UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 2007
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _________________
Commission File Number: 000-50810
Monadnock Bancorp, Inc.
(Exact name of small business issuer as specified in its charter)
Maryland 20-4649880
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Jaffrey Road, Peterborough, NH 03458
(Address of principal executive offices) (Zip Code)
(603) 924-9654
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past twelve 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.
Yes (X) No ( )
Indicate by check mark whether the registrant is a Shell Company (as
defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (X)
As of May 1, 2007, there were 1,293,608 shares issued and outstanding of
the issuer's common stock.
Transitional Small Business Disclosure Format (check one) Yes ( ) No (X)
INDEX
Monadnock Bancorp, Inc. and Subsidiary
Part I. Financial Information Page
--------------------- ----
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2007
(unaudited) and December 31, 2006 3
Consolidated Statements of Income for the Three Months Ended
March 31, 2007 and 2006 (unaudited) 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2007 and 2006 (unaudited) 5
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Controls and Procedures 17
Part II. Other Information
-----------------
Item 1. Legal Proceedings 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits 18
SIGNATURES 19
2
MONADNOCK BANCORP, INC. AND SUBSIDIARY
--------------------------------------
Part I - Financial Information
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEETS
---------------------------
March 31, December 31,
ASSETS 2007 2006
- ------ ----------- ------------
(Unaudited)
Cash and due from banks $ 1,016,236 $ 1,057,602
Interest-bearing demand deposits with other banks 2,014 587
Federal funds sold 2,455,000 40,000
----------- -----------
Total cash and cash equivalents 3,473,250 1,098,189
Interest-bearing time deposit in other bank 100,000 100,000
Investments in available-for-sale securities (at fair value) 33,586,182 38,319,846
Federal Home Loan Bank stock, at cost 1,391,200 1,328,300
Loans, net of allowance for loan losses of $355,038 as of March 31, 2007
and $334,917 as of December 31, 2006 55,878,090 53,709,317
Premises and equipment 807,831 786,815
Goodwill 132,293 132,293
Core deposit intangible 76,375 81,625
Accrued interest receivable 407,411 427,679
Other assets 161,031 200,672
----------- -----------
Total assets $96,013,663 $96,184,736
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 5,765,525 $ 5,261,639
Interest-bearing 54,905,503 56,100,270
----------- -----------
Total deposits 60,671,028 61,361,909
Federal Home Loan Bank advances 25,317,209 24,965,119
Other liabilities 220,789 181,908
----------- -----------
Total liabilities 86,209,026 86,508,936
----------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized 2,000,000
shares; issued and outstanding none
Common stock, par value $.01 per share; authorized 10,000,000
shares; 1,293,608 shares issued and outstanding at March 31, 2007
and December 31, 2006 12,936 12,936
Paid-in capital 7,731,168 7,725,786
Retained earnings 2,663,957 2,627,752
Unearned compensation - ESOP (431,445) (431,445)
Unearned compensation - Recognition and Retention Plan (139,104) (139,104)
Accumulated other comprehensive loss (32,875) (120,125)
----------- -----------
Total stockholders' equity 9,804,637 9,675,800
----------- -----------
Total liabilities and stockholders' equity $96,013,663 $96,184,736
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
3
MONADNOCK BANCORP, INC. AND SUBSIDIARY
--------------------------------------
Part I - Financial Information
Item 1 - Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Three Months Ended
March 31,
------------------------
2007 2006
---------- ----------
(Unaudited)
Interest and dividend income:
Interest and fees on loans $ 926,801 $ 717,303
Interest on investments-taxable 450,851 261,146
Other interest income 28,393 24,958
---------- ----------
Total interest and dividend income 1,406,045 1,003,407
---------- ----------
Interest expense:
Interest on deposits 518,683 324,915
Interest on Federal Home Loan Bank advances 279,841 175,322
---------- ----------
Total interest expense 798,524 500,237
---------- ----------
Net interest and dividend income 607,521 503,170
Provision for loan losses 23,923 13,007
---------- ----------
Net interest and dividend income
after provision for loan losses 583,598 490,163
---------- ----------
Noninterest income:
Service charges on deposits 52,895 52,917
Net gain on sales of available-for-sale securities 16,081
Other income 15,542 13,054
---------- ----------
Total noninterest income 84,518 65,971
---------- ----------
Noninterest expense:
Salaries and employee benefits 324,033 262,781
Occupancy expense 38,578 38,641
Equipment expense 21,495 22,995
Data processing 50,849 49,779
Blanket bond insurance 2,069 5,511
Professional fees 42,710 35,007
Supplies and printing 12,705 9,829
Telephone expense 12,951 12,630
Marketing expense 12,231 15,097
Postage expense 9,443 9,456
Other expense 77,700 72,291
---------- ----------
Total noninterest expense 604,764 534,017
---------- ----------
Income before income tax expense 63,352 22,117
Income tax expense 27,147 4,951
---------- ----------
Net income $ 36,205 $ 17,166
========== ==========
Shares used in computing net income per share:
Basic 1,212,209 1,249,591
Diluted 1,240,003 1,282,910
Net income per share - basic $ 0.03 $ 0.01
Net income per share - diluted $ 0.03 $ 0.01
The accompanying notes are an integral part
of these consolidated financial statements.
