UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 000-52477

 

 

MAYFLOWER BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Massachusetts   20-8448499

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

30 South Main Street, Middleboro, Massachusetts   02346
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (508) 947-4343

 

 

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 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 (Section 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 definitions 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   ¨   (Do not check if a smaller reporting company)    Smaller Reporting Company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

The number of shares outstanding of each of the registrant’s classes of common stock as of October 24, 2013

 

Common Stock $1.00 par value   2,070,076
(Title of class)   (Shares outstanding)

 

 

 

PART I - FINANCIAL INFORMATION

ITEM I - Financial Statements

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

 

     September 30,
2013 		     March 31,
2013 		 
     (unaudited)      (audited)  
     (In Thousands)  

ASSETS

     

Cash and cash equivalents:

     

Cash and due from banks

   $ 3,485       $ 3,492   

Interest-bearing deposits in banks

     17,406         8,931   
  

 

 

    

 

 

 

Total cash and cash equivalents

     20,891         12,423   

Investment securities:

     

Securities available-for-sale, at fair value

     39,784         48,248   

Securities held-to-maturity (fair value of $39,589 and $47,052, respectively)

     39,412         45,952   
  

 

 

    

 

 

 

Total investment securities

     79,196         94,200   

Loans receivable, net

     129,437         139,321   

Accrued interest receivable

     673         781   

Real estate held for investment

     595         606   

Real estate acquired by foreclosure

     273         139   

Premises and equipment, net

     10,268         10,489   

Deposits with The Co-operative Central Bank

     449         449   

Stock in Federal Home Loan Bank of Boston, at cost

     1,252         1,252   

Refundable income taxes

     127         447   

Deferred income taxes

     216         —     

Other assets

     739         1,237   
  

 

 

    

 

 

 

Total assets

   $ 244,116       $ 261,344   
  

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Deposits

   $ 219,136       $ 235,683   

Advances and borrowings

     1,000         1,000   

Advances from borrowers for taxes and insurance

     717         772   

Deferred income taxes

     —           92   

Accrued expenses and other liabilities

     1,347         1,171   
  

 

 

    

 

 

 

Total liabilities

     222,200         238,718   
  

 

 

    

 

 

 

STOCKHOLDERS’ EQUITY

     

Preferred stock $1.00 par value; authorized 5,000,000 shares; issued - none

     —           —     

Common stock $1.00 par value; authorized 15,000,000 shares; issued 2,065,999 at September 30, 2013 and 2,058,422 at March 31, 2013

     2,066         2,058   

Additional paid-in capital

     4,467         4,383   

Retained earnings

     15,336         15,635   

Accumulated other comprehensive income

     47         550   
  

 

 

    

 

 

 

Total stockholders’ equity

     21,916         22,626   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 244,116       $ 261,344   
  

 

 

    

 

 

 

See accompanying notes to consolidated financial statements

 

2

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

Unaudited

 

     Three months ended
September 30, 		     Six months ended
September 30, 		 
     2013     2012      2013      2012  
     (In Thousands, Except Per Share Data)  

Interest income:

          

Loans receivable

   $ 1,568      $ 1,738       $ 3,255       $ 3,518   

Securities held-to-maturity

     196        275         432         568   

Securities available-for-sale

     189        259         393         547   

Interest-bearing deposits in banks

     6        5         11         11   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total interest income

     1,959        2,277         4,091         4,644   
  

 

 

   

 

 

    

 

 

    

 

 

 

Interest expense:

          

Deposits

     184        257         384         533   

Borrowed funds

     12        12         23         23   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total interest expense

     196        269         407         556   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net interest income

     1,763        2,008         3,684         4,088   

Provision for loan losses

     —          20         —           30   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     1,763        1,988         3,684         4,058   
  

 

 

   

 

 

    

 

 

    

 

 

 

Noninterest income:

          

Loan origination and other loan fees

     52        41         91         60   

Customer service fees

     138        145         274         299   

Gain (loss) on sales of mortgage loans

     (25 )      216         102         377   

Gain on sales of investment securities

     1        70         2         119   

Interchange income

     70        63         139         124   

Other

     26        32         54         59   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total noninterest income

     262        567         662         1,038   
  

 

 

   

 

 

    

 

 

    

 

 

 

Noninterest expense:

          

Compensation and fringe benefits

     1,104        1,082         2,224         2,183   

Occupancy and equipment

     246        247         513         522   

FDIC assessment

     39        35         75         69   

Merger expenses

     295        —           449         —     

Other

     401        611         973         1,167   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total noninterest expense

     2,085        1,975         4,234         3,941   
  

 

 

   

 

 

    

 

 

    

 

 

 

Income (loss) before income taxes

     (60 )      580         112         1,155   

Provision for income taxes

     (39 )      205         39         391   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ (21 )    $ 375       $ 73       $ 764   
  

 

 

   

 

 

    

 

 

    

 

 

 

Earnings (loss) per share (basic)

   $ (0.01 )    $ 0.18       $ 0.04       $ 0.37   
  

 

 

   

 

 

    

 

 

    

 

 

 

Earnings (loss) per share (diluted)

   $ (0.01 )    $ 0.18       $ 0.04       $ 0.37   
  

 

 

   

 

 

    

 

 

    

 

 

 

