Farmers Capital Bank Corporation
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(Exact name of registrant as specified in its charter)
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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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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Farmers Capital Bank Corporation
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7-18-12
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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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June 30,
2012
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March 31,
2012
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December 31,
2011
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September 30,
2011
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June 30,
2011
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Nonaccrual loans
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$ | 54,598 | $ | 61,358 | $ | 59,755 | $ | 60,322 | $ | 63,737 | ||||||||||
Loans 90 days or more past due and still accruing
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29 | 50 | 1 | 2 | 3 | |||||||||||||||
Restructured loans
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17,540 | 17,551 | 19,125 | 28,742 | 32,241 | |||||||||||||||
Total nonperforming loans
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72,167 | 78,959 | 78,881 | 89,066 | 95,981 | |||||||||||||||
Other real estate owned
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39,566 | 41,750 | 38,157 | 35,993 | 34,710 | |||||||||||||||
Other foreclosed assets
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16 | 36 | 36 | 40 | 17 | |||||||||||||||
Total nonperforming assets
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$ | 111,749 | $ | 120,745 | $ | 117,074 | $ | 125,099 | $ | 130,708 | ||||||||||
Ratio of total nonperforming loans to total loans (net of unearned income)
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6.9 | % | 7.5 | % | 7.4 | % | 8.1 | % | 8.5 | % | ||||||||||
Ratio of total nonperforming assets to total assets
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6.0 | 6.4 | 6.2 | 6.6 | 6.8 |
(In thousands)
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Nonaccrual
Loans
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Restructured
Loans
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Other Real
Estate Owned
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Balance at March 31, 2012
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$ | 61,358 | $ | 17,551 | $ | 41,750 | ||||||
Loans placed on nonaccrual status
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1,261 | - | - | |||||||||
Loans restructured
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- | 72 | - | |||||||||
Principal paydowns
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(3,903 | ) | (83 | ) | - | |||||||
Transfers to performing status
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(251 | ) | - | - | ||||||||
Transfers to other real estate owned
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(2,818 | ) | - | 3,355 | ||||||||
Charge-offs/write-downs
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(1,049 | ) | - | (641 | ) | |||||||
Proceeds from sales
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- | - | (5,034 | ) | ||||||||
Net gain on sales
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- | - | 136 | |||||||||
Balance at June 30, 2012
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$ | 54,598 | $ | 17,540 | $ | 39,566 |
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●
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The $162 thousand or $.02 per common share decrease in net income for the second quarter of 2012 compared to the first quarter of 2012 includes a $534 thousand or 150% increase in income tax expense; an increase in noninterest income of $384 thousand or 6.4%, which includes a $682 thousand increase in gains on the sale of investment securities partially offset by a $532 thousand or 70.0% decrease in income from company-owned life insurance; an increase in the provision for loan losses of $364 thousand or 37.3%; an increase in net interest income of $160 thousand or 1.2%; and a decrease in noninterest expense of $192 thousand or 1.3%.
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The $534 thousand increase in income tax expense is the result of a higher effective income tax rate, which was 22.0% in the current quarter compared to 9.7% in the linked quarter.
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The $384 thousand or 6.4% increase in noninterest income was driven mainly by higher gains on the sale of investment securities and mortgage loans of $682 thousand and $141 thousand or 45.5%, respectively, partially offset by a decrease in income from company-owned life insurance of $532 thousand or 70.0%. The increase in gains on the sale of investment securities is attributed to an increase in the volume of securities sold, which often take place at irregular intervals based on current asset and liability management strategies. Gains on the sale of mortgage loans increased due to a higher volume of loans sold, fueled by the overall low interest rate environment. Income from company-owned life insurance decreased primarily due to a $529 thousand gain related to a death benefit included in the prior quarter; there was no such transaction recorded in the current quarter.
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The increase in provision for loan losses of $364 thousand in the linked quarter comparison is attributed to higher reserves on impaired and watch list loans partially offset by a decrease in historical loss rates applied to the general loan portfolio.
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The $160 thousand or 1.2% increase in net interest income was driven mainly by lower interest expense of $483 thousand or 9.3%, which offset a decrease in interest income of $323 thousand or 1.8%. The decrease in interest expense is primarily due to a $443 thousand or 15.8% decrease in interest expense on deposits, which have moved downward primarily as a result of the overall low interest rate environment and a strategy to reduce higher-rate time deposits. Net interest margin was 3.21% in the current quarter, an increase of seven basis points compared to 3.14% in the linked quarter. Net interest spread was 3.00%, up nine basis points compared to 2.91% in the linked quarter. The increase in net interest margin and spread is reflective of the Company’s overall balance sheet realignment strategy and focused effort to reduce its cost of funds.