4
MONADNOCK BANCORP, INC. AND SUBSIDIARY
--------------------------------------
Part I - Financial Information
Item 1 - Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Three Months Ended
March 31,
--------------------------
2007 2006
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 36,205 $ 17,166
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Net gain on sales of available-for-sale securities (16,081)
Net amortization of securities 17,418 19,657
Change in deferred loan origination costs, net 153 (14,967)
Provision for loan losses 23,923 13,007
Recognition of stock option expense 5,382 5,289
Depreciation and amortization 26,174 27,307
Decrease in accrued interest receivable 20,268 4,472
Amortization of core deposit intangible 5,250 5,750
Decrease (increase) in other assets 1,933 (187,765)
Decrease in loan servicing rights and interest-only strips, net 1,667 1,873
Increase in prepaid expenses (23,354) (14,033)
Decrease (increase) in taxes receivable 7,299 (778)
Increase in taxes payable 24,261
Deferred income tax benefit (675)
Increase in accrued ESOP and Recognition and Retention Plan expense 10,629 8,362
(Decrease) increase in accrued expenses (637) 16,801
Increase (decrease) in accrued interest payable 4,407 (714)
(Decrease) increase in other liabilities (4,237) 2,222
----------- -----------
Net cash provided by (used in) operating activities 139,985 (96,351)
----------- -----------
Cash flows from investing activities:
Purchases of available-for-sale securities (893,429)
Proceeds from sales of available-for-sale securities 2,645,150
Principal payments received on available-for-sale securities 3,125,085 1,889,227
Purchase of Federal Home Loan Bank stock (62,900)
Loan originations and principal collections, net (2,193,555) (1,602,110)
Loans purchased (1,005,353)
Recoveries of previously charged off loans 706
Capital expenditures - premises and equipment (47,190) (42,980)
----------- -----------
Net cash provided by (used in) investing activities 2,573,867 (761,216)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, savings and NOW deposits 210,495 (519,576)
Net (decrease) increase in time deposits (901,376) 2,409,531
Net change on short-term advances from Federal Home Loan Bank (1,000,000)
Long-term advances from Federal Home Loan Bank 2,002,090 1,610,411
Payments on long-term advances from Federal Home Loan Bank (650,000) (1,697,000)
----------- -----------
Net cash (used in) provided by financing activities (338,791) 1,803,366
----------- -----------
5
MONADNOCK BANCORP, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Three Months Ended March 31, 2007 and 2006
------------------------------------------
(continued)
2007 2006
----------- -----------
(Unaudited)
Net increase in cash and cash equivalents 2,375,061 945,799
Cash and cash equivalents at beginning of period 1,098,189 855,026
----------- -----------
Cash and cash equivalents at end of period $ 3,473,250 $ 1,800,825
=========== ===========
Supplemental disclosures:
Interest paid $ 794,117 $ 500,951
Income taxes paid 1,800 2,456
The accompanying notes are an integral part of these consolidated financial statements.
6
MONADNOCK BANCORP, INC. AND SUBSIDIARY
--------------------------------------
Part I - Financial Information
Item 1. - Financial Statements
Condensed Notes to Unaudited Consolidated Financial Statements
--------------------------------------------------------------
March 31, 2007
Note 1. Nature of Business and Significant Accounting Policies
Nature of Operations: Monadnock Community Bank (the "Bank") provides a
variety of financial services to corporations and individuals from its offices
in Peterborough, New Hampshire and Winchendon, Massachusetts. The Bank is
engaged principally in the business of attracting deposits from the general
public and investing those deposits in residential and commercial real estate
loans, and in consumer and small business loans. Prior to June 28, 2004, the
Bank was a federally chartered mutual savings bank. On June 28, 2004, in
accordance with a Plan of Mutual Holding Company Reorganization and Stock
Issuance, the Bank became a federally chartered stock bank and wholly-owned
subsidiary of Monadnock Community Bancorp, Inc., a federally chartered stock
holding company. Monadnock Community Bancorp, Inc. became a majority owned
subsidiary of Monadnock Mutual Holding Company, a federally chartered mutual
holding company. On June 28, 2006, in accordance with a Plan of Conversion and
Reorganization, the Bank became the wholly-owned subsidiary of Monadnock
Bancorp, Inc. (the "Company"), a Maryland chartered stock holding company.
Further, Monadnock Mutual Holding Company sold its ownership interest in
Monadnock Community Bancorp, Inc. to the public in a "second step" offering and
ceased to exist. The Company sold 707,681 shares, par value of $.01 per share or
the maximum of the offering range, to the public raising $4.8 million in net
proceeds. As part of the conversion, existing public stockholders of Monadnock
Community Bancorp, Inc. received 1.3699 shares of Company common stock in
exchange for each of their existing shares of Monadnock Community Bancorp, Inc.
common stock. All per share amounts, references to common stock and
stockholders' equity amounts have been restated as if the conversion had
occurred as of the earliest period presented.
Basis of Presentation: The consolidated financial statements presented in
this quarterly report include the accounts of the Bank. The consolidated
financial statements of the Company have been prepared in conformity with
accounting principles generally accepted in the United States of America
("GAAP") for interim financial information and predominant practices followed by
the financial services industry, and are unaudited. Interim statements are
subject to possible adjustment in connection with the annual audit of the
Company for the year ending December 31, 2007. In the opinion of the Company's
management, all adjustments consisting of normal recurring accruals necessary
for a fair presentation of the financial condition and results of operations for
the interim periods included herein have been made.
The results of operations for the three month period ended March 31, 2007
are not necessarily indicative of the results of operations that may be expected
for any other interim period or for the year ending December 31, 2007. Certain
information and note disclosures normally included in the Company's annual
financial statements have been condensed or omitted. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 2006.
Use of Estimates: The preparation of the consolidated financial statements
in conformity with GAAP requires management to make estimates and assumptions
that affect amounts reported in the consolidated financial statements. Changes
in these estimates and assumptions are considered reasonably possible and may
have a material impact on the financial statements and thus actual results could
differ from the amounts reported and disclosed herein. The Company considers the
allowance for loan losses, the amortization of loan purchase premiums and
amortization of mortgage-backed purchase premiums on investment securities to be
critical accounting estimates.
At March 31, 2007, there were no material changes in the Company's
significant accounting policies or critical accounting estimates from those
disclosed in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2006.
Note 2. Earnings Per Share
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed
issuance. Weighted average options to purchase 2,602 shares of common stock
were outstanding during the first quarter of 2007, but were not included in the
computation of weighted average common shares outstanding for purposes of
computing diluted earnings per share, because the effect would have been
antidilutive.
7
Note 3. Investments
The Company classifies its investments in debt securities as securities
held-to-maturity, securities available-for-sale or trading securities.
