WASHINGTON, D.C. 20549
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
$.01 par value Common Stock: 1,058,000 shares issued and 1,055,760 outstanding at May 10, 2013
ITEM 1. Financial Statements (Unaudited)
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
*All other comprehensive amounts are shown net of tax.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements
CENTURY NEXT FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Nature of Operations
Century Next Financial Corporation (the “Company”), a Louisiana corporation, was organized by Bank of Ruston (the “Bank”) in June 2010 to facilitate the conversion of the Bank from the mutual to the stock form (the “Conversion”) of ownership. A total of 1,058,000 shares of common stock of the Company were sold at $10 per share in the subscription offering through which the Company received net proceeds of approximately $9.8 million, net of offering costs of approximately $748,000. The Conversion and offering were completed on September 30, 2010. The Company was organized as a savings and loan holding company and is regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).
The Bank provides a variety of financial services primarily to individual customers through its main office and one branch in Ruston, Louisiana. The Bank’s primary deposit products are checking accounts, money market accounts, interest bearing savings and certificates of deposit. Its primary lending products are residential mortgage loans. The Bank provides services to customers in the Ruston and surrounding areas.
The Company’s operations are subject to customary business risks associated with activities of a financial institution holding company. Some of those risks include competition from other financial institutions and changes in economic conditions, interest rates and regulatory requirements.
Basis of Presentation
The accompanying unaudited consolidated financial statements of Century Next Financial Corporation (the “Company”) were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three months ended March 31, 2013, are not necessarily indicative of the results which may be expected for the year ending December 31, 2013.
The Company follows accounting standards set by the Financial Accounting Standards Board (the “FASB”). The FASB sets generally accepted accounting principles (“GAAP”) that we follow to ensure we consistently report our financial condition, results of operations and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification (the “Codification” or the “ASC”).
In accordance with the subsequent events topic of the ASC, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements. The effects of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of March 31, 2013. In preparing these financial statements, the Company evaluated the events and transactions that occurred from March 31, 2013 through the date these financial statements were issued.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and the valuation of foreclosed real estate, deferred tax assets and trading activities.
In connection with the determination of the allowances for losses on credits and foreclosed real estate, management obtains independent appraisals for significant properties. While management uses available information to recognize losses on credits, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowances for losses on loans. Such agencies may require the Bank to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowances for credit losses on loans may change materially in the future.
Reclassifications
Certain prior period amounts have been reclassified for comparative purposes in conformance with the presentation in the current year financial statements.
Recent Accounting Pronouncements
International Financial Reporting Standards (“IFRS”)
In July 2012, the SEC issued the “Work Plan for Consideration of Incorporating IFRS into the Financial Reporting System for U.S. Issuers.” This report was prepared by the staff of the SEC to summarize the observations and analyses of the staff regarding six key areas identified for study in the Work Plan in February 2010. At that time, the SEC issued a statement indicating that the information obtained through the Work Plan, among other considerations, would aid the SEC in evaluating the implications of incorporating IFRS into the financial reporting system for U.S. Issuers. IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”). The SEC stated in the Work Plan that the publication does not imply-and should not be construed to imply-that the SEC has made any policy decision as to whether IFRS should be incorporated into the financial reporting system for U.S. issuers nor how any such incorporation should be implemented. The Company is currently assessing the impact that this potential change would have on its operating results and financial condition, and will continue to monitor the development of the potential implementation of IFRS.
Accounting Standards Updates
In June 2012, the FASB issued Exposure Draft 2012-200, Financial Instruments (Topic 825), Disclosures about Liquidity Risk and Interest Rate Risk. The proposed ASU would require financial institutions to include liquidity risk tabular disclosure of the carrying amounts of classes of financial assets and liabilities segregated by their expected maturities, including off-balance sheet financial commitments and obligations. In addition, interest rate risk disclosures would provide information about the exposure of the entity’s financial assets and liabilities to fluctuations in market interest rates. The proposed ASU does not include a proposed effective date.
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. For public entities, this ASU is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this ASU has not had nor is it expected to have a material impact on the Company’s results of operations, financial position or disclosures.
In February 2013, the FASB issued ASU No. 2013-04, Liabilities, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements from which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, at the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. For public entities, this ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this ASU is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
NOTE 2 – INVESTMENT SECURITIES
The amortized cost and fair value of securities, with the gross unrealized gains and losses, follow:
| (In thousands) | | | | | | | | | | | | |
| | | | | | Gross | | | Gross | | | | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Market | |
| March 31, 2013 | | Cost | | | Gains | | | Losses | | | Value | |
| Securities Available-for-Sale: | | | | | | | | | | | | |
| U.S. Government agency | | $ | 5 | | | $ | - | | | $ | - | | | $ | 5 | |
| Government-sponsored enterprises | | | 3,200 | | | | 1 | | | | - | | | | 3,201 | |
| State and municipal | | | 230 | | | | 1 | | | | - | | | | 231 | |
| Mortgage-backed securities | | | 1,429 | | | | 88 | | | | - | | | | 1,517 | |
| Total Available-for-Sale Securities | | | 4,864 | | | | 90 | | | | - | | | | 4,954 | |
| Securities Held-to-Maturity: | | | | | | | | | | | | | | | | |
| U.S. Government agency | | | 63 | | | | - | | | | - | | | | 63 | |
| State and municipal | | | 1,193 | | | | - | | | | 14 | | | | 1,179 | |
| Total Held-to-Maturity Securities | | | 1,256 | | | | - | | | | 14 | | | | 1,242 | |
| Total Debt Securities | | $ | 6,120 | | | $ | 90 | | | $ | 14 | | | $ | 6,196 | |
| | | | | | | | | | | | | | | | | |
| (In thousands) | | | | | | | | | | | | | | | | |
| | | | | | | Gross | | | Gross | | | | | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Market | |
| December 31, 2012 | | Cost | | | Gains | | | Losses | | | Value | |
| Securities Available-for-Sale: | | | | | | | | | | | | | | | | |
| U.S. Government agency | | $ | 6 | | | $ | - | | | $ | - | | | $ | 6 | |
| Government-sponsored enterprises | | | 3,200 | | | | 2 | | | | 5 | | | | 3,197 | |
| State and municipal | | | 230 | | | | 2 | | | | - | | | | 232 | |
| Mortgage-backed securities | | | 1,535 | | | | 91 | | | | - | | | | 1,626 | |
| Total Available-for-Sale Securities | | | 4,971 | | | | 95 | | | | 5 | | | | 5,061 | |
| Securities Held-to-Maturity: | | | | | | | | | | | | | | | | |
| U.S. Government agency | | | 83 | | | | - | | | | - | | | | 83 | |
| State and municipal | | | 1,193 | | | | 11 | | | | 2 | | | | 1,202 | |
| Total Held-to-Maturity Securities | | | 1,276 | | | | 11 | | | | 2 | | | | 1,285 | |
| Total Debt Securities | | $ | 6,247 | | | $ | 106 | | | $ | 7 | | | $ | 6,346 | |
At March 31, 2013 and December 31, 2012, the carrying amount of securities pledged to secure repurchase agreements and public fund deposits in excess of FDIC insured limits was $2.4 million and $2.3 million, respectively.
