FCAP » Topics » Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

This excerpt taken from the FCAP 10-K filed Mar 30, 2006.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Net Income. Net income was $3.4 million ($1.23 per share diluted; weighted average common shares outstanding of 2,798,253, as adjusted) for the year ended December 31, 2004 compared to $3.5 million ($1.29 per share diluted; weighted average common shares outstanding of 2,743,998, as adjusted) for the year ended December 31, 2003. The decrease was attributable primarily to an increase in noninterest expense of $1.2 million partially offset by increases in net interest income of $404,000 and noninterest income of $390,000 and a decrease in the provision for loan losses of $215,000.

Net Interest Income. Net interest income increased $404,000, or 3.2%, from $12.6 million in 2003 to $13.0 million in 2004 primarily due to an increase in average interest-earning assets during 2004 offset by an increase in average interest-bearing liabilities and a decrease in the interest rate spread.

Total interest income increased 3.8% from $21.3 million in 2003 to $22.1 million in 2004. This increase was a result of the higher average balances of interest-earning assets offset by lower yields due to lower market interest rates. Interest on loans increased $1.1 million primarily as a result of an increase in the average balance during the year offset by a lower average yield. Interest on investment securities decreased $262,000 during 2004 due to decreases in both the average balance and the average yield on those investments during the year. Interest income on federal funds sold and interest-bearing deposits with banks also decreased $64,000 due to decreases in both the average balance during the year and the average yield on those earning assets. The average balance of interest-earning assets increased 9.9% from $355.5 million in 2003 to $390.5 million in 2004. The average tax equivalent yield on interest-earning assets decreased from 6.07% in 2003 to 5.75% in 2004. During 2004, loan repayments and investment maturities were replaced by lower-yielding assets. Also during 2004, management sought to focus loan origination efforts on variable-rate loans which typically have a lower initial interest rate than fixed-rate loans. This focus was successful as total variable-rate loans increased $17.6 million to 31% of the loan portfolio, up from 28% of the portfolio at the end of 2003.

Total interest expense increased from $8.7 million for 2003 to $9.1 million for 2004. This increase was due to an increase in the average balance of interest-bearing liabilities partially offset by a decrease in the average cost of funds. The average balances of deposits and advances from the Federal Home Loan Bank were $276.1 million and $63.1 million, respectively, for 2004. In 2003, those average balances were $254.2 million and $54.7 million. The average cost of funds decreased from 2.82% in 2003 to 2.69% in 2004. This decrease was primarily due to growth in lower cost savings and demand deposit accounts versus time deposits. For further information, see “Average Balance Sheets” below. The changes in interest income and interest expense resulting from changes in volume and changes in rates for 2004 and 2003 are shown in the schedule captioned “Rate/Volume Analysis” included herein.

Provision for Loan Losses. The provision for loan losses was $510,000 for 2004 compared to $725,000 for 2003. During 2004, the net loan portfolio growth was $12.9 million, primarily due to increases in home equity lines of credit and commercial business loans. The consistent application of management’s allowance methodology resulted in a decrease in the provision for loan losses due to net charge-offs during 2004 of $465,000 compared to $575,000 for 2003 and the improvement in asset quality as nonperforming loans decreased from $5.3 million at December 31, 2003 to $3.6 million at December 31, 2004. The provisions were recorded to bring the allowance to the level determined in applying the allowance methodology after reduction for net charge-offs during the year. See “Asset Quality.”

Noninterest income. Noninterest income increased $390,000, or 17.2%, for 2004 compared to 2003 primarily due to increases in gains on the sale of mortgage loans and mortgage brokerage fees of $154,000 and $82,000, respectively. In mid-2003, the Bank resumed its mortgage banking activities and 2004 was the first full year with a mortgage banking operation. Since the resumption of this business, we have improved our interest rate risk, reduced our concentration in long-term fixed-rate mortgage loans, increased fee income, and expanded our mortgage products to potential borrowers. For a discussion of our mortgage banking operations, see Note 1 in the accompanying Notes to Consolidated Financial Statements. Service charges on deposits increased during 2004 by $142,000 primarily due to the increased number of transaction accounts. During 2004, the Bank also recognized a $43,000 gain on the sale of a parcel of land adjacent to a branch office.