Securities held-to-maturity are carried at amortized cost, securities
available-for-sale are carried at fair value with unrealized gains and losses
shown in accumulated other comprehensive income (loss) as a separate component
of stockholders' equity, net of related tax effects, and trading securities are
carried at fair value with unrealized gains and losses reflected in earnings.
The Company had no securities classified as held-to-maturity or trading
securities during 2007 or 2006.
The amortized cost and estimated fair value of securities at March 31,
2007 and December 31, 2006 are as follows:
Amortized Estimated
Cost Basis Fair Value
----------- -----------
March 31, 2007:
U. S. Government agency obligations $ 3,000,000 $ 2,978,439
Mortgage-backed securities:
FNMA 10,552,662 10,578,485
FHLMC 3,715,270 3,683,758
GNMA 16,372,686 16,345,500
----------- -----------
Total mortgage-backed securities 30,640,618 30,607,743
----------- -----------
Total investments in available-for-sale securities $33,640,618 $33,586,182
=========== ===========
December 31, 2006:
U. S. Government agency obligations $ 3,000,000 $ 2,969,063
Mortgage-backed securities:
FNMA 11,669,332 11,659,816
FHLMC 3,921,455 3,869,891
GNMA 19,927,974 19,821,076
----------- -----------
Total mortgage-backed securities 35,518,761 35,350,783
----------- -----------
Total investments in available-for-sale securities $38,518,761 $38,319,846
=========== ===========
Note 4. Loans
Loans consist of the following at:
March 31, December 31,
2007 2006
----------- ------------
One- to four-family residential $29,234,465 $27,413,968
Home equity 5,574,239 5,825,299
Commercial real estate 9,159,236 9,251,740
Multifamily 1,216,991 1,224,684
Construction and land development loans 1,035,262 1,108,258
Commercial loans 7,742,658 7,010,047
Consumer loans 1,970,696 1,910,504
----------- -----------
55,933,547 53,744,500
Allowance for loan losses (355,038) (334,917)
Deferred costs, net 299,581 299,734
----------- -----------
Net loans $55,878,090 $53,709,317
=========== ===========
Interest on loans is accrued and credited to operations based upon the
principal amount outstanding. When management determines that significant doubt
exists as to the collectibility of principal or interest on a loan, the loan is
placed on nonaccrual status. In addition, loans past due 90 days or more as to
principal or interest are placed on nonaccrual status, except for those loans
which, in management's judgment, are fully secured and in the process of
collection. Interest accrued but not received on loans placed on nonaccrual
status is reversed and charged against current operations. Interest subsequently
received on nonaccrual loans is either applied against principal or recorded as
income according to management's judgment as to the collectibility of principal.
Loans considered to be uncollectible are charged against the allowance for
loan losses. The allowance is increased by charges to current operations in
amounts sufficient to maintain the adequacy of the allowance. The adequacy of
the allowance is determined by management's evaluation of the extent of losses
inherent in the loan portfolio and prevailing economic conditions.
8
Changes in the allowance for loan losses are as follows:
Three months ended
March 31,
--------------------
2007 2006
-------- --------
Balance at beginning of period $334,917 $311,250
Recoveries of loans previously charged off 706
Provision for loan losses 23,923 13,007
Charge offs (4,508) (4,363)
-------- --------
Balance at end of period $355,038 $319,894
======== ========
Information with respect to impaired loans consisted of the following at:
March 31, December 31,
2007 2006
--------- ------------
Recorded investment in impaired loans $58,434 $60,434
======= =======
Impaired loans with specific loss allowances $58,434 $60,434
======= =======
Loss allowances reserved on impaired loans $ 8,765 $ 9,065
======= =======
The Company's policy for interest income recognition on impaired loans is
to recognize income on impaired loans on the cash basis when the loans are both
current and the collateral on the loan is sufficient to cover the outstanding
obligation to the Company; if these factors do not exist, the Company will not
recognize income. The average recorded investment in impaired loans was $60,000
and $309,000 for the three months ended March 31, 2007 and 2006, respectively.
During the three months ended March 31, 2007 and 2006, the Company recognized no
income on impaired loans.
Note 5. Deposits
Interest-bearing deposits consisted of the following at:
March 31, December 31,
2007 2006
----------- ------------
NOW accounts $ 3,271,547 $ 3,447,510
Savings accounts 2,341,678 2,271,000
Money market deposit accounts 9,437,484 9,625,590
Time certificates 39,854,794 40,756,170
----------- -----------
$54,905,503 $56,100,270
=========== ===========
9
Monadnock Bancorp, Inc. and Subsidiary
Part I - Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
March 31, 2007
Forward-Looking Statements
This Quarterly Report on Form 10-QSB contains forward-looking statements,
which are based on assumptions and describe future plans, strategies and
expectations of Monadnock Bancorp, Inc. (or the "Company") and its wholly owned
subsidiary, Monadnock Community Bank (or the "Bank"). These forward-looking
statements are generally identified by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar words. Our ability to
predict results or the actual effect of future plans or strategies is uncertain.
Factors which could have a material adverse effect on our operations include,
but are not limited to, changes in interest rates, general economic conditions,
economic conditions in the states of New Hampshire or Massachusetts, legislative
and regulatory changes, monetary and fiscal policies of the U.S. Government,
including policies of the U.S. Treasury and the Federal Reserve Board, fiscal
policies of the New Hampshire or Massachusetts State Government, the quality or
composition of our loan or investment portfolios, demand for loan products,
competition for and the availability of loans that we purchase for our
portfolio, deposit flows, competition, demand for financial services in our
market areas and accounting principles and guidelines, acquisitions and the
integration of acquired businesses, asset-liability management, the financial
and securities markets and the availability of and costs associated with sources
of liquidity.
