Farmers Capital Bank Corporation
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Kentucky
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0-14412
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61-1017851
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(State or other jurisdiction of incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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P.O. Box 309 Frankfort, KY
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40602
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(Address of principal executive offices)
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(Zip Code)
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Not Applicable
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(Former name or former address, if changed since last report.)
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o
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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o
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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o
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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o
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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SIGNATURES
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Farmers Capital Bank Corporation
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10-19-11
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/s/ Doug Carpenter
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Date
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C. Douglas Carpenter
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Executive Vice President, Secretary, and Chief Financial Officer
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(In thousands)
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September 30,
2011
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June 30,
2011
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March 31,
2011
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December 31,
2010
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September 30,
2010
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|||||||||||||||
Nonaccrual loans
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$60,322 | $63,737 | $57,473 | $53,971 | $53,866 | |||||||||||||||
Loans 90 days or more past due and still accruing
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2 | 3 | 45 | 42 | 472 | |||||||||||||||
Restructured loans
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28,742 | 32,241 | 36,746 | 36,978 | 37,395 | |||||||||||||||
Total nonperforming loans
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89,066 | 95,981 | 94,264 | 90,991 | 91,733 | |||||||||||||||
Other real estate owned
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35,993 | 34,710 | 34,371 | 30,545 | 29,022 | |||||||||||||||
Other foreclosed assets
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40 | 17 | 20 | 34 | 59 | |||||||||||||||
Total nonperforming assets
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$125,099 | $130,708 | $128,655 | $121,570 | $120,814 | |||||||||||||||
Ratio of total nonperforming loans to total loans (net of unearned income)
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8.1 | % | 8.5 | % | 8.2 | % | 7.6 | % | 7.5 | % |
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§
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As discussed in greater detail above, the $103 thousand or 60.9% increase in net income in the current quarter compared to the linked quarter is attributed mainly to a $1.3 million decrease in the provision for loan losses and an increase in income tax benefits of $764 thousand, which offset higher expenses associated with repossessed property of $1.6 million and a decrease in net interest income of $425 thousand or 3.1%.
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§
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The $425 thousand or 3.1% decrease in net interest income is due mainly to a $640 thousand or 3.2% decrease in interest income. Interest income on loans and investment securities declined $456 thousand or 2.9% and $160 thousand or 3.7%, respectively. The decrease in interest income was partially offset by lower interest expense of $215 thousand or 3.4%, driven by lower interest expense on deposits of $219 thousand or 5.8%. Net interest margin was 3.07% in the current quarter compared to 3.18% in the linked quarter. Net interest spread was 2.83%, a decrease of 10 basis points compared to 2.93% in the linked quarter.
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§
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Noninterest income was relatively unchanged in the linked quarter comparison at $6.3 million. Net gains on the sale of loans increased $177 thousand or 117% due to higher sales volume. Service charges and fees on deposits were up $74 thousand or 3.4% driven by higher fees from overdraft/insufficient funds totaling $61 thousand or 4.4%. Trust fee income and data processing fees decreased $152 thousand or 23.1% and $115 thousand or 42.4%, respectively, in the comparison. The decrease in trust fee income in the current quarter relates to accrual refinements made in the linked quarter that resulted in a one-time increase in the amount of $165 thousand. The decrease in data processing fees is attributed mainly to $104 thousand or 52.6% lower income related to the Company’s depository
services contract with the Commonwealth of Kentucky. As disclosed in previous quarters, the Company’s depository services contract with the Commonwealth had an original termination date of June 30, 2011. This contract was extended through December 2011 whereby the Company continues to provide services and assistance during the transition process. Transaction volumes have decreased significantly since the expiration of the original contract on June 30, 2011.
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§
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The $1.5 million or 9.4% increase in noninterest expenses was driven mainly by higher net expenses associated with repossessed real estate of $1.6 million or 84.4%. The increase in expenses attributed to repossessed real estate was made up primarily of higher impairment charges of $2.1 million in the comparison.