 

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Noninterest expense. Noninterest expense increased $1.2 million, or 13.5%, to $9.9 million for 2004 compared to $8.7 million in 2003. The increase results primarily from a $930,000 increase in compensation and benefits expense. A large part of the compensation and benefits increase can be attributed to the March 2003 acquisition of Hometown. The expenses associated with the additional employees from the acquisition were on the books for the entire year during 2004 compared to nine months in 2003. Another significant factor in the increase in compensation and benefits was the reduction in the deferral of direct loan origination costs in 2004. The low interest rates and corresponding large number of mortgage refinancings during 2003 reduced compensation and benefits by $529,000 in that period. During 2004, the Bank recorded deferrals of direct loan origination costs of $293,000 as the pace of loan originations declined due to an increase in market interest rates. Professional fees increased $49,000 for 2004 compared to the prior year primarily due to costs associated with the organization of subsidiaries formed to manage a portion of the Bank’s investment securities portfolio and legal services related to problem loans. Other operating expenses increased $179,000 during 2004 including an increase in charitable contributions of $63,000 as the Bank fulfilled commitments to help fund the construction of a local YMCA and youth baseball fields. Expenses and losses recognized on foreclosed real estate also increased from $18,000 for 2003 to $76,000 for 2004 as the Bank continued its efforts to reduce nonperforming assets.

Income tax expense. Income tax expense for the year ended December 31, 2004 was $1.8 million compared to $1.9 million for 2003. The effective tax rate for 2004 was 34.4% compared to 34.6% for 2003. See Note 13 in the accompanying Notes to Consolidated Financial Statements.

 

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This excerpt taken from the FCAP 10-K filed Mar 30, 2005.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

 

Net Income. Net income was $3.4 million ($1.23 per share diluted; weighted average common shares outstanding of 2,798,253, as adjusted) for the year ended December 31, 2004 compared to $3.5 million ($1.29 per share diluted; weighted average common shares outstanding of 2,743,998, as adjusted) for the year ended December 31, 2003. The decrease was attributable primarily to an increase in noninterest expense of $1.2 million partially offset by increases in net interest income of $404,000 and noninterest income of $390,000 and a decrease in the provision for loan losses of $215,000.

 

Net Interest Income. Net interest income increased $404,000, or 3.2%, from $12.6 million in 2003 to $13.0 million in 2004 primarily due to an increase in average interest-earning assets during 2004 offset by an increase in average interest-bearing liabilities and a decrease in the interest rate spread.

 

Total interest income increased 3.8% from $21.3 million in 2003 to $22.1 million in 2004. This increase was a result of the higher average balances of interest-earning assets offset by lower yields due to lower market interest rates. Interest on loans increased $1.1 million primarily as a result of an increase in the average balance during the year offset by a lower average yield. Interest on investment securities decreased $262,000 during 2004 due to decreases in both the average balance and the average yield on those investments during the year. Interest income on federal funds sold and interest-bearing deposits with banks also decreased $64,000 due to decreases in both the average balance during the year and the average yield on those earning assets. The average balance of interest-earning assets increased 9.9% from $355.5 million in 2003 to $390.5 million in 2004. The average tax equivalent yield on interest-earning assets decreased from 6.07% in 2003 to 5.75% in 2004. During 2004, loan repayments and investment maturities were replaced by lower-yielding assets. Also during 2004, management sought to focus loan origination efforts on variable-rate loans which typically have a lower initial interest rate than fixed-rate loans. This focus was successful as total variable-rate loans increased $17.6 million to 31% of the loan portfolio, up from 28% of the portfolio at the end of 2003.