We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. We wish to
advise readers that the factors listed above could affect our financial
performance and could cause our actual results for future periods to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements. We do not undertake and specifically decline
any obligation to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
General
The following discussion is intended to assist in understanding the
financial condition and results of operations of Monadnock Bancorp, Inc. and
Monadnock Community Bank. On June 28, 2006, Monadnock Bancorp, Inc. succeeded
Monadnock Community Bancorp, Inc. as the holding company of Monadnock Community
Bank. Financial information in this report prior to June 28, 2006 is of
Monadnock Community Bancorp, Inc. on a consolidated basis. The information
contained in this section should be read in conjunction with other sections of
management discussion and analysis, including these consolidated financial
statements.
As a community based financial institution, our principal business has
historically consisted of attracting deposits from the general public and the
business community and making loans secured by various types of collateral,
including residential and commercial real estate and general business assets.
Deposit flows are influenced by a number of factors, including interest rates
paid on competing investments, account maturities, fee structures, and level of
personal income and savings. Lending activities are influenced by the demand for
funds, interest rate levels, the number and quality of lenders, and regional
economic cycles. Our sources of funds for lending activities include deposits,
borrowings, payments on loans, maturities of securities and income provided from
operations.
Our earnings are primarily dependent upon our net interest income, which
is the difference between interest income on interest-earning assets, which
principally consist of loans and investment securities, and interest expense on
interest-bearing liabilities, which principally consist of deposits and
borrowings. Our results of operations also are affected by the level of our
provisions for loan losses, non-interest income and non-interest expenses.
Non-interest income consists primarily of service charges on deposit accounts,
merchant fee income and any gain on sale of loans and investments. Non-interest
expense consists primarily of salaries and employee benefits, occupancy,
equipment, data processing and ATM expense. Our results of operations may also
be affected significantly by general and local economic and competitive
conditions, changes in market interest rates, governmental policies, Federal
Home Loan Bank ("FHLB") dividend policies and actions of regulatory authorities.
In addition, as interest rates rise, our loan volume is likely to decrease due
to reduced borrower demand, thereby reducing our interest and fee income.
Management Strategy
Our strategy is to operate as an independent financial institution
dedicated to serving the needs of customers in our market area, which consists
of western Hillsborough, eastern Cheshire counties in New Hampshire and northern
Worcester
10
county in Massachusetts. We intend to continue to increase our loan portfolio
and to attract retail deposits, with the goal of expanding our deposit base.
This growth is anticipated to include the establishment of a new office, either
by acquisition or by exploring opportunities in our market area although we
currently have no arrangements or understandings regarding any specific
transaction. On June 28, 2006, we completed our conversion to full stock
ownership in order to raise additional capital to continue our growth.
Our commitment is to provide a reasonable range of products and services
to meet the needs of our customers. Our goal is to grow Monadnock Bancorp, Inc.
while providing cost effective services to our market area and leveraging our
infrastructure.
Financial highlights of our strategy include:
Operating as a Community Savings Bank and Offering Personalized Customer
Service. We are committed to meeting the financial needs of the communities in
which we operate. We provide a broad range of individualized consumer and
business financial services. We believe that we can be more effective in
servicing our customers than many of our non-local competitors because our
employees and senior management are able to respond promptly to customer needs
and inquiries. Our ability to provide these services is enhanced by the
experience of our senior management, which has an average of over 25 years'
experience in the financial services industry.
Increasing Loan Production. Our strategy of increasing net income includes
increasing our loan production. Our business plan anticipates that we will
emphasize originating commercial real estate and commercial business loans. Such
loans provide higher returns than loans secured by one- to four-family real
estate. Commercial real estate and commercial business loans, however, involve a
greater degree of credit risk than one- to four-family residential mortgage
loans. Because payments on these loans are often dependent on the successful
operation or management of the properties or business, repayment of such loans
may be subject to adverse conditions in the real estate market or the economy.
Our net loan portfolio increased $20.2 million, or 56.6%, from $35.7 million at
March 31, 2005 to $55.9 million at March 31, 2007. We plan to continue to grow
our loan portfolio with the net proceeds raised in the stock offering.
Expanding Market Presence Through a New Office. Total assets have grown
$20.3 million, or 26.8%, from $75.7 million at March 31, 2005 to $96.0 million
at March 31, 2007, as a result of our efforts to expand and market our product
lines and using our increased capital base from our 2004 stock offering and our
recently completed stock offering to appeal to a wide base of prospective
customers. The efforts to increase our market presence have included the
Winchendon branch acquisition in October 2004 and evaluating a potential new
office in the future. Our business plan contemplates opening a new office in
2007.
Building Core Deposits. We offer checking accounts, NOW accounts and
savings accounts, which generally are lower cost sources of funds than
certificates of deposits and are less sensitive to withdrawal when interest
rates fluctuate. In order to build our core deposit base, we intend to continue
to offer a broad range of deposit products and to increase our core deposits
through possible branch acquisitions, or the establishment of a new office
although we currently have no arrangements or understandings regarding any
specific transaction. Our deposits increased $12.0 million, or 24.6%, to $60.7
million at March 31, 2007 from $48.7 million at March 31, 2005.
Improving Non-Interest Income. Non-interest income consists primarily of
fees, service charges and gains from securities sales. We plan to target
programs to increase non-interest income such as the overdraft checking program
we instituted in December 2005.
Maintaining Our Strong Asset Quality. Our high asset quality is reflected
in our ratio of non-performing assets to total assets, which was 0.06% at both
March 31, 2007 and December 31, 2006. We have introduced new loan products only
when we were confident that our staff had the necessary expertise and sound
underwriting and collection procedures were in place. In addition to these
lending practices, we invest in high grade securities.
Improving Our Efficiency Ratio. Our infrastructure and fixed operating
costs can support a larger asset base. We believe the conversion and offering
described above will allow us to increase our asset base through greater loan
production which should help improve our efficiency ratio (non-interest expense
divided by net-interest income and non-interest income) by generating additional
income. Our efficiency ratio was 87.39% and 93.83% for the quarter ended March
31, 2007 and March 31, 2006, respectively.
All of these initiatives are designed to improve our profitability in
future years.