Securities with gross unrealized losses at the dates presented follow:
| March 31, 2013 | | Less Than Twelve Months | | | Over Twelve Months | | | | |
| | | Gross | | | | | | Gross | | | | | | Total | |
| | | Unrealized | | | | | | Unrealized | | | | | | Unrealized | |
| (In thousands) | | Losses | | | Fair Value | | | Losses | | | Fair Value | | | Losses | |
| Securities Available-for-Sale, at fair value | | | | | | | | | | | | | | | |
| Total Available-for-Sale Securities | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Securities Held-to-Maturity at amortized cost State and municipal | | | - | | | | - | | | | 14 | | | | 1,179 | | | | 14 | |
| Total Held-to-Maturity Securities | | $ | - | | | $ | - | | | $ | 14 | | | $ | 1,179 | | | $ | 14 | |
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2012 | | Less Than Twelve Months | | | Over Twelve Months | | | | | |
| | | Gross | | | | | | | Gross | | | | | | | Total | |
| | | Unrealized | | | | | | | Unrealized | | | | | | | Unrealized | |
| (In thousands) | | Losses | | | Fair Value | | | Losses | | | Fair Value | | | Losses | |
Securities Available-for-Sale, at fair value Government-sponsored enterprises | | | - | | | | - | | | | 5 | | | | 995 | | | | 5 | |
| Total Available-for-Sale Securities | | $ | - | | | $ | - | | | $ | 5 | | | $ | 995 | | | $ | 5 | |
| | | | | | | | | | | | | | | | | | | | | |
Securities Held-to-Maturity at amortized cost State and municipal | | | - | | | | - | | | | 2 | | | | 329 | | | | 2 | |
| Total Held-to-Maturity Securities | | $ | - | | | $ | - | | | $ | 2 | | | $ | 329 | | | $ | 2 | |
The amortized cost and fair value of debt securities by contractual maturity at March 31, 2013 follows:
| | | | | | | | | Over 5 | | | | | | | |
| | | 1 year or | | | Over 1 year | | | years to 10 | | | Over 10 | | | | |
| (In thousands) | | less | | | to 5 years | | | years | | | years | | | Total | |
| Securities Available-for-Sale, at fair value | | | | | | | | | | | | | | | |
| U.S. Government agency | | $ | - | | | $ | - | | | $ | 5 | | | $ | - | | | $ | 5 | |
| Government-sponsored enterprises | | | - | | | | - | | | | - | | | | 3,201 | | | | 3,201 | |
| State and municipal | | | - | | | | 231 | | | | - | | | | - | | | | 231 | |
| Mortgage-backed securities | | | - | | | | 16 | | | | 10 | | | | 1,491 | | | | 1,517 | |
| Total Available-for-Sale Securities | | $ | - | | | $ | 247 | | | $ | 15 | | | $ | 4,692 | | | $ | 4,954 | |
| Securities Held-to-Maturity at amortized cost | | | | | | | | | | | | | | | | | | | | |
| U.S. Government agency | | $ | - | | | $ | 63 | | | $ | - | | | $ | - | | | $ | 63 | |
| State and municipal | | | - | | | | - | | | | - | | | | 1,193 | | | | 1,193 | |
| Total Held-to-Maturity Securities | | $ | - | | | $ | 63 | | | $ | - | | | $ | 1,193 | | | $ | 1,256 | |
| Total Debt Securities | | $ | - | | | $ | 310 | | | $ | 15 | | | $ | 5,885 | | | $ | 6,210 | |
The following table summarizes investment activities for the three-month periods ending March 31:
| | | | | | | | | | | | | |
| | | 2013 | | | 2012 | |
| | | Held to | | | Available | | | Held to | | | Available | |
| (In thousands) | | Maturity | | | for Sale | | | Maturity | | | for Sale | |
| | | | | | | | | | | | | |
| Purchases of securities | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Sales and maturities of securities | | $ | 20 | | | $ | 106 | | | $ | 4 | | | $ | 191 | |
| | | | | | | | | | | | | | | | | |
| Gross realized gains on sales | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Gross realized losses on sales | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Net tax expense applicable to net gains | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to:
| 1. | the length of time and the extent to which the fair value has been less than cost, |
| 2. | the financial condition and near-term prospects of the issuer, and |
| 3. | the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. |
Market changes in interest rates and credit spreads will cause normal fluctuations in the market value of securities and the possibility of temporary unrealized losses. The Company has determined that there was no other-than-temporary impairment associated with these securities at March 31, 2013 and December 31, 2012.
NOTE 3 – LOANS
| A summary of the balances of loans follows: | | | | | | |
| | | | | | | |
| | | March 31, | | | December 31, | |
| (In thousands) | | 2013 | | | 2012 | |
| Mortgage loans on real estate: | | | | | | |
| Held for sale 1-4 family | | $ | 2,150 | | | $ | 1,219 | |
| Residential 1-4 family | | | 40,688 | | | | 39,380 | |
| Commercial | | | 24,216 | | | | 24,263 | |
| Multi-family | | | 3,162 | | | | 4,701 | |
| Land | | | 10,500 | | | | 8,980 | |
| Residential Construction | | | 2,791 | | | | 2,553 | |
| Home equity lines of credit | | | 1,683 | | | | 1,714 | |
| Total mortgage loans on real estate | | | 85,190 | | | | 82,810 | |
| Commercial loans | | | 9,174 | | | | 9,115 | |
| Consumer loans, including overdrafts of $28 and $63 | | | 4,610 | | | | 4,875 | |
| Total loans | | | 98,974 | | | | 96,800 | |
| Less: Allowance for loan losses | | | (411 | ) | | | (374 | ) |
| Loans, net | | $ | 98,563 | | | $ | 96,426 | |
The Bank is obligated to repurchase those mortgage loans sold which experience an early payment default within 180 days. At March 31, 2013, loans sold for which the Bank is obligated to repurchase under such circumstances amounted to approximately $17.9 million. The Bank also is committed to sell loans approximating $2.1 million at March 31, 2013.
