UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2011
OR
¨ | 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: 0-54081
MADISON BANCORP, INC. | ||
(Exact name of registrant as specified in its charter) |
Maryland | 27-258073 | |
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) | |
organization) |
8615 Ridgely’s Choice Drive, Suite 111, Baltimore, Maryland | 21236 | |
(Address of principal executive offices) | (Zip Code) |
(410) 529-7400 | ||
(Registrant’s telephone number, including area code) |
Not Applicable | ||
(Former name, former address and former fiscal year, if changed since last report) |
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. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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). Yes x No ¨
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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer ¨ | Smaller reporting company x |
(Do not check if a smaller reporting company) |
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 February 8, 2012, there were 608,116 shares of the registrant’s common stock outstanding.
MADISON BANCORP, INC.
Table of Contents
Page No. | ||||
Part I. Financial Information | ||||
Item 1. | Financial Statements (Unaudited) | |||
Consolidated Statements of Financial Condition as of December 31, 2011 (unaudited) and March 31, 2011 (audited) | 3 | |||
Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2011 and 2010 (unaudited) | 4 | |||
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended December 31, 2011 and 2010 (unaudited) | 5 | |||
Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended December 31, 2011 and 2010 (unaudited) | 6 | |||
Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2011 and 2010 (unaudited) | 7 | |||
Notes to Unaudited Consolidated Financial Statements | 8 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 33 | ||
Item 4. | Controls and Procedures | 33 | ||
Part II. Other Information | ||||
Item 1. | Legal Proceedings | 33 | ||
Item 1A. | Risk Factors | 33 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 33 | ||
Item 3. | Defaults Upon Senior Securities | 33 | ||
Item 4. | Mine Safety Disclosures | 33 | ||
Item 5. | Other Information | 33 | ||
Item 6. | Exhibits | 34 | ||
Signatures | 35 |
2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MADISON BANCORP, INC AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 2011 and March 31, 2011
December 31, 2011 | March 31, 2011 | |||||||
(Unaudited) | (Audited) | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 6,219,110 | $ | 8,183,156 | ||||
Certificates of deposit | 735,970 | 482,673 | ||||||
Investment securities available-for-sale | 55,535,366 | 52,624,969 | ||||||
Federal Home Loan Bank stock, at cost | 234,500 | 242,500 | ||||||
Loans receivable, net | 84,348,377 | 86,178,498 | ||||||
Premises and equipment, net | 3,812,548 | 3,876,969 | ||||||
Ground rents, net | 419,956 | 453,856 | ||||||
Other real estate owned | 0 | 434,000 | ||||||
Accrued interest receivable | 452,195 | 440,683 | ||||||
Deferred income taxes | 0 | 208,277 | ||||||
Prepaid expenses and other assets | 715,712 | 865,201 | ||||||
Total Assets | $ | 152,473,734 | $ | 153,990,782 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Liabilities | ||||||||
Deposits: | ||||||||
Noninterest bearing | $ | 6,220,721 | $ | 5,262,091 | ||||
NOW and Money Market | 7,600,829 | 8,405,771 | ||||||
Savings | 21,883,944 | 22,521,417 | ||||||
Time | 101,965,828 | 103,329,077 | ||||||
Total Deposits | 137,671,322 | 139,518,356 | ||||||
Advances from borrowers for taxes and insurance | 250,477 | 557,984 | ||||||
Deferred income taxes | 99,896 | 0 | ||||||
Other liabilities | 288,654 | 275,411 | ||||||
Total Liabilities | 138,310,349 | 140,351,751 | ||||||
Shareholders’ Equity | ||||||||
Common Stock, $.01 par value, 10,000,000 shares authorized. Issued: 608,116 shares at December 31, 2011 and March 31, 2011 | 6,081 | 6,081 | ||||||
Additional paid-in capital | 5,329,802 | 5,335,052 | ||||||
Retained earnings | 8,868,035 | 8,846,531 | ||||||
Unearned ESOP shares | (362,300 | ) | (397,300 | ) | ||||
Accumulated other comprehensive income (loss) | 321,767 | (151,333 | ) | |||||
Total Shareholders’ Equity | 14,163,385 | 13,639,031 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 152,473,734 | $ | 153,990,782 |
The accompanying notes are an integral part of these consolidated financial statements.
3 |
MADISON BANCORP, INC AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three and Nine Months Ended December 31, 2011 and 2010
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest Revenue | ||||||||||||||||
Interest and fees on loans | $ | 1,170,312 | $ | 1,242,843 | $ | 3,561,320 | $ | 3,780,677 | ||||||||
Investment securities available-for-sale | 256,922 | 230,231 | 786,727 | 665,370 | ||||||||||||
Investment securities held-to-maturity | 0 | 15,699 | 0 | 63,334 | ||||||||||||
Interest-bearing deposits | 5,144 | 14,185 | 19,760 | 41,306 | ||||||||||||
Other | 5,283 | 6,289 | 21,050 | 21,255 | ||||||||||||
Total Interest Revenue | 1,437,661 | 1,509,247 | 4,388,857 | 4,571,942 | ||||||||||||
Interest Expense | ||||||||||||||||
Interest on deposits: | ||||||||||||||||
Time | 476,468 | 525,558 | 1,467,424 | 1,658,317 | ||||||||||||
Savings | 11,167 | 14,670 | 36,526 | 43,301 | ||||||||||||
NOW and Money Market | 8,116 | 8,769 | 25,303 | 31,449 | ||||||||||||
Other interest expense | 0 | 3 | 0 | 42 | ||||||||||||
Total Interest Expense | 495,751 | 549,000 | 1,529,253 | 1,733,109 | ||||||||||||
Net Interest Income | 941,910 | 960,247 | 2,859,604 | 2,838,833 | ||||||||||||
Provision for Loan Losses | 90,000 | 78,832 | 211,099 | 190,507 | ||||||||||||
Net Interest Income after Provision for Loan Losses | 851,910 | 881,415 | 2,648,505 | 2,648,326 | ||||||||||||
Noninterest Revenue | ||||||||||||||||
Gain on sale of investment securities | 53,990 | 62,261 | 92,465 | 118,639 | ||||||||||||
Other | 44,042 | 65,896 | 132,847 | 217,123 | ||||||||||||
Total Noninterest Revenue | 98,032 | 128,157 | 225,312 | 335,762 | ||||||||||||
Noninterest Expenses | ||||||||||||||||
Salaries and employee benefits | 508,154 | 462,071 | 1,525,009 | 1,415,702 | ||||||||||||
Occupancy and equipment expense | 212,708 | 278,074 | 664,551 | 824,309 | ||||||||||||
Advertising | 2,413 | 2,731 | 9,328 | 6,277 | ||||||||||||
Professional services | 38,668 | 49,924 | 129,463 | 119,115 | ||||||||||||
FDIC premiums and regulatory assessments | 45,000 | 100,097 | 149,174 | 297,495 | ||||||||||||
Data processing | 51,888 | 44,246 | 158,024 | 142,332 | ||||||||||||
Stationery and postage | 16,408 | 16,623 | 59,093 | 54,044 | ||||||||||||
Other operating expenses | 56,683 | 54,245 | 157,671 | 140,581 | ||||||||||||
Total Noninterest Expense | 931,922 | 1,008,011 | 2,852,313 | 2,999,855 | ||||||||||||
Income (Loss) Before Income Taxes | 18,020 | 1,561 | 21,504 | (15,767 | ) | |||||||||||
Income Tax Expense | 0 | 0 | 0 | 0 | ||||||||||||
Net Income (Loss) | $ | 18,020 | $ | 1,561 | $ | 21,504 | $ | (15,767 | ) | |||||||
Basic income (loss) per common share | $ | 0.03 | $ | 0.00 | $ | 0.04 | $ | (0.03 | ) | |||||||
Diluted income (loss) per common share | $ | 0.03 | $ | 0.00 | $ | 0.04 | $ | (0.03 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
4 |
MADISON BANCORP, INC AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
Three and Nine Months Ended December 31, 2011 and 2010
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) | $ | 18,020 | $ | 1,561 | $ | 21,504 | $ | (15,767 | ) | |||||||
Other comprehensive income: | ||||||||||||||||
Securities available for sale: | ||||||||||||||||
Change in net unrealized gain / loss during the period | (52,304 | ) | (564,098 | ) | 873,739 | (164,800 | ) | |||||||||
Reclassification adjustment for gains/ losses in net income (loss) | (53,990 | ) | (62,261 | ) | (92,465 | ) | (118,639 | ) | ||||||||
(106,294 | ) | (626,359 | ) | 781,274 | (283,439 | ) | ||||||||||
Deferred tax expense (benefit): | ||||||||||||||||
Securities available for sale: | ||||||||||||||||
Change in net unrealized gain / loss during the period | (20,631 | ) | (222,509 | ) | 344,647 | (65,005 | ) | |||||||||
Reclassification adjustment for gains/ losses in net income (loss) | (21,297 | ) | (24,559 | ) | (36,473 | ) | (46,797 | ) | ||||||||
(41,928 | ) | (247,068 | ) | 308,174 | (111,802 | ) | ||||||||||
Other comprehensive income (loss), net of tax | (64,366 | ) | (379,291 | ) | 473,100 | (171,637 | ) | |||||||||
Comprehensive income (loss) | $ | (46,346 | ) | $ | (377,730 | ) | $ | 494,604 | $ | (187,404 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
MADISON BANCORP, INC AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
Nine Months Ended December 31, 2011 and 2010
Accumulated | ||||||||||||||||||||||||
Additional | Unearned | Other | Total | |||||||||||||||||||||
Common | Paid-in | Retained | ESOP | Comprehensive | Shareholders’ | |||||||||||||||||||
Stock | Capital | Earnings | Shares | Income | Equity | |||||||||||||||||||
Balance March 31, 2010 | $ | 0 | $ | 0 | $ | 8,903,564 | $ | 0 | $ | 159,463 | $ | 9,063,027 | ||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net loss | (15,767 | ) | (15,767 | ) | ||||||||||||||||||||
Other comprehensive loss | (171,637 | ) | (171,637 | ) | ||||||||||||||||||||
Total comprehensive loss | (187,404 | ) | ||||||||||||||||||||||
Issuance of common stock | 6,081 | 5,333,987 | 5,340,068 | |||||||||||||||||||||
Acquisition of unearned ESOP shares | (425,680 | ) | (425,680 | ) | ||||||||||||||||||||
ESOP shares allocated for release | 1,065 | 28,380 | 29,445 | |||||||||||||||||||||
Balance December 31, 2010 | $ | 6,081 | $ | 5,335,052 | $ | 8,887,797 | $ | (397,300 | ) | $ | (12,174 | ) | $ | 13,819,456 | ||||||||||
Balance March 31, 2011 | $ | 6,081 | $ | 5,335,052 | $ | 8,846,531 | $ | (397,300 | ) | $ | (151,333 | ) | $ | 13,639,031 | ||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | 21,504 | 21,504 | ||||||||||||||||||||||
Other comprehensive income | 473,100 | 473,100 | ||||||||||||||||||||||
Total comprehensive income | 494,604 | |||||||||||||||||||||||
ESOP shares allocated for release | (5,250 | ) | 35,000 | 29,750 | ||||||||||||||||||||
Balance December 31, 2011 | $ | 6,081 | $ | 5,329,802 | $ | 8,868,035 | $ | (362,300 | ) | $ | 321,767 | $ | 14,163,385 |
The accompanying notes are an integral part of these consolidated financial statements.
