Income Tax

9 Months Ended

Jun. 30, 2011

Income Tax Disclosure [Text Block]

NOTE 8. Income Tax

The income tax benefit for the three months ended June 30, 2011 was $(19.4) million, compared with $(7.8) million for the same period of the prior fiscal year. The higher benefit was primarily the result of a higher pre-tax loss in the current quarter, partially offset by a $4.0 million tax expense associated with permanent tax differences realized due to the sale of First Southeast. The effective tax rate for the three months ended June 30, 2011 was 31.46%, compared with 38.43% for the same period of fiscal 2010. The decrease in the effective tax rate was primarily the result of an increase in the tax loss relative to unfavorable permanent tax adjustments recognized in the current quarter associated with the sale of First Southeast and the goodwill impairment.

The income tax benefit for the nine months ended June 30, 2011 was $(19.7) million, compared with a benefit of $(24.5) million for the same period of fiscal 2010. The lower tax benefit was primarily the result of the above mentioned permanent tax difference. The effective tax rate for the nine months ended June 30, 2011 was 31.67%, compared with 39.37% for the same period of fiscal 2010. The decrease in the effective tax rate was primarily the result of a higher taxable loss in the current fiscal year as well as an increase in permanent tax adjustments recognized in the third quarter of 2011 due to the sale of First Southeast and the goodwill impairment.

          After determining what First Financial believes is an adequate allowance for loan losses based on the estimated risk inherent in the loan portfolio, the provision for loan losses is calculated based on the net effect of the change in the allowance for loan losses and net charge-offs. The provision for loan losses was $77.8 million for the quarter ended June 30, 2011, compared with $36.4 million for the same quarter last fiscal year. The increase was primarily the result of $65.7 million in additional provision related to the above mentioned loan reclassification, which was the net result of the incremental charge-offs to write-down the loans transferred to estimated fair value and a reserve release comprised of the specific reserves and allocated general reserves associated with the transferred loans, as well as adjustments to the internal and external qualitative factors for the risk inherent in the remaining loan portfolio Excluding the effects of the loan reclassification, the provision for loan losses during the third quarter of fiscal 2011 would have been $12.1 million. For the nine months ended June 30, 2011, the provision for loan losses was $101.0 million, compared with $107.6 million for the same period of fiscal 2010. The decrease was primarily the result of lower net charge-offs and some stabilization in the level of classified loans during the current fiscal year, partially offset by the $65.7 million in additional provision related to the loan reclassification. See “ – Asset Quality” and “ – Allowance for Loan Losses” for additional discussion regarding the calculation of the allowance for loan losses and information related to loan charge-offs.