The following tables detail loans individually and collectively evaluated for impairment at the following dates:
| | | March 31, 2013 | |
| | | Loans Evaluated for Impairment | |
| (In thousands) | | Individually | | | Collectively | | | Total | |
| Loans secured by real estate: | | | | | | | | | |
| Residential 1-4 family | | $ | 55 | | | $ | - | | | $ | 55 | |
| Total loans secured by real estate | | | 55 | | | | - | | | | 55 | |
| Consumer loans | | | 12 | | | | - | | | | 12 | |
| Total loans | | $ | 67 | | | $ | - | | | $ | 67 | |
| | | | | | | | | | | | | |
| | | December 31, 2012 | |
| | | Loans Evaluated for Impairment | |
| (In thousands) | | Individually | | | Collectively | | | Total | |
| Loans secured by real estate: | | | | | | | | | | | | |
| Residential 1-4 family | | $ | 115 | | | $ | - | | | $ | 115 | |
| Total loans secured by real estate | | | 115 | | | | - | | | | 115 | |
| Consumer loans | | | 13 | | | | - | | | | 13 | |
| Total loans | | $ | 128 | | | $ | - | | | $ | 128 | |
| | | Impaired Loans | |
| | | For the Periods Ended, | |
| | | | | | Unpaid | | | | | | Average | | | Interest | |
| | | Recorded | | | Principal | | | Related | | | Recorded | | | Income | |
| (In thousands) | | Investment | | | Balance | | | Allowance | | | Investment | | | Recognized | |
| March 31, 2013 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| With no related allowance recorded: | | | | | | | | | | | | | | | |
| Residential-prime | | $ | 63 | | | $ | 55 | | | $ | - | | | $ | 63 | | | $ | - | |
| Consumer | | $ | 13 | | | $ | 12 | | | $ | - | | | $ | 13 | | | $ | - | |
| Total: | | | | | | | | | | | | | | | | | | | | |
| Residential-prime | | $ | 63 | | | $ | 55 | | | $ | - | | | $ | 63 | | | $ | - | |
| Consumer | | $ | 13 | | | $ | 12 | | | $ | - | | | $ | 13 | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2012 | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | |
| Residential-prime | | $ | 123 | | | $ | 115 | | | $ | - | | | $ | 122 | | | $ | - | |
| Consumer | | $ | 15 | | | $ | 13 | | | $ | - | | | $ | 15 | | | $ | - | |
| Total: | | | | | | | | | | | | | | | | | | | | |
| Residential-prime | | $ | 123 | | | $ | 115 | | | $ | - | | | $ | 122 | | | $ | - | |
| Consumer | | $ | 15 | | | $ | 13 | | | $ | - | | | $ | 15 | | | $ | - | |
Under ASU No. 2010-20, separate disclosures are required for troubled-debt restructurings (TDRs). As of March 31, 2013 and December 31, 2012, the Company had no TDRs to report.
NOTE 4 – ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY
Allowance for Loan Losses
The allowance for loan losses is established through a provision charged to earnings. Loan losses are charged against the allowance when management determines that the collection of the loan balance outstanding is unlikely. Subsequent recoveries, if any, are credited to the allowance. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Changes in the allowance related to impaired loans are charged or credited to the provision for loan losses.
The allowance for loan losses is maintained at a level which, in management’s opinion, is adequate to absorb credit losses inherent in the portfolio. The Company utilizes an historical analysis of the Company’s portfolio to validate the overall adequacy of the allowance for loan losses. In addition to these objective criteria, the Company subjectively assesses the adequacy of the allowance for loan losses with consideration given to current economic conditions, changes to loan policies, concentrations of credit, the level of classified and criticized credits, and other factors.
A summary of changes in the allowance for loan losses is as follows:
| | | March 31, | |
| (In thousands) | | 2013 | | | 2012 | |
| Beginning balance | | $ | 374 | | | $ | 245 | |
| Provision for loan losses | | | 36 | | | | 30 | |
| Loans charged-offs | | | - | | | | - | |
| Recoveries of loans previously charged-off | | | 1 | | | | 12 | |
| Ending balance | | $ | 411 | | | $ | 287 | |
The following tables detail the balance and changes in the allowance for loan losses by portfolio segment as follows:
| | | For the Three Months Ended March 31, 2013 | |
| | | Beginning | | | | | | | | | | | | Ending | |
| (In thousands) | | Balance | | | Chargeoffs | | | Recoveries | | | Provision | | | Balance | |
| | | | | | | | | | | | | | | | |
| Loans secured by real estate: | | | | | | | | | | | | | | | |
| Residential 1-4 family | | $ | 158 | | | $ | - | | | $ | - | | | $ | 17 | | | $ | 175 | |
| Commercial | | | 96 | | | | - | | | | - | | | | 10 | | | | 106 | |
| Multi-family | | | 16 | | | | - | | | | - | | | | (4 | ) | | | 12 | |
| Land | | | 30 | | | | - | | | | - | | | | 11 | | | | 41 | |
| Residential construction | | | 11 | | | | - | | | | - | | | | - | | | | 11 | |
| Home equity lines of credit | | | 6 | | | | - | | | | - | | | | 1 | | | | 7 | |
| Totals by loans secured by real estate | | | 317 | | | | - | | | | - | | | | 35 | | | | 352 | |
| Commercial loans | | | 39 | | | | - | | | | - | | | | 2 | | | | 41 | |
| Consumer loans | | | 18 | | | | - | | | | 1 | | | | (1 | ) | | | 18 | |
| Totals for all loans | | $ | 374 | | | $ | - | | | $ | 1 | | | $ | 36 | | | $ | 411 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, 2012 | |
| | | Beginning | | | | | | | | | | | | | | | Ending | |
| (In thousands) | | Balance | | | Chargeoffs | | | Recoveries | | | Provision | | | Balance | |
| | | | | | | | | | | | | | | | | | | | | |
| Loans secured by real estate: | | | | | | | | | | | | | | | | | | | | |
| Residential 1-4 family | | $ | 118 | | | $ | - | | | $ | 10 | | | $ | 13 | | | $ | 141 | |
| Commercial | | | 43 | | | | - | | | | - | | | | 5 | | | | 48 | |
| Multi-family | | | 12 | | | | - | | | | - | | | | 3 | | | | 15 | |
| Land | | | 16 | | | | - | | | | - | | | | 4 | | | | 20 | |
| Residential construction | | | 11 | | | | - | | | | - | | | | 5 | | | | 16 | |
| Home equity lines of credit | | | 4 | | | | - | | | | - | | | | - | | | | 4 | |
| Totals by loans secured by real estate | | | 204 | | | | - | | | | 10 | | | | 30 | | | | 244 | |
| Commercial loans | | | 25 | | | | - | | | | - | | | | - | | | | 25 | |
| Consumer loans | | | 16 | | | | - | | | | 2 | | | | - | | | | 18 | |
| Totals for all loans | | $ | 245 | | | $ | - | | | $ | 12 | | | $ | 30 | | | $ | 287 | |
At March 31, 2013 and 2012, the Company had no allowance for loan losses disaggregated by impairment method.