6 |
MADISON BANCORP, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended December 31, 2011 and 2010
Cash flows from Operating Activities | 2011 | 2010 | ||||||
Net income (loss) | $ | 21,504 | $ | (15,767 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Net amortization of investment securities | 132,690 | 62,358 | ||||||
Decrease in net deferred loan costs | 9,778 | 19,636 | ||||||
Provision for loan losses | 211,099 | 190,507 | ||||||
Provision for ground rent losses | 26,000 | 6,548 | ||||||
Gain on sale of investment securities | (92,465 | ) | (118,639 | ) | ||||
Loss on sale and write-down of other real estate owned | 19,948 | 0 | ||||||
Depreciation and amortization | 170,134 | 174,315 | ||||||
ESOP expense | 29,750 | 29,445 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accrued interest receivable | (11,512 | ) | 5,713 | |||||
Prepaid expenses and other assets | 149,489 | 361,753 | ||||||
Other liabilities | 13,243 | (37,942 | ) | |||||
Net Cash provided by (used in) operating activities | 679,658 | 677,927 | ||||||
Cash flows from Investing Activities | ||||||||
Decrease in loans receivable, net | 1,609,244 | 3,072,422 | ||||||
Increase in investment certificates of deposit, net | (253,297 | ) | (491,743 | ) | ||||
Activity in held-to-maturity securities: | ||||||||
Sales | 0 | 687,875 | ||||||
Maturities and repayments | 0 | 393,856 | ||||||
Activity in available-for-sale securities: | ||||||||
Sales | 21,716,249 | 5,031,256 | ||||||
Maturities, repayments and calls | 14,037,695 | 15,399,989 | ||||||
Purchases | (37,923,293 | ) | (34,013,130 | ) | ||||
Purchase of property and equipment | (106,161 | ) | (52,099 | ) | ||||
Proceeds from sale of property and equipment | 448 | 0 | ||||||
Redemption of FHLB stock | 8,000 | 0 | ||||||
Proceeds from the sale of OREO | 414,052 | 0 | ||||||
Proceeds from sale of ground rents | 7,900 | 6,100 | ||||||
Net cash provided by investing activities | (489,163 | ) | (9,965,474 | ) | ||||
Cash flow from Financing Activities | ||||||||
Increase (decrease) increase in deposits, net | (1,847,034 | ) | 2,798,439 | |||||
Decrease in advances from borrowers, net | (307,507 | ) | (336,375 | ) | ||||
Net proceeds from the issuance of common stock | 0 | 5,340,068 | ||||||
Acquisition of ESOP shares | 0 | (425,680 | ) | |||||
Net cash provided by financing activities | (2,154,541 | ) | 7,376,452 | |||||
Net Change in Cash and Cash Equivalents | (1,964,046 | ) | (1,911,095 | ) | ||||
Cash and Cash Equivalents, Beginning of Period | 8,183,156 | 13,354,975 | ||||||
Cash and Cash Equivalents, End of Period | $ | 6,219,110 | $ | 11,443,880 | ||||
Supplemental disclosure: | ||||||||
Interest paid | $ | 1,528,901 | $ | 1,742,613 | ||||
Loans transferred to other real estate owned | $ | 0 | $ | 434,000 | ||||
Held-to-maturity investments transferred to available-for-sale | $ | 0 | $ | 1,216,265 |
The accompanying notes are an integral part of these consolidated financial statements.
7 |
MADISON BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
DECEMBER 31, 2011
Note 1. Activities and Summary of Significant Accounting Policies
Madison Bancorp, Inc. (Company) was incorporated on May 20, 2010, to be the holding company for Madison Square Federal Savings Bank (Bank) in conjunction with the Bank’s plan of conversion from the mutual to stock form of ownership. On October 6, 2010, in accordance with a Plan of Conversion adopted by its Board of Directors and approved by its members, the Bank converted from a mutual savings bank to a stock savings bank and became the wholly owned subsidiary of the Company. The conversion was accomplished through the sale and issuance of 608,116 shares of common stock at a price of $10.00 per share, through which the Company received proceeds of $5,340,068, net of offering expenses of $741,092. In connection with the conversion, the Bank’s Board of Directors adopted an employee stock ownership plan (ESOP) which subscribed for 7% of the number of shares sold in the offering, or 42,568 shares of common stock. Accordingly, the reported results for the period since the conversion date relate to the consolidated holding company and the reported results for periods prior to the conversion date related to the results for the bank and its subsidiary. All material intercompany accounts and transaction have been eliminated in consolidation.
In accordance with applicable regulations governing the conversion, upon the completion of the conversion, the Bank restricted retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.
Madison Square Federal Savings Bank was incorporated in 1870 under the laws of the State of Maryland. The Bank is a federally chartered savings bank engaged in banking and related services primarily in the Baltimore Metropolitan area.
Summary of Significant Accounting Policies
The foregoing consolidated financial statements are unaudited; however, in the opinion of management, we have included all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of the interim period. We derived the balances as of March 31, 2011, from audited financial statements. These statements should be read in conjunction with Madison Bancorp’s financial statements and accompanying notes included in Madison Bancorp’s Form 10-K for the year ended March 31, 2011. We have made no significant changes to Madison Bancorp’s accounting policies as disclosed in the Form 10-K.
The accounting and reporting policies of Madison Bancorp, Inc. and Subsidiaries (collectively “Madison”) conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to general practices in the banking industry. The more significant policies follow:
Principles of Consolidation. The accompanying consolidated financial statements include the accounts of the parent company and its wholly owned subsidiary, Madison Square Federal Savings Bank and its wholly owned subsidiary, Madison Financial Services Corporation (MFSC). MFSC is engaged in the business of insurance and brokerage services primarily in the Baltimore area. All significant intercompany balances and transactions have been eliminated in consolidation.
Reclassifications. Certain prior year amounts have been reclassified to conform to current period classifications. The reclassifications had no effect on net loss or the net change in cash and cash equivalents and are not material to previously issued financial statements.
8 |
Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ significantly 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, deferred income tax valuation allowances, the fair value of investment securities, and other than temporary impairment of investment securities.
Subsequent Events. We evaluated subsequent events after December 31, 2011 through February 8, 2012, the date this report was available to be issued. No significant subsequent events were identified which would affect the presentation of the financial statements.
Recently Adopted Accounting Guidance
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220)-Presentation of Comprehensive Income” which amended disclosure guidance related to comprehensive income. The amendment requires that all nonowner changes in shareholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment also requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the consolidated statement of changes in shareholders’ equity was eliminated. The amendments in this update are effective for fiscal years and interim periods within those years beginning after December 15, 2011. Adoption of this guidance has not had a material impact on our consolidated results of operations or financial condition. Portions of the implementation of this guidance have been deferred by ASU 2011-12. The portions that have been deferred are not expected to have a material impact on our consolidated results of operations or financial condition.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 amends Topic 820, “Fair Value Measurements and Disclosures,” to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820, and requires additional fair value disclosures. This guidance is effective for annual periods beginning after December 15, 2011, and is not expected to have a material impact on our consolidated results of operations or financial condition.
In April 2011, the FASB issued ASU No. 2011-02, “Receivables (Topic 310)-A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring”, which amended accounting and disclosure guidance relating to a creditor’s determination of whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. The amendments are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of the application of the amendments, receivables previously measured under loss contingency guidance that are newly considered impaired should be disclosed, along with the related allowance for credit losses, as of the end of the period of adoption. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The deferred credit risk disclosure guidance issued in July 2010 relating to troubled debt restructurings will now be effective for interim and annual periods beginning on or after June 15, 2011. Adoption of this guidance has not had a material impact on our consolidated results of operations or financial condition.
9 |
Note 2. Earnings per Share
When presented, basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The calculation of weighted average common shares outstanding for the three and nine months periods ended December 31, 2010, is based on the period from October 6, 2010, the date of the conversion stock issuance, through December 31, 2010.
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) | $ | 18,020 | $ | 1,561 | $ | 21,504 | $ | (15,767 | ) | |||||||
Average common shares outstanding | 568,424 | 565,581 | 568,399 | 565,581 | ||||||||||||
Earnings per common share | $ | 0.03 | $ | 0.00 | $ | 0.04 | $ | (0.03 | ) |
10 |
Note 3. Investment Securities
The amortized cost and estimated fair value of investment securities at December 31, 2011 and March 31, 2011, are summarized as follows:
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
December 31, 2011 | ||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||
U.S. government agencies | $ | 3,352,028 | $ | 6,041 | $ | 12 | $ | 3,358,057 | ||||||||
Brokered certificates of deposit | 6,562,173 | 2,613 | 16,265 | 6,548,521 | ||||||||||||
Mortgage-backed securities (Agency) | 37,058,015 | 530,866 | 11,758 | 37,577,123 | ||||||||||||
Collateralized mortgage obligations (Agency) | 8,031,786 | 26,473 | 6,594 | 8,051,665 | ||||||||||||
$ | 55,004,002 | $ | 565,993 | $ | 34,629 | $ | 55,535,366 |
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
March 31, 2011 | ||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||
U.S. government agencies | $ | 10,233,047 | $ | 6,989 | $ | 84,729 | $ | 10,155,307 | ||||||||
Brokered certificates of deposit | 4,785,434 | 5,149 | 13,986 | 4,776,597 | ||||||||||||
Mortgage-backed securities (Agency) | 33,117,844 | 315,611 | 416,993 | 33,016,462 | ||||||||||||
Collateralized mortgage obligations (Agency) | 4,475,445 | 18,513 | 7,432 | 4,486,526 | ||||||||||||
Collateralized mortgage obligations (Nonagency) | 263,109 | 5,872 | 78,904 | 190,077 | ||||||||||||
$ | 52,874,879 | $ | 352,134 | $ | 602,044 | $ | 52,624,969 |
The bank has arranged for a $4.1 million line of credit for liquidity to meet expected and unexpected cash needs with a large financial institution. Any advances would be collateralized by the broker certificates of deposit and various U.S. Government Agency securities. As of December 31, 2011 and March 31, 2011, there were no borrowings or securities pledged under this line of credit.