 

Total interest expense increased from $8.7 million for 2003 to $9.1 million for 2004. This increase was due to an increase in the average balance of interest-bearing liabilities partially offset by a decrease in the average cost of funds. The average balances of deposits and advances from the Federal Home Loan Bank were $276.1 million and $63.1 million, respectively, for 2004. In 2003, those average balances were $254.2 million and $54.7 million. The average cost of funds decreased from 2.82% in 2003 to 2.69% in 2004. This decrease was primarily due to growth in lower cost savings and demand deposit accounts versus time deposits. For further information, see “Average Balance Sheets” below. The changes in interest income and interest expense resulting from changes in volume and changes in rates for 2004 and 2003 are shown in the schedule captioned “Rate/Volume Analysis” included herein.

 

Provision for Loan Losses. The provision for loan losses was $510,000 for 2004 compared to $725,000 for 2003. During 2004, the net loan portfolio growth was $12.9 million, primarily due to increases in home equity lines of credit and commercial business loans. The consistent application of management’s allowance methodology resulted in a decrease in the provision for loan losses due to net charge-offs during 2004 of $465,000 compared to $575,000 for 2003 and the improvement in asset quality. The provisions were recorded to bring the allowance to the level determined in applying the allowance methodology after reduction for net charge-offs during the year. See “Asset Quality.”

 

Provisions for loan losses are charges to earnings to maintain the total allowance for loan losses at a level considered reasonable by management to provide for probable known and inherent loan losses based on management’s evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specified impaired loans and economic conditions. Although management uses the best information available, future adjustments to the allowance may be necessary due to changes in economic, operating, regulatory and other conditions that may be beyond the Bank’s control. While the Bank maintains the allowance for loan losses at a level that it considers adequate to provide for estimated losses, there can be no assurance that further additions will not be made to the allowance for loan losses and that actual losses will not exceed the estimated amounts.

 

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Noninterest income. Noninterest income increased $390,000, or 17.2%, for 2004 compared to 2003 primarily due to increases in gains on the sale of mortgage loans and mortgage brokerage fees of $154,000 and $82,000, respectively. In mid-2003, the Bank resumed its mortgage banking activities and 2004 was the first full year with a mortgage banking operation. Since the resumption of this business, we have improved our interest rate risk, reduced our concentration in long-term fixed rate mortgage loans, increased fee income, and expanded our mortgage products to potential borrowers. For a discussion of our mortgage banking operations, see Note 1 in the accompanying Notes to Consolidated Financial Statements. Service charges on deposits increased during 2004 by $142,000 primarily due to the increased number of transaction accounts. During 2004, the Bank also recognized a $43,000 gain on the sale of a parcel of land adjacent to a branch office.

 

Noninterest expense. Noninterest expense increased $1.2 million, or 13.5%, to $9.9 million for 2004 compared to $8.7 million in 2003. The increase results primarily from a $930,000 increase in compensation and benefits expense. A large part of the compensation and benefits increase can be attributed to the March 2003 acquisition of Hometown. The expenses associated with the additional employees from the acquisition were on the books for the entire year during 2004 compared to nine months in 2003. Another significant factor in the increase in compensation and benefits was the reduction in the deferral of direct loan origination costs in 2004. The low interest rates and corresponding large number of mortgage refinancings during 2003 reduced compensation and benefits by $529,000 in that period. During 2004, the Bank recorded deferrals of direct loan origination costs of $293,000 as the pace of loan originations declined due to an increase in market interest rates. Professional fees increased $49,000 for 2004 compared to the prior year primarily due to costs associated with the organization of subsidiaries formed to manage a portion of the Bank’s investment securities portfolio and legal services related to problem loans. Other operating expenses increased $179,000 during 2004 including an increase in charitable contributions of $63,000 as the Bank fulfilled commitments to help fund the construction of a local YMCA and youth baseball fields. Expenses and losses recognized on foreclosed real estate also increased from $18,000 for 2003 to $76,000 for 2004 as the Bank continued its efforts to reduce nonperforming loans.

 

Income tax expense. Income tax expense for the year ended December 31, 2004 was $1.8 million compared to $1.9 million for 2003. The effective tax rate for 2004 was 34.4% compared to 34.6% for 2003. See Note 13 in the accompanying Notes to Consolidated Financial Statements.

 

EXCERPTS ON THIS PAGE:

10-K
Mar 30, 2006
10-K
Mar 30, 2005
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