Credit Quality
Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The following definitions are utilized for risk ratings, which are consistent with the definitions used in supervisory guidance:
Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidations of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values highly questionable and improbable.
Loss – This classification includes those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted. Even though partial recovery may be possible in the future, it is not practical or desirable to defer writing off these loans. Accordingly, these loans are charged-off before period end.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.
The table below illustrates the carrying amount of loans by credit quality indicator at the dates presented as follows:
| | | | | | Special | | | | | | | | | | | | | |
| (In thousands) | | Pass | | | Mention | | | Substandard | | | Doubtful | | | Loss | | | Total | |
| | | | | | | | | | | | | | | | | | | |
| March 31, 2013 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Loans secured by real estate: | | | | | | | | | | | | | | | | | | |
| Residential 1-4 family | | $ | 42,472 | | | $ | 311 | | | $ | 55 | | | $ | - | | | $ | - | | | $ | 42,838 | |
| Commercial | | | 24,203 | | | | 13 | | | | - | | | | - | | | | - | | | | 24,216 | |
| Multi-family | | | 3,162 | | | | - | | | | - | | | | - | | | | - | | | | 3,162 | |
| Land | | | 10,500 | | | | - | | | | - | | | | - | | | | - | | | | 10,500 | |
| Residential construction | | | 2,791 | | | | - | | | | - | | | | - | | | | - | | | | 2,791 | |
| Home equity lines of credit | | | 1,683 | | | | - | | | | - | | | | - | | | | - | | | | 1,683 | |
| Totals by loans secured by real estate | | | 84,811 | | | | 324 | | | | 55 | | | | - | | | | - | | | | 85,190 | |
| Commercial loans | | | 9,141 | | | | 33 | | | | - | | | | - | | | | - | | | | 9,174 | |
| Consumer loans | | | 4,588 | | | | - | | | | 22 | | | | - | | | | - | | | | 4,610 | |
| Totals for all loans | | $ | 98,540 | | | $ | 357 | | | $ | 77 | | | $ | - | | | $ | - | | | $ | 98,974 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans secured by real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential 1-4 family | | $ | 40,132 | | | $ | 352 | | | $ | 115 | | | $ | - | | | $ | - | | | $ | 40,599 | |
| Commercial | | | 24,250 | | | | 13 | | | | - | | | | - | | | | - | | | | 24,263 | |
| Multi-family | | | 4,701 | | | | - | | | | - | | | | - | | | | - | | | | 4,701 | |
| Land | | | 8,980 | | | | - | | | | - | | | | - | | | | - | | | | 8,980 | |
| Residential construction | | | 2,553 | | | | - | | | | - | | | | - | | | | - | | | | 2,553 | |
| Home equity lines of credit | | | 1,714 | | | | - | | | | - | | | | - | | | | - | | | | 1,714 | |
| Totals by loans secured by real estate | | | 82,330 | | | | 365 | | | | 115 | | | | - | | | | - | | | | 82,810 | |
| Commercial loans | | | 9,081 | | | | 34 | | | | - | | | | - | | | | - | | | | 9,115 | |
| Consumer loans | | | 4,852 | | | | - | | | | 23 | | | | - | | | | - | | | | 4,875 | |
| Totals for all loans | | $ | 96,263 | | | $ | 399 | | | $ | 138 | | | $ | - | | | $ | - | | | $ | 96,800 | |
A summary of current, past due, and non-accrual loans at the dates presented were as follows:
| | | Past Due | | | Past Due Over 90 Days | | | | | | | | | |
| | | | 30-89 | | | | | | Non- | | | Total | | | | | | Total | |
| (In thousands) | | Days | | | Accruing | | | Accruing | | | Past Due | | | Current | | | Loans | |
| | | | | | | | | | | | | | | | | | | | |
| March 31, 2013 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Loans secured by real estate: | | | | | | | | | | | | | | | | | | | |
| Residential 1-4 family | | $ | 271 | | | $ | - | | | $ | - | | | $ | 271 | | | $ | 42,567 | | | $ | 42,838 | |
| Commercial | | | 569 | | | | 2 | | | | - | | | | 571 | | | | 23,645 | | | | 24,216 | |
| Multi-family | | | - | | | | - | | | | - | | | | - | | | | 3,162 | | | | 3,162 | |
| Land | | | - | | | | - | | | | - | | | | - | | | | 10,500 | | | | 10,500 | |
| Residential construction | | | - | | | | - | | | | - | | | | - | | | | 2,791 | | | | 2,791 | |
| Home equity lines of credit | | | - | | | | - | | | | - | | | | - | | | | 1,683 | | | | 1,683 | |
| Totals by loans secured by real estate | | | 840 | | | | 2 | | | | - | | | | 842 | | | | 84,348 | | | | 85,190 | |
| Commercial loans | | | 180 | | | | - | | | | - | | | | 180 | | | | 8,994 | | | | 9,174 | |
| Consumer loans | | | 5 | | | | 10 | | | | 8 | | | | 23 | | | | 4,587 | | | | 4,610 | |
| Totals for all loans | | $ | 1,025 | | | $ | 12 | | | $ | 8 | | | $ | 1,045 | | | $ | 97,929 | | | $ | 98,974 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans secured by real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential 1-4 family | | $ | 219 | | | $ | - | | | $ | 115 | | | $ | 334 | | | $ | 40,265 | | | $ | 40,599 | |
| Commercial | | | - | | | | 2 | | | | - | | | | 2 | | | | 24,261 | | | | 24,263 | |
| Multi-family | | | - | | | | - | | | | - | | | | - | | | | 4,701 | | | | 4,701 | |
| Land | | | - | | | | - | | | | - | | | | - | | | | 8,980 | | | | 8,980 | |
| Residential construction | | | - | | | | - | | | | - | | | | - | | | | 2,553 | | | | 2,553 | |
| Home equity lines of credit | | | - | | | | - | | | | - | | | | - | | | | 1,714 | | | | 1,714 | |
| Totals by loans secured by real estate | | | 219 | | | | 2 | | | | 115 | | | | 336 | | | | 82,474 | | | | 82,810 | |
| Commercial loans | | | 18 | | | | - | | | | - | | | | 18 | | | | 9,097 | | | | 9,115 | |
| Consumer loans | | | 70 | | | | 3 | | | | 13 | | | | 86 | | | | 4,789 | | | | 4,875 | |
| Totals for all loans | | $ | 307 | | | $ | 5 | | | $ | 128 | | | $ | 440 | | | $ | 96,360 | | | $ | 96,800 | |
Interest income on impaired loans, other than non-accrual loans, is recognized on an accrual basis. Interest income on non-accrual loans is recognized only as collected. During the first quarter of 2013, there was no interest income recognized on non-accrual loans. If the non-accrual loans had been accruing interest at their original contracted rates, related income would have been $1,000.