11
Changes in Financial Condition from December 31, 2006 to March 31, 2007
Cash and cash equivalents. Cash and cash equivalents increased $2.4
million to $3.5 million at March 31, 2007 from $1.1 million at December 31,
2006. Cash and due from banks decreased $41,000 to $1.0 million at March 31,
2007 from $1.1 million at December 31, 2006 and interest-bearing demand deposits
in other financial institutions, including Federal funds sold, increased $2.4
million to $2.5 million at March 31, 2007 from $41,000 at December 31, 2006. The
level of interest-bearing deposits, which are short-term overnight investments,
fluctuates as investments are made in other earning assets such as loans and
investments, and as balances of interest-bearing liabilities such as deposits
and FHLB advances fluctuate. Interest-bearing deposits are also used to fund
cash and due from bank requirements. The increase in cash and cash equivalents
at March 31, 2007 was due to the sale of $2.6 million in mortgage-backed
securities, of which proceeds are anticipated to be used for the funding of
loans in the second quarter of 2007.
Investments. Monadnock Bancorp, Inc. classifies its investments in debt
securities as securities held-to-maturity, securities available-for-sale or
trading securities. Securities held-to-maturity are carried at amortized cost,
securities available-for-sale are carried at fair value with unrealized gains
and losses shown in accumulated other comprehensive income (loss) as a separate
component of stockholders' equity, net of related tax effects, and trading
securities are carried at fair value with unrealized gains and losses reflected
in earnings. Monadnock Bancorp, Inc. had no securities classified as
held-to-maturity or trading securities at March 31, 2007 and December 31, 2006.
Our investment portfolio decreased $4.7 million, or 12.3%, to $33.6
million at March 31, 2007 from $38.3 million at December 31, 2006. The decrease
was due to $3.1 million in principal paydowns of mortgage-backed securities,
$2.6 million in sales of mortgage-backed securities, partially offset by
$893,000 in purchases of mortgage-backed securities. The proceeds from these
principal paydowns on mortgage-backed securities were primarily used to fund
loans during the first quarter of 2007.
At March 31, 2007, the weighted average maturity of mortgage-backed
securities available-for-sale was 308 months, based upon their final maturities.
However, normal principal repayments and prepayments of mortgage-backed
securities are received regularly, substantially reducing their weighted average
maturities. The majority of our adjustable rate mortgage-backed securities are
one-year adjustable rate securities with a weighted average term to next
repricing adjustment of 8 months on average.
Loans. Our net loan portfolio increased $2.2 million, or 4.1%, from $53.7
million at December 31, 2006 to $55.9 million at March 31, 2007. Loan growth
during the first quarter of 2007 was primarily concentrated in one- to
four-family residential loans and commercial loans which grew $1.8 million and
$733,000, respectively, which was partially offset by a decrease of $251,000 in
home equity loans. Our business plan anticipates that loan originations will
primarily be concentrated in commercial real estate and commercial business
loans.
Deposits. Our total deposits decreased $691,000, or 1.1%, to $60.7 million
at March 31, 2007 from $61.4 million at December 31, 2006. Interest-bearing
deposits decreased $1.2 million, to $54.9 million at March 31, 2007 from $56.1
million at December 31, 2006, while non-interest-bearing deposits increased
$504,000 to $5.8 million at March 31, 2007 from $5.3 million at December 31,
2006. The decrease in interest-bearing deposits was primarily attributable to
time certificates which decreased $901,000 and to a lesser extent Money Market
and NOW accounts which decreased $188,000 and $176,000, respectively, partially
offset by an increase in savings accounts of $71,000 at March 31, 2007. The
decrease in time certificates was attributable to a decrease in the category of
time certificates greater than $100,000 which decreased $1.2 million during the
first quarter of 2007 to $10.2 million at March 31, 2007 from $11.4 million at
December 31, 2006.
Borrowings. FHLB advances increased $352,000 to $25.3 million at March 31,
2007 from $25.0 million at December 31, 2006. The increase in FHLB advances was
used to fund deposit outflow during the first quarter of 2007.
Principal payments due on other borrowings after March 31, 2007 are $3.0
million in 2007, $425,000 in 2008, $3.9 million in 2009, $4.2 million in 2010,
$3.6 million in 2011 and $10.1 million in years thereafter. The FHLB will
require the repayment of $4.0 million of borrowings during 2007 if the
three-month LIBOR exceeds specified rates; $3.0 million of which is at a
weighted average interest rate of 3.04% maturing in 2009 if the three-month
LIBOR exceeds 6.50%. Additionally, the FHLB will require the repayment of $1.0
million of borrowings during 2007 if the three-month LIBOR exceeds 6.50% of
which borrowings is at an interest rate of 3.99% maturing in 2014. As of March
31, 2007, the three month LIBOR was at 5.35%. During the fourth quarter of 2006,
Monadnock Community Bank borrowed $6.0 million in callable advances from the
FHLB. The FHLB has the right to call $2.0 million in borrowings in the second
quarter of 2007 of which borrowing is at an interest rate of 3.99% maturing in
2016. In addition, the FHLB has the right to call $4.0 million in
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borrowings in the fourth quarter of 2007 of which borrowings is at a weighted
average interest rate of 4.14% maturing in 2016. Should the FHLB require
repayment of the putable and callable borrowings on the put and call dates, the
interest cost to replace such borrowings would likely increase.
Stockholders' Equity. Total stockholders' equity increased $129,000 to
$9.8 million at March 31, 2007 from $9.7 million at December 31, 2006. The
increase in stockholders' equity was attributable to a decrease of $87,000 in
accumulated other comprehensive loss as well as net earnings of $36,000 for the
first quarter of 2007. Our equity to assets ratio was 10.21% at March 31, 2007
compared to 10.06% at December 31, 2006.
Comparison of Results of Operations for the Three Months Ended March 31, 2007
and 2006
General. We recorded net income of $36,000 for the three months ended
March 31, 2007 compared with net income of $17,000 for the three months ended
March 31, 2006. The increase in earnings for the three months ended March 31,
2007 compared with the same period a year earlier was primarily attributable to
an increase in net interest and dividend income of $104,000, an increase in
noninterest income of $19,000, partially offset by an increase in noninterest
expense of $71,000, an increase in income tax expense of $22,000 and an increase
in the provision for loan losses of $11,000.
