8 million decrease in compensation and benefits costs that is primarily a result of a reduction of 31 full-time equivalent employees since the beginning of 2009, the elimination of equity-based compensation for executive officers and board members, and lower employee incentive and retirement compensation.
The investment securities portfolio at December 31, 2009 (excluding $13.7 million in Federal Home Loan Bank of Seattle stock holdings recorded at cost) totaled $43.6 million, compared to $51.0 million at September 30, 2009 and $48.9 million at December 31, 2008. The investment securities portfolio contains $17.1 million of trust preferred CDO securities recorded at their fair value (representing $108.8 million in par value and $60.7 million in amortized cost), $17.1 million of mortgage-backed securities, and $9.4 million of municipal bonds recorded at amortized cost.
Total loans were $564.1 million at December 31, 2009, compared to $584.1 million at September 30, 2009 and $672.3 million at December 31, 2008. The decrease in the loan portfolio resulted primarily from the Company"s continued focus on lowering its asset base by restricting new loan originations for its portfolio during the year. During the quarter ended December 31, 2009, the most significant contributing factors to the decreased size of the loan portfolio were the reduction of $6.4 million in land development and construction loans, the sale of $14.9 million in single-family mortgage loans, and the prepayment of $8.2 million in multi-family and commercial real estate loans. For the quarter ended December 31, 2009, the yield on loans was 6.27%, compared to 6.11% and 6.40% for the quarters ended September 30, 2009 and December 31, 2008, respectively. Total loan originations were $22.7 million and $134.2 million during the quarter and year ended December 31, 2009, compared to $57.5 million and $240.4 million, respectively, for the same periods in 2008. At December 31, 2009, the loan portfolio consisted of 43.8% commercial real estate loans, 23.0% multi-family real estate loans, 8.4% land development and real estate construction loans, 8.4% commercial business loans, 7.9% one- to four-family real estate loans, 6.1% home equity loans, and 2.4% consumer loans.
During the quarter ended December 31, 2009, the Company sold $14.9 million of single-family residential loans, compared to $19.9 million of single-family residential loans during the same period in 2008. For the year ended December 31, 2009, the Company sold $121.8 million of loans (comprised of $96.0 million of single-family loans, $21.6 million of VISA credit card balances, and $4.2 million of multi-family loans) compared to the sale of only single-family loans totaling $68.1 million during the same period in 2008. Net loan charge-offs were $2.2 million for the quarter ended December 31, 2009, compared to $7.7 million for the quarter ended September 30, 2009, and $914,000 for the quarter ended December 31, 2008. Net charge-offs for the year ended December 31, 2009 were $17.8 million, compared to $1.8 million for the year ended December 31, 2008. Of the $17.8 million in net charge-offs, $16.0 million was concentrated in six residential builder relationships and were deemed necessary due to updated appraisal information indicating lower values for these collateral-dependent loan relationships. The ratio of loans more than 30 days delinquent as a percentage of total loans was 4.21% at December 31, 2009, compared to 3.75% at September 30, 2009, and 4.00% at December 31, 2008.
During the quarter ended December 31, 2009, non-performing assets (inclusive of loans, other real estate owned, and other repossessed assets) decreased to $32.0 million, or 4.46% of total assets at December 31, 2009; compared to $33.8 million, or 4.42% of total assets at September 30, 2009; and $31.4 million, or 3.70% of total assets at December 31, 2008. As of December 31, 2009, $28.4 million, or 88.8%, of the $32.0 million in non-performing assets were concentrated in seven residential builder relationships. The $28.4 million in non-performing assets related to these builders was comprised of $14.3 million in land development and construction loans (on properties located in Pierce and south King counties) and $14.1 million in real estate owned (located in Pierce and north Thurston counties).
Upon completing its quarterly evaluation of the allowance for loan losses, the Company recorded a $2.7 million provision for loan losses for the quarter ended December 31, 2009, compared to provisions for loan losses of $5.7 million and $300,000 for the quarters ended September 30, 2009 and December 31, 2008, respectively. The allowance for loan losses was $10.2 million, or 1.81% of total loans at December 31, 2009; compared to $9.7 million, or 1.66% of total loans at September 30, 2009; and $13.3 million, or 1.98% of total loans at December 31, 2008.
Total deposits were $444.2 million at December 31, 2009, compared to $466.3 million at September 30, 2009 and $519.2 million at December 31, 2008. The primary reason for the $75.0 million decline in total deposits during 2009 was attributable to a $73.3 million reduction in brokered deposit balances from out of area depositors. At December 31, 2009, brokered deposits were $14.1 million, or 3.2% of total deposits, compared to $19.0 million, or 4.1% of total deposits at September 30, 2009, and $87.4 million, or 16.8% of total deposits at December 31, 2008. Total retail deposits (which excludes all brokered deposits) decreased by $17.2 million during the quarter ended December 31, 2009 to $430.1 million, compared to $447.3 million at September 30, 2009 and $431.8 million at December 31, 2008. For the quarter ended December 31, 2009, the average cost of interest-bearing deposits decreased to 1.39%, compared to 1.49% for the quarter ended September 30, 2009 and 2.61% for the quarter ended December 31, 2008. For the year ended December 31, 2009, the average cost of interest-bearing deposits decreased 111 basis points to 1.75% from 2.86% in 2008. These declines in the cost of interest-bearing deposits related primarily to lower market interest rates.
The Company"s total shareholders" equity declined to a deficit of $10.4 million at December 31, 2009, compared to shareholders" equity of $12.8 million at September 30, 2009 and $29.3 million at December 31, 2008. The decline in shareholders" equity during the quarter ended December 31, 2009 was a result of the $26.5 million net loss incurred for the quarter. Accordingly, the Company"s capital ratio (i.e., shareholders" equity divided by total assets) decreased to a negative 1.45% at December 31, 2009, compared to 1.68% and 3.46% at September 30, 2009 and December 31, 2008, respectively. The tangible common equity-to-assets ratio decreased to a negative 1.84% at December 31, 2009, compared to 1.31% at September 30, 2009 and 3.09% at December 31, 2008. The Company"s book value and tangible book value per share as of December 31, 2009 both decreased to a deficit of $1.72 and $2.18 per share, respectively.
Rainier Pacific Financial Group, Inc. is the bank holding company for Rainier Pacific Bank, a Tacoma, Washington-based state-chartered savings bank operating 14 full-service locations in the Tacoma-Pierce County and City of Federal Way market areas.
For additional information, visit Rainier Pacific"s website at www.rainierpac.com.
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