11 |
The following is a summary of contractual maturities of securities available-for-sale as of December 31, 2011:
Available-for-Sale | ||||||||
Amortized | Estimated | |||||||
Cost | Fair Value | |||||||
Amounts maturing in: | ||||||||
One year or less | $ | 3,666,173 | $ | 3,667,022 | ||||
After one year through five years | 3,746,000 | 3,735,020 | ||||||
After five years through ten years | 2,002,028 | 2,004,537 | ||||||
After ten years | 500,000 | 499,999 | ||||||
9,914,201 | 9,906,578 | |||||||
Mortgage-backed securities (Agency) | 37,058,015 | 37,577,123 | ||||||
Collateralized mortgage obligations (Agency) | 8,031,786 | 8,051,665 | ||||||
$ | 55,004,002 | $ | 55,535,366 |
Proceeds from sales of investment securities were $21.7 million and $5.7 million during the nine months ended December 31, 2011 and 2010, respectively with gains of $394,000 and losses of $302,000 for the nine months ended December 31, 2011 and gains of $175,000 and losses of $56,000 for the nine months ended December 31, 2010.
The following table presents Madison’s investments’ gross unrealized losses and the corresponding fair values by investment category and length of time that the securities have been in a continuous unrealized loss position at December 31, 2011.
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
December 31, 2011 | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | ||||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||||||||||
U.S. Government agencies | $ | 752,016 | $ | 12 | $ | 0 | $ | 0 | $ | 752,016 | $ | 12 | ||||||||||||
Brokered certificates of deposit | 2,496,533 | 14,467 | 855,202 | 1,798 | 3,351,735 | 16,265 | ||||||||||||||||||
Mortgage-backed securities (Agency) | 3,714,429 | 11,758 | 0 | 0 | 3,714,429 | 11,758 | ||||||||||||||||||
Collateralized mortgage obligations (Agency) | 1,391,275 | 3,920 | 423,101 | 2,674 | 1,814,376 | 6,594 | ||||||||||||||||||
$ | 8,354,253 | $ | 30,157 | $ | 1,278,303 | $ | 4,472 | $ | 9,632,556 | $ | 34,629 |
The gross unrealized losses are not considered by management to be other-than-temporary impairments. Management has the intent and ability to hold these securities until maturity. In most cases, temporary impairment is caused by market interest rate fluctuations.
12 |
Note 4. Loans Receivable
Loans receivable consist of the following at December 31, 2011 and March 31, 2011:
December 31, 2011 | March 31, 2011 | |||||||
Loans secured by mortgages: | ||||||||
Residential: | ||||||||
1-4 Single family | $ | 52,526,958 | $ | 57,608,257 | ||||
Multifamily | 1,612,603 | 1,667,385 | ||||||
Lines of credit | 2,049,572 | 1,756,463 | ||||||
Commercial | 15,848,117 | 12,154,376 | ||||||
Land | 6,686,979 | 5,566,059 | ||||||
Construction | 1,567,758 | 2,175,906 | ||||||
80,291,987 | 80,928,446 | |||||||
Consumer | 611,975 | 828,925 | ||||||
Commercial | 4,136,809 | 4,962,980 | ||||||
Total loans receivable | 85,040,771 | 86,720,351 | ||||||
Net deferred costs | 83,904 | 93,682 | ||||||
Allowance for loan losses | (776,298 | ) | (635,535 | ) | ||||
Loans receivable, net | $ | 84,348,377 | $ | 86,178,498 |
The following presents by class and by credit quality indicator, the recorded investment in the Company’s loans as of December 31, 2011 and March 31, 2011.
Commercial Credit Exposure | Commercial, Not Real Estate Secured | Commercial Real Estate | ||||||||||||||
December 31, 2011 | March 31, 2011 | December 31, 2011 | March 31, 2011 | |||||||||||||
Grade: | ||||||||||||||||
Pass | $ | 4,101,434 | $ | 4,247,846 | $ | 13,584,401 | $ | 10,926,093 | ||||||||
Special Mention | 35,375 | 715,134 | 2,263,716 | 1,228,283 | ||||||||||||
Substandard | 0 | 0 | 0 | 0 | ||||||||||||
Doubtful | 0 | 0 | 0 | 0 | ||||||||||||
Loss | 0 | 0 | 0 | 0 | ||||||||||||
$ | 4,136,809 | $ | 4,962,980 | $ | 15,848,117 | $ | 12,154,376 |
Other Credit Exposure | Construction, Land, and Land Development | Residential Real Estate Other (1) | Consumer | |||||||||||||||||||||
December 31, 2011 | March 31, 2011 | December 31, 2011 | March 31, 2011 | December 31, 2011 | March 31, 2011 | |||||||||||||||||||
Grade: | ||||||||||||||||||||||||
Pass | $ | 6,853,603 | $ | 6,903,681 | $ | 54,945,956 | $ | 59,969,972 | $ | 603,874 | $ | 828,925 | ||||||||||||
Special Mention | 1,168,032 | 603,782 | 643,912 | 967,829 | 0 | 0 | ||||||||||||||||||
Substandard | 233,102 | 234,502 | 599,265 | 94,304 | 8,101 | 0 | ||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
$ | 8,254,737 | $ | 7,741,965 | $ | 56,189,133 | $ | 61,032,105 | $ | 611,975 | $ | 828,925 | |||||||||||||
(1) | Residential real estate other includes 1-4 family residential, multifamily residential and home equity lines of credit. |
13 |
Age Analysis of Past Due Loans as of December 31, 2011 and March 31, 2011
December 31, 2011 | 30-59 Days
Past Due | 60-89
Days Past Due | 90 Days or
More Past Due and Nonaccruing | Total Past
Due and Nonaccruing | Current | Total Loans | ||||||||||||||||||
Loans secured by mortgages: | ||||||||||||||||||||||||
Residential: | ||||||||||||||||||||||||
1-4 Single family | $ | 1,475,642 | $ | 748,914 | $ | 215,639 | $ | 2,440,195 | $ | 50,086,763 | $ | 52,526,958 | ||||||||||||
Multifamily | 0 | 0 | 0 | 0 | 1,612,603 | 1,612,603 | ||||||||||||||||||
Lines of credit | 0 | 0 | 0 | 0 | 2,049,572 | 2,049,572 | ||||||||||||||||||
Commercial | 386,307 | 0 | 0 | 386,307 | 15,461,810 | 15,848,117 | ||||||||||||||||||
Land | 0 | 0 | 0 | 0 | 6,686,979 | 6,686,979 | ||||||||||||||||||
Construction | 0 | 0 | 0 | 0 | 1,567,758 | 1,567,758 | ||||||||||||||||||
1,861,949 | 748,914 | 215,639 | 2,826,502 | 77,465,485 | 80,291,987 | |||||||||||||||||||
Consumer | 6,442 | 0 | 8,101 | 14,543 | 597,432 | 611,975 | ||||||||||||||||||
Commercial | 35,375 | 0 | 0 | 35,375 | 4,101,434 | 4,136,809 | ||||||||||||||||||
$ | 1,903,766 | $ | 748,914 | $ | 223,740 | $ | 2,876,420 | $ | 82,164,351 | $ | 85,040,771 |
March 31, 2011 | 30-59 Days
Past Due | 60-89
Days Past Due | 90 Days or
More Past Due and Nonaccruing | Total Past
Due and Nonaccruing | Current | Total Loans | ||||||||||||||||||
Loans secured by mortgages: | ||||||||||||||||||||||||
Residential: | ||||||||||||||||||||||||
1-4 Single family | $ | 707,959 | $ | 0 | $ | 9,137 | $ | 717,096 | $ | 56,891,161 | $ | 57,608,257 | ||||||||||||
Multifamily | 0 | 0 | 0 | 0 | 1,667,385 | 1,667,385 | ||||||||||||||||||
Lines of credit | 0 | 0 | 0 | 0 | 1,756,463 | 1,756,463 | ||||||||||||||||||
Commercial | 393,545 | 0 | 0 | 393,545 | 11,760,831 | 12,154,376 | ||||||||||||||||||
Land | 0 | 0 | 0 | 0 | 5,566,059 | 5,566,059 | ||||||||||||||||||
Construction | 0 | 0 | 0 | 0 | 2,175,906 | 2,175,906 | ||||||||||||||||||
1,101,504 | 0 | 9,137 | 1,110,641 | 79,817,805 | 80,928,446 | |||||||||||||||||||
Consumer | 891 | 6,535 | 0 | 7,426 | 821,499 | 828,925 | ||||||||||||||||||
Commercial | 0 | 0 | 0 | 0 | 4,962,980 | 4,962,980 | ||||||||||||||||||
$ | 1,102,395 | $ | 6,535 | $ | 9,137 | $ | 1,118,067 | $ | 85,602,284 | $ | 86,720,351 |
There are no loans that are 90 days or more past due that are in accrual status at either December 31, 2011 or March 31, 2011.
Loans on Nonaccrual Status as of December 31, 2011 and March 31, 2011
December 31, 2011 | March 31, 2011 | |||||||
Nonaccrual loans: | ||||||||
Residential 1-4 Single family | $ | 215,639 | $ | 9,137 | ||||
Consumer | 8,101 | 0 | ||||||
Total nonaccrual loans | $ | 223,740 | $ | 9,137 | ||||
Allowance for loan losses as a percentage of nonaccrual loans | 346.96 | % | 6,955.62 | % | ||||
Foregone interest on nonaccrual loans | $ | 7,709 | $ | 610 |
14 |
Troubled Debt Restructurings as of December 31, 2011 and March 31, 2011
December 31, 2011 | March 31, 2011 | |||||||
Troubled debt restructurings: | ||||||||
Residential 1-4 Single family | $ | 383,626 | $ | 0 |
This one troubled debt restructuring (TDR) is in accrual status and is in compliance with its modified terms. The Bank modified the interest rate by decreasing it by 1.875% which reduced their monthly payment and we deferred the modification fee until the end of the loan. The Bank has taken a $50,000 specific reserve against the loan, and it is included with impaired loans.