Our profitability has been marginal during the last few years primarily
due to our high fixed operating costs in relation to the amount of net interest
income and non-interest income we generated and our comparatively low net
interest margin (net interest income divided by average interest earning
assets). Non-interest expense (consisting primarily of salaries and employee
benefits) divided by net interest income plus non-interest income, commonly
referred to as our efficiency ratio improved from 93.83% for the three months
ended March 31, 2006 to 87.39% for the three months ended March 31, 2007. The
existing operating platform we have in place relative to the size of our
customer base and asset base has tended to negatively impact our profitability.
In the event we are unable to generate continued commercial and residential loan
volume in 2007, or become reliant on investments in securities, certificates of
deposit or FHLB borrowings, our net interest margin may be negatively impacted
along with our net earnings potential.
Net Interest and Dividend Income. Net interest and dividend income
increased $104,000, or 20.7%, to $607,000 for the three months ended March 31,
2007 compared with $503,000 for the three months ended March 31, 2006,
reflecting a $403,000, or 40.2%, increase in interest and dividend income, and a
$299,000, or 59.8%, increase in interest expense. Our interest rate spread
decreased to 2.06% for the three months ended March 31, 2007 compared to 2.40%
for the three months ended March 31, 2006 but increased from 2.01% for the three
months ended December 31, 2006. The decrease in the interest rate spread for the
three months ended March 31, 2007 compared with the same period a year earlier
was due to a change in the mix of assets to lower yielding investment securities
due to our increasing average interest-earning assets by $19.0 million during
this period and a change in the mix of liabilities to more interest rate
sensitive products such as time certificates and FHLB advances.
Interest and Dividend Income. Total interest income increased by $403,000,
or 40.2%, to $1.4 million for the three months ended March 31, 2007 compared
with $1.0 million for the three months ended March 31, 2006. The increase of
$403,000 was due to an increase in the average balance of assets of $19.0
million, or 25.4%, to $93.9 million for the three months ended March 31, 2007
from $74.9 million for the three months ended March 31, 2006 coupled with an
increase in the yields on interest-earning assets from 5.43% for the three
months ended March 31, 2006 to 6.07% for the three months ended March 31, 2007.
Interest income on loans increased $210,000, or 29.3%, to $927,000 for the three
months ended March 31, 2007 from $717,000 for the same period in 2006, primarily
due to a $8.6 million increase in the average balance of loans from $46.0
million for the three months ended March 31, 2006 to $54.6 million for the same
period in 2007, and to a lesser extent an increase in loan yields from 6.32% for
the three months ended March 31, 2006 to 6.88% for the same period in 2007. The
increase in the average balance of loans is primarily attributable to an
increase in the average balance of $4.3 million in one- to four-family
residential loans as well as a $3.6 million increase in the average balance of
commercial, commercial real estate and short-term construction loans. The
increase in average loan yields from 6.32% for the three months ended March 31,
2006 to 6.88% for the same period in 2007 was due to an increase in the prime
rate of 100 basis points since December 2005, the repricing of teaser home
equity loans to their fully indexed interest rate as well as the addition of new
loans at higher rates during the last three quarters of 2006 and the first
quarter of 2007.
Interest income on investment securities, FHLB stock and interest-bearing
deposits with other financial institutions increased $193,000 for the three
months ended March 31, 2007 to $479,000 from $286,000 for the three months ended
March 31, 2006. The increase was due to an increase in the average balance of
the portfolio by $10.4 million to $39.3 million for the three months ended March
31, 2007, from $28.9 million for the same period in 2006, and to a lesser extent
an increase in the overall yield on total investments from 4.01% for the three
months ended March 31, 2006 to 4.94% for the same period in
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2007. The increase in the average balances in the investment portfolio is the
direct result of our leveraging the balance sheet with an increase in funding
with time deposits and FHLB advances. The increase in overall yields was due to
the repricing of Ginnie Mae adjustable-rate mortgage backed securities by 1% on
their reset dates and the purchase of higher yielding securities for the last
three quarters of 2006 and the first quarter of 2007.
Interest Expense. Total interest expense increased by $299,000, or 59.8%,
to $799,000 for the three months ended March 31, 2007 from $500,000 for the
three months ended March 31, 2006. The increase of $299,000 was due to an
increase in the average balance of interest-bearing liabilities of $13.7 million
to $80.7 million for the three months ended March 31, 2007 from $67.0 million
for the same period in 2006, coupled with an increase in the average overall
cost of interest-bearing liabilities to 4.01% for the three months ended March
31, 2007 from 3.03% for the same period in 2006. Interest expense on deposits
increased $194,000 to $519,000 for the three months ended March 31, 2007 from
$325,000 for the same period in 2006. The increase was due to an increase in the
average balances of time certificates of $9.5 million to $39.8 million for the
three months ended March 31, 2007 from $30.3 million for the same period in
2006, coupled with an increase in the average costs of time certificates to
4.73% for the three months ended March 31, 2007 from 3.65% for the same period
in 2006. Time certificates comprised 72.8% of average interest-bearing deposits
for the three months ended March 31, 2007 compared with 64.3% for the same
period in 2006. The increase in the average balance of time certificates was the
direct result of our advertising interest rate specials and offering competitive
rates on time certificates. Average savings deposits decreased $1.9 million to
$14.9 million for the three months ended March 31, 2007 from $16.8 million for
the same period in 2006. The decrease in the average balance of savings deposits
was primarily in money market and savings accounts which decreased $1.6 million
and $492,000, respectively, and was attributable to customers transferring these
deposits to more attractive short-term time certificates.