Weighted average basic shares outstanding

     2,063        2,059         2,057         2,060   

Diluted effect of outstanding stock options

     20        7         10         6   
  

 

 

   

 

 

    

 

 

    

 

 

 

Weighted average diluted shares outstanding

     2,083        2,066         2,067         2,066   
  

 

 

   

 

 

    

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

 

3

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income (Loss)

Unaudited

 

     Six months ended September 30,  
     2013     2012  
     (In thousands)  

Net Income

   $ 73      $ 764   
  

 

 

   

 

 

 

Other comprehensive income (loss)

    

Unrealized holding (losses) gains on available-for-sale securities

     (820 )      289   

Reclassification adjustment for gains realized in income

     (2 )      (119 ) 
  

 

 

   

 

 

 

Net unrealized (losses) gains

     (822 )      170   

Tax effect

     319        (60 ) 
  

 

 

   

 

 

 

Total other comprehensive income (loss)

     (503 )      110   
  

 

 

   

 

 

 

Comprehensive income (loss)

   $ (430 )    $ 874   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

4

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

Unaudited

 

     Common
Stock 		    Additional
Paid-in
Capital 		    Retained
Earnings 		    Accumulated
Other
Comprehensive
Income (Loss) 		    Total  
     (In Thousands)  

BALANCE, March 31, 2012

   $ 2,063      $ 4,321      $ 14,710      $ 790      $ 21,884   

Net income for the six months ended September 30, 2012

     —          —          764        —          764   

Other comprehensive income

     —          —          —          110        110   

Grants of restricted common stock

     1        15        —          —          16   

Stock-based compensation

     —          58        —          —          58   

Purchase of 6,252 shares of Company stock

     (6 )      (11 )      (48 )      —          (65 ) 

Cash dividends ($0.12 per share)

     —          —          (248 )      —          (248 ) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, September 30, 2012

   $ 2,058      $ 4,383      $ 15,178      $ 900      $ 22,519   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, March 31, 2013

   $ 2,058      $ 4,383      $ 15,635      $ 550      $ 22,626   

Net income for the six months ended September 30, 2013

     —          —          73        —          73   

Other comprehensive income (loss)

     —          —          —          (503 )      (503 ) 

Issuance of 5,970 shares of common stock

     6        71        —          —          77   

Grants of restricted common stock

     2        13        —          —          15   

Cash dividends ($0.18 per share)

     —          —          (372 )      —          (372 ) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, September 30, 2013

   $ 2,066      $ 4,467      $ 15,336      $ 47      $ 21,916   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

5

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

Unaudited

 

     Six months ended September 30,  
     2013     2012  
     (In Thousands)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Interest received

   $ 4,561      $ 5,022   

Fees and other income received

     661        908   

FDIC assessment refund

     495        —     

Interest paid

     (410 )      (554 ) 

Cash paid to suppliers and employees

     (3,924 )      (3,594 ) 

Income taxes refunded (paid)

     293        (6 ) 
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,676        1,776   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Net decrease in loans receivable

     9,979        687   

Purchases of available-for-sale securities

     —          (12,291 ) 

Proceeds from sales, calls and maturities of available-for-sale securities

     7,441        14,326   

Purchases of held-to-maturity securities

     —          (12,719 ) 

Proceeds from maturities and calls of held-to-maturity securities

     6,378        12,913   

Proceeds from sales of real-estate acquired by foreclosure

     190        —     

Capital additions to real estate acquired by foreclosure

     (419 )      (120 ) 

Purchases of premises and equipment

     (3 )      (172 ) 

Other - net

     (1 )      (233 ) 
  

 

 

   

 

 

 

Net cash provided by investing activities

     23,565        2,391   
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net decrease in deposits

     (16,547 )      (539 ) 

Net (decrease) increase in advances from borrowers for taxes and insurance

     (55 )      58   

Repurchase of Company stock

     —          (65 ) 

Proceeds from issuance of common stock

     77        —     

Dividends on common stock

     (248 )      (248 ) 
  

 

 

   

 

 

 

Net cash used in financing activities

     (16,773 )      (794 ) 
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     8,468        3,373   

Cash and cash equivalents - beginning of period

     12,423        12,366   
  

 

 

   

 

 

 

Cash and cash equivalents - end of period

   $ 20,891      $ 15,739   
  

 

 

   

 

 

 

 

6

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Continued)

 

Reconciliation of Net Income to Net Cash

Provided by Operating Activities

Unaudited

 

     Six months ended September 30,  
     2013     2012  
     (In Thousands)  

Net income

   $ 73      $ 764   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     235        240   

Provision for loan losses

     —          30   

Premium amortization

     363        324   

Deferred income taxes

     11        (28 ) 

Gain on sales of investments

     (2 )      (119 ) 

Grants of restricted stock

     15        16   

Stock based compensation

     —          58   

Decrease (increase) in accrued interest receivable

     108        54   

Decrease (increase) in prepaid expenses

     500        122   

Decrease (increase) in mortgage servicing rights

     (1 )      (3 ) 

Decrease (increase) in refundable income taxes

     320        413   

Increase (decrease) in accrued expenses

     56        (86 ) 

Increase (decrease) in accrued interest payable

     (3 )      2   

Increase (decrease) in deferred loan origination fees

     1        (11 ) 
  

 

 

   

 

 

 

Total adjustments

     1,603        1,012   
  

 

 

   

 

 

 

Net cash provided by operating activities

   $ 1,676      $ 1,776   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES:

    

Total (decrease) increase in unrealized gain or loss on securities available-for-sale

   $ (822 )    $ 170   
  

 

 

   

 

 

 

Proceeds from sale of foreclosed real estate financed through loans

   $ 100      $ —     
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

7

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

A. Basis of presentation:

The consolidated financial statements of Mayflower Bancorp, Inc. and Subsidiary presented herein should be read in conjunction with the consolidated financial statements of Mayflower Bancorp, Inc. and Subsidiary as of the year ended March 31, 2013. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation. Interim results are not necessarily indicative of results to be expected for the entire year.