Impaired Loans as of and for the Nine Months Ended December 31, 2011
Unpaid Principal Balance | Related Allowance | Average Unpaid Principal Balance | Interest Income Recognized | |||||||||||||
Impaired loans without a related reserve: | ||||||||||||||||
Loans secured by mortgages: | ||||||||||||||||
Residential: | ||||||||||||||||
1-4 Single family | $ | 209,093 | $ | 0 | $ | 267,299 | $ | 420 | ||||||||
Multifamily | 0 | 0 | 0 | 0 | ||||||||||||
Lines of credit | 0 | 0 | 0 | 0 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Land | 0 | 0 | 0 | 0 | ||||||||||||
Construction | 0 | 0 | 0 | 0 | ||||||||||||
209,093 | 0 | 267,299 | 420 | |||||||||||||
Consumer | 8,101 | 0 | 9,176 | 330 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Total impaired loans without a related reserve | 217,194 | 0 | 276,475 | 750 | ||||||||||||
Impaired loans with a related reserve: | ||||||||||||||||
Loans secured by mortgages: | ||||||||||||||||
Residential: | ||||||||||||||||
1-4 Single family | 390,172 | 53,820 | 393,017 | 15,510 | ||||||||||||
Multifamily | 0 | 0 | 0 | 0 | ||||||||||||
Lines of credit | 0 | 0 | 0 | 0 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Land | 233,102 | 71,833 | 233,947 | 8,184 | ||||||||||||
Construction | 0 | 0 | 0 | 0 | ||||||||||||
623,274 | 125,653 | 626,964 | 23,694 | |||||||||||||
Consumer | 0 | 0 | 0 | 0 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Total impaired loans with a related reserve | 623,274 | 125,653 | 626,964 | 23,694 | ||||||||||||
Total impaired loans: | ||||||||||||||||
Loans secured by mortgages: | ||||||||||||||||
Residential: | ||||||||||||||||
1-4 Single family | 599,265 | 53,820 | 660,316 | 15,930 | ||||||||||||
Multifamily | 0 | 0 | 0 | 0 | ||||||||||||
Lines of credit | 0 | 0 | 0 | 0 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Land | 233,102 | 71,833 | 233,947 | 8,184 | ||||||||||||
Construction | 0 | 0 | 0 | 0 | ||||||||||||
832,367 | 125,653 | 894,263 | 24,114 | |||||||||||||
Consumer | 8,101 | 0 | 9,176 | 330 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Total impaired loans | $ | 840,468 | $ | 125,653 | $ | 903,439 | $ | 24,444 |
15 |
The construction portion of the construction loan that was previously reported as impaired was sold, and the remaining portion of the project is secured by land only and is therefore reported in the land section of the impaired loan table for the nine months ended December 31, 2011.
16 |
Impaired Loans as of and for the Year Ended March 31, 2011
Unpaid Principal Balance | Related Allowance | Average Unpaid Principal Balance | Interest Income Recognized | |||||||||||||
Impaired loans without a related reserve: | ||||||||||||||||
Loans secured by mortgages: | ||||||||||||||||
Residential: | ||||||||||||||||
1-4 Single family | $ | 94,304 | $ | 0 | $ | 99,211 | $ | 4,502 | ||||||||
Multifamily | 0 | 0 | 0 | 0 | ||||||||||||
Lines of credit | 0 | 0 | 0 | 0 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Land | 0 | 0 | 0 | 0 | ||||||||||||
Construction | 0 | 0 | 0 | 0 | ||||||||||||
94,304 | 0 | 99,211 | 4,502 | |||||||||||||
Consumer | 0 | 0 | 0 | 0 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Total impaired loans without a related reserve | 94,304 | 0 | 99,211 | 4,502 | ||||||||||||
Impaired loans with a related reserve: | ||||||||||||||||
Loans secured by mortgages: | ||||||||||||||||
Residential: | ||||||||||||||||
1-4 Single family | 0 | 0 | 0 | 0 | ||||||||||||
Multifamily | 0 | 0 | 0 | 0 | ||||||||||||
Lines of credit | 0 | 0 | 0 | 0 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Land | 0 | 0 | 0 | 0 | ||||||||||||
Construction | 234,502 | 71,845 | 585,731 | 26,500 | ||||||||||||
234,502 | 71,845 | 585,731 | 26,500 | |||||||||||||
Consumer | 0 | 0 | 0 | 0 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Total impaired loans with a related reserve | 234,502 | 71,845 | 585,731 | 26,500 | ||||||||||||
Total impaired loans: | ||||||||||||||||
Loans secured by mortgages: | ||||||||||||||||
Residential: | ||||||||||||||||
1-4 Single family | 94,304 | 0 | 99,211 | 4,502 | ||||||||||||
Multifamily | 0 | 0 | 0 | 0 | ||||||||||||
Lines of credit | 0 | 0 | 0 | 0 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Land | 0 | 0 | 0 | 0 | ||||||||||||
Construction | 234,502 | 71,845 | 585,731 | 26,500 | ||||||||||||
328,806 | 71,845 | 684,942 | 31,002 | |||||||||||||
Consumer | 0 | 0 | 0 | 0 | ||||||||||||
Commercial | 0 | 0 | 0 | 0 | ||||||||||||
Total impaired loans | $ | 328,806 | $ | 71,845 | $ | 684,942 | $ | 31,002 |
We occasionally modify loans to extend the term to help borrowers stay current on their loan and to avoid foreclosure in those instances in which we believe the borrower will be able to repay the loan under the modified terms. At December 31, 2011, we had six 1-4 single family mortgage loans totaling approximately $1.1 million for which we modified the terms either by increasing the payments to allow the customer to become current or deferring payments to the end of the term in the form of a balloon payment. We did not forgive any principal or interest or modify the interest rates on the loans. Three of these six modified loans with a balance of $553,000 were in compliance with their modified terms at December 31, 2011. One loan with a balance of $201,000 is 30 days past due and one loan with a balance of $184,000 is 60 days past due. One loan with a balance of $185,000 is not in compliance with its modified terms and is in nonaccrual status. This loan is considered impaired, and we have charged off $53,000 in the current quarter. At December 31, 2011, we had one loan with a balance of $384,000 that is considered a trouble debt restructuring, and we have taken a specific reserve of $50,000. At March 31, 2011, we did not have any loans that were considered troubled debt restructurings.
17 |
Note 5. Allowance for Loan Losses
The activity in the allowance for loan losses is as follows:
Nine Months Ended December 31, 2011 | Year Ended March 31, 2011 | Nine Months Ended December 31, 2010 | ||||||||||
Balance - Beginning of Year | $ | 635,535 | $ | 605,000 | $ | 605,000 | ||||||
Provision for loan losses | 211,099 | 234,519 | 190,507 | |||||||||
Recoveries: | ||||||||||||
Residential 1-4 Single family | 3,366 | 1,641 | 1,641 | |||||||||
Charge-offs: | ||||||||||||
Residential 1-4 Single family | (60,500 | ) | (31,810 | ) | (28,233 | ) | ||||||
Construction | 0 | (173,815 | ) | (173,815 | ) | |||||||
Commercial | (13,202 | ) | 0 | 0 | ||||||||
Total charge-offs | (73,702 | ) | (205,625 | ) | (202,048 | ) | ||||||
Net charge-offs | (70,336 | ) | (203,984 | ) | (200,407 | ) | ||||||
Balance - End of Period | $ | 776,298 | $ | 635,535 | $ | 595,100 |
The following table sets forth for the nine months ended December 31, 2011, the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually. The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.
Loans Secured By Mortgages | ||||||||||||||||||||||||||||||||||||||||
Residential | Not Real Estate Secured | |||||||||||||||||||||||||||||||||||||||
1-4 Single | Multi- | Lines of | ||||||||||||||||||||||||||||||||||||||
Family | family | Credit | Commercial | Land | Construction | Consumer | Commercial | Unallocated | Total | |||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 185,114 | $ | 17,417 | $ | 8,441 | $ | 141,331 | $ | 73,355 | $ | 95,779 | $ | 5,848 | $ | 63,745 | $ | 44,505 | $ | 635,535 | ||||||||||||||||||||
Charge-offs | (60,500 | ) | 0 | 0 | 0 | 0 | 0 | 0 | (13,202 | ) | 0 | (73,702 | ) | |||||||||||||||||||||||||||
Recoveries | 3,366 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 3,366 | ||||||||||||||||||||||||||||||
Provision | 114,526 | 2,166 | 3,505 | 89,388 | 99,174 | (71,424 | ) | (1,668 | ) | 6,242 | (30,810 | ) | 211,099 | |||||||||||||||||||||||||||
Ending Balance | $ | 242,506 | $ | 19,583 | $ | 11,946 | $ | 230,719 | $ | 172,529 | $ | 24,355 | $ | 4,180 | $ | 56,785 | $ | 13,695 | $ | 776,298 | ||||||||||||||||||||
Ending balance: | ||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 55,352 | $ | 0 | $ | 0 | $ | 0 | $ | 71,833 | $ | 0 | $ | 690 | $ | 0 | $ | 0 | $ | 127,875 | ||||||||||||||||||||
Collectively evaluated for impairment | $ | 187,154 | $ | 19,583 | $ | 11,946 | $ | 230,719 | $ | 100,696 | $ | 24,355 | $ | 3,490 | $ | 56,785 | $ | 13,695 | $ | 648,423 | ||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 52,526,958 | $ | 1,612,603 | $ | 2,049,572 | $ | 15,848,117 | $ | 6,686,979 | $ | 1,567,758 | $ | 611,975 | $ | 4,136,809 | $ | 85,040,771 | ||||||||||||||||||||||
Ending balance: | ||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | 599,265 | 0 | 0 | 0 | 233,102 | 0 | 8,101 | 0 | 840,468 | |||||||||||||||||||||||||||||||
Collectively evaluated for impairment | $ | 51,927,693 | $ | 1,612,603 | $ | 2,049,572 | $ | 15,848,117 | $ | 6,453,877 | $ | 1,567,758 | $ | 603,874 | $ | 4,136,809 | $ | 84,200,303 |
18 |
Madison recorded a partial charge-off on two residential 1-4 single family mortgage loans, writing them down to their net realizable value and recorded a full charge-off on one commercial loan for the nine months ended December 31, 2011.
