Business
Largest U.S. Black-Owned Bank Reports Loss of $39.5 million for FY 2011
Non-interest Income
Non-interest income decreased $0.1 million, or 8.8%, to $1.5 million for the fourth quarter, compared to $1.6 million for the prior year quarter primarily due to lower fees on New Market Tax Credit (NMTC) transactions in the current period.
Non-interest Expense
Non-interest expense increased $0.4 million, or 4.96%, to $8.0 million compared to $7.6 million for the prior year quarter primarily due to higher FDIC insurance premiums.
Income Taxes
The income tax benefit was $1.3 million for the fourth quarter compared to $1.1 million benefit for the prior year period. The benefit for the three month period ending March 31, 2011 is primarily related to loan write-offs taken in the quarter.
Fiscal Year 2011 Results
The Company reported a net loss for fiscal 2011 of $39.5 million, compared to a net loss of $1.0 million for the prior fiscal year. The decrease is primarily due to $27.1 million in higher provisions for loan losses and an $18.9 million valuation allowance recorded against the Company’s deferred tax asset.
Net Interest Income
Net interest income decreased $2.7 million to $26.8 million compared to $29.5 million for the prior year period. This change is due to a decline of $4.2 million in interest income offset by a decline of $1.6 million in interest expense.
Interest income on loans was the primary driver of the decline in interest income, decreasing $3.5 million or 9.5% from the prior year period. The change reflects a year over year decline of $51.9 million in the average balance as well as a reduction in the average yield on loans of 11 basis points to 5.38%, compared to the prior year period of 5.49%. Also contributing to the decline in interest income was the yield on the mortgage backed securities portfolio. The average yield decreased 109 basis points to 2.97% compared to the prior year period of 4.07%, primarily reflecting the current low interest rate environment.
Interest expense decreased $1.6 million or 14.1% from the prior year period. The decline is primarily the result of lower interest expense on deposits of $1.4 million. This decline reflects a 16 basis point decrease in the average cost of interest bearing liabilities to 1.47% from 1.63% for the prior year period. The decrease in the average cost of interest bearing liabilities was primarily due to decreases in rates on money market balances and the downward re-pricing of certificates of deposits.
Provision for Loan Losses
For the twelve month period ending March 31, 2011 the Company recorded a $27.1 million provision for loan losses compared to $7.8 million for the prior year period. Net charge-offs totaled $16 million for the twelve months ended March 31, 2011 compared to net charge-offs of $2.9 million for the prior year period. The Company determined that an increase in provision was warranted given its current level of delinquencies and realized charge offs, coupled with continued uncertainty in the real estate market.
Non-Interest Income
Non- interest income increased $2.2 million during the twelve month period ending March 31, 2011 to $7.3 million compared to $5.1 million in the prior year period. The higher income is primarily due to a reduction of $1.9 million in the amount required to reflect loans held for sale at the lower of cost or fair value and $1.0 million in higher fees on NMTC transactions partially offset by higher losses on disposals of real estate owned.
Non-interest Expense
Non-interest expense increased $0.2 million during the twelve month period ending March 31, 2011 to $30.8 million compared to $30.6 million in the prior year period. The increase is related to higher consulting and legal expenses related to sale of the Company’s equity interests in certain NMTC investments and costs related to managing the Company’s non-performing loans partially offset by lower employee compensation and benefit costs and lower net occupancy and equipment charges.
Income Taxes
The income tax expense recorded for the fiscal period ended March 31, 2011 consists of a tax expense of $15.7 million primarily due to a valuation allowance of $18.9 million recorded against the net deferred tax asset (DTA) during the fiscal year. This valuation allowance does not preclude the Company from utilizing the accumulated deferred tax asset to offset taxes on future earnings.
Financial Condition Highlights
At March 31, 2011, total assets decreased $96.3 million, or 12.0% , to $709.2 million compared to $805.5 million at March 31, 2010. Cash and cash equivalents increased $5.7 million, investment securities increased $15.9 million, loans held for sale increased by $9.2 million and other assets increased $0.5 million. These increases were partially offset by total loans receivable which decreased $89.7 million, loan loss provision increasing $11.1 million, surrender of the Bank owned life insurance (BOLI) of $9.8 million and the deferred tax asset decreased $14.3 million.
Cash and cash equivalents increased $5.7 million, or 15.0%, to $44.1 million at March 31, 2011, compared to $38.3 million at March 31, 2010. This increase was driven by a $6.5 million increase in money market investments, partially offset by a $0.8 million decrease in cash and due from banks. Total securities increased $15.9 million, or 28.6%, to $71.2 million at March 31, 2011, compared to $55.4 million at March 31, 2010, reflecting an increase of $10.5 million in available-for-sale securities and a $5.4 million increase in held-to-maturity securities as the Company invested the cash inflows from loan activities.
Total loans receivable decreased $89.5 million, or 13.4%, to $580.3 million at March 31, 2011, compared to $670.0 million at March 31, 2010. Principal repayments across all loan classifications contributed to the majority of the decrease, with the largest impact from Commercial Real Estate, Construction and Business loans. Additionally $9.4 million of loans were transferred from held for investment to held for sale as the Company works down its problem loans.