Interest expense on FHLB advances increased $105,000 to $280,000 for the
three months ended March 31, 2007 from $175,000 for the three months ended March
31, 2006. The increase was due to an increase in the average balances of FHLB
advances of $6.1 million to $26.1 million for the three months ended March 31,
2007 from $20.0 million for the same period in 2006, coupled with an increase in
the borrowing costs to 4.35% for the three months ended March 31, 2007 from
3.55% for the same period in 2006. We used the additional funding from FHLB
advances to increase our investment securities portfolio. The increase in
borrowing costs was primarily due to higher funding costs associated with
replacing matured or putable FHLB advances as well as higher costs related to
the funding of new borrowings.
Allowance for Loan Losses. We recorded a provision for loan losses of
$24,000 for the three months ended March 31, 2007 compared with $13,000 for the
three months ended March 31, 2006. The provision for loan losses of $24,000
consisted of $3,000 related to an overdraft program which was initiated in
December 2005 for consumer and business checking customers and $21,000 related
to the loan portfolio. We recorded a provision for loan losses of $21,000 during
the first quarter of 2007 which was attributable to additional weakness of a
commercial loan relationship totaling $285,000, of which $86,000 is guaranteed
by the United States Small Business Administration as well as loan volume that
was recorded during the first quarter of 2007. The provision for loan losses was
$13,000 for the three months ended March 31, 2006 related specifically to the
overdraft program mentioned above. The allowance for loan losses as a percent of
total loans was 0.63% for March 31, 2007 compared with 0.68% at March 31, 2006.
The mix of the loan portfolio continues to be weighted in one- to four-family
residential and home equity loans which accounted for 62.2% and 63.4% of total
loans at March 31, 2007 and 2006, respectively. These loans generally have a
lower credit risk allocation and the portfolio has reduced levels of criticized
and classified loans. Our methodology for analyzing the allowance for loan
losses consists of specific and general components. The specific components
relates to loans that are classified as doubtful, substandard or special
mention. For such loans that are also classified as impaired, an allowance is
established when the discounted cash flows (or collateral value or observable
market price) of the impaired loan is lower than the carrying value of that
loan. The general component covers non-classified loans and is based on
historical loss experience for consumer and commercial loans and peer group loss
experience for real estate loans, adjusted for qualitative and quantitative
factors. Peer group loss experience, adjusted for qualitative and quantitative
factors unique to the Bank, are used in arriving at our general components for
residential real estate loans since our historical loss experience has been
minimal. Total nonperforming assets increased $58,000 to $58,000 ($50,000 of
which is guaranteed by the United States Small Business Administration), or
0.06% of total assets at March 31, 2007 from $0 or, 0.00% of total assets at
March 31, 2006. Based on the above discussion, we believe that our allowance for
loan losses covers known identifiable loan losses as well as estimated losses
inherent in the portfolio for which the losses are probable but not specifically
identifiable.
Total Noninterest Income. Noninterest income increased $19,000, or 28.8%,
to $85,000 for the three months ended March 31, 2007 from $66,000 for the three
months ended March 31, 2006. The increase was primarily attributable to net
gains on sales of available-for-sale securities of $16,000 for the three months
ended March 31, 2007 compared with no sales for the same period in 2006.
14
Total Noninterest Expenses. Noninterest expenses increased $71,000, or
13.3%, to $605,000 for the three months ended March 31, 2007 compared to
$534,000 for the three months ended March 31, 2006. The increase was primarily
attributable to a $61,000 increase in salaries and employee benefits. Salaries
and employee benefits increased from $263,000, or 49.3%, of total noninterest
expense for the three months ended March 31, 2006 to $324,000, or 53.6%, of
total noninterest expense for the three months ended March 31, 2007. This
increase in salaries and employee benefits expense resulted from an increase in
staffing for the commercial lending area, normal salary increases as well as a
decrease in the deferrals of loan origination costs.
Risk Elements
Total nonperforming loans decreased from $60,000 or 0.11% of total loans
at December 31, 2006, to $58,000 or 0.10% of total loans at March 31, 2007. The
nonperforming loans shown below carry a guarantee by the United States Small
Business Administration covering $50,000 and $51,000 of the balance outstanding,
respectively, at March 31, 2007 and December 31, 2006.
As shown in the following table, nonperforming assets as a percentage
of total assets were 0.06% and 0.06%, as of March 31, 2007 and December 31,
2006, respectively.
March 31, December 31,
2007 2006
--------- ------------
($ in Thousands)
Loans 90 days or more past due and still accruing $ 0 $ 0
========= ============
Total nonperforming loans and nonperforming assets $ 58 $ 60
========= ============
Nonperforming loans as a percent of total loans 0.10% 0.11%
Nonperforming assets as a percent of total assets 0.06% 0.06%
Liquidity and Commitments
Historically, we have maintained liquid assets at levels believed to be
adequate to meet the requirements of normal operations, including potential
deposit outflows. We regularly review cash flow projections and update them to
assure that adequate liquidity is maintained. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments
in relation to the return on loans.
Our liquidity, represented by cash and cash equivalents and
mortgage-backed and related securities, is a product of our operating, investing
and financing activities. Our primary sources of funds are deposits,
amortization, prepayments and maturities of outstanding loans and
mortgage-backed securities, and other short-term investments and funds provided
from operations. While scheduled payments from the amortization of loans and
mortgage-backed related securities and maturing investment securities and
short-term investments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions and competition. In addition, we invest excess funds in
short-term interest-earning assets, which provide liquidity to meet lending
requirements. We also generate cash through borrowings. We utilize FHLB advances
to leverage our capital base and provide funds for our lending and investment
activities, and enhance our interest rate risk management.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer-term basis, we maintain a strategy of
investing in various lending products such as residential, commercial and
consumer loans. We use our sources of funds primarily to meet ongoing
commitments, to pay maturing time deposits and savings withdrawals, to fund loan
commitments and to maintain our portfolio of mortgage-backed and related
securities. At March 31, 2007, the total approved loan commitments unfunded
amounted to $8.3 million, which includes the unadvanced portion of loans of $6.5
million. Certificates of deposits and advances from the FHLB of Boston scheduled
to mature in one year or less at March 31, 2007, totaled $33.5 million and $3.5
million, respectively. Based on historical experience, we believe that a
significant portion of maturing deposits will remain with the Bank. We
anticipate that we will continue to have sufficient funds, through deposits and
borrowings, to meet our current commitments.