Note 6. Borrowings
At December 31, 2011, the Bank had the ability to borrow a total of approximately $30.5 million from the Federal Home Loan Bank of Atlanta, and the Bank has a $4.1 million line of credit with a large financial institution. The FHLB borrowing requires us to pledge mortgage loans as collateral, and the line of credit requires us to pledge brokered CD’s or US Government Agency securities. At December 31, 2011, we had no Federal Home Loan Bank advances outstanding or borrowings on the line of credit. The rates on both borrowing lines will be determined at the time of an advance.
Note 7. Commitments and Financial Instruments with Off-Balance-Sheet Credit Risk
In the normal course of business, the Bank has various outstanding commitments and contingent liabilities that are not reflected in the accompanying financial statements. Loan commitments and lines of credit are agreements to lend to a customer as long as there is no violation of any condition to the contract. Mortgage loan commitments generally have fixed interest rates, fixed expiration dates, and may require payment of a fee. Other loan commitments generally have fixed interest rates. Commitments to purchase loans do not represent future cash requirements, as it is unlikely all loans will be closed prior to the expiration of the commitment. Lines of credit generally have variable interest rates. Such lines do not represent future cash requirements because it is unlikely that all customers will draw upon their lines in full at any time. Letters of credit are commitments issued to guarantee the performance of a customer to a third party.
The Bank’s maximum exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the credit commitment. Loan commitments, lines of credit, and letters of credit are made on the same terms, including collateral, as outstanding loans. Management is not aware of any accounting loss to be incurred by funding these loan commitments.
The Bank had outstanding firm commitments to originate, fund, or purchase loans as follows:
December 31, 2011 | March 31, 2011 | |||||||
Mortgage loans commitments – fixed rate | $ | 822,724 | $ | 2,780,080 | ||||
Mortgage loans commitments – variable rate | 3,365,592 | 4,284,968 | ||||||
Commitments to originate nonmortgage loans | 43,000 | 0 | ||||||
Commitments to purchase loans | 0 | 606,813 | ||||||
Unused equity lines of credit (variable rate) | 1,980,935 | 1,554,378 | ||||||
Commercial and consumer lines of credit | 742,156 | 801,645 | ||||||
Standby letters of credit | 675,023 | 472,708 | ||||||
Total | $ | 7,629,430 | $ | 10,500,592 |
Note 8. Fair Value Measurements
Accounting guidance defines fair value to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. These standards have also established a three-level hierarchy for fair value measurements based upon the inputs to the valuation of an asset or liability.
· | Level 1 — Valuation is based on quoted prices in active markets for identical assets and liabilities. |
19 |
· | Level 2 — Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market. |
· | Level 3 — Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the Bank’s own estimates about the assumptions that market participants would use to value the asset or liability. |
Investment securities available-for-sale are the only financial assets measured at fair value on a recurring basis. As of December 31, 2011 and March 31, 2011, the fair values were measured using the following methodologies:
December 31, 2011 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment securities available-for-sale: | ||||||||||||||||
U.S. Government agencies | $ | 1,599,925 | $ | 1,758,132 | $ | 0 | $ | 3,358,057 | ||||||||
Brokered certificates of deposit | 6,548,521 | 0 | 0 | 6,548,521 | ||||||||||||
Mortgage-backed securities (Agency) | 7,230,506 | 30,346,617 | 0 | 37,577,123 | ||||||||||||
Collateralized mortgage obligations (Agency) | 3,105,002 | 4,946,663 | 0 | 8,051,665 | ||||||||||||
$ | 18,483,954 | $ | 37,051,412 | $ | 0 | $ | 55,535,366 |
March 31, 2011 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment securities available-for-sale: | ||||||||||||||||
U.S. Government agencies | $ | 3,601,607 | $ | 6,553,700 | $ | 0 | $ | 10,155,307 | ||||||||
Brokered certificates of deposit | 4,776,597 | 0 | 0 | 4,776,597 | ||||||||||||
Mortgage-backed securities (Agency) | 1,367,178 | 31,646,558 | 2,726 | 33,016,462 | ||||||||||||
Collateralized mortgage obligations (Agency) | 785,161 | 3,182,752 | 518,613 | 4,486,526 | ||||||||||||
Collateralized mortgage obligations (Nonagency) | 0 | 190,077 | 0 | 190,077 | ||||||||||||
$ | 10,530,543 | $ | 41,573,087 | $ | 521,339 | $ | 52,624,969 |
The following table represents a roll-forward of the amounts for the nine months ended December 31, 2011 and the year ended March 31, 2011, for financial instruments classified by Madison within Level 3 of the valuation hierarchy.
For the Nine Months Ended December 31, 2011 | For the Year Ended March 31, 2011 | |||||||
Balance at beginning of the period | $ | 521,339 | $ | 3,623 | ||||
Total realized and unrealized gains and losses: | ||||||||
Included in net income | 0 | 0 | ||||||
Included in other comprehensive income | 0 | 0 | ||||||
Purchases | 0 | 529,984 | ||||||
Sales | (2,246 | ) | 0 | |||||
Paydowns | (480 | ) | (12,268 | ) | ||||
Transfers in and/or out of Level 3 | (518,613 | ) | 0 | |||||
Balance at the end of the period | $ | 0 | $ | 521,339 |
20 |
The one security included in the table above as transferred out of Level 3 was newly issued for the quarter ended March 31, 2011 and was therefore not valued yet by the third party valuation service. The security was seasoned enough for the third party valuation service to provide a fair value for the quarter ended September 30, 2011, and was transferred out of Level 3.
The Bank measures its other real estate owned on a nonrecurring basis at fair value less cost to sell. Cost to sell the real estate was based on standard market factors. The Bank has categorized its foreclosed real estate as Level 3. During the second quarter, Madison sold the one property that they had in other real estate owned.
The bank measures its impaired assets on a nonrecurring basis at fair value and has categorized them at Level 3. The Bank does not measure the fair value of its other financial assets or liabilities on a recurring or nonrecurring basis.
The estimated fair values of financial instruments are as follows:
December 31, 2011 | March 31, 2011 | |||||||||||||||
(dollars in thousands) | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||
Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 6,219 | $ | 6,219 | $ | 8,183 | $ | 8,183 | ||||||||
Certificates of deposit | 736 | 736 | 483 | 483 | ||||||||||||
Investment securities | 55,535 | 55,535 | 52,625 | 52,625 | ||||||||||||
Loans, net | 84,348 | 84,450 | 86,178 | 86,250 | ||||||||||||
Ground rents, net | 420 | 290 | 454 | 313 | ||||||||||||
Total financial assets | $ | 147,258 | $ | 147,230 | $ | 147,923 | $ | 147,854 |
December 31, 2011 | March 31, 2011 | |||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
Liabilities: | ||||||||||||||||
Deposits | $ | 137,671 | $ | 139,042 | $ | 139,518 | $ | 141,281 | ||||||||
Advances from borrowers for taxes and insurance | 250 | 250 | 558 | 558 | ||||||||||||
Total financial liabilities | $ | 137,921 | $ | 139,292 | $ | 140,076 | $ | 141,839 |
The following methods and assumptions were used to estimate the fair value disclosures for financial instruments as of December 31, 2011 and March 31, 2011:
Cash and cash equivalents: The amounts reported at carrying amount approximate the fair value of these assets.
Certificates of deposit: The amounts reported at carrying amount approximate the fair value of these assets.
Investment securities: The fair values are based on the quoted market values or values of securities with similar rates and terms. The fair values are provided to the Bank by a third party.
Loans, net: We estimate the fair value of loans by discounting future cash flows using current rates for which we would make similar loans to borrowers with similar credit histories.
21 |
Ground rents, net: The fair values are based on limited information regarding recent sales of similar assets.
Deposits: The fair value of demand deposits and savings accounts is the amount payable on demand. We estimate the fair value of fixed maturity certificates of deposit using the rates currently offered for deposits of similar remaining maturities.
Advances from borrowers for taxes and insurance: The amounts reported at carrying amount approximate the fair value of these assets.
Note 9. Regulatory Capital Ratios for Madison Square Federal Savings Bank
Minimum | To Be Well | |||||||||||||||||||||||
Actual | Requirements | Capitalized | ||||||||||||||||||||||
(dollars in thousands) | Amount | % | Amount | % | Amount | % | ||||||||||||||||||
As of December 31, 2011: | ||||||||||||||||||||||||
Total risk-based capital (to risk-weighted assets) | $ | 12,727 | 16.6 | % | $ | 6,144 | 8.0 | % | $ | 7,380 | 10.0 | % | ||||||||||||
Tier I capital (to risk-weighted assets) | 12,070 | 15.7 | N/A | N/A | 4,608 | 6.0 | ||||||||||||||||||
Tier I capital (to adjusted total assets) | 12,070 | 8.0 | 6,068 | 4.0 | 7,585 | 5.0 | ||||||||||||||||||
As of March 31, 2011: | ||||||||||||||||||||||||
Total risk-based capital (to risk-weighted assets) | $ | 12,531 | 16.7 | % | $ | 6,010 | 8.0 | % | $ | 7,512 | 10.0 | % | ||||||||||||
Tier I capital (to risk-weighted assets) | 11,963 | 15.9 | N/A | N/A | 4,507 | 6.0 | ||||||||||||||||||
Tier I capital (to adjusted total assets) | 11,963 | 7.8 | 6,157 | 4.0 | 7,696 | 5.0 |
22 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Safe Harbor Statement for Forward-Looking Statements
This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts; rather they are statements based on the Company’s current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as “expects”, “believes”, “anticipates”, “intends”, and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company’s actual results, performance, and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government, legislative and regulatory changes, the quality and composition of the loan and investment securities portfolio, loan demand, deposit flows, competition, and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed in item 1A of the Company’s Annual Report on Form 10-K filed on June 28, 2011 under the section titled “Risk Factors.” These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.
Critical Accounting Policies
We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. The following represent our critical accounting policies:
Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default, the amount and timing of future cash flows on impacted loans, value of collateral, and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance monthly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions, and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of The Controller of the Currency, as an integral part of its examination process, periodically reviews our allowance for loan losses and may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.
