While the Bank reported higher capital ratios, the Corporation, as the holding company of the Bank, continues to be burdened with significant senior debt and preferred stock obligations:
- The Corporation currently owes $116.3 million of loan principal to various lenders led by U.S. Bank under a credit agreement that matures June 30, 2013. In addition, accrued but unpaid interest and fees totaling $55.5 million associated with this obligation are also due and payable at maturity.
- The Corporation issued $110 million in preferred stock in January 2009 to the United States Treasury pursuant to the Treasury's Capital Purchase Program ("CPP"). As permitted under the CPP program, the Corporation has deferred 15 quarterly preferred stock dividend payments to the Treasury; resulting in total unpaid dividends of $23.7 million, including compounding.
- While the Bank has substantial liquidity, it is currently precluded by its regulators from paying dividends to the Corporation for purposes of repayment of the foregoing obligations.
- Net interest margin improved to 2.42 percent for the three months ended December 31, 2012, from 2.18 percent for the same period in the previous year. Interest income decreased $5.8 million or 19.5 percent for the three months ended December 31, 2012, as compared to the same period in the prior year. This change was primarily due to a decline in average balances in the loan portfolio as principal repayments again outpaced new loan origination activity. Interest expense decreased $5.0 million or 36.1 percent for the three months ended December 31, 2012, as compared to the same period in the prior year, due to a planned reduction in certificate of deposit average balances and the rate paid on these accounts.
- The provision for credit losses decreased $3.7 million to $4.7 million for the three months ended December 31, 2012 compared to $8.4 million in the same period in the previous year. The improvement was largely due to a lower required allowance for losses on impaired loans, reflecting the relatively steady quarter-over-quarter decrease in non-performing loans since June 2010.
- Non-interest income totaled $11.8 million, up $1.1 million or 10.0 percent, compared to the same period in the previous year. The increase was primarily due to improved results from loan sales and loan servicing income; partially offset by lower net gains on sale of other real estate owned ("OREO").
- Total non-interest expense increased by $3.8 million or 12.4 percent, to $34.0 million from $30.3 million in the same period in 2011. The unfavorable variance was primarily due to a $3.5 million penalty incurred upon the prepayment of $150.0 million of FHLB advances in December 2012. Also contributing to the variance was higher OREO expenses primarily due to an increase in provisions for losses on repossessed property. These unfavorable variances were partially offset by lower compensation and benefits, furniture and equipment and other professional expenses, reflecting ongoing efforts to reduce costs. Mortgage servicing rights impairment (recovery) also improved reflecting a slight increase in market interest rates during the current quarter ended December 31, 2012.