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| FFKT > SEC Filings for FFKT > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements with the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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; the ability of the parent company to receive dividends from its subsidiaries; the impact of larger or similar financial institutions encountering difficulties, which may adversely affect the banking industry or the Company; the Company or its subsidiary banks to maintain required capital levels and adequate funding sources liquidity; 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 $174 thousand or $.09 per common share for the quarter ended September 30, 2009 compared to a net loss of $6.9 million or $.94 per common share for the quarter ended September 30 a year ago. A summary of the quarterly comparison follows.
† The $6.7 million or $.85 improvement in per common share earnings in the third quarter of 2009 compared to the third quarter of 2008 was heavily impacted by a pre-tax $14.0 million other-than-temporary impairment ("OTTI") charge in the third quarter a year ago. The impairment charge related to the Company's investment in preferred stocks of the Federal National Mortgage Association ("Fannie") and the Federal Home Loan Mortgage Corporation ("Freddie").
† The Company increased its provision for loan losses $4.9 million to $6.7 million as economic conditions and real estate markets continue to negatively impact the Company and its banks' loan portfolio.
† Margin compression, primarily due to a larger decline in the average rate earned on earning assets compared to the average rate paid on interest bearing liabilities, lowered net interest income $1.3 million or 8.6%. Net interest margin declined to 2.84% in the current quarter compared to 3.27% in the same quarter a year earlier.
† Noninterest income increased $14.4 million, mainly attributed to the $14.0 million OTTI charge that was recorded in the prior year.
† Noninterest expenses increased $420 thousand or 2.8% due mainly to the increase in deposit insurance premiums.
† The $1.1 million decrease in the income tax benefit between the periods is mainly attributable to the OTTI charge during the third quarter of 2008.
† Return on average assets ("ROA") and equity ("ROE") was (.03)% and (.35)% for the current quarter, respectively, compared to (1.30)% and (16.45)% for the previous-year quarter.
† Net interest spread and margin for the current quarter was 2.61% and 2.84%, respectively compared to 3.03% and 3.27% a year earlier.
Net Interest Income
The overall interest rate environment during the third quarter of 2009 has continued to stabilize when compared to the extreme volatility that occurred during 2008. However, the overall rate environment remains near historic lows and has made managing the Company's net interest margin very challenging. At September 30, 2009 the short-term federal funds target interest rate was between zero and 0.25%, unchanged from December 31, 2008. The yield curve, which began to increase in each of the first two quarters of 2009, dipped slightly at September 30, 2009 compared to the linked quarter. The 10 and 30-year treasury yields decreased 23 and 28 basis points in the linked quarter comparison, but were up 109 and 137 basis points at September 30, 2009, compared to year-end 2008. Shorter-term treasury yields for 3-month, 6-month, and 2-year maturities declined 7, 17, and 16 basis points in the linked quarter comparison, but since year-end 2008 have increased 3 and 18 basis points for the 3-month and 2-year maturities and decreased 9 basis points for the 6-month maturities. The 3-year and 5-year treasury yields were down 20 and 24 basis points, respectively, respectively in the linked quarter comparison, but are up 46 and 76 basis points since year-end 2008.
Net interest income was $13.5 million for the three months ended September 30, 2009, a decrease of $1.3 million or 8.6% from $14.8 million in the same period a year earlier. The decrease in net interest income is attributed mainly to a $2.5 million or 8.9% decline in interest income, primarily on loans, that was partially offset by a $1.2 million or 9.2% decrease in interest expense, mainly on deposit accounts and short term borrowed funds. The decrease in each of these line items was driven by overall rate declines, which were driven mainly by weaker economic conditions in the current quarter compared to a year earlier.
Interest income and interest expense related to most of the Company's earning assets and interest paying liabilities have declined in the quarterly comparison. These declines are due almost entirely to the 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 reporting period as well as activity related to new earning assets and funding sources that reflect the overall lower interest rate environment.
Total interest income was $25.4 million in the third quarter of 2009, a decrease of $2.5 million or 8.9% and was driven by lower interest income on loans of $2.1 million or 9.7%. The average rate earned on loans was 6.0% in the current quarter, down 59 basis points from 6.6% a year ago. Similar declines were experienced in other earning asset categories. Interest income from deposits held in other banks and federal funds sold and securities purchased under agreements to resell was down $130 thousand or 66.7% as a 163 basis point decrease in the average rate earned offset a volume increase of $69.7 million. Interest on taxable securities decreased $392 thousand or 7.2% which is also attributed to an 82 basis point lower average rate earned.
Total interest expense was $11.9 million in the current quarter. This represents a decrease of $1.2 million or 9.2% compared to $13.1 million a year ago. The decrease in interest expense was driven by lower interest expense on deposits of $670 thousand or 7.4%. The average rate paid on all interest bearing deposit accounts was 2.4% in the current period, a decrease of 45 basis points compared to 2.8% a year earlier. Interest expense on time deposits, the largest component of interest expense, declined $77 thousand or 1.0% in the quarterly comparison. Although the average rate paid on time deposits decreased 70 basis points in the comparison, the average outstanding balance was up 19.5% compared to a year ago. The increase in time deposits outstanding is perceived to be mainly a result of customers that have moved money out of a volatile stock market and into more stable investments in time deposits. The increase in deposit insurance coverage generally up to $250 thousand has also had a net positive impact on outstanding balances of time deposits. Interest expense on savings and interest bearing demand accounts decreased $392 thousand or 43.8% and $201 thousand or 58.1%, respectively. Interest expense on short and long-term borrowings decreased $342 thousand or 75.5% and $194 thousand or 5.5%, respectively. The decrease in interest expense was mainly driven by a lower average rate paid on the Company's deposits and borrowings and is attributed to the overall lower interest rate environment.
The net interest margin on a taxable equivalent basis decreased 43 basis points to 2.8% for the third quarter of 2009 compared to 3.3% in the same quarter of 2008. The lower net interest margin is attributed to a 42 basis point
decrease in the spread between the average rate earned on earning assets and the average rate paid on interest bearing liabilities to 2.6% in the current quarter from 3.0% in the same quarter of 2008. The decrease in net interest margin was impacted mainly by the overall lower interest rate environment. The Company expects its net interest margin to remain relatively flat or decrease slightly in the near term due to the maturity structure of its earning assets, particularly loans, and to a lesser degree, recent purchases of investment securities at lower market yields and from its funding sources that continue to reprice downward to reflect the overall lower market interest rate environment.
Net interest income for the current three months includes $721 thousand of income related to the Company's balance sheet leverage transaction that occurred during the fourth quarter of 2007. This represents a decrease of $104 thousand or 12.6% compared to the same three month period in 2008. The leverage transaction reduced net interest margin by 16 basis points for the current three months compared to a 27 basis point reduction a year earlier.
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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