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First National Bancshares Inc Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 13, 2009 09:06AM
First National Bancshares Inc (FNSC) filed Quarterly Report for the period ended 2009-03-31.
Highlight of Business Operations:
Following the first quarter of 2008, we observed the deterioration in national and regional economic indicators and declining real estate values as well as slowing real estate sales activity in our markets. As a result, we have experienced a significant rise in loan delinquencies and the level of our problem assets is elevated. Consequently, our loan loss provision for the period ended March 31, 2009 increased from $466,000 for the period ended March 31, 2008 to $2.2 million for the period ended March 31, 2009. In response to the changing business climate, we have reduced our asset growth plan from historic levels and modified our business strategy based on the following principles:
We believe that the elevated level of our nonperforming assets has occurred largely as a result of the severe housing downturn and deterioration in the residential real estate market. To improve our results of operations, our primary focus for 2009 is to significantly reduce the amount of our nonperforming assets. Nonperforming assets hurt our profitability because they reduce the balance of earning assets, may require additional loan loss provisions or write-downs, and require significant devotion of staff time and financial resources to resolve. Our level of nonperforming assets (loans not accruing interest, restructured loans, loans past due 90 days or more and still accruing interest, and other real estate owned) has decreased during 2009 to $73.9 million as of the date of this report as compared to $75.5 million as of December 31, 2008 as we have closed on a number of sales of nonperforming loans and other real estate owned since May 1, 2009, the date of our 10-K filing.
The benefits of slower balance sheet growth include more disciplined loan and deposit pricing going forward which should result in subsequent net interest margin expansion. Additionally, we will seek to expand our net interest margin as our current loans and deposits reprice and renew. Between April 1, 2009 and December 31, 2009, we have $355.4 million of time deposits that will reprice at current market rates, which represents approximately 75% of our total time deposits at March 31, 2009. These time deposits had a weighted average interest rate of 2.98% at March 31, 2009. Additionally, we have $211.0 million of variable rate loans that are renewing between April 1, 2009 and December 31, 2009 which were initially made at a rate variable with the Wall Street Journal prime rate. We will seek to put floors, or minimum interest rates, in our variable rate loans at renewal. Generally, our new and renewing variable rate loans will be based on the First National prime rate instead of the Wall Street Journal prime rate. We believe that indexing our loans on an internal benchmark will allow us to respond better to the prevailing interest rate environment. Furthermore, we will look to cheaper sources of funding as they become available to us.
Our net loss was $1.36 million, or $0.22 per diluted share, for the quarter ended March 31, 2009, as compared with net income of $735,000, or $0.07 per diluted share, for the quarter ended March 31, 2008. Our net loss for the quarter ended March 31, 2009 included an increase of $1.7 million in the provision for loan losses. This increase was recorded to adjust the allowance for loan losses to reflect the risk inherent in the loan portfolio which continues to be negatively affected by the severe housing downturn and real estate market deterioration in each of our market areas during 2009 as compared to the quarter ended March 31, 2008. Diluted common shares outstanding for the period ended March 31, 2009, increased slightly over the same period in 2008, due to the effect of a prorated amount to reflect the 2.7 million common shares issued to the former Carolina National shareholders as of the merger date of January 31, 2008. Net interest income for the quarter ended March 31, 2009, decreased by 19.7%, or $1.0 million, to $4.1 million, as compared to $5.2 million recorded during the same period in 2008, primarily due to the decreased rates on our average earning assets since March 31, 2008, despite the net interest income earned on an increased average asset base.