Fair Value of Investments. Securities are characterized as available-for-sale or held-to-maturity based on management’s ability and intent regarding such investment at acquisition. On an ongoing basis, management must estimate the fair value of its investment securities based on information and assumptions it deems reliable and reasonable, which may be quoted market prices or if quoted market prices are not available, fair values extrapolated from the quoted prices of similar instruments. Based on this information, an assessment must be made as to whether any decline in the fair value of an investment security should be considered an other-than-temporary impairment and recorded in noninterest revenue as a loss on investments. The determination of such impairment is subject to a variety of factors, including management’s judgment and experience.
23 |
Comparison of Financial Condition at December 31, 2011 and March 31, 2011
Assets. Total assets decreased $1.5 million from $154.0 million at March 31, 2011, to $152.5 million at December 31, 2011, with a $2.0 million, or 24% decrease in cash and cash equivalents and a $1.8 million, or 2.1% decrease in loans receivable, net offset by a $2.9 million, or 5.5% increase in investment securities available for sale.
Loans. Net loans receivable decreased by $1.8 million, or 2.1%, from $86.2 million at March 31, 2011 to $84.4 million at December 31, 2011, primarily as a result of the net effect of a $5.1 million decrease in residential mortgage loans, an $826,000 decrease in commercial loans, a $608,000 decrease in construction loans, a $217,000 decrease in consumer loans, and a $55,000 decrease in multifamily mortgage loans offset by a $3.7 million increase in commercial real estate loans, a $1.1 million increase in land loans, and a $293,000 increase in home equity lines of credit. The decrease in residential mortgage loans was primarily a result of borrowers refinancing loans elsewhere, normal principal reductions, and the reclassification of three loans with a balance of $1.6 million to commercial real estate. A portion of the increase in commercial real estate loans and the decrease in commercial loans was from a reclassification of a $668,000 loan from commercial to commercial real estate.
Cash and Cash Equivalents. Cash and cash equivalents decreased by $2.0 million, or 24%, from $8.2 million at March 31, 2011 to $6.2 million at December 31, 2011, due to the reinvesting of excess liquidity and the repayments of loans into investment securities.
Securities. Our available-for-sale securities increased by $2.9 million, or 5.5%, from $52.6 million at March 31, 2011 to $55.5 million at December 31, 2011. The net increase in available-for-sale securities is the result of the purchase of $35.3 million of U.S. Government Agency bonds, mortgage backed securities, collateralized mortgage obligations, and $2.6 million of Brokered Investment CD’s. These purchases were offset by the sale of the entire Redemption-In-Kind portfolio with proceeds of $774,000 as well as $20.9 million of selected U.S. Agency mortgage backed securities and U.S. Government Agency bonds. The additional offset to the increase in available-for-sale securities was also caused by $14.0 million of securities being called, having matured, or repayments. Proceeds from the sale of available-for-sale securities were $21.7 million during the nine months ended December 31, 2011, resulting in gross gains of $394,000 and gross losses of $302,000. Proceeds from the sales of available-for-sale and held-to-maturity securities were $5.7 million for the nine months ended December 31, 2010, resulting in gross gains of $175,000 and gross losses of $56,000. At December 31, 2011, we also held a $235,000 investment in the common stock of the Federal Home Loan Bank of Atlanta.
Ground Rent. Our balance in ground rents decreased by $34,000 from $454,000 at March 31, 2011, to
$420,000 at December 31, 2011. This decrease resulted from the sale of $8,000 of ground rents and a $26,000 write-off of uncollectable ground rents.
Deposits. Total deposits decreased by $1.8 million to $137.7 million at December 31, 2011, from $139.5 million at March 31, 2011. Balances of noninterest-bearing deposits increased to $6.2 million at December 31, 2011, from $5.3 million at March 31, 2011. NOW and Money Market deposit accounts decreased by $805,000 to $7.6 million at December 31, 2011. Savings deposits decreased $637,000 from $22.5 million at March 31, 2011, to $21.9 million at December 31, 2011, and certificates of deposits decreased by $1.3 million from $103.3 million at March 31, 2011, to $102.0 million at December 31, 2011.
Borrowings. We had no borrowings at December 31, 2011 or March 31, 2011.
Results of Operations for the Three Months Ended December 31, 2011 and 2010
Overview. Our net income was $18,000 for the three months ended December 31, 2011, compared to net income of $2,000 for the three months ended December 31, 2010. The increase in net income for the current quarter was the result of a decrease in noninterest expense that primarily resulted from a decrease in occupancy from the move of our administrative offices and a decrease in FDIC premiums due to a change in calculation methodology. These increases to income were offset by a decrease in net interest income, a decrease in noninterest income caused by a decrease in income from the sublease of a portion of the previous administrative offices, and an increase in the provision for loan losses.
24 |
Net Interest Income. Net interest income decreased by $18,000 to $942,000 for the three months ended December 31, 2011, as compared to $960,000 for the three months ended December 31, 2010, due to a decrease in the yield on earning assets, partially offset by a decrease in the cost of funds for deposits. Our interest rate spread was 2.40% for the three months ended December 31, 2011, compared to 2.42% for the three months ended December 31, 2010, and our net interest margin decreased to 2.54% for the three months ended December 31, 2011, from 2.57% for the three months ended December 31, 2010.
Interest on loans decreased by $73,000 for the three months ended December 31, 2011, as compared to the three months ended December 31, 2010. The average balance of loans decreased by $4.8 million to $83.4 million for the three months ended December 31, 2011, from $88.2 million for the three months ended December 31, 2010. The average yield on loans decreased from 5.59% for the three months ended December 31, 2010, to 5.57% for the three months ended December 31, 2011.
Interest on securities available-for-sale increased by $27,000 for the three months ended December 31, 2011, as compared to the three months ended December 31, 2010, due to an increase in average balances of $15.3 million from the investment of excess liquidity. This increase in average balances was offset by a 45 basis point decrease in the average yield. On December 31, 2010, the entire held-to-maturity investment portfolio of $1.2 million was transferred to available-for-sale and was subsequently sold in May 2011. Interest on securities held-to-maturity was $16,000 for the three months ended December 31, 2010.
Interest on interest-bearing deposits was $5,000 for the three months ended December 31, 2011, as compared to $14,000 for the three months ended December 31, 2010, as a result of a $10.1 million decrease in average balances and a 5 basis point decrease in the average yield.
Interest expense on total deposits decreased $53,000 for the three months ended December 31, 2011, from $549,000 for the three months ended December 31, 2010, to $496,000 for the three months ended December 31, 2011, due to a 14 basis point decrease in the average cost of interest-bearing deposits and a $1.7 million decrease in the average balance of interest-bearing deposits. Interest on certificates of deposits decreased $49,000 to $476,000 for the three months ended December 31, 2011, as a result of the 16 basis point decrease in average cost of time deposits and a decrease in average balances of $1.7 million. Interest on savings deposits decreased by $4,000 to $11,000 for the three months ended December 31, 2011, as compared to the three months ended December 31, 2010, due to a decrease in the interest rate of 7 basis points offset by an increase in average balances of $470,000. Interest on NOW and money market deposit accounts decreased by $1,000 for the three months ended December 31, 2011, due to a decrease in balances of $519,000.
25 |
Average Balance and Yields. The following table for the three months ended December 31, 2011 and 2010, presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing the annualized income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Amortization of net deferred loan fees is included in interest income on loans and is insignificant. Nonaccruing loans have been included in the table as loans carrying a zero yield. No tax-equivalent adjustments were made.
Three Months Ended December 31, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Average
Balance | Interest | Yield/ Cost | Average
Balance | Interest | Yield/ Cost | |||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Interest-bearing deposits | $ | 7,914,997 | $ | 5,144 | 0.26 | % | $ | 17,972,278 | $ | 14,185 | 0.31 | % | ||||||||||||
Investment securities available-for-sale | 54,907,125 | 256,922 | 1.87 | % | 39,625,182 | 230,231 | 2.32 | % | ||||||||||||||||
Investment securities held-to-maturity | 0 | 0 | 0.00 | % | 1,458,393 | 15,699 | 4.31 | % | ||||||||||||||||
Loans receivable, net | 83,363,910 | 1,170,312 | 5.57 | % | 88,189,793 | 1,242,843 | 5.59 | % | ||||||||||||||||
Other interest-earning assets | 666,388 | 5,283 | 3.15 | % | 712,715 | 6,289 | 3.50 | % | ||||||||||||||||
Total interest-earning assets | 146,852,420 | 1,437,661 | 3.89 | % | 147,958,361 | 1,509,247 | 4.05 | % | ||||||||||||||||
Noninterest-earning assets | 6,282,204 | 8,065,526 | ||||||||||||||||||||||
Total assets | $ | 153,134,624 | $ | 156,023,887 | ||||||||||||||||||||
Liabilities and Shareholders’ Equity: | ||||||||||||||||||||||||
Time deposits | $ | 101,718,157 | 476,468 | 1.86 | % | $ | 103,389,084 | 525,558 | 2.02 | % | ||||||||||||||
Savings | 22,208,454 | 11,167 | 0.20 | % | 21,738,229 | 14,670 | 0.27 | % | ||||||||||||||||
NOW and money market accounts | 7,849,993 | 8,116 | 0.41 | % | 8,369,103 | 8,769 | 0.42 | % | ||||||||||||||||
Total interest-bearing deposits | 131,776,604 | 495,751 | 1.49 | % | 133,496,416 | 548,997 | 1.63 | % | ||||||||||||||||
Other interest-bearing liabilities | 421,293 | 0 | 0.00 | % | 391,361 | 3 | 0.00 | % | ||||||||||||||||
Total interest-bearing liabilities | 132,197,897 | 495,751 | 1.49 | % | 133,887,777 | 549,000 | 1.63 | % | ||||||||||||||||
Noninterest-bearing deposits | 6,271,782 | 6,987,958 | ||||||||||||||||||||||
Other noninterest-bearing liabilities | 478,143 | 504,825 | ||||||||||||||||||||||
Total liabilities | 138,947,822 | 141,380,560 | ||||||||||||||||||||||
Total shareholders’ equity | 14,186,802 | 14,643,327 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 153,134,624 | $ | 156,023,887 | ||||||||||||||||||||
Net interest income | $ | 941,910 | $ | 960,247 | ||||||||||||||||||||
Interest rate spread | 2.40 | % | 2.42 | % | ||||||||||||||||||||
Net interest margin | 2.54 | % | 2.57 | % | ||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 111.09 | % | 110.51 | % |
· | Average loan balances include nonaccrual loans. |
· | For presentation in this table, balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts. |
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Provision and Allowance for Loan Losses. We maintain an allowance at a level necessary to absorb management’s best estimate of probable loan losses in the portfolio. Management considers, among other factors, historical loss experience, type and amount of loans, borrower concentrations, and current conditions of the economy. In addition, the allowance considers the level of loans which management monitors as a result of inconsistent repayment patterns. Management has identified commercial real estate loans as an area for expected increased lending. Such loans carry a higher degree of credit risk than our historical single-family lending.