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§
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All other noninterest expenses decreased by a net amount of $182 thousand or 1.3%. This decrease is spread across numerous income statement line items, led by lower salaries and employee benefits of $224 thousand or 3.3% partially offset by higher equipment expenses of $92 thousand or 16.2%. The decrease in salaries and employee benefits is mainly due to a smaller workforce, as the average number of full time equivalent employees was 508 for the current quarter compared to 517 in the linked quarter. The increase in equipment expense is due to higher depreciation expense.
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§
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The $983 thousand or $.14 per common share decrease in net income for the third quarter of 2011 compared to the same quarter a year ago is mainly the result of lower net gains on the sale of investment securities of $3.5 million or 90.1% and higher expenses associated with repossessed real estate of $1.4 million or 66.7%, partially offset by a decrease in the provision for loan losses of $3.0 million or 48.2%. The change in income tax from an expense to a benefit had a positive impact on net income of $1.3 million in the quarterly comparison.
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§
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Net gains on the sale of investment securities decreased due to the timing and volume of securities sold. The Company sells investment securities periodically in response to its overall asset/liability management strategy to lock in gains, increase yield, and/or enhance its capital position as opportunities occur.
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§
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The $3.0 million decrease in the provision for loan losses is attributed mainly to the overall decrease in net loans outstanding of $114 million or 9.4% at September 30, 2011 compared to a year earlier. Lower nonperforming loans have also had a positive impact on the provision for loan losses. Nonperforming loans were $89.1 million at September 30, 2011 compared to $95.9 million and $91.7 million at June 30, 2011 and September 30 a year earlier.
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§
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Total interest income decreased $2.6 million or 11.8% led by lower interest income on loans of $2.2 million or 12.5%. Interest income on loans decreased as outstanding loan balances have declined and the overall interest rate environment remains near historic lows.
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§
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Total interest expense decreased $2.4 million or 28.1% in the comparison primarily due to a $1.7 million or 32.5% decrease in interest expense on deposits. Interest expense on deposits and other borrowings have trended downward primarily as a result of the overall low interest rate environment and a strategy to reduce higher-rate time deposits. Interest expense on long-term borrowings decreased $638 thousand due primarily to a lower average balance outstanding which was driven by the maturity of long-term repurchase agreements of $50 million that occurred during the fourth quarter of 2010.
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§
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Net interest margin was 3.07% in the current quarter, an increase of 7 basis points from 3.00% in the third quarter a year ago. Net interest spread was 2.83%, up 7 basis points compared to 2.76% for the same time period.
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§
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The $4.1 million or 39.4% decrease in noninterest income occurred over a broad range of line items, but was mainly due to lower securities gains of $3.5 million as discussed above. All other noninterest income line items decreased $542 thousand or 8.4%. The more significant decreases include data processing fees of $163 thousand or 51.1%, service charges and fees on deposits of $127 thousand or 5.3%, and net gains on the sale of loans of $111 thousand or 25.3%. The decrease in data processing fees was driven by a $126 thousand or 57.3% decline related to the Company’s depository services contract with the Commonwealth of Kentucky, which is currently in a winding down phase as previously disclosed by the Company. The decrease in service charges and fees on deposits was driven by lower
fees from overdraft/insufficient funds of $149 thousand or 9.2%. The decrease in net gains on the sale of loans was driven by a $5.4 million or 31.9% lower volume of loans sold during the current quarter in comparison to a year earlier.
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§
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The $1.0 million increase in noninterest expense was driven by $1.4 million or 66.7% higher expenses related to repossessed real estate properties. Impairment charges on repossessed real estate were $3.4 million in the current quarter, an increase of $1.8 million or 106% compared to the third quarter a year ago.
