FRANKFORT, Ky. (April 19, 2012) — Farmers Capital Bank Corporation (Nasdaq:FFKT) reported net income of $3.3 million for the quarter ended March 31, 2012, an increase of $2.1 million or 164 percent compared to net income of $1.3 million for the quarter ended December 31, 2011. On a per common share basis, net income was $.38 for the current quarter compared to $.10 for the linked quarter, an increase of $.28 or 280 percent. Net income for the current quarter represents a $2.3 million or 217 percent increase compared with the $1.0 million reported for the first quarter a year ago. On a per common share basis, net income for the current quarter was up $.30 or 375 percent over the $.08 reported for the first quarter of 2011.
“While the overall results for the current quarter are an improvement over recent quarters, the significant challenge of managing our non-performing assets continues to exist,” states Lloyd C. Hillard Jr., president and chief executive officer of the Farmers. “Non-performing loans were relatively unchanged during the quarter and our allowance for loan losses remains strong at 2.58 percent of net loans outstanding. And although the overall balance of repossessed real estate increased during the quarter, we sold properties totaling $3.1 million at 92 percent of their carrying amount and we have signed agreements to receive $3.9 million from the sale of additional properties with a carrying value of $3.7 million that are scheduled to close during the second quarter.”
Hillard said Farmers Capital Bank continues to seek opportunities to increase efficiency and improve performance. The company entered into an agreement in the first quarter that will reduce payment card processing expenses by approximately $500 thousand during 2012, he said, and by $850 thousand for 2013 when compared to the amount of expense incurred during 2011.
Although overall non-performing loans were relatively flat in the linked quarter comparison, non-accrual loans increased $1.6 million or 2.7 percent offset by a decrease in restructured loans of $1.6 million or 8.2 percent. Non-accrual loans were driven higher by the addition of a group of related credits in the amount of $9.5 million secured by farmland with an aggregate value in excess of the carrying amount. Restructured loans decreased primarily as a result of the reclassification of two separate larger-balance credits totaling $1.5 million secured by residential real estate to non-accrual status.
Other real estate owned increased $3.6 million or 9.4 percent during the quarter, led by the acquisition of four separate larger-balance properties totaling $5.1 million securing loans previously classified as non-accrual. Of the larger-balance properties repossessed, two represent construction and land development projects in the amount of $3.6 million, one represents commercial real estate in the amount of $959 thousand, and one represents residential real estate in the amount of $532 thousand.
The allowance for loan losses was $27.1 million or 2.58 percent of loans outstanding (net of unearned income) at March 31, 2012 compared to $28.3 million or 2.64 percent at year-end 2011. Net charge-offs were $2.2 million for the current quarter and exceeded the provision for loan losses in the amount of $1.2 million. Net charge-offs for the current quarter include three transactions totaling $1.1 million in the aggregate.
First Quarter 2012 compared to Fourth Quarter 2011
• The $2.1 million or 164 percent increase in net income in the linked quarter comparison was driven mainly by a $2.3 million or 70.3 percent decrease in the provision for loan losses. Net interest income and non-interest income increased $403 thousand or 3.1 percent and $130 thousand or 2.2 percent, respectively. Non-interest expenses decreased $151 thousand or 1.0 percent while income tax expense was $936 thousand or 161 percent higher.
• The decrease in the provision for loan losses is mainly the result of a relatively unchanged amount of non-performing loans outstanding combined with an improvement related to the historical loss rates, as adjusted for current risk factors, applied to the general portfolio.
• The $403 thousand increase in net interest income was driven by lower interest expense of $548 thousand or 9.5 percent, which offset a decrease in interest income of $145 thousand or 0.8 percent. The decrease in interest expense is primarily because of a $405 thousand or 12.6 percent decrease in interest expense on deposits and lower interest expense on long-term borrowings of $144 thousand or 7.2 percent. 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. Outstanding balances of long-term borrowings have also declined as a result of scheduled maturities.
• Net interest margin was 3.14 percent for the current quarter, an increase of 18 basis points from 2.96 percent in the linked quarter. Net interest spread was 2.91 percent and 2.72 percent in the current and linked quarter, respectively.
• The $130 thousand increase in non-interest income was driven by higher income from company-owned life insurance of $527 thousand or 226 percent, partially offset by a decrease in investment securities gains of $143 thousand or 97.9 percent and lower service charges and fees on deposits of $133 thousand or 6.2 percent. The increase in income from company-owned life insurance is the result of a $529 thousand gain related to death benefit proceeds received in the current quarter. The decrease in investment securities gains is attributed to a decrease in the volume of securities sold, which often take place at irregular intervals based on asset and liability management strategies. The decrease in service charges and fees on deposits is attributed to lower fees from overdraft/insufficient funds of $146 thousand or 11.1 percent resulting from lower transaction volumes.