15
At March 31, 2007, we had total collateral available to support an
additional $23.0 million in additional advances from the FHLB of Boston, but the
Bank's internal policy limits FHLB advances to 40% of total assets which amounts
to an additional $11.1 million in borrowing capacity at March 31, 2007.
Stockholders' Equity
Our stockholders' equity totaled $9.8 million or 10.21% of total assets at
March 31, 2007 compared to $9.7 million or 10.06% of total assets at December
31, 2006. The increase in stockholders' equity was attributable to a decrease of
$87,000 in accumulated other comprehensive loss and net earnings of $36,000 for
the first quarter of 2007.
Consistent with our goal to operate a sound and profitable financial
organization, we actively seek to maintain a "well capitalized" institution in
accordance with regulatory standards. As of March 31, 2007, the most recent
notification from the OTS categorized the Bank as "well-capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the subsidiary bank must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios of 10%, 6% and 5%, respectively.
The Bank's regulatory capital ratios at March 31, 2007 were as follows: total
risk-based capital 18.24%, Tier I risk based 17.51% and Tier I leverage (core
capital) 8.75%. There have been no conditions or events since that notification
that management believes would cause a change in the Bank's categorization.
Impact of Inflation
The financial statements presented in this 10-QSB have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"). These principles require the measurement of financial position
and operating results in terms of historical dollars, without considering
changes in the relative purchasing power of money over time due to inflation.
Our primary assets and liabilities are monetary in nature. As a result,
interest rates have a more significant impact on our performance than the
effects of general levels of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services, since such prices are affected by inflation. In a period
of rapidly rising interest rates, the liquidity and maturity structure of our
assets and liabilities are critical to the maintenance of acceptable performance
levels.
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of non-interest expense. Expense items such as
employee compensation, employee benefits and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans that we have made. We are unable to determine the extent, if any,
to which properties securing our loans have appreciated in dollar value due to
inflation.
Our Risk When Interest Rates Change. The rates of interest we earn on
assets and pay on liabilities generally are established contractually for a
period of time. Market interest rates change over time. Our loans generally have
longer maturities than our deposits. Accordingly, our results of operations,
like those of other financial institutions, are impacted by changes in interest
rates and the interest rate sensitivity of our assets and liabilities. The risk
associated with changes in interest rates and our ability to adapt to these
changes is known as interest rate risk and is our most significant market risk.
How We Measure Our Risk of Interest Rate Changes. As part of our attempt
to manage our exposure to changes in interest rates and comply with applicable
regulations, we monitor our interest rate risk. In monitoring interest rate risk
we continually analyze and manage assets and liabilities based on their payment
streams and interest rates, the timing of their maturities, and their
sensitivity to actual or potential changes in market interest rates.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on our results of operations, we have
adopted asset/liability and funds management policies to better match the
maturities and repricing terms of our interest-earning assets and
interest-bearing liabilities. The board of directors sets and recommends the
asset and liability and funds management policies of the Bank, which are
implemented by the asset/liability management committee.
The purpose of the asset/liability committee is to communicate, coordinate
and control asset/liability management consistent with our business plan and
board approved policies. The committee establishes and monitors the volume and
mix of assets and funding sources taking into account relative costs and
spreads, interest rate sensitivity and liquidity needs. The
16
objectives are to manage assets and funding sources to produce results that are
consistent with liquidity, capital adequacy, growth, risk and profitability
goals.
The asset/liability management committee generally meets quarterly to
review, among other things, economic conditions and interest rate outlook,
current and projected liquidity needs and capital position, anticipated changes
in the volume and mix of assets and liabilities and interest rate risk exposure
limits versus current projections using a net present value of portfolio equity
analysis and income simulations. The asset/liability management committee
recommends appropriate strategy changes based on this review.
In order to manage our assets and liabilities and achieve the desired
liquidity, credit quality, interest rate risk, profitability and capital
targets, we have focused our strategies on:
o Purchasing adjustable rate securities,
o Originating and purchasing adjustable rate loans,
o Originating a reasonable volume of fixed rate mortgages,
o Managing our deposits to establish stable deposit relationships,
o Using FHLB advances and pricing on fixed-term non-core deposits to
align maturities and repricing terms, and
o Limiting the percentage of fixed-rate loans in our portfolio.
At times, depending on the level of general interest rates, the
relationship between long- and short-term interest rates, market conditions and
competitive factors, the asset/liability management committee may determine to
increase our interest rate risk position somewhat in order to maintain our net
interest margin.
The asset/liability management committee regularly reviews interest rate
risk by forecasting the impact of alternative interest rate environments on net
interest income and market value of portfolio equity, which is defined as the
net present value of an institution's existing assets, liabilities and
off-balance sheet instruments, and evaluating such impacts against the maximum
potential changes in net interest income and market value of portfolio equity
that are authorized by the board of directors of the Bank.
ITEM 3. Controls and Procedures
Our management evaluated, with the participation of our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934) as of the end of the period covered by this
report. Based on such evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and regulations and are operating in an effective manner.
No change in our internal control over financial reporting (as defined in
Rules 13a-15(f) or 15(d)-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
We are involved, from time to time, as plaintiff or defendant in various
legal actions arising in the normal course of business. At March 31, 2007, we
were not involved in any legal proceedings, the outcome of which would be
material to our financial condition, results of operations, or cash flows.
17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act
32.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act
18
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.
Monadnock Bancorp, Inc.
Date: May 8, 2007 /s/ William M. Pierce, Jr.
--------------------------
William M. Pierce, Jr.
President and Chief Executive Officer
Date: May 8, 2007 /s/ Karl F. Betz
----------------
Karl F. Betz
Senior Vice President and Chief
Financial Officer
19