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§
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Improvements in noninterest expense in the comparison primarily include lower deposit insurance expense of $456 thousand or 41.5% and a decrease in data processing and communications expense of $182 thousand or 13.7%. Deposit insurance expense decreased mainly due to the change in the FDIC’s assessment base and rate structure that went into effect in the second quarter of 2011. The decrease in data processing and communication expense is attributed to cost savings related to the Company’s contract with the Commonwealth of Kentucky, which is currently in the winding down phase. Additional decreases in data processing and communications expense is attributed to cost savings associated with a now defunct rewards program previously processed through an unrelated third party as well
as overall tighter management of all expense line items.
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§
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The Company recorded an income tax benefit of $806 thousand in the current quarter compared to income tax expense in the amount of $525 thousand in the third quarter of 2010. The effective tax rate for the current quarter was 151% compared to 29.5% for the same quarter in 2010. As the expected tax accrual rate changes during the year, adjustments are made each quarter to true up year to date balances. Declines in the Company’s pretax income have been primarily from taxable sources. Income from tax free sources has remained relatively stable. When tax free income exceeds pretax income, the Company will record a tax benefit.
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§
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The $4.6 million or $.62 per common share decrease in net income for the nine months ending September 30, 2011 compared to the first nine months of 2010 is primarily the result of lower overall noninterest income of $9.2 million or 33.2% partially offset by a decrease in the provision for loan losses of $3.5 million or 25.3% and lower income tax expense of $1.8 million or 104%.
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§
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The decrease in noninterest income was driven by lower investment securities gains of $7.7 million or 86.4% and is attributed to the timing and volume of securities sold. The Company sells investment securities periodically in response to its overall asset/liability management strategy to lock in gains, increase yield, and/or enhance its capital position as opportunities occur.
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§
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Other more significant changes in noninterest income include the following: lower service charges and fees on deposits of $433 thousand or 6.3% driven by a decline in fees from overdraft/insufficient funds of $450 thousand or 9.8% related to lower transaction volume; lower data processing fees of $355 thousand or 33.9% driven by a $273 thousand or 36.4% decrease in fees related to the winding down of the Commonwealth of Kentucky depository services contract; a decrease in other service charges, commissions, and fees of $341 thousand or 9.8% attributed primarily to a custodial services contract that expired at the end of the second quarter of 2010 and was not renewed; a $343 thousand or 27.4% increase in trust fee income due mainly to both an increase related to higher managed asset values
along with accrual refinements resulting in a one-time increase in the amount of $165 thousand during the second quarter of 2011.
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§
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The $3.5 million decrease in the provision for loan losses is attributed mainly to the overall decrease in net loans outstanding of $114 million or 9.4% at September 30, 2011 compared to a year earlier. Lower nonperforming loans have also had a positive impact on the provision for loan losses. Nonperforming loans were $89.1 million at September 30, 2011 compared to $91.7 million at September 30, 2010.
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§
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Net interest income decreased $479 thousand or 1.2% in the year to date comparison as a $9.2 million decrease in interest income was partially offset by lower interest expense of $8.7 million. Net interest margin was 3.14% for the first nine months of 2011, an increase of 12 basis points from 3.02% in the same period a year ago. Net interest spread was 2.90%, up nine basis points compared to 2.81%.
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§
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Total noninterest expenses were relatively unchanged at $47.7 million in the nine month comparison. The more significant components of noninterest expenses that decreased were as follows: a $1.0 million or 31.7% decrease in deposit insurance expense driven mainly by the change in the FDIC’s assessment base and rate structure that went into effect in the second quarter of 2011; a $623 thousand or 14.8% decrease in data processing and communications expense mainly attributed to additional costs in the prior year related to the merger of two of the Company’s bank subsidiaries, combined with expenses associated with a now defunct rewards program processed through an unrelated third party as well as overall tighter management of all expense line items; a decrease in salaries and
employee benefits of $220 thousand or 1.1% due primarily to a smaller workforce; a decrease in scheduled amortization of intangible assets of $220 thousand or 20.4%.