• The $151 thousand decrease in non-interest expenses was led by lower net expenses related to repossessed properties of $209 thousand or 17.8 percent. Salaries and employee benefits increased $416 thousand or 6.2 percent offset by a decrease in all other operating expenses of $358 thousand or 5.2 percent. Salary and benefit expenses increased because of several factors: an increase in the average number of full time equivalent employees to 510 from 506, an increase in benefit expense related to health insurance and postretirement benefits, and a modest increase because of annual pay increases that took effect in the current quarter.
• The company recorded income tax expense of $356 thousand in the current quarter compared to an income tax benefit of $580 thousand in the fourth quarter of 2011. The effective tax rate for the current quarter was 9.7 percent compared to an income tax benefit of 86.3 percent.
First Quarter 2012 compared to First Quarter 2011
• The $2.3 million increase in net income for the current quarter compared to the first quarter a year earlier was driven mainly by a $1.5 million or 60 percent decrease in the provision for loan losses, lower non-interest expenses of $689 thousand or 4.5 percent, a decrease in income tax expense of $425 thousand or 54.4 percent, partially offset by a decrease in net interest income of $449 thousand or 3.3 percent.
• The $1.5 million decrease in the provision for loan losses is a result of a decrease in non-performing loans combined with an improvement related to the historical loss rates, as adjusted for current risk factors, applied to the general portfolio.
• The $689 thousand decrease in non-interest expenses was driven by two non-routine losses recorded in the first quarter of last year in the aggregate amount of $1 million which are not present in the current quarter. Numerous other non-interest expense line items also decreased, led by lower deposit insurance expense of $202 thousand or 22.7 percent 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 $356 thousand or 5.3 percent in the quarterly comparison because of an increase in health insurance and postretirement benefit expenses along with the addition of additional personnel hired in the credit administration and non-performing asset management positions. Expenses associated with repossessed properties increased $282 thousand or 41.5 percent over the year-ago quarter because of higher impairment charges recorded in the current quarter.
• The $449 thousand or 3.3 percent decrease in net interest income was driven by lower interest income of $1.8 million or 8.7 percent, which was partially offset by a decrease in interest expense of $1.3 million or 20.1 percent. The decrease in interest income was primarily driven by a decrease in loan volume and, to a lesser extent, a decrease in the related average interest rate earned. The decrease in interest expense is mainly driven by lower average rates paid on interest bearing deposits and lower average outstanding time deposits.
• Net interest margin was 3.14 percent for the current quarter, a decrease of 4 basis points from 3.18 percent compared to a year earlier. Net interest spread was 2.91 percent and 2.94 percent in the current and year-ago quarters, respectively.
• Income tax expense was $356 thousand for the first quarter of 2012, a decrease of $425 thousand or 54.4 percent compared to $781 thousand in the first quarter of 2011. The effective tax rate for the current quarter was 9.7 percent compared to 42.8 percent for the same quarter a year ago.
Balance Sheet
• Total assets were $1.9 billion at March 31, 2012, an increase of $7.2 million or 0.4 percent from year-end 2011. The net increase in total assets is attributed mainly to an increase in investment securities and repossessed real estate of $35.6 million and $3.6 million, respectively, partially offset by a $24.3 million decrease in loans (net of unearned income and allowance) and a $5.6 million decrease in cash and equivalents.
• The increase in investment securities is driven primarily by the lack of high quality loan demand. Funds received from loan paydowns and other sources have generally been reinvested in investment securities when loan demand has fallen.
• Other real estate owned was $41.8 million at quarter end, up $3.6 million or 9.4 percent compared to $38.2 million at year end. As discussed above, during the current quarter the company acquired four separate larger-balance properties totaling $5.1 million securing loans previously classified as non-accrual.
• Total deposits increased $12.1 million or 0.8 percent in the linked quarter comparison. Non-interest bearing deposit balances increased $10.4 million or 4.6 percent and interest bearing deposits increased $1.7 million or 0.1 percent.
• Long-term borrowings decreased $10.1 million or 4.2 percent because of principal repayments related to scheduled maturities of federal home loan bank borrowings.
• The allowance for loan losses was 2.58 percent of loans outstanding (net of unearned income) at March 31, 2012, a decrease of 6 basis points compared to 2.64 percent at year-end 2011. Net charge-offs were $2.2 million and $5.9 million for the current and linked quarters, respectively. This represents a decrease of $3.7 million or 62.9 percent. Net charge-offs for the current quarter include three transactions totaling $1.1 million in the aggregate.
• The ratio of non-performing loans to loans outstanding (net of unearned income) was 7.5 percent at March 31, 2012, up 19 basis points compared to 7.4 percent at year-end 2011. The increase was driven by the reduction in net loans outstanding as non-performing loans were relatively unchanged.
• 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.
Farmers Capital Bank Corporation is a bank holding company headquartered in Frankfort, Ky. The Company operates 36 banking locations in 23 communities throughout Central and Northern Kentucky, a data processing company, and an insurance company. Its stock is publicly traded on the NASDAQ Stock Market LLC exchange in the Global Select Market tier under the symbol: FFKT
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