Our provision for loan losses increased $11,000 to $90,000 for the three months ended December 31, 2011, from $79,000 for the three months ended December 31, 2010. At December 31, 2011, the allowance for loan losses was $776,000, or 0.91% of the total end of period loan portfolio, compared to $636,000 or 0.73% of the total end of period loan portfolio at March 31, 2011, and $595,000, or 0.68% of the total end of period loan portfolio at December 31, 2010. We had $216,000 of 1-4 single family residential mortgage nonaccrual loans and $8,000 of consumer nonaccrual loans at December 31, 2011, compared to $9,000 of 1-4 single family residential mortgages at March 31, 2011, and $269,000 of 1-4 single family residential mortgages at December 31, 2010.
Management also reviews individual loans for which full collectability may not be reasonably assured and considers, among other matters, the estimated fair value of the underlying collateral. This evaluation is ongoing and results in variations in our provision for loan losses.
We had no loan recoveries and $74,000 charge-offs during the three months ended December 31, 2011, compared to no recoveries and $28,000 of charge-offs during the three months ended December 31, 2010.
Although management utilizes its best judgment in providing for losses, there can be no assurance that they will not have to increase the allowance for loan losses in subsequent periods. Management will continue to monitor the allowance for loan losses and make additional provisions to the allowance as appropriate.
Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated.
At or for the Three | ||||||||
Months Ended December 31, | ||||||||
2011 | 2010 | |||||||
Allowance for loan losses at beginning of period | $ | 760,000 | $ | 544,500 | ||||
Provision for loan losses | 90,000 | 78,832 | ||||||
Recoveries: | ||||||||
Loans secured by mortgages: | ||||||||
1-4 single family residential | 0 | 0 | ||||||
Charge-offs: | ||||||||
Loans secured by mortgages: | ||||||||
1-4 single family residential | (60,500 | ) | (28,232 | ) | ||||
Commercial | (13,202 | ) | 0 | |||||
Total charge-offs | (73,702 | ) | (28,232 | ) | ||||
Net charge-offs | (73,702 | ) | (28,232 | ) | ||||
Allowance for loan losses at end of period | $ | 776,298 | $ | 595,100 | ||||
Allowance for loan losses to non-performing loans | 346.96 | % | 221.08 | % | ||||
Allowance for loan losses to total loans outstanding at the end of the period | 0.91 | % | 0.68 | % | ||||
Net charge-offs to average loans outstanding during the period | 0.09 | % | 0.03 | % |
At December 31, 2011, Madison had one troubled debt restructuring (TDR) in the amount of $384,000. The loan is in accrual status and in compliance with its modified terms, and therefore, not included in the nonperforming ratio above. Madison has taken a $50,000 specific reserve against the loan.
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Noninterest Revenue. Noninterest revenue decreased for the three months ended December 31, 2011, to $98,000 as compared to $128,000 for the three months ended December 31, 2010. The decrease during the period was primarily due to a decrease of $18,000 in income from the sublease of a portion of the previous administrative headquarters and a decrease in gain on sale of investment securities of $8,000.
Noninterest Expenses. Noninterest expense decreased by $76,000 or 7.6% to $932,000 for the three months ended December 31, 2011, primarily due to a decreases in occupancy and equipment expenses, professional services, and FDIC and OCC/OTS assessments, which were partially offset by increases in salaries and employee benefits and other miscellaneous operating expenses. The company reduced its occupancy and equipment expense by $65,000, the majority of which was due to the moving of the administrative headquarters in March 2011.
Income Tax Expense. For the three months ended December 31, 2011 and 2010, we incurred no income tax expense. At March 31, 2011, we had a net operating loss carry-forward totaling approximately $479,000, which expires in 2030 and 2031. We also had a capital loss carry-forward of approximately $566,000, which expires in 2014. We have established a valuation allowance to reflect uncertainty as to our ability to realize our deferred tax asset. See Note 13 of the notes to consolidated financial statements for March 31, 2011, filed in our Annual Report on Form 10-K.
Results of Operations for the Nine Months Ended December 31, 2011 and 2010
Overview. Our net income was $22,000 for the nine months ended December 31, 2011, compared to a net loss of $16,000 for the nine months ended December 31, 2010. The increase in net income for the 2011 period was from an increase in net interest income and a decrease in noninterest expense primarily from a decrease in occupancy expense from the move of the administrative headquarters in March 2011, and a decrease in FDIC premium due to a change in calculation methodology. These increases to income were offset by a decrease in other income which includes a decrease in fee income from the sale of non-deposit products, a decrease in lease income from the sublease of a portion of the previous administrative headquarters, a decrease in investment security gains, and an increase in the provision for loan losses.
Net Interest Income. Net interest income increased by $21,000 to $2.9 million for the nine months ended December 31, 2011, as compared to the nine months ended December 31, 2010, due to a decrease in the cost of funds for deposits, partially offset by a decrease in the yield on earning assets. Our interest rate spread was 2.45% for the nine months ended December 31, 2011, compared to 2.49% for the nine months ended December 31, 2010, and our net interest margin decreased to 2.58% for the nine months ended December 31, 2011, from 2.62% for the nine months ended December 31, 2010. Both decreases in interest rate spread and net interest margin can be attributed to the decreased yield on investment securities.
Interest on loans decreased by $219,000 to $3.6 million for the nine months ended December 31, 2011. The average balance of loans decreased by $5.2 million to $84.1 million for the nine months ended December 31, 2011, from $89.3 million for the nine months ended December 31, 2010. The average yield on loans remained flat at 5.62% for the nine months ended December 31, 2011 and 2010.
Interest on securities available-for-sale increased by $121,000 for the nine months ended December 31, 2011, as compared to the nine months ended December 31, 2010, due to an increase in average balances of $18.4 million from the investment of excess liquidity. This increase in average balances was offset by a 58 basis point decrease in the average yield. On December 31, 2010, the entire held-to-maturity investment portfolio of $1.2 million was transferred to available-for-sale and was subsequently sold in May 2011. Interest on securities held-to-maturity was $63,000 for the nine months ended December 31, 2010.
Interest on interest-bearing deposits was $20,000 for the nine months ended December 31, 2011, as compared to $41,000 for the nine months ended December 31, 2010, as a result of an $8.4 million decrease in average balances.
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Interest expense on total deposits decreased $204,000 for the nine months ended December 31, 2011, from $1.7 million for the nine months ended December 31, 2010, to $1.5 million for the nine months ended December 31, 2011, due to a 19 basis point decrease in the average cost of interest-bearing deposits and a $722,000 decrease in the average balance of interest-bearing deposits. Interest on certificates of deposits decreased $191,000 to $1.5 million for the nine months ended December 31, 2011, as a result of a 24 basis point decrease in average cost of deposits and a decrease in average balances of $453,000. Interest on savings deposits decreased $6,000 to $37,000 for the nine months ended December 31, 2011, as compared to the nine months ended December 31, 2010, due to a 4 basis point decrease in the average cost of deposits offset by a $211,000 increase in average balances. Interest on NOW and money market deposit accounts decreased by $6,000 to $25,000 for the nine months ended December 31, 2011, due to a 7 basis point decrease in the average cost of the deposits and a decrease in average balances of $480,000.
29 |
Average Balance and Yields. The following table for the nine months ended December 31, 2011 and 2010, presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing the annualized income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Amortization of net deferred loan fees is included in interest income on loans and is insignificant. Nonaccruing loans have been included in the table as loans carrying a zero yield. No tax-equivalent adjustments were made.
Nine Months Ended December 31, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Average
Balance | Interest | Yield/
Cost | Average
Balance | Interest | Yield/
Cost | |||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Interest-bearing deposits | $ | 9,191,403 | $ | 19,760 | 0.29 | % | $ | 17,623,415 | $ | 41,306 | 0.31 | % | ||||||||||||
Investment securities available-for-sale | 53,078,872 | 786,727 | 1.98 | % | 34,671,865 | 665,370 | 2.56 | % | ||||||||||||||||
Investment securities held-to-maturity | 0 | 0 | 0.00 | % | 1,802,920 | 63,334 | 4.68 | % | ||||||||||||||||
Loans receivable, net | 84,039,935 | 3,561,320 | 5.62 | % | 89,271,062 | 3,780,677 | 5.62 | % | ||||||||||||||||
Other interest-earning assets | 679,782 | 21,050 | 4.11 | % | 716,805 | 21,255 | 3.94 | % | ||||||||||||||||
Total interest-earning assets | 146,989,992 | 4,388,857 | 3.97 | % | 144,086,067 | 4,571,942 | 4.21 | % | ||||||||||||||||
Noninterest-earning assets | 6,638,261 | 7,104,875 | ||||||||||||||||||||||
Total assets | $ | 153,628,253 | $ | 151,190,942 | ||||||||||||||||||||
Liabilities and Shareholders’ Equity: | ||||||||||||||||||||||||
Time deposits | $ | 102,398,245 | 1,467,424 | 1.90 | % | $ | 102,851,672 | 1,658,317 | 2.14 | % | ||||||||||||||
Savings | 22,412,257 | 36,526 | 0.22 | % | 22,200,878 | 43,301 | 0.26 | % | ||||||||||||||||
NOW and money market accounts | 8,079,981 | 25,303 | 0.42 | % | 8,560,332 | 31,449 | 0.49 | % | ||||||||||||||||
Total interest-bearing deposits | 132,890,483 | 1,529,253 | 1.53 | % | 133,612,882 | 1,733,067 | 1.72 | % | ||||||||||||||||
Other interest-bearing liabilities | 478,815 | 0 | 0.00 | % | 473,608 | 42 | 0.01 | % | ||||||||||||||||
Total interest-bearing liabilities | 133,369,298 | 1,529,253 | 1.52 | % | 134,086,490 | 1,733,109 | 1.72 | % | ||||||||||||||||
Noninterest-bearing deposits | 5,951,875 | 5,982,406 | ||||||||||||||||||||||
Other noninterest-bearing liabilities | 450,027 | 456,261 | ||||||||||||||||||||||
Total liabilities | 139,771,200 | 140,525,157 | ||||||||||||||||||||||
Total shareholders’ equity | 13,857,053 | 10,665,785 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 153,628,253 | $ | 151,190,942 | ||||||||||||||||||||
Net interest income | $ | 2,859,604 | $ | 2,838,833 | ||||||||||||||||||||
Interest rate spread | 2.45 | % | 2.49 | % | ||||||||||||||||||||
Net interest margin | 2.58 | % | 2.62 | % | ||||||||||||||||||||
Average interest-earning assets to average | ||||||||||||||||||||||||
interest-bearing liabilities | 110.21 | % | 107.46 | % |
· | Average loan balances include nonaccrual loans. |
· | For presentation in this table, balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts. |
30 |
Provision and Allowance for Loan Losses. We maintain an allowance at a level necessary to absorb management’s best estimate of probable loan losses in the portfolio. Management considers, among other factors, historical loss experience, type and amount of loans, borrower concentrations, and current conditions of the economy. In addition, the allowance considers the level of loans which management monitors as a result of inconsistent repayment patterns. Management has identified commercial real estate loans as an area for expected increased lending. Such loans carry a higher degree of credit risk than our historical single-family lending.