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The $192 thousand decrease in noninterest expense is due primarily to a decrease in salaries and employee benefits of $262 thousand or 3.7%, a decrease in expenses associated with repossessed real estate of $258 thousand or 26.8%, and lower data processing and communication expense of $174 thousand or 15.0%. The decrease in salaries and employee benefits is attributed to lower benefits related to health insurance and lower salary expense accruals attributed to paid time off taken by employees. The decrease in expenses associated with repossessed real estate decreased primarily due to sales activity that resulted in a net gain in the current quarter of $136 thousand compared to an overall loss of $242 thousand in the linked quarter. Data processing and communications expenses decreased as a result of an agreement the Company announced during the first quarter that will reduce its debit card processing expenses during 2012 and 2013.
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All other noninterest expenses increased $502 thousand or 9.4%, driven primarily by higher legal fees associated with both nonperforming loan activity and the auction of the Company’s preferred stock by the U.S. Treasury to third party investors that occurred during the current quarter.
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The $3.0 million or $.40 per common share increase in net income for the second quarter of 2012 compared to the same quarter a year ago was mainly driven by a decrease of $3.2 million or 70.4% and $1.2 million or 63.6% in the provision for loan losses and expenses associated with repossessed real estate, respectively, partially offset by an increase in income tax expense of $932 thousand.
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The $3.2 million decrease in the provision for loan losses is attributed primarily to the improvement in historical loss rates adjusted for qualitative risk factors applied to a declining loan portfolio.
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Expenses associated with repossessed real estate declined mainly due to a $698 thousand or 52.1% decrease in impairment charges recorded in the current quarter. Further, the net gains from the sale of repossessed real estate were $136 thousand in the current quarter compared to a net loss of $257 thousand in the second quarter a year earlier. All other noninterest expense categories, net, were up $125 thousand or 0.9% in the aggregate.
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Income tax expense was $890 thousand for the current quarter, with an effective income tax rate of 22.0%. The Company recorded an income tax benefit of $42 thousand for the second quarter a year earlier. The effective income tax rate for that period is not meaningful.
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Net interest income was down $455 thousand or 3.3% in the quarterly comparison. Interest income decreased $2.0 million or 10.2%, partially offset by lower interest expense of $1.6 million or 25.2% The decrease in interest income was driven by lower interest on loans, which has decreased as a result of lower balances outstanding and an overall low interest rate environment. The decrease in interest expense was driven by lower interest expense on deposits, which has decreased mainly from the Company’s continuing efforts to reduce higher-rate time deposits.
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Net interest margin was 3.21% in the current quarter, an increase of three basis points from 3.18% in the second quarter a year ago. Net interest spread was 3.00%, up seven basis points compared to 2.93%.
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Noninterest income was relatively unchanged in the comparison and totaled $6.4 million for the current quarter. The more significant components that increased in the comparison are gains on the sale of mortgage loans of $300 thousand or 199% due to a higher volume of loans sold helped by the overall low interest rate environment and $272 thousand or 65.9% attributed to gains on the sale of investment securities. The increase in gains on the sale of investment securities is attributed to an increase in the volume of securities sold. Such sales often take place at irregular intervals based on current asset and liability management strategies.
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The more significant components of noninterest income that decreased in the comparison include the following: data processing income of $187 thousand or 69.0% driven by a $138 thousand or 69.7% decrease in fees related to the winding down of the Commonwealth of Kentucky depository services contract, trust income of $186 thousand or 28.2% due mainly to accrual refinements resulting in a one-time increase in the amount of $165 thousand in the second quarter a year ago, and $162 thousand or 7.4% in service charges and fees on deposits attributed to lower fees from overdraft/insufficient funds of $241 thousand or 17.2% resulting from lower transaction volumes.
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The $5.2 million or $.70 per common share increase in net income for the six months ending June 30, 2012 compared to the first six months of 2011 is primarily due to a decrease in the provision for loan losses and noninterest expenses of $4.7 million or 66.7% and $1.8 million or 5.8%, respectively. Net interest income decreased $904 thousand or 3.3% and income tax expense increased $507 thousand or 68.6%.
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The $4.7 million decrease in the provision for loan losses is attributed primarily to the improvement in historical loss rates adjusted for qualitative risk factors applied to a declining loan portfolio.