 

B. Agreement and Plan of Merger

On May 14, 2013, the Company and the Bank entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Independent Bank Corp. (“Independent”), the parent company of Rockland Trust Company (“Rockland”), pursuant to which the Company will merge with and into Independent. As part of the transaction, the Bank will also merge with and into Rockland. Under the terms of the Merger Agreement, each share of Company common stock, other than shares held by Independent, will convert into the right to receive either (i) $17.50 in cash or (ii) 0.565 shares of Independent common stock, all as more fully set forth in the Merger Agreement and subject to the terms and conditions set forth therein. The Merger Agreement provides that 30% of the aggregate merger consideration will consist of cash and 70% of the aggregate merger consideration will consist of shares of Independent common stock. Following the consummation of the transactions contemplated by the Merger Agreement, the Board of Directors of Independent and Rockland will each consist of its respective directors immediately prior to the merger. The transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval of the merger by the holders of at least two-thirds of the outstanding common shares of the Company. If the merger is not consummated under certain circumstances, the Company has agreed to reimburse Independent up to $625,000 for its reasonably documented fees and expenses and to pay Independent a termination fee of $1.5 million; provided however, that any amounts paid in reimbursement will be credited against the termination fee payable. Currently, the merger is expected to be completed in the fourth quarter of calendar year 2013.

 

C. Reclassification:

Certain amounts in the prior period’s consolidated financial statements were reclassified to facilitate comparison with the current period.

 

D. Recent Accounting Pronouncements:

In February 2013, the FASB issued Accounting Standards Update 2013-02 (ASU 2013-02), Comprehensive Income (Topic 220) . This Update states that the amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes to the financial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amounts reclassified is required under U.S. GAAP to be reclassified in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. Early adoption is permitted. The adoption of this Update will not have an impact on the Company’s consolidated financial position.

 

8

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

E. Investment Securities

Investment securities have been classified according to management’s intent. The amortized cost of securities and their respective fair values at September 30, 2013 and March 31, 2013 follows:

 

     Amortized
Cost 		     Gross
Unrealized
Gains 		     Gross
Unrealized
Losses 		    Fair
Value 		 
     September 30, 2013  
     (In Thousands)  

AVAILABLE-FOR-SALE SECURITIES:

          

U.S. Government Agency obligations

   $ 11,496       $ —         $ (157 )    $ 11,339   

Municipal obligations

     2,555         78         (6 )      2,627   

Mortgage-backed and related securities

     24,911         529         (367 )      25,073   

Trust preferred securities

     750         —           (5 )      745   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 39,712       $ 607       $ (535 )    $ 39,784   
  

 

 

    

 

 

    

 

 

   

 

 

 

HELD-TO-MATURITY SECURITIES:

          

U.S. Government Agency obligations

   $ 9,995       $ —         $ (159 )    $ 9,836   

Municipal obligations

     2,716         122         (13 )      2,825   

Mortgage-backed and related securities

     26,701         673         (446 )      26,928   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 39,412       $ 795       $ (618 )    $ 39,589   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     Amortized
Cost 		     Gross
Unrealized
Gains 		     Gross
Unrealized
Losses 		    Fair
Value 		 
     March 31, 2013  
     (In Thousands)  

AVAILABLE-FOR-SALE SECURITIES:

          

U.S. Government Agency obligations

   $ 14,996       $ 19       $ (2 )    $ 15,013   

Municipal obligations

     2,564         148         —          2,712   

Mortgage-backed and related securities

     29,044         751         (34 )      29,761   

Trust preferred securities

     750         12         —          762   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 47,354       $ 930       $ (36 )    $ 48,248   
  

 

 

    

 

 

    

 

 

   

 

 

 

HELD-TO-MATURITY SECURITIES:

          

U.S. Government Agency obligations

   $ 11,997       $ 16       $ (4 )    $ 12,009   

Municipal obligations

     2,970         204         —          3,174   

Mortgage-backed and related securities

     30,985         957         (73 )      31,869   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 45,952       $ 1,177       $ (77 )    $ 47,052   
  

 

 

    

 

 

    

 

 

   

 

 

 

There was no impairment charge recognized against investment securities during the six months ended September 30, 2013 or 2012.