NOTE 5 – REGULATORY CAPITAL
As of March 31, 2013, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. The Bank’s actual capital amounts and ratios are also presented in the table for the comparative dates. There are no conditions or events since that notification that management believes have changed the institution’s category.
| | | | | | | | | | | | | | | Required to be Well | |
| | | | | | | | | | | | | | | Capitalized under Prompt | |
| | | | | | | | | Required for Capital | | | Corrective Action | |
| (Dollars in thousands) | | Actual | | | Adequacy Purposes | | | Provisions | |
| March 31, 2013 | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
| Total capital to risk-weighted assets | | $ | 16,524 | | | | 17.15 | % | | $ | 7,710 | | | | 8.00 | % | | $ | 9,637 | | | | 10.00 | % |
| Tier 1 Core capital to risk-weighted assets | | $ | 16,433 | | | | 17.05 | % | | $ | 3,855 | | | | 4.00 | % | | $ | 5,782 | | | | 6.00 | % |
| Tier 1 Core capital to adjusted total assets | | $ | 16,433 | | | | 13.57 | % | | $ | 4,842 | | | | 4.00 | % | | $ | 6,053 | | | | 5.00 | % |
| Tangible capital to tangible assets | | $ | 16,433 | | | | 13.57 | % | | $ | 1,816 | | | | 1.50 | % | | | N/A | | | | N/A | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | |
| Total capital to risk-weighted assets | | $ | 16,272 | | | | 16.66 | % | | $ | 7,814 | | | | 8.00 | % | | $ | 9,768 | | | | 10.00 | % |
| Tier 1 Core capital to risk-weighted assets | | $ | 16,218 | | | | 16.60 | % | | $ | 3,907 | | | | 4.00 | % | | $ | 5,861 | | | | 6.00 | % |
| Tier 1 Core capital to adjusted total assets | | $ | 16,218 | | | | 13.44 | % | | $ | 4,826 | | | | 4.00 | % | | $ | 6,032 | | | | 5.00 | % |
| Tangible capital to tangible assets | | $ | 16,218 | | | | 13.44 | % | | $ | 1,810 | | | | 1.50 | % | | | N/A | | | | N/A | |
The following is a reconciliation of GAAP equity to regulatory risk-based capital:
| | | | | | | |
| (In thousands) | | March 31, 2013 | | | December 31, 2012 | |
| GAAP equity | | $ | 17,076 | | | $ | 16,870 | |
| Unrealized gain on debt securities | | | (59 | ) | | | (60 | ) |
| Allowance for loan losses (allowable portion) | | | 411 | | | | 374 | |
| Equity investments required to be deducted | | | (320 | ) | | | (320 | ) |
| Unearned levered ESOP shares | | | (584 | ) | | | (592 | ) |
| Total risk-based Capital | | $ | 16,524 | | | $ | 16,272 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to focus on significant changes in the financial condition of Century Next Financial Corporation (the “Company”) from December 31, 2012 to March 31, 2013 and on its results of operations during the three months ended March 31, 2013 and 2012. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the financial statements and related notes appearing in Item 1.
To the extent that statements in this Form 10-Q relate to future plans, objectives, financial results or performance of the Company, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on management’s current information, estimates and assumptions and the current economic environment, are generally identified by the use of the words “plan”, “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions. The Company’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties.
General
The Company was formed by the Bank in June 2010, in connection with the Bank’s conversion from a mutual to a stock form savings bank (the “Conversion”) completed on September 30, 2010. The Company’s results of operations are primarily dependent on the results of the Bank, which became a wholly owned subsidiary upon completion of the Conversion. The Bank’s results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by provisions for loan losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation and employee benefits, office occupancy and equipment expense, data processing, advertising and business promotion and other expense. The Bank’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial condition and results of operations.
Critical Accounting Policies
In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our financial statements. The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.
Allowance for Loan Losses. The allowance for loan losses is maintained at a level to provide for probable credit losses related to specifically identified loans and for losses inherent in the loan portfolio that have been incurred as of the balance sheet date. The allowance for loan losses is comprised of specific allowances and a general allowance. Specific provisions are assessed for each loan that is reviewed for impairment or for which a probable loss has been identified. The allowance related to loans that are identified as impaired is based on discounted expected future cash flows using the loan’s initial effective interest rate, the observable market value of the loan, or the estimated fair value of the collateral for certain collateral dependent loans. Factors contributing to the determination of specific provisions include the financial condition of the borrower, changes in the value of pledged collateral and general economic conditions. General allowances are established based on historical charge-offs considering factors that include risk rating, concentrations and loan type. For the general allowance, management also considers trends in delinquencies and non-accrual loans, concentrations, volatility of risk ratings and the evolving mix in terms of collateral, relative loan size and the degree of seasoning within the various loan products.
Our allowance levels may be impacted by changes in underwriting standards, credit administration and collection policies, regulation and other factors which affect the credit quality and collectability of the loan portfolio also impact the allowance levels. The allowance for loan losses is based on management’s estimate of probable credit losses inherent in the loan portfolio; actual credit losses may vary from the current estimate. The allowance for loan losses is reviewed periodically, taking into consideration the risk characteristics of the loan portfolio, past charge-off experience, general economic conditions and other factors that warrant current recognition. As adjustments to the allowance for loan losses become necessary, they are reflected as a provision for loan losses in current-period earnings. Actual loan charge-offs are deducted from and subsequent recoveries of previously charged-off loans are added to the allowance.
Other-Than-Temporary Impairment. We review our investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer including any specific events that may influence the operations of the issuer, and the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market. Inherent in this analysis is a certain amount of imprecision in the judgment used by management.
We recognize credit-related other-than-temporary impairment on debt securities in earnings while noncredit-related other-than-temporary impairment on debt securities not expected to be sold is recognized in accumulated other comprehensive income. We assess whether the credit loss existed by considering whether (a) we have the intent to sell the security, (b) it is more likely than not that we will be required to sell the security before recovery, or (c) we do not expect to recover the entire amortized cost basis of the security. We may bifurcate the other-than-temporary impairment on securities not expected to be sold or where the entire amortized cost of the security is not expected to be recovered into the components representing credit loss and the component representing loss related to other factors. The portion of the fair value decline attributable to credit loss is recognized through earnings.
