Net interest income for the third quarter of 2010 decreased $650 thousand or 4.6% from the linked quarter, but increased $125 thousand or .9% compared to the third quarter a year ago. Net interest income for the nine months ended September 30, 2010 increased $210 thousand or .5% compared to the same nine months of 2009. While the Company’s net interest income continues to benefit from a decrease in overall interest expense, primarily on deposits, further improvements in net interest income have been limited by lower rates and lower volume in the loan portfolio and by lower interest income from investment securities due to lower rates. The Company has elected to sell certain higher yielding available for sale investment securities at a gain during the year to bolster capital and offset losses in its lending portfolio and repossessed real estate.
Noninterest income has increased in each of the comparable periods due mainly to net gains on the sale of investment securities. The sale of investment securities have been strategically made to lock in some of the overall increase in value of the portfolio and to strengthen capital.Multiple reinvestment scenarios were considered that would minimize the negative impact on the Company’s future net interest margin. Net gains on the sale of investment securities were $3.9 million and $8.9 million for the three and nine months ended September 30, 2010. This represents increases of $541 thousand or 16.1% in the current quarter compared to the linked quarter’s gain of $3.4 million, $3.9 million in the current quarter compared to the same quarter a year ago, and $6.8 million or 328% in the first nine months of 2010 compared to the same nine-month period a year ago.
The provision for loan losses increased $754 thousand or 13.7% in the linked quarter, but decreased $409 thousand or 6.1% in the current quarter compared to the same quarter a year ago and decreased $609 thousand or 4.3% in the nine-month comparison. Noninterest expenses increased $722 thousand or 4.7% in the linked quarter comparison, $628 thousand or 4.1% in the year-to-year quarterly comparison, and $1.1 million or 2.3% in the nine-month comparison. The overall increase in noninterest expenses in each of the comparable periods was mainly driven by higher expenses associated with repossessed real estate, which offset expense reductions in nearly all other line items. The increase in repossessed real estate expenses is mainly attributed to operating costs associated with these assets and writing down these properties to their estimated fair value less costs to sell due to continued weaknesses in property values. The Company has not been selling properties at deeply discounted prices.
Nonperforming assets have decreased for two consecutive quarters and were as follows for the periods indicated.
The $5.7 million or 4.5% overall decrease in nonperforming assets in the linked quarter comparison is made up of declines in all categories of nonperforming loans partially offset by an increase in other real estate owned and foreclosed assets. This is similar to the changes in the June 30, 2010 reported amounts in relation to March 31, 2010. Nonaccrual loans decreased $5.5 million or 9.3% in the linked quarter, restructured loans decreased $825 thousand or 2.2%, and loans 90 days or more past due and still accruing decreased $807 thousand or 63.1%. Other real estate owned increased $1.5 million or 5.3% in the linked quarter comparison.
Net loan charge-offs were $4.3 million and $3.4 million in the current three months and linked quarter, respectively, an increase of $914 thousand or 27.2% in the comparison. Net charge-offs as a percentage of outstanding loans (net of unearned income) were .35% and .27% in the current and linked quarters, respectively. The allowance for loan losses was $27.8 million or 2.29% of loans outstanding (net of unearned income) at September 30, 2010. At June 30, 2010 and year-end 2009, the allowance for loan losses was $25.8 million or 2.09% of net loans outstanding and $23.4 million or 1.84% of net loans outstanding, respectively.
Under an agreement with its banking regulatory authorities entered into last fall, the Company has agreed not to pay dividends on its common or preferred stock (or to make interest payments on its trust preferred securities) without the prior approval of the Federal Reserve Bank of St. Louis (“Federal Reserve”) and the Kentucky Department of Financial Institutions (“KDFI”). Representatives of the Federal Reserve and KDFI have indicated that any such approval for the payment of dividends will be predicated on a demonstration of adequate, normalized earnings on the part of the Company’s subsidiaries sufficient to support quarterly payments on the Company’s trust preferred securities and quarterly dividends on the Company’s common and preferred stock. While both regulatory agencies have granted approval of the Company’s request to make interest payments on its trust preferred securities and dividends on its preferred stock this quarter, the Company did not (based on the assessment by Company management of both the Company’s capital position and the earnings of its subsidiaries) seek regulatory approval for the payment of common stock dividends. Moreover, the Company will not pay any such dividends on its common stock in any subsequent quarter until the regulator’s assessment of the earnings of the Company’s subsidiaries, and the Company’s assessment of its capital position, both yield the conclusion that the payment of a Company common stock dividend is warranted.
Farmers Capital Bank Corporation is a bank holding company headquartered in Frankfort, Kentucky.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.
Consolidated Financial Highlights-Unaudited