Our provision for loan losses increased $20,000 to $211,000 for the nine months ended December 31, 2011, from $191,000 for the nine months ended December 31, 2010. At December 31, 2011, the allowance for loan losses was $776,000, or 0.91% of the total end of period loan portfolio, compared to $636,000, or 0.73% of the total end of period loan portfolio at March 31, 2011, and $595,000, or 0.68% of the total end of period loan portfolio at December 31, 2010. We had $216,000 of 1-4 single family residential mortgage nonaccrual loans and $8,000 of consumer nonaccrual loans at December 31, 2011, compared to $9,000 of 1-4 single family residential mortgages at March 31, 2011, and $269,000 of 1-4 single family residential mortgages at December 31, 2010. There was one loan transferred to other real estate owned (OREO) in the nine months ended December 31, 2010, in the amount of $434,000 after a charge-off of $174,000. This OREO property was sold in September 2011, at a loss of $10,000 after a write down of $10,000 in the quarter ended June 30, 2011. Net proceeds from the OREO sale were $414,000.
Management also reviews individual loans for which full collectability may not be reasonably assured and considers, among other matters, the estimated fair value of the underlying collateral. This evaluation is ongoing and results in variations in our provision for loan losses.
We had loan recoveries of $3,000 and $74,000 of charge-offs during the nine months ended December 31, 2011, compared to $2,000 of recoveries and $202,000 of charge-offs during the nine months ended December 31, 2010.
Although management utilizes its best judgment in providing for losses, there can be no assurance that they will not have to increase the allowance for loan losses in subsequent periods. Management will continue to monitor the allowance for loan losses and make additional provisions to the allowance as appropriate.
Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated.
At or for the Nine | ||||||||
Months Ended December 31, | ||||||||
2011 | 2010 | |||||||
Allowance for loan losses at beginning of period | $ | 635,535 | $ | 605,000 | ||||
Provision for loan losses | 211,099 | 190,507 | ||||||
Recoveries: | ||||||||
Loans secured by mortgages: | ||||||||
1-4 single family residential | 3,366 | 1,641 | ||||||
Charge-offs: | ||||||||
Loans secured by mortgages: | ||||||||
1-4 single family residential | (60,500 | ) | (28,233 | ) | ||||
Construction | 0 | (173,815 | ) | |||||
Commercial | (13,202 | ) | 0 | |||||
Total charge-offs | (73,702 | ) | (202,048 | ) | ||||
Net charge-offs | (70,336 | ) | (200,407 | ) | ||||
Allowance for loan losses at end of period | $ | 776,298 | $ | 595,100 | ||||
Allowance for loan losses to non-performing loans | 346.96 | % | 221.08 | % | ||||
Allowance for loan losses to total loans outstanding at the end of the period | 0.91 | % | 0.68 | % | ||||
Net charge-offs to average loans outstanding during the period | 0.08 | % | 0.22 | % |
31 |
At December 31, 2011, Madison had one troubled debt restructuring (TDR) in the amount of $384,000. The loan is in accrual status and in compliance with its modified terms, and therefore, not included in the nonperforming ratio above. Madison has taken a $50,000 specific reserve against the loan.
Noninterest Revenue. Noninterest revenue decreased for the nine months ended December 31, 2011, to $225,000 as compared to $336,000 for the nine months ended December 31, 2010. The decrease during the period was due to the decrease in gain on sale of investment securities of $26,000 and a decrease in other income of $84,000, which includes a decrease in fee income from the sale of non-deposit products of $26,000 and a $67,000 decrease in income from the sublease of a portion of the previous administrative headquarters.
Noninterest Expenses. Noninterest expense decreased by $148,000, or 4.92% to $2.9 million for the nine months ended December 31, 2011, primarily due to decreases in occupancy and equipment expenses of $160,000 and FDIC and OCC/OTS assessments of $148,000 which were partially offset by increases in salaries and employee benefits of $109,000, professional services of $10,000, and other miscellaneous operating expenses of $41,000. The majority of the Company’s reduction in occupancy and equipment expense was due to the moving of the administrative headquarters in March 2011. The reduction in FDIC assessments was the result of a change in assessment calculation methodology. Included in other operating expense in the current period was a $10,000 write-down of the carrying value of the OREO property.
Income Tax Expense. For the nine months ended December 31, 2011 and 2010, we incurred no income tax expense. At March 31, 2011, we had a net operating loss carry-forward totaling approximately $479,000, which expires in 2030 and 2031. We also had a capital loss carry-forward of approximately $566,000, which expires in 2014. We have established a valuation allowance to reflect uncertainty as to our ability to realize our deferred tax asset. See Note 13 of the notes to consolidated financial statements for March 31, 2011, filed in our Annual Report on Form 10-K.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds available to meet short-term liquidity needs consist of deposit inflows, loan repayments, and maturities and sales of investment securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. We regularly adjust our investments in liquid assets available to meet short-term liquidity needs based upon our assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities, and (iv) the objectives of our asset/liability management policy. We do not have long-term debt or other financial obligations that would create long-term liquidity concerns.
Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The level of these assets depends on our operating, financing, lending, and investing activities during any given period. At December 31, 2011, cash and cash equivalents totaled $6.2 million. Securities classified as available-for-sale amounted to $55.5 million. The interest-bearing deposits in banks of $736,000 at December 31, 2011, provide additional sources of liquidity. Our liquidity has increased as customers have sought the safety of FDIC insured deposits. In addition, at December 31, 2011, the Bank had the ability to borrow a total of approximately $30.5 million from the Federal Home Loan Bank of Atlanta, and the Bank has a $4.1 million line of credit with a large financial institution. At December 31, 2011, we had no Federal Home Loan Bank advances outstanding or borrowings on the line of credit.
At December 31, 2011, we had $7.6 million in commitments to extend credit outstanding. Certificates of deposit due within one year of December 31, 2011, totaled $61.8 million, or 60.6% of certificates of deposit. We believe the large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for longer periods due to the recent low interest rate environment and local competitive pressures. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2012. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
32 |
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable as the Company is a smaller reporting company.
Item 4. Controls and Procedures
(a) | Disclosure Controls and Procedures |
The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. |
(b) | Changes to Internal Control Over Financial Reporting |
There were no changes in the Company’s internal control over financial reporting during the three months ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. |
Part II – Other Information
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings other than routine legal proceedings in the ordinary course of business. We are not a party to any pending legal proceeding that we believe would have a material adverse effect on our financial condition, results of operations, or cash flows.
Item 1A. Risk Factors
There have been no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
None
33 |
Item 6. Exhibits
3.1 | Articles of Incorporation of Madison Bancorp, Inc. (1) |
3.2 | Bylaws of Madison Bancorp, Inc. (2) |
4.0 | Form of Common Stock Certificate of Madison Bancorp, Inc. (3) |
10.0 | Madison Bancorp Inc. 2011 Equity Incentive Plan (4) |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Chief Financial Officer |
32.0 | Section 1350 Certifications |
101.0* | The following materials from the Company’s Quarterly Report on form 10-Q for the quarter ended December 31, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated statements of Financial Condition; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Changes in shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements, tagged as blocks of text |
*Furnished, not filed. |
(1) | Incorporated herein by reference to exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-167455), as amended, initially filed with the Securities and Exchange Commission on June 11, 2010. |
(2) | Incorporated herein by reference to exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-167455), as amended, initially filed with the Securities and Exchange Commission on June 11, 2010. |
(3) | Incorporated herein by reference to exhibit 4.0 to the Company’s Registration Statement on Form S-1 (File No. 333-167455), as amended, initially filed with the Securities and Exchange Commission on June 11, 2010. |
(4) | Incorporated herein by reference to appendix D to the Company’s Definitive Proxy Materials for its 2011 Annual Meeting of Stockholders’ filed with the Securities and Exchange Commission on October 11, 2011. |
34 |
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.
MADISON BANCORP, INC. | ||
Dated: February 8, 2012 | By: | /s/ Michael P. Gavin |
Michael P. Gavin | ||
President, Chief Executive Officer and Chief | ||
Financial Officer | ||
(duly authorized officer & principal financial | ||
officer) |
35 |
Exhibit 31.1
CERTIFICATION
I, Michael P. Gavin, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Madison Bancorp, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and in preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: February 8, 2012
/s/ Michael P. Gavin | |
Michael P. Gavin | |
President, Chief Executive Officer and | |
Chief Financial Officer | |
(principal executive officer & principal | |
financial officer) |
Exhibit 32.0
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Madison Bancorp, Inc. (the “Company”) for the three months ended December 31, 2011, as filed with the Securities and Exchange Commission (the “Report”), I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company as of and for the period covered by the Report. |
By: | /s/ Michael P. Gavin | |
Michael P. Gavin | ||
President, Chief Executive Officer and Chief | ||
Financial Officer | ||
(principal executive officer & principal financial | ||
officer) |
Dated: February 8, 2012
Earnings per Share
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2011
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Earnings per Share | Note 2. Earnings per Share
When presented, basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The calculation of weighted average common shares outstanding for the three and nine months periods ended December 31, 2010, is based on the period from October 6, 2010, the date of the conversion stock issuance, through December 31, 2010.
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