The scheduled maturities of securities held-to-maturity and securities (other than trust preferred securities) available-for-sale at September 30, 2013 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

9

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

     Held-to-Maturity      Available-for-Sale  
     Amortized
Cost 		     Fair
Value 		     Amortized
Cost 		     Fair
Value 		 
     (In Thousands)  

Due in 1 year or less

   $ —         $ —         $ —         $ —     

Due after 1 year through 5 years

     9,496         9,348         10,753         10,615   

Due after 5 years through 10 years

     2,502         2,590         2,520         2,562   

Due after 10 years

     713         723         778         789   
  

 

 

    

 

 

    

 

 

    

 

 

 
     12,711         12,661         14,051         13,966   

Mortgage-backed and related securities

     26,701         26,928         24,911         25,073   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 39,412       $ 39,589       $ 38,962       $ 39,039   
  

 

 

    

 

 

    

 

 

    

 

 

 

Information pertaining to securities with gross unrealized losses at September 30, 2013, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

 

     Less Than Twelve Months      Twelve Months or Greater      Total  
     Fair
Value 		     Gross
Unrealized
Losses 		     Fair
Value 		     Gross
Unrealized
Losses 		     Fair
Value 		     Gross
Unrealized
Losses 		 

Securities Available-for-Sale:

                 

U.S. Government agency obligations

   $ 11,339       $ 157       $ —         $ —         $ 11,339       $ 157   

Municipal obligations

     511         6         —           —           511         6   

Mortgage-backed and related securities

     12,708         367         —           —           12,708         367   

Trust preferred securities

     745         5         —           —           745         5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available-for-sale

   $ 25,303       $ 535       $ —         $ —         $ 25,303       $ 535   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities Held-to-Maturity:

                 

U.S. Government agency obligations

   $ 9,836       $ 159       $ —         $ —         $ 9,836       $ 159   

Municipal obligations

     181         13         —           —           181         13   

Mortgage-backed and related securities

     12,004         446         —           —           12,004         446   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held-to-maturity

   $ 22,021       $ 618       $ —         $ —         $ 22,021       $ 618   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

10

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

F. Loans Receivable

Loans receivable at September 30, 2013 and March 31, 2013 are summarized as follows:

 

(In Thousands)

   September 30,
2013 		    March 31,
2013 		 

Mortgage loans on real estate

    

Residential

   $ 63,919      $ 69,295   

Commercial

     39,865        42,666   

Construction

     6,528        6,946   

Home equity loans

     2,391        2,587   

Home equity lines of credit

     15,340        15,713   
  

 

 

   

 

 

 

Total mortgage loans

     128,043        137,207   

Consumer loans

     1,220        1,461   

Commercial loans

     3,599        4,340   
  

 

 

   

 

 

 

Total loans

     132,862        143,008   
  

 

 

   

 

 

 

Less:

    

Due borrowers on construction and other loans

     2,287        2,553   

Net deferred loan origination costs

     (74 )      (74 ) 

Allowance for loan losses

     1,212        1,208   
  

 

 

   

 

 

 
     3,425        3,687   
  

 

 

   

 

 

 

Loans receivable, net

   $ 129,437      $ 139,321   
  

 

 

   

 

 

 

Included in the above table are fixed-rate residential mortgages purchased by the Company with total balances of $14,159,000 and $18,832,000, at September 30, 2013 and March 31, 2013, respectively. The unamortized premium included in these balances was $203,000 at September 30, 2013 and $313,000 at March 31, 2013.

 

11

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based upon impairment method as of September 30, 2013 and March 31, 2013.

 

     Residential
Mortgages 		     Commercial
Mortgages 		    Construction
Mortgages 		    Home Equity
Loans and
Lines of
Credit 		     Commercial
Loans 		    Consumer
Loans 		    Unallocated      Total  

(In Thousands)

   September 30, 2013  

Allowance for loan losses:

                   

Beginning balance

   $ 173       $ 640      $ 55      $ 238       $ 89      $ 13      $ —         $ 1,208   

Loans charged off

     —           —          —          —           —          —          —           —     

Recoveries

     1         —          1        —           2        —          —           4   

Provision for loan losses

     15         (3 )      (3 )      12         (19 )      (2 )      —           —     
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Ending Balance

   $ 189       $ 637      $ 53      $ 250       $ 72      $ 11      $ —         $ 1,212   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —         $ 251      $ —        $ 50       $ —        $ —        $ —         $ 301   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 189       $ 386      $ 53      $ 200       $ 72      $ 11      $ —         $ 911   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Loans Receivable:

                   

Ending balance

   $ 63,919       $ 39,865      $ 4,241      $ 17,731       $ 3,599      $ 1,220      $ —         $ 130,575   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —         $ 2,364      $ —        $ 293       $ —        $ —        $ —         $ 2,657   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 63,919       $ 37,501      $ 4,241      $ 17,438       $ 3,599      $ 1,220      $ —         $ 127,918   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

12

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

     Residential
Mortgages 		    Commercial
Mortgages 		     Construction
Mortgages 		    Home Equity
Loans and
Lines of
Credit 		    Commercial
Loans 		    Consumer
Loans 		    Unallocated      Total  

(In Thousands)

   March 31, 2013  

Allowance for loan losses:

                  

Beginning balance

   $ 182      $ 585       $ 65      $ 246      $ 114      $ 25      $ —         $ 1,217   

Loans charged off

     —          —           —          (57 )      —          —          —           (57 ) 

Recoveries

     1        —           —          1        6        —          —           8   

Provision for loan losses

     (10 )      55         (10 )      48        (31 )      (12 )      —           40   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending Balance

