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| FFKT > SEC Filings for FFKT > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. In general, forward-looking statements relate to a discussion of future financial results or projections, future economic performance, future operational plans and objectives, and statements regarding the underlying assumptions of such statements. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: economic conditions (both generally and more specifically in the markets in which the Company and its subsidiaries operate) and lower interest margins; competition for the Company's customers from other providers of financial services; deposit outflows or reduced demand for financial services and loan products; government legislation, regulation, and changes in monetary and fiscal policies (which changes from time to time and over which the Company has no control); changes in interest rates; changes in prepayment speeds of loans or investment securities; inflation; material unforeseen changes in the liquidity, results of operations, or financial condition of the Company's customers; changes in the level of non-performing assets and charge-offs; changes in the number of common shares outstanding; the capability of the Company to successfully enter into a definitive agreement for and close anticipated transactions; the possibility that acquired entities may not perform as well as expected; unexpected claims or litigation against the Company; technological or operational difficulties; the impact of new accounting pronouncements and changes in policies and practices that may be adopted by regulatory agencies; acts of war or terrorism; and other risks or uncertainties detailed in the Company's filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of the Company. The Company expressly disclaims any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in the Company's opinions or expectations.
RESULTS OF OPERATIONS
The Company reported a net loss of $6.9 million or $.94 per share for the quarter ended September 30, 2008 compared to net income of $4.2 million or $.54 per share for the same three-month period a year ago. Results of the current quarter were driven mainly by a non-cash other-than-temporary impairment ("OTTI") charge of $14.0 million ($1.33 per share, net of tax) related to the Company's investments in preferred stock of Federal National Mortgage Association and Federal Home Loan Mortgage Corporation (collectively, the "GSE's"). The value of these investments decreased sharply in September soon after the announcement that the GSE's were suspending dividend payments and being placed into conservatorship by the Federal Housing Finance Agency. The rating agencies also downgraded the preferred stocks of the GSE's to below investment grade. A summary of the quarterly comparison follows.
† The $1.48 decrease in per share earnings for the third quarter of 2008 compared to the same period a year ago is attributed to the $14.0 million or $1.33 per share OTTI charge related to the GSE's and a higher provision for loan losses of $1.2 million.
† Excluding the non-cash OTTI charge, net income for the current quarter was $2.9 million or $.39 per share. This represents a $1.3 million or $.15 per share decrease compared to the same period a year earlier driven in large part to a $1.2 million higher provision for loan losses.
† Net interest income increased $152 thousand or 1.0%, helped by the Company's leverage transaction that occurred during the fourth quarter of 2007.
† Noninterest expenses increased $523 thousand or 3.6% driven by higher net expenses related to properties acquired through foreclosure.
† Income tax expense decreased $4.5 million due mainly to the OTTI charge.
† Return on average assets ("ROA") and equity ("ROE") was -1.30% and -16.45%, respectively compared to .90% and 9.43% for the previous-year third quarter.
† Net interest spread and margin for the current quarter was 3.03% and 3.27%, respectively compared to 3.31% and 3.73% a year earlier. The 2007 balance sheet leverage transaction negatively impacted net interest margin by 27 basis points in the current three months.
Net Interest Income
Net interest income was $14.8 million for the third quarter of 2008, an increase of $152 thousand or 1.0% from $14.6 million in the same quarter a year earlier. The increase in net interest income is attributed to the Company's $200 million balance sheet leverage transaction during the fourth quarter of 2007. This transaction added $825 thousand to net interest income in the current quarter compared to none in the same quarter a year ago since the transaction occurred late in the year of 2007.
With the exception of the balance sheet leverage transaction from 2007, interest related to most of the Company's earning assets and interest paying liabilities have declined in the comparison. These declines are due almost entirely to a lower interest rate environment in the current period compared to a year earlier. The Company is generally earning and paying less interest from its earning assets and funding sources as rates have dropped. This includes repricing of variable and floating rate assets and liabilities that have reset since the prior year as well as activity related to new earning assets and funding sources that reflect the overall lower interest rate environment.
Total interest income was $27.9 million in the third quarter of 2008, a decrease of $635 thousand or 2.2%. Interest on taxable investment securities nearly doubled to $5.4 million primarily from the leverage transaction, but was outpaced by lower interest income of $3.3 million from other sources, mainly loans. Interest and fees on loans was $21.5 million, a decrease of $2.9 million or 12.1% from a year ago as the impact of lower rates earned offset a $43.7 million or 3.5% increase in volume. Interest on short-term investments declined $350 thousand or 64.2% due mainly to a lower average rate earned and a modest $1.0 million or 2.4% lower average outstanding balances.
Total interest expense was $13.1 million in the current quarter, a decrease of $787 thousand or 5.7% from the same quarter year ago. Interest expense on securities sold under agreements to repurchase and other long-term borrowings increased $2.1 million in the current quarter compared to a year ago due mainly to the leverage transaction in late 2007. Interest expense on deposit accounts and short-term borrowings declined $2.4 million or 20.9% and $542 thousand or 54.5%, respectively. The decline of interest expense on deposit accounts is attributed to lower average rates paid, which offset a $41.5 million or 3.3% increase in average balances outstanding. For short-term borrowings, the lower interest expense is attributed mainly to a decline in the average rate paid of 250 basis points and, to a lesser extent, a $925 thousand or 1.1% lower average outstanding balances.
The net interest margin on a taxable equivalent basis decreased 46 basis points to 3.27% during the third quarter of 2008 compared to 3.73% in the same quarter of 2007. The lower net interest margin is attributed in part to a 28 basis point decrease in the spread between rates earned on earning assets and the rates paid on interest bearing liabilities to 3.03% in the current quarter from 3.31% in the third quarter of 2007. In addition, the impact of noninterest bearing sources of funds reduced net interest margin by an additional 18 basis points. The impact of noninterest bearing sources of funds on net interest margin typically decreases as the cost of funds decline. The Company expects continued margin compression in the near term as many earning assets, particularly loans, and funding sources reprice downward to reflect the overall lower market interest rate environment.
The following tables present an analysis of net interest income for the quarterly periods ended September 30.
Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and
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