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§
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The more significant components of noninterest expenses that increased during the nine month comparison are as follows: a $1.4 million or 28.7% increase in expenses associated with repossessed real estate properties driven by higher impairment charges of $1.8 million or 57.4%; two non-routine losses included in other expense in the aggregate amount of $1.0 million recorded in the first quarter of 2011 in which no corresponding amount was recorded in the comparable period of a year ago. These losses relate to a fraudulent transaction on a deposit account involving one of the Company’s customers and a write-down attributed to uncollectible amounts of property tax receivables at the Company’s leasing subsidiary.
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§
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The Company recorded an income tax benefit of $67 thousand in the first nine months of 2011 compared to income tax expense in the amount of $1.7 million for the first nine months of 2010. The effective tax benefit for the first nine months of 2011 was 4.7% compared to an effective tax expense of 22.0% for the first nine months of 2010. The continued decrease in projected pre-tax income for 2011 has resulted in decreases in the effective tax rate as the year has progressed. Income from tax free sources has remained consistent throughout the first nine months of 2011 and has continued to become a greater percentage of the declining pretax income each quarter. |
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§
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Total assets were $1.9 billion at September 30, 2011, a decrease of $28.9 million or 1.5% from June 30, 2011. The net decrease in total assets is attributed mainly to a decrease in loans (net of unearned income and allowance) of $32.6 million or 3.0%, partially offset by an increase in cash and cash equivalents of $2.9 million or 2.9% and available for sale investment securities of $1.6 million or 0.3%.
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§
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While the Company continues to actively seek high quality loan demand, the downward trend in loans outstanding is consistent with the overall strategy to improve its net interest margin, nonperforming asset levels, capital ratios, and overall profitability. Loan underwriting has also been strengthened in light of an overall weak economy.
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§
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Deposits were relatively unchanged at $1.4 billion in the linked quarter comparison. Interest bearing deposit balances decreased $7.6 million or 0.6%, but was offset by an increase in noninterest bearing deposits of $7.8 million or 3.6%.
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§
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Short-term borrowings decreased $33.9 million or 52.5% due mainly to activity related to the winding down of the Company’s depository contract with the Commonwealth of Kentucky.
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§
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The allowance for loan losses was 2.80% of loans outstanding (net of unearned income) at September 30, 2011, an increase of 17 basis points compared to 2.63% at June 30, 2011. Net charge-offs were $2.1 million and $3.8 million for the current and linked quarters, respectively. This represents a decrease of $1.7 million or 45.0%. Net charge-offs for the current quarter include a recovery of $500 thousand related to a single credit completely charged-off during 2009.
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§
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The ratio of nonperforming loans to loans outstanding (net of unearned income) was 8.1% at September 30, 2011, a decrease of 39 basis points compared to 8.5% at June 30, 2011.
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§
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On a consolidated basis, the Company’s regulatory capital levels remain in excess of “well-capitalized” as defined by bank regulators. Likewise, the regulatory capital for the Company’s subsidiary banks exceeds the targets established in the agreements with the regulatory agencies.
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§
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As has been previously disclosed, the Company learned in the first quarter of 2011 that the Commonwealth of Kentucky awarded its general depository services contract to a large multi-national bank. The Company held the previous contract which had an original termination date of June 30, 2011. This contract was extended through December 2011 whereby the Company will continue to provide services and assistance during the transition process. The Company is committed to facilitating a smooth transition with the Commonwealth and its employees. The impact of not retaining the general depository services contract of the Commonwealth has not had a material impact on the Company’s results of operations.