   $ 173      $ 640       $ 55      $ 238      $ 89      $ 13      $ —         $ 1,208   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 211       $ —        $ 30      $ —        $ —        $ —         $ 241   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 173      $ 429       $ 55      $ 208      $ 89      $ 13      $ —         $ 967   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loans Receivable:

                  

Ending balance

   $ 69,295      $ 42,666       $ 4,393      $ 18,300      $ 4,340      $ 1,461      $ —         $ 140,455   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 1,808       $ —        $ 148      $ —        $ —        $ —         $ 1,956   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 69,295      $ 40,858       $ 4,393      $ 18,152      $ 4,340      $ 1,461      $ —         $ 138,499   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

13

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

Impaired loans at September 30, 2013 and March 31, 2013 were as follows:

 

                                                      
     September 30, 2013      Six Months Ended
September 30, 2013 		 

(In Thousands)

   Recorded
Investment 		     Unpaid
Principal
Balance 		     Related
Allowance 		     Average
Recorded
Investment 		     Interest
Income
Recognized 		 

With no related allowance recorded:

              

Home equity loans and lines of credit

   $ 114       $ 114       $ —         $ 115       $ 2   

Commercial mortgages

     175         175         —           200         3   

With an allowance recorded:

              

Home equity loans and lines of credit

     179         179         50         180         4   

Commercial mortgages

     2,189         2,189         251         2,201         57   

Totals:

              

Home equity loans and lines of credit

     293         293         50         295         6   

Commercial mortgages

     2,364         2,364         251         2,401         60   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 2,657       $ 2,657       $ 301       $ 2,696       $ 66   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                      
     March 31, 2013      Year ended
March 31, 2013 		 

(In Thousands)

   Recorded
Investment 		     Unpaid
Principal
Balance 		     Related
Allowance 		     Average
Recorded
Investment 		     Interest
Income
Recognized 		 

With no related allowance recorded:

              

Home equity loans and lines of credit

   $ 118       $ 118       $ —         $ 119       $ 3   

Commercial mortgages

     —           —           —           —           —     

With an allowance recorded:

              

Home equity loans and lines of credit

     30         30         30         30         1   

Commercial mortgages

     1,808         1,808         211         1,832         108   

Totals:

              

Home equity loans and lines of credit

     148         148         30         149         4   

Commercial mortgages

     1,808         1,808         211         1,832         108   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 1,956       $ 1,956       $ 241       $ 1,981       $ 112   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still accruing by portfolio segment as of September 30, 2013 and March 31, 2013:

 

     Non
accrual 		     Loans Past
Due Over 90
Days and Still
Accruing 		     Non
accrual 		     Loans Past
Due Over 90
Days and Still
Accruing 		 

(In Thousands)

   September 30, 2013      March 31, 2013  

Commercial mortgages

   $ 874       $ —         $ 298       $ —     

Home equity loans and lines of credit

     243         —           147         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,117       $ —         $ 445       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

14

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

The following table presents the aging of the recorded investment in past due loans as of September 30, 2013 and March 31, 2013 follows:

 

                                                                                         
     30-59 Days
Past Due 		     60-89 Days
Past Due 		     Greater
Than 90
Days Past
Due 		     Total Past
Due 		     Current      Total
Loans
Receivable 		 

(In Thousands)

   September 30, 2013  

Residential Mortgages

   $ 19       $ 217       $ —         $ 236       $ 63,683       $ 63,919   

Commercial Mortgages

     —           —           874         874         38,991         39,865   

Construction Mortgages

     —           —           —           —           4,241         4,241   

Home Equity Loans and Lines of Credit

     15         —           213         228         17,503         17,731   

Commercial Loans

     —           2         —           2         3,597         3,599   

Consumer Loans

     —           —           —           —           1,220         1,220   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 34       $ 219       $ 1,087       $ 1,340       $ 129,235       $ 130,575   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                         
     30-59 Days
Past Due 		     60-89 Days
Past Due 		     Greater
Than 90
Days Past
Due 		     Total Past
Due 		     Current      Total
Loans
Receivable 		 

(In Thousands)

   March 31, 2013  

Residential Mortgages

   $ 239       $ —         $ —         $ 239       $ 69,056       $ 69,295   

Commercial Mortgages

     181         298         —           479         42,187         42,666   

Construction Mortgages

     —           —           —           —           4,393         4,393   

Home Equity Loans and Lines of Credit

     28         —           147         175         18,125         18,300   

Commercial Loans

     3         —           —           3         4,337         4,340   

Consumer Loans

     —           —           —           —           1,461         1,461   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 451       $ 298       $ 147       $ 896       $ 139,559       $ 140,455   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

There were no loans modified as troubled debt restructures during the six months ended September 30, 2013.

During the fiscal year ended, March 31, 2013, the Company modified two commercial mortgages as troubled debt restructures. The pre-modification and post-modification recorded investment of these loans was $654,000.

For one restructure, a rate reduction of 2.0% and a maturity extension of 4 years were granted. Because repayment of the mortgage was expected to be provided solely by the operation of the underlying collateral, the Company used the fair value of the collateral to measure impairment. As of September 30, 2013, the current balance of this loan was $295,000, and the loan was not in compliance with its modified terms and is in non-performing status.