Corporate debt securities are evaluated for other-than-temporary impairment by determining whether it is probable that an adverse change in estimated cash flows has occurred. Determining whether there has been an adverse change in estimated cash flows involves the calculation of the present value of remaining cash flows compared to previously projected cash flows. We consider the discounted cash flow analysis to be our primary evidence when determining whether credit-related other-than-temporary impairment exists on corporate debt securities.
Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws. Realizing our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change.
Financial Overview
Comparison of Financial Condition at March 31, 2013 and December 31, 2012
The Company’s total assets increased by $411,000 or 0.34% to $121.0 million at March 31, 2013 compared to $120.6 million at December 31, 2012. The increase in assets was primarily a result of increases in net loans, including loans held for sale, of $2.1 million and other assets of $436,000 partially offset by a decrease in cash and cash equivalents of $2.2 million.
Cash and cash equivalents decreased $2.2 million or 24.0% to $7.0 million at March 31, 2013 compared to $9.2 million at December 31, 2012 primarily from use in funding lending activity.
Total debt and equity securities decreased from $6.90 million at December 31, 2012 to $6.86 million at March 31, 2013. The net decrease of $46,000 or 0.67% was the result of scheduled payments and other pay downs for the three-month period ended March 31, 2013.
Total loans, net of deferred fees and allowance for loan losses, increased over the three-month period ended March 31, 2013 by $2.1 million or 2.2% compared to December 31, 2012. Total net loans at March 31, 2013 were $98.6 million compared to $96.4 million at December 31, 2012. Loans secured by 1-4 family residential properties increased $2.2 million, which includes an increase of $931,000 in loans held for sale, land loans increased $1.5 million, residential construction increased $238,000, and commercial loans, not secured by real estate, increased $59,000. This was partially offset by decreases in multi-family loans of $1.5 million, consumer loans, not secured by real estate, of $265,000, commercial real estate loans of $47,000, and home equity lines of credit of $31,000.
Total deposits at March 31, 2013 were up $882,000 or 0.93% to $95.5 million compared to $94.6 million at December 31, 2012. The net increase included an increase in time deposits of $4.8 million partially offset by decreases in noninterest-bearing demand deposits of $2.9 million, savings deposits of $598,000, money market deposits of $182,000, and interest-bearing demand deposits of $174,000. The increase in time deposits included an increase in brokered time deposits of $5.2 million from none at December 31, 2012. The average maturity of the brokered deposits is approximately three years.
Total borrowings, consisting of Federal Home Loan Bank advances and securities sold under agreements to repurchase, decreased to $4.8 million at March 31, 2013 from $5.6 million at December 31, 2012, a decrease of $832,000 or 15.7%.
Total Stockholders’ Equity increased by $211,000 or 1.1% to $19.6 million at March 31, 2013 compared to $19.4 million at December 31, 2012. The increase for the three-month period primarily resulted from net income of $150,000, an increase in additional paid in capital of $54,000 from equity compensation, and the release of shares for the employee stock ownership plan of $8,000 offset by a decrease in accumulated other comprehensive income of $1,000.
Comparison of Operating Results for the Three Months Ended March 31, 2013 and 2012
Our net income was $150,000 for the three months ended March 31, 2013, a $9,000 or 5.7%, decrease over net income of $159,000 for the three months ended March 31, 2012. Our average interest rate spread increased by 23 basis points to 4.69% for the three months ended March 31, 2013 over the first quarter of 2012, while our net interest margin increased 18 basis points to 4.81% in the first quarter of 2013 compared to the first quarter of 2012.
Our total interest income was $1.44 million for the three months ended March 31, 2013, compared to $1.33 million for the three months ended March 31, 2012, a $106,000, or 8.0%, increase. The increase in interest income in the three-month period ended March 31, 2013 over the comparable period in 2012 was due primarily to an increase in the average balances of our interest-earnings assets, particularly loans. The average rate earned on earning assets decreased by 2 basis points to 5.33% in the quarter ended March 31, 2013 compared to 5.35% in the quarter ended March 31, 2012.
Our total interest expense was $140,000 for the three months ended March 31, 2013, a decrease of $39,000, or 21.8%, compared to $179,000 of interest expense during the first quarter of 2012. The average rate paid on our interest-bearing liabilities decreased by 25 basis points to 0.64% in the quarter ended March 31, 2013 compared to 0.89% in the quarter ended March 31, 2012. The decrease was primarily due to a reduction in the average rate paid on savings, money market and time deposits and other borrowings.
Our provision for loan losses amounted to $36,000 for the quarter ended March 31, 2013, compared to $30,000 for the quarter ended March 31, 2012. The increase in loan loss provision was primarily due to loan growth and adjustments to economic and other qualitative factors.
Our loans, net of unearned income and allowance for loan losses, increased by $2.1 million during the quarter ended March 31, 2013 from December 31, 2012, which included $16.8 million in loan originations, offset by sales of $5.0 million and repayments of loans of $9.7 million. At March 31, 2013, our allowance for loan losses amounted to $411,000, or 0.42% of loans, net of unearned loan fees. Our total non-performing loans, including loans past due 90 days or more and non-accrual loans, amounted to $79,000 at March 31, 2013, compared to $133,000 at December 31, 2012. At March 31, 2013, our allowance for loan losses amounted to 520.3% of total non-performing loans. There were no charge-offs of loans during the three months ended March 31, 2013, however, recoveries amounted to $1,000.
Our total non-interest income amounted to $213,000 for the quarter ended March 31, 2013 compared to $246,000 for the quarter ended March 31, 2012, a decrease of $33,000 or 13.4%. The primary reason for the decrease during the three-month period ended March 31, 2013 was decreases in loan servicing fees of $16,000 and gain on sale of loans of $39,000 partially offset by increases in service charges on deposits of $15,000 and other non-interest income items of $7,000.
Our total non-interest expense increased by $117,000 or 10.2% to $1.27 million for the three months ended March 31, 2013, compared to $1.15 million for the three months ended March 31, 2012. The primary reasons for the increase in non-interest expense were increases in salaries and benefits of $56,000, occupancy and equipment of $20,000, data processing of $18,000, advertising of $15,000 audit and examination fees of $14,000, office supplies of $13,000, and foreclosed assets of $7,000. The increases were partially offset by decreases in directors’ expense of $2,000, legal and professional of $13,000, FDIC deposit insurance of $2,000, and other operating expense of $9,000. For the comparative periods, the increase in salaries and benefits was due mainly to normal salary increases and new staff additions, the increase in occupancy and equipment expense consists mainly of depreciation on new equipment, the increase in data processing was due mostly to software maintenance expense and consulting, the increase in advertising was primarily due to additional program advertising, the increase in audit and examination fees was due primarily to additional internal auditing fees, the increase in office supplies expense was due to increased purchases of usable goods, and the increase in foreclosed assets was due to foreclosure of one real estate property.