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The $1.8 million decrease in noninterest expenses in the comparison is made up primarily by a $949 thousand or 36.3% decrease in expenses associated with repossessed real estate, a $700 thousand decrease related to a deposit fraud loss recorded in the prior year, a $275 thousand or 11.3% decrease in data processing and communications expense, and a $239 thousand or 14.8% decrease in deposit insurance. Partially offsetting these noninterest expense decreases was an increase in salaries and employee benefits of $345 thousand or 2.5%.
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Expenses associated with repossessed real estate decreased mainly due to a $418 thousand or 26.7% decline in impairment charges in the current comparison and a $321 thousand lower net loss related to the sale activity. The $700 thousand deposit fraud loss relates to a transaction on a deposit account involving one of the Company’s customers that occurred during the first quarter of 2011. Data processing and communications expenses decreased as a result of costs savings related to the winding down of the Company’s contract with the Commonwealth of Kentucky as well as an agreement the Company announced during the first quarter to reduce its debit card processing expenses during 2012 and 2013. The decrease in deposit insurance expense is attributed mainly to the change in the FDIC’s assessment base and rate structure that went into effect during the second quarter of 2011. Salaries and employee benefits increased in the comparison due mainly to additional personnel hired in the credit administration and nonperforming asset management positions, higher postretirement benefits expense, and modest annual employee pay increases.
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The decrease in net interest income is made up of a $3.8 million or 9.4% decrease in interest income partially offset by lower interest expense of $2.9 million or 22.6%. The decrease in interest income is mainly related to lower interest on loans, which has decreased as a result of lower balances outstanding and an overall low interest rate environment. The decrease in interest expense is primarily related to lower interest expense on deposits, which has decreased mainly from the Company’s continuing efforts to reduce higher-rate time deposits.
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Net interest margin was 3.18% for the first six months of 2012, unchanged compared to the same six-month period a year ago. Net interest spread was 2.96%, up two basis points compared to 2.94%.
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Total assets were $1.8 billion at June 30, 2012, a decrease of $43.2 million or 2.3% from March 31, 2012. The net decrease in total assets is attributed mainly to a decrease in cash and equivalents of $17.7 million or 19.9%, a decrease in investment securities of $16.5 million or 2.6%, and a decrease in loans (net of unearned income and allowance) and other real estate owned of $6.2 million or 0.6% and $2.2 million or 5.2%, respectively.
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The decrease in cash and equivalents was driven by a $23.6 million decrease in interest bearing deposits in other banks, primarily from lower balances maintained in clearing accounts with the Federal Reserve. Such balances fluctuate daily as the Company’s overall net funding position changes.
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The decrease in investment securities was driven by the sales transactions that occurred during the current quarter. Such sales take place at irregular intervals based on current asset and liability management strategies.
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The decrease in loans reflects the lack of high quality loan demand sought by the Company as it continues a cautious and measured approach to new lending while working to reduce its high level of nonperforming assets.
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Other real estate owned decreased during the current quarter primarily from the sale of properties totaling $4.9 million, including two larger-balance properties totaling $2.9 million in the aggregate. The Company added $3.4 million of additional properties during the quarter, of which $2.8 million represents collateral previously securing nonaccrual loans.
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Total deposits decreased $39.8 million or 2.7% in the linked quarter comparison. Interest bearing deposits, primarily time deposits, decreased $42.2 million or 3.5%. Noninterest bearing deposit balances were up $2.5 million or 1.0%. Time deposits have trended downward primarily as a result of the Company’s strategy to lower its cost of funds by allowing higher-rate certificates of deposit to roll off or reprice at significantly lower interest rates.
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Short-term borrowings decreased $6.0 million or 21.3%. Long-term borrowings were relatively unchanged.
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The allowance for loan losses was 2.61% of loans outstanding (net of unearned income) at June 30, 2012, an increase of three basis points compared to 2.58% at March 31, 2012. Net charge-offs were $1.3 million and $2.2 million for the current and linked quarters, respectively. This represents a decrease of $906 thousand or 41.4%. Net charge-offs for the current quarter include one larger-balance transaction of $405 thousand compared to three larger-balance transactions in the linked quarter totaling $1.1 million in the aggregate.
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The ratio of nonperforming loans to loans outstanding (net of unearned income) was 6.9% at June 30, 2012, an improvement of 61 basis points compared to 7.5% at March 31, 2012. The decrease was driven by the reduction in nonaccrual loans of $6.8 million or 11.0%.
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On a consolidated basis, the Company’s regulatory capital levels remain in excess of “well-capitalized” as defined by bank regulators. Likewise, the regulatory capital for the Company’s subsidiary banks exceeds the targets established in the agreements with their regulatory agencies.