For the second restructure, a rate reduction of 2.0% was granted and principal payments were suspended for six months while the borrower attempts to market the property for sale. Principal payments have since resumed. A discounted cash flow calculation was used to determine the amount of impairment reserve required. As of September 30, 2013, the current balance of this loan was $348,000, and the loan was in compliance with its modified terms.

 

15

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

Losses on loans modified as troubled debt restructures, if any, are charged against the allowance for loan losses when management believes the uncollectibility of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for loan losses.

Credit Quality Information

The Company utilizes the following indicators to assess credit quality:

Loans rated Pass: Loans in this category have low to average risk.

Loans rated Special Mention: Loans in this category are currently protected, but exhibit conditions that have the potential for weakness. The borrower may be affected by unfavorable economic, market or other external conditions that may affect their ability to repay the debt. These may also include credits where there is deterioration of the collateral or have deficiencies which may affect the Company’s ability to collect on the collateral.

Loans rated Substandard: Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable.

On a quarterly basis, or more often if needed, the Company reviews the ratings on commercial mortgages, construction mortgages, and commercial loans.

The following table displays the loan portfolio by credit quality indicators as of September 30, 2013 and March 31, 2013:

 

                                                                                                        
     Residential
Mortgages 		     Commercial
Mortgages 		     Construction
Mortgages 		     Home Equity
Loans and
Lines of
Credit 		     Commercial
Loans 		     Consumer
Loans 		     Total  

(In Thousands)

   September 30, 2013  

Pass

   $ 63,919       $ 35,827       $ 4,241       $ 17,438       $ 3,184       $ 1,220       $ 125,829   

Special mention

     —           2,198         —           —           364         —           2,562   

Substandard

     —           1,840         —           293         51         —           2,184   

Doubtful

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 63,919       $ 39,865       $ 4,241       $ 17,731       $ 3,599       $ 1,220       $ 130,575   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                                        
     Residential
Mortgages 		     Commercial
Mortgages 		     Construction
Mortgages 		     Home Equity
Loans and
Lines of
Credit 		     Commercial
Loans 		     Consumer
Loans 		     Total  

(In Thousands)

   March 31, 2013  

Pass

   $ 69,295       $ 39,160       $ 4,393       $ 18,152       $ 4,282       $ 1,461       $ 136,743   

Special mention

     —           2,049         —           —           —           —           2,049   

Substandard

     —           1,457         —           118         58         —           1,633   

Doubtful

     —           —           —           30         —           —           30   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 69,295       $ 42,666       $ 4,393       $ 18,300       $ 4,340       $ 1,461       $ 140,455   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

16

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

G. Other Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the stockholders’ equity section of the consolidated balance sheet, such items, along with net income, are components of comprehensive income.

At September 30, 2013 and March 31, 2013, accumulated other comprehensive income relates to unrealized gains on available-for sale securities of $72,000 and $894,000, respectively, net of tax effects of $25,000 and $344,000, respectively.

 

H. Fair Values of Financial Instruments

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is 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. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash, due from banks, federal funds sold and interest-bearing deposits: The carrying amounts reported in the consolidated statements of financial condition for cash, due from banks, federal funds sold and interest-bearing deposits, approximate those assets’ fair values.

Investment Securities: Fair values of investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, such as commercial real estate, residential mortgage, and other consumer. Each loan category is further segmented into fixed and adjustable rate interest terms, and by performing and non-performing categories.

The fair value of performing loans, except residential mortgage loans, is calculated by discounting contractual cash flows using estimated market discount rates which reflect the credit and interest rate risk inherent in the loan. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs.

Fair value for significant non-performing loans is based on recent internal or external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information.

 

17

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

The carrying amount of accrued interest receivable approximates its fair value.

Deposits with The Co-operative Central Bank and Stock in Federal Home Loan Bank: The carrying amount of the deposits with The Co-operative Central Bank approximates its fair value. The carrying amount of the stock in Federal Home Loan Bank is at cost, since it is not practicable to estimate the fair value because the stock is not marketable.

Deposit Liabilities: The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings and NOW accounts, and money market and checking accounts, is equal to the amount payable on demand (that is, their carrying amounts). The fair value of certificates of deposit is based on the discounted value of contractual cash flows.

Advances and Borrowings: Fair values of advances and borrowings are estimated by discounting the future cash payment using rates currently available to the Company for borrowings with similar terms and maturities.

Commitments to Extend Credit: Commitments to extend credit were evaluated and fair value was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

Limitations: The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and such other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

In addition, the fair value estimates are based on existing on-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets or liabilities include the deferred tax assets or liabilities, and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

 

18

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

The estimated fair values of the Company’s financial instruments at September 30, 2013 and March 31, 2013 were as follows:

 

     Carrying
Amount 		     Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) 		     Significant
Other
Observable
Inputs
(Level 2) 		     Significant
Other
Unobservable
Inputs
(Level 3) 		 

(In Thousands)

   September 30, 2013  

Financial assets:

           

Cash and due from banks

   $ 3,485       $ 3,485       $ —         $ —     

Interest-bearing deposits in banks

     17,406         17,406         —           —     

Investment securities

     79,196         —           79,373         —     

Loans, net

     129,437         —           —           131,371   

Accrued interest receivable

     673         —           —           673   

Deposits with The Co-operative Central Bank

     449         N/A         N/A         N/A   

Stock in Federal Home Loan Bank of Boston

     1,252         N/A         N/A         N/A   

Financial liabilities:

           

Deposits:

           

Checking, savings and money market accounts

     147,556         147,556         —           —     

Certificates of deposit

     71,580         —           71,904         —     

Advances and borrowings

     1,000         —           1,153         —     

 

     Carrying
Amount 		     Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) 		     Significant
Other
Observable
Inputs
(Level 2) 		     Significant
Other
Unobservable
Inputs
(Level 3) 		 

(In Thousands)

   March 31, 2013  

Financial assets:

           

Cash and due from banks

   $ 3,492       $ 3,492       $ —         $ —     

Interest-bearing deposits in banks

     8,931         8,931         —           —     

Investment securities

     94,200         —           95,300         —     

Loans, net

     139,321         —           —           141,996   

Accrued interest receivable

     781         —           —           781   

Deposits with The Co-operative Central Bank

     449         N/A         N/A         N/A   

Stock in Federal Home Loan Bank of Boston

     1,252         N/A         N/A         N/A   

Financial liabilities:

           

Deposits:

           

Checking, savings and money market accounts

     157,606         157,606         —           —     

Certificates of deposit

     78,077         —           78,464         —     

Advances and borrowings

     1,000         —           1,167         —     

 

I. Fair Value Measurements

The Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

 

19

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs as of the measurement date other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means for substantially the full term of the asset.

Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability as of the measurement date. These financial instruments do not have two way markets and are measured using management’s best estimate of fair value.

The following is a description of the Company’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis:

Securities available-for-sale: Securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, when available. If quoted prices are not available, fair values are measured using pricing models.

The Company utilizes a third party pricing service to obtain fair values for investment securities. The pricing service utilizes the following method to value the security portfolio.

The securities measured at fair value utilizing Level 1 inputs are marketable equity securities and utilizing Level 2 inputs are corporate debt securities, municipal obligations, U.S. Government and Agency obligations, including mortgage-backed and related securities, trust preferred securities, and equity securities. The fair values represent either quoted market prices for the identical securities (Level 1 inputs) or fair values determined by pricing models that consider standard input factors such as observable market data, benchmark yields, reported trades, broker/dealer quotes, credit spreads, benchmark securities, as well as new issue data, monthly payment information, and collateral performance, among others. The Company does not currently have any Level 3 securities in its portfolio.

Loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, non-recurring fair value adjustments to collateral dependent loans are recorded to reflect partial write-downs based on the observable market price or current appraised value of the collateral.

Real estate acquired by foreclosure: From time to time, the Company records non-recurring fair value adjustments to foreclosed real estate to reflect partial write-downs based on observable market prices or current appraised values.

 

20

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

The balances of assets and liabilities measured at fair value as of September 30, 2013 and March 31, 2013, were as follows:

 

     Assets at
Fair Value 		     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) 		     Significant
Other
Observable
Inputs
(Level 2) 		     Significant
Other
Unobservable
Inputs
(Level 3) 		 

(In thousands)

   September 30, 2013  

Financial instruments measured at fair value on a recurring basis:

           

Securities available-for-sale:

           

U.S. Government Agency obligations

   $ 11,339       $ —         $ 11,339       $ —     

Municipal obligations

     2,627         —           2,627         —     

Mortgage-backed and related securities

     25,073         —           25,073         —     

Trust preferred securities

     745         —           745         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities available-for-sale

   $ 39,784       $ —         $ 39,784       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Assets measured at fair value on a non-recurring basis:

           

Impaired loans

   $ 2,657       $ —         $ 2,657       $ —     

Real estate acquired by foreclosure

   $ 273       $ —         $ 273       $ —     

 

     Assets at
Fair Value 		     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) 		     Significant
Other
Observable
Inputs
(Level 2) 		     Significant
Other
Unobservable
Inputs
(Level 3) 		 

(In thousands)

   March 31, 2013  

Financial instruments measured at fair value on a recurring basis:

           

Securities available-for-sale:

           

U.S. Government Agency obligations

   $ 15,013       $ —         $ 15,013       $ —     

Municipal obligations

     2,712         —           2,712         —     

Mortgage-backed and related securities

     29,761         —           29,761         —     

Trust preferred securities

     762         —           762         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities available-for-sale

   $ 48,248       $ —         $ 48,248       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Assets measured at fair value on a non-recurring basis:

           

Impaired loans

   $ 1,956       $ —         $ 1,956       $ —     

Real estate acquired by foreclosure

   $ 139       $ —         $ 139       $ —     

 

J. Stock-Based Compensation

The Company accounts for stock-based compensation pursuant to ASC 718 Compensation - Stock Compensation (“ASC 718”). The Company uses the Black-Scholes option pricing model as its method for determining the fair value of stock option grants. In 1999, the Company adopted a Stock Option and Incentive Plan for the benefit of officer and non-officer employees and directors of the Company. Shares reserved under this plan totaled 99,750 shares of authorized but unissued common stock. This plan expired in 2009. All remaining awards outstanding under this plan were granted in December 2005. However, awards outstanding at the time the plan expired continue to remain outstanding according to their terms.