At March 31, 2013 and 2012, we had 37 and 35 full-time equivalent employees, respectively.
Income tax expense for the three months ended March 31, 2013 amounted to $55,000, a decrease of $2,000 compared to $57,000 for the quarter ended March 31, 2012 resulting in effective tax rates of 26.8% and 26.4%, respectively.
Net Interest Income
Net interest income, the difference between interest earned on loans and investments and interest paid on deposits and other borrowings, is the principal component of our earnings. The following table provides a summary of average earning assets and interest-bearing liabilities as well as the income or expense attributable to each item for the periods indicated.
Average Balances, Net Interest Income, Yields Earned, and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.
| | | Three Months Ended March 31, | |
| (Dollars in thousands) | | 2013 | | | 2012 | |
| | | Avg. Balance | | | Interest | | | Avg. Yield | | | Avg. Balance | | | Interest | | | Avg. Yield | |
| Earning assets: | | | | | | | | | | | | | | | | | | |
Loans (1) | | $ | 97,425 | | | $ | 1,387 | | | | 5.77 | % | | $ | 86,635 | | | $ | 1,299 | | | | 6.03 | % |
| Debt Securities | | | 6,266 | | | | 47 | | | | 3.04 | % | | | 6,961 | | | | 29 | | | | 1.68 | % |
| Other earning assets | | | 5,584 | | | | 2 | | | | 0.15 | % | | | 6,387 | | | | 2 | | | | 0.13 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total earning assets | | | 109,275 | | | | 1,436 | | | | 5.33 | % | | | 99,983 | | | | 1,330 | | | | 5.35 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-earning assets | | | 9,189 | | | | | | | | | | | | 8,720 | | | | | | | | | |
| Total Assets | | $ | 118,464 | | | | | | | | | | | $ | 108,703 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing checking | | $ | 17,587 | | | $ | 11 | | | | 0.25 | % | | $ | 15,446 | | | $ | 12 | | | | 0.31 | % |
| Savings & MMDA | | | 27,468 | | | | 38 | | | | 0.56 | % | | | 26,731 | | | | 62 | | | | 0.93 | % |
| Time deposits | | | 36,583 | | | | 84 | | | | 0.93 | % | | | 34,010 | | | | 98 | | | | 1.16 | % |
| Other borrowings | | | 6,470 | | | | 7 | | | | 0.44 | % | | | 4,272 | | | | 7 | | | | 0.66 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total interest-bearing liabilities | | | 88,108 | | | | 140 | | | | 0.64 | % | | | 80,459 | | | | 179 | | | | 0.89 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Noninterest-bearing deposits | | | 9,678 | | | | | | | | | | | | 8,534 | | | | | | | | | |
| Other liabilities | | | 1,054 | | | | | | | | | | | | 990 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Liabilities | | | 98,840 | | | | | | | | | | | | 89,983 | | | | | | | | | |
Shareholders’ equity | | | 19,623 | | | | | | | | | | | | 18,720 | | | | | | | | | |
| Total Liabilities and | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity | | $ | 118,463 | | | | | | | | | | | $ | 108,703 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Interest Income & Spread | | | | | | $ | 1,296 | | | | 4.69 | % | | | | | | $ | 1,151 | | | | 4.46 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net Interest Margin(2) | | | | | | | | | | | 4.81 | % | | | | | | | | | | | 4.63 | % |
| Average earning assets to interest-bearing liabilities | | | | 124.02 | % | | | | | | | | | | | 124.27 | % |
| 1) | Loan interest income includes fee income of $28,000 and $57,000 for the three months ended March 31, 2013 and 2012, respectively. Average quarterly balance of loans includes average deferred loan fees of $68,000 and $70,000 for March 31, 2013 and 2012, respectively. The average balance of nonaccrual loans has been included in net loans. |
| 2) | Net interest margin is computed by dividing net interest income by the total average earning assets. |
Asset Quality
“Classified loans” are the loans and other credit facilities that we consider to be of the greatest risk to us and, therefore, they receive the highest level of attention by our account officers and senior credit management. Classified loans include both performing and nonperforming loans. During the first quarter of 2013, the Company continued to closely monitor all of its more significant loans, including all loans previously classified.
At March 31, 2013, the Company had $434,000 in classified loans compared to $537,000 at December 31, 2012. Of these loans, at March 31, 2013, $367,000 was accruing loans and $67,000 was non-accruing loans. Total loans included in classified loans at March 31, 2013 that were evaluated for impairment was $67,000 compared to $128,000 evaluated for impairment and included in classified loans at December 31, 2012. A loan “impairment” is a designation required under generally accepted accounting principles when it is considered probable that we may be unable to collect all amounts due according to the contractual terms of our loan agreement. Non-performing loans include loans past due 90 days or more that are still accruing interest and nonaccrual loans. At March 31, 2013, we had $79,000 in non-performing loans. This compares to $133,000 in non-performing loans at December 31, 2012. Non-performing loans as a percentage of total loans at March 31, 2013 were 0.08% as compared to 0.14% at December 31, 2012.
During the quarter ended March 31, 2013, the Company foreclosed on a delinquent loan secured by residential 1-4 family real estate that had previously been included in non-accrual loans with an outstanding balance of $62,000. Foreclosed assets are recorded at the lesser of the outstanding loan balance or cost at the time of foreclosure or fair value less estimated selling expenses. Total foreclosed assets at March 31, 2013 were $62,000. There were no foreclosed assets at December 31, 2012. Total non-performing assets, including non-performing loans and foreclosed assets, as a percentage of total assets at March 31, 2013 were 0.12% compared to 0.11% at December 31, 2012.
The Company recovered $1,000 of loan balances previously charged off in prior years and had no charge offs of loan balances during the quarter ended March 31, 2013. This compares $12,000 of recoveries and no charge offs during the quarter ended March 31, 2012.
Provision for Loan Losses
The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to have occurred in our loan portfolio. The allowance for loan losses is maintained at a level to provide for probable credit losses related to specifically identified loans and for losses inherent in the loan portfolio that have been incurred as of the balance sheet date. The allowance for loan losses is comprised of specific allowances and a general allowance.
Specific provisions are assessed for each loan that is reviewed for impairment or for which a probable loss has been identified. The allowance related to loans that are identified as impaired is based on discounted expected future cash flows using the loan’s initial effective interest rate, the observable market value of the loan, or the estimated fair value of the collateral for certain collateral dependent loans. Factors contributing to the determination of specific provisions include the financial condition of the borrower, changes in the value of pledged collateral and general economic conditions. General allowances are established based on historical charge-offs considering factors that include risk rating, concentrations and loan type. For the general allowance, management also considers trends in delinquencies and non-accrual loans, concentrations, volatility of risk ratings and the evolving mix in terms of collateral, relative loan size and the degree of seasoning within the various loan products.