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(In thousands except per share data)
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Three Months Ended
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Six Months Ended
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June 30,
2012
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March 31,
2012
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June 30,
2011
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June 30,
2012
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June 30,
2011
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Interest income
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$ | 18,087 | $ | 18,410 | $ | 20,133 | $ | 36,497 | $ | 40,301 | ||||||||||
Interest expense
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4,720 | 5,203 | 6,311 | 9,923 | 12,823 | |||||||||||||||
Net interest income
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13,367 | 13,207 | 13,822 | 26,574 | 27,478 | |||||||||||||||
Provision for loan losses
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1,341 | 977 | 4,528 | 2,318 | 6,969 | |||||||||||||||
Net interest income after provision for loan losses
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12,026 | 12,230 | 9,294 | 24,256 | 20,509 | |||||||||||||||
Noninterest income
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6,412 | 6,028 | 6,340 | 12,440 | 12,233 | |||||||||||||||
Noninterest expenses
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14,401 | 14,593 | 15,507 | 28,994 | 30,789 | |||||||||||||||
Income before income tax expense
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4,037 | 3,665 | 127 | 7,702 | 1,953 | |||||||||||||||
Income tax (benefit) expense
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890 | 356 | (42 | ) | 1,246 | 739 | ||||||||||||||
Net income
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$ | 3,147 | $ | 3,309 | $ | 169 | $ | 6,456 | $ | 1,214 | ||||||||||
Net income
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$ | 3,147 | $ | 3,309 | $ | 169 | $ | 6,456 | $ | 1,214 | ||||||||||
Preferred stock dividends and discount accretion
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(480 | ) | (478 | ) | (473 | ) | (958 | ) | (945 | ) | ||||||||||
Net income (loss) available to common shareholders
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$ | 2,667 | $ | 2,831 | $ | (304 | ) | $ | 5,498 | $ | 269 | |||||||||
Basic and diluted net income (loss) per common share
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$ | .36 | $ | .38 | $ | (.04 | ) | $ | .74 | $ | .04 | |||||||||
Averages
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Loans, net of unearned interest
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$ | 1,041,927 | $ | 1,058,277 | $ | 1,144,035 | $ | 1,050,012 | $ | 1,158,774 | ||||||||||
Total assets
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1,895,963 | 1,906,371 | 1,956,654 | 1,901,110 | 1,957,367 | |||||||||||||||
Deposits
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1,422,278 | 1,434,399 | 1,466,759 | 1,428,272 | 1,465,814 | |||||||||||||||
Shareholders’ equity
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163,262 | 159,357 | 154,090 | 161,331 | 152,715 | |||||||||||||||
Weighted average common shares outstanding – basic and diluted
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7,454 | 7,447 | 7,420 | 7,450 | 7,416 | |||||||||||||||
Return on average assets
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.67 | % | .70 | % | .03 | % | .68 | % | .13 | % | ||||||||||
Return on average equity
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7.75 | % | 8.35 | % | .44 | % | 8.05 | % | 1.60 | % |
June 30,
2012
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March 31,
2012
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December 31,
2011
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Cash and cash equivalents
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$ | 71,001 | $ | 88,669 | $ | 94,309 | ||||||
Investment securities
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617,731 | 634,250 | 598,694 | |||||||||
Loans, net of allowance of $27,113, $27,053, and $28,264
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1,013,326 | 1,019,508 | 1,043,844 | |||||||||
Other assets
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145,598 | 148,400 | 146,743 | |||||||||
Total assets
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$ | 1,847,656 | $ | 1,890,827 | $ | 1,883,590 | ||||||
Deposits
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$ | 1,407,448 | $ | 1,447,203 | $ | 1,435,065 | ||||||
Federal funds purchased and other short-term borrowings
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21,989 | 27,945 | 27,022 | |||||||||
Other borrowings
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229,434 | 229,552 | 239,664 | |||||||||
Other liabilities
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25,049 | 26,392 | 24,782 | |||||||||
Total liabilities
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1,683,920 | 1,731,092 | 1,726,533 | |||||||||
Shareholders’ equity
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163,736 | 159,735 | 157,057 | |||||||||
Total liabilities and shareholders’ equity
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$ | 1,847,656 | $ | 1,890,827 | $ | 1,883,590 |
End of period tangible book value per common share1
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$ | 17.76 | $ | 17.22 | $ | 16.86 | ||||||
End of period common share value
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6.57 | 6.01 | 4.49 |