Fourth Quarter Results:

Bank net income for the fourth quarter of 2010 was $13.3 million compared to $14.9 million, excluding the PMRS charges, for the same quarter last year and $15.3 million in the third quarter of 2010.

The $1.6 million decrease in net income for the fourth quarter of 2010 compared to the fourth quarter of 2009 (excluding the 2009 PMRS charges) was primarily attributable to (on an after-tax basis):
  • $2 million higher provision for loan losses;
  • $2 million reduction in net interest income primarily due to lower yields and lower earning asset balances as a consequence of the sales of low yield, fixed-rate mortgage originations; and
  • $2 million reduction in noninterest income due to lower fees as a result of regulatory changes related to overdraft fees.

These factors were partially offset by $4 million reduction in noninterest expense derived from the substantial completion of the PIP in the second quarter of 2010.

The $2.0 million decrease in fourth quarter 2010 net income compared to the third quarter of 2010 was primarily due to (on an after-tax basis): $2 million higher provision for loan losses and $1 million lower net interest income, which was offset by $1 million lower noninterest expense.

Net interest margin was 4.21% in the fourth quarter of 2010, down from 4.27% in the fourth quarter of 2009, as the decline in mortgage asset balances was offset by higher balances of lower yielding short-term investment securities. The decline in net interest margin in the fourth quarter 2010 compared to the third quarter 2010 net interest margin of 4.31% was primarily attributable to higher third quarter recognition of deferred loan fees related to a significant increase in mortgage prepayments.

Provision for loan losses (pretax) was $8.6 million in the fourth quarter of 2010 compared with $5.0 million in the fourth quarter of 2009 and $6.0 million in the third quarter of 2010. The increase in the provision in the fourth quarter was primarily due to:
  • $1.2 million charge-off of one commercial loan; and
  • Approximately $1.4 million for a one-time adjustment to enhance our reserve methodology for our declining portfolio of residential lot loans.

The fourth quarter 2010 net charge-off ratio was 0.72%, low compared to industry averages reported last quarter, but up from 0.53% in the third quarter 2010 due to the charge-off of the one commercial loan discussed above.

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