Changes in underwriting standards, credit administration and collection policies, regulation and other factors which affect the credit quality and collectability of the loan portfolio also impact the allowance levels. The allowance for loan losses is based on management’s estimate of probable credit losses inherent in the loan portfolio; actual credit losses may vary from the current estimate. The allowance for loan losses is reviewed periodically, taking into consideration the risk characteristics of the loan portfolio, past charge-off experience, general economic conditions and other factors that warrant current recognition. As adjustments to the allowance for loan losses become necessary, they are reflected as a provision for loan losses in current-period earnings. Actual loan charge-offs are deducted from and subsequent recoveries of previously charged-off loans are added to the allowance.
During the quarter ended March 31, 2013, we made a provision of $36,000 compared to a provision of $30,000 for the quarter ended March 31, 2012. At March 31, 2013, the Company had $79,000 of non-performing loans compared to $78,000 at March 31, 2012. To the best of management’s knowledge, the allowance is maintained at a level believed to cover all known and inherent losses in the loan portfolio, both probable and reasonable to estimate.
Liquidity and Capital Resources
The Company maintains levels of liquid assets deemed adequate by management. The Company adjusts its liquidity levels to fund deposit outflows, repay its borrowings and to fund loan commitments. The Company also adjusts liquidity as appropriate to meet asset and liability management objectives.
The Company’s primary sources of funds are deposits, loan payments, and to a lesser extent, funds provided from operations. While scheduled payments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company sets the interest rates on its deposits to maintain a desired level of total deposits. In addition, the Company invests excess funds in short-term interest-earning accounts, if greater liquidity needs are expected in the near term, and medium- to longer-term investments if liquidity is expected to be in excess of needs for an extended period of time. Excess liquidity assists in providing availability of funds to meet lending requirements and additional demand from deposit accounts as the need arises. The Company’s cash and cash equivalents amounted to $7.0 million at March 31, 2013.
A portion of the Company’s liquidity consists of non-interest earning deposits. The Company’s primary sources of cash are payments on loans and increases in deposit accounts. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas, which provide an additional source of funds. During the first quarter of 2013, the Company initiated the sale of brokered deposits as an additional source of funding. This funding source presented the Company with the benefits of lower cost fixed-rate funding for a longer term with an average maturity of approximately three years. At March 31, 2013, the Company had short-term and long-term advances from the Federal Home Loan Bank of Dallas in the amounts of $3.5 million and $330,000, respectively with a total borrowing capacity of $42.6 million. In addition, the Company had outstanding brokered deposits of $5.2 million. Bank of Ruston was also a party to a Master Purchase Agreement with First National Bankers Bank whereby Bank of Ruston may purchase Federal Funds from First National Bankers Bank in an amount not to exceed $5.4 million. There were no amounts purchased under this agreement as of March 31, 2013.
At March 31, 2013, the Company had outstanding loan commitments of $5.0 million to originate loans and $7.4 million of unfunded commitments under lines of credit. At March 31, 2013, certificates of deposit scheduled to mature in less than one year totaled $29.1 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In addition, in a rising interest rate environment, the cost of such deposits could be significantly higher upon renewal. The Company intends to utilize its liquidity to fund its lending activities.
The Bank is required to maintain regulatory capital sufficient to meet tier-1 leverage, tier-1 risk-based and total risk-based capital ratios of at least 4.0%, 4.0% and 8.0%, respectively. At March 31, 2013, the Bank exceeded each of its capital requirements with ratios of 13.57%, 17.05% and 17.15%, respectively.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein regarding the Company have been prepared in accordance with accounting principles generally accepted in the United States of America which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the Company’s assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on the Company’s performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management has evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13(a)-15(e) as of the end of the period covered by this report. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of this report date.
Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its subsidiary is a party or of which any of their property is subject, other than ordinary routine litigation incidental to the business of the Company or its subsidiary. None of the ordinary routine litigation in which the Company or its subsidiary is involved is expected to have a material adverse impact upon the financial position or results of operations of the Company or its subsidiary.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Purchases of Equity Securities.
| | The following presents the Company’s purchase activity during the three-month period ended March 31, 2013: |
| | | | | | | | | Total Number of | | | Maximum Number | |
| | | | | | | | | Shares Purchased | | | of Shares that May | |
| | | | | | | | | as Part of Publicly | | | Yet Be Purchased | |
| | | Total Number of | | Average Price Paid | | | Announced Plans | | | Under the Plans or | |
| Period | | Shares Purchased | | per Share | | | or Programs | | | Programs (1) | |
| January 1-31, 2013 | | | - | | | $ | - | | | | - | | | | 1,220 | |
| February 1-28, 2013 | | | - | | | $ | - | | | | - | | | | 1,220 | |
| March 1-31, 2013 | | | - | | | $ | - | | | | - | | | | 1,220 | |
| | | | | | | | | | | | | | | | | |
| Total | | | - | | | $ | - | | | | - | | | | 1,220 | |
Notes to this table:
| (a) | The Company’s 2011 Recognition and Retention Plan was authorized to purchase up to a maximum of 42,320 shares of common stock, or 4.0% of the common stock sold in the initial public offering completed on September 30, 2010, as disclosed in the Company’s prospectus dated August 11, 2010, and announced by press release on May 17, 2011. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no matters required to be reported under this item.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. OTHER INFORMATION
There are no matters required to be reported under this item.
ITEM 6. EXHIBITS
List of exhibits: (filed herewith unless otherwise noted)
| Number | | Description |
| 31.1 | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer |
| 31.2 | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer |
| 32.1 | | Section 1350 Certification |
| | | |
The following Exhibits are being furnished as part of this report:
| | | |
| Number | | Description |
| 101.INS | | XBRL Instance Document.* |
| 101.SCH | | XBRL Taxonomy Extension Schema Document.* |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document.* |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document.* |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document.* |
| 101.DEF | | XBRL Taxonomy Extension Definitions Linkbase Document.* |
| * | These interactive data files are being furnished as part of this Quarterly Report, and, in accordance with Rule 402 of Regulation S-T, shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | CENTURY NEXT FINANCIAL CORPORATION | |
| | | | |
| | | | |
| Date: May 10, 2013 | By: | /s/ Benjamin L. Denny | |
| | | Benjamin L. Denny | |
| | | President and Chief Executive Officer | |
| | | | |
| Date: May 10, 2013 | By: | /s/ Mark A. Taylor | |
| | | Mark A. Taylor, CPA | |
| | | Senior Vice President and Chief Financial Officer | |
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