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(In thousands except per share data) | ||||||||||||||||||||
Three Months Ended
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Nine Months Ended
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September 30,
2011
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June 30,
2011
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September 30,
2010
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September 30,
2011
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September 30,
2010
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Interest income
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$ | 19,493 | $ | 20,133 | $ | 22,105 | $ | 59,794 | $ | 68,962 | ||||||||||
Interest expense
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6,096 | 6,311 | 8,478 | 18,919 | 27,608 | |||||||||||||||
Net interest income
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13,397 | 13,822 | 13,627 | 40,875 | 41,354 | |||||||||||||||
Provision for loan losses
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3,232 | 4,528 | 6,244 | 10,201 | 13,660 | |||||||||||||||
Net interest income after provision for loan losses
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10,165 | 9,294 | 7,383 | 30,674 | 27,694 | |||||||||||||||
Noninterest income
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6,260 | 6,340 | 10,324 | 18,493 | 27,683 | |||||||||||||||
Noninterest expenses
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16,959 | 15,507 | 15,927 | 47,748 | 47,629 | |||||||||||||||
(Loss) income before income tax expense
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(534 | ) | 127 | 1,780 | 1,419 | 7,748 | ||||||||||||||
Income tax (benefit) expense
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(806 | ) | (42 | ) | 525 | (67 | ) | 1,707 | ||||||||||||
Net income
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$ | 272 | $ | 169 | $ | 1,255 | $ | 1,486 | $ | 6,041 | ||||||||||
Net income
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$ | 272 | $ | 169 | $ | 1,255 | $ | 1,486 | $ | 6,041 | ||||||||||
Preferred stock dividends and discount accretion
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(474 | ) | (473 | ) | (469 | ) | (1,419 | ) | (1,401 | ) | ||||||||||
Net (loss) income available to common shareholders
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$ | (202 | ) | $ | (304 | ) | $ | 786 | $ | 67 | $ | 4,640 | ||||||||
Basic and diluted net (loss) income per common share
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$ | (.03 | ) | $ | (.04 | ) | $ | .11 | $ | .01 | $ | .63 | ||||||||
Averages
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Loans, net of unearned interest
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$ | 1,119,634 | $ | 1,144,035 | $ | 1,228,797 | $ | 1,145,584 | $ | 1,247,796 | ||||||||||
Total assets
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1,932,785 | 1,956,654 | 2,067,920 | 1,949,083 | 2,134,813 | |||||||||||||||
Deposits
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1,446,751 | 1,466,759 | 1,500,978 | 1,459,390 | 1,574,391 | |||||||||||||||
Shareholders’ equity
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156,136 | 154,090 | 154,368 | 153,868 | 152,123 | |||||||||||||||
Weighted average common shares outstanding –
basic and diluted
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7,427 | 7,420 | 7,393 | 7,420 | 7,385 | |||||||||||||||
Return on average assets
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.06 | % | .03 | % | .24 | % | .10 | % | .38 | % | ||||||||||
Return on average equity
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.69 | % | .44 | % | 3.23 | % | 1.29 | % | 5.31 | % | ||||||||||
September 30,
2011
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June 30,
2011
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December 31,
2010
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Cash and cash equivalents
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$ 101,402
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$ 98,506
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$ 182,056
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Investment securities
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586,429
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584,815
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445,112
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Loans, net of allowance of $30,872, $29,738, and $28,784
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1,070,227
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1,102,796
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1,164,056
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Other assets
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144,679
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145,567
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144,469
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Total assets
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$1,902,737
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$1,931,684
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$1,935,693
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Deposits
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$1,447,073
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$1,446,902
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$1,463,572
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Federal funds purchased and other short-term borrowings
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30,723
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64,666
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47,409
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Other borrowings
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244,768
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244,874
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252,209
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Other liabilities
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23,816
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22,129
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22,607
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Total liabilities
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1,746,380
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1,778,571
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1,785,797
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Shareholders’ equity
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156,357
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153,113
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149,896
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Total liabilities and shareholders’ equity
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$1,902,737
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$1,931,684
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$1,935,693
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End of period tangible book value per common share1
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$ 16.76
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$ 16.32
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$ 15.87
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End of period common share value
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4.31
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5.25
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4.88
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