 

21

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

On August 24, 2010, the Company’s stockholders approved the Mayflower Bancorp, Inc. 2010 Equity Incentive Plan (the “Incentive Plan”). Under this plan, 156,475 shares have been reserved for issuance as options to purchase stock, restricted stock, or other stock awards, of which a maximum of 104,317 may be granted as restricted shares. The exercise price of an option may not be less than the fair market value of the Company’s common stock on the date of the grant of the option and may not be exercisable more than ten years after the date of the grant. As of September 30, 2013, 124,650 shares remained unissued and available for award under the Incentive Plan, of which 96,282 are available as restricted stock.

Forfeitures of awards granted under the incentive plan are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates in order to derive the Company’s best estimate of awards ultimately expected to vest. Estimated forfeiture rates represent only the unvested portion of a surrendered option and are typically estimated based on historical experience. Based on an analysis of the Company’s historical data, the Company applied no forfeiture rate to stock options outstanding in determining stock compensation expense for the six months ended September 30, 2013 or 2012.

The fair value of the stock options granted was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

 

     Six months
ended
September 30,
2012 		 

Weighted average fair value

   $ 2.92   

Total options granted

     19,855   

Expected dividend yield

     3.31 % 

Risk-free interest rate

     1.69 % 

Expected volatility

     41.95 % 

Expected life in years

     5.00   

There was no stock option compensation expense for the six months ended September 30, 2013. Stock option compensation expense was $58,000 for the six months ended September 30, 2012.

Stock option activity was as follows:

 

     Six months ended September 30,  
     2013      2012  
     Number of
Shares 		    Average
Exercise Price 		     Number of
Shares 		    Average
Exercise Price 		 

Options outstanding beginning of period

     45,740      $ 11.92         26,885      $ 13.20   

Options granted

     —          —           19,855        10.28   

Options exercised

     (5,970 )      12.89         —          —     

Options forfeited

     —          —           (1,000 )      14.00   
  

 

 

      

 

 

   

Options outstanding end of period

     39,770      $ 11.77         45,740      $ 11.92   
  

 

 

   

 

 

    

 

 

   

 

 

 

The Company granted no restricted shares in the six months ended September 30, 2013 and granted 4,315 restricted shares in the six months ended September 30, 2012, which vest over a five year period. Total compensation expense related to all grants was $15,000 and $16,000, respectively for the six months ended September 30, 2013 and 2012.

 

22

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2013 and March 31, 2013

 

Shares of restricted stock vest immediately upon a change in control. It is anticipated that future compensation expense related to restricted stock is expected to be $38,000.

A summary of restricted stock activity is as follows:

 

     Six months ended September 30,  
     2013      2012  
     Number of
Restricted
Shares 		    Weighted Average
Grant Date
Fair Value 		     Number of
Restricted
Shares 		    Weighted Average
Grant Date
Fair Value 		 

Non-vested beginning of period

     5,684      $ 9.37         2,976      $ 8.59   

Granted

     —          —           4,315        9.88   

Vested

     (1,607 )      9.28         (1,607 )      9.28   

Forfeited

     —          —           —          —     
  

 

 

      

 

 

   

Non-vested end of period

     4,077      $ 9.41         5,684      $ 9.37   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

23

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements:

This report includes certain forward-looking statements that involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include the economic environment, competition, products and pricing in geographic and business areas in which Mayflower Bancorp, Inc. (“the Company”) and its wholly owned subsidiary, Mayflower Co-operative Bank (the “Bank”) operate, prevailing interest rates, changes in government regulations and policies affecting financial services companies, credit quality and credit risk management, and the other risk factors referred to in Item 1A of the Company’s Annual Report on Form 10-K for the year ended March 31, 2013. The Company undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this report.

Critical Accounting Policies:

Accounting policies involving significant judgments and assumptions by management, which have, or could have, a material effect on the carrying value of certain assets and impact income, are considered critical accounting policies. The Company believes the following are critical accounting policies:

Allowance for loan losses :

The adequacy of the allowance for loan losses is evaluated on a quarterly basis by management and the Company’s Board of Directors. Factors considered in evaluating the adequacy of the allowance include previous loss experience, current economic conditions and their effect on borrowers, the performance of individual loans in relation to contract terms, and the estimated value of any underlying collateral for those loans. The provision for loan losses charged to operations is based upon management’s judgment of the amount necessary to maintain the allowance at a level adequate to absorb possible losses. Loans are charged off when management believes the collectability of the principal is unlikely.

The allowance consists of general, allocated and unallocated components, as further discussed below.

General and unallocated components:

The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component may be maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential mortgages and home equity loans and lines of credit - The Company generally does not generate loans with a loan-to-value ratio greater than 80 percent and does not grant subprime loans. All loans in these segments are collateralized by residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, could have an effect on the credit quality in this segment.

Commercial mortgages - Loans in this segment are primarily income-producing properties such as apartment buildings and properties used for business operations such as office buildings and industrial facilities. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, could have an effect on the credit quality in this segment.

 

24

Construction mortgages - Loans in this segment primarily include real estate development loans for which payment is derived from sale of the property, as well as construction projects in which the property will ultimately be used by the borrower. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.

Commercial loans - Loans in this segment are made to businesses and are generally secured by the assets of the business. Repayment is expected from the cash flows generated by the business. A weakened economy, and resultant decreased consumer spending, could have an effect on the credit quality in this segment.

Allocated component:

The allocated component relates to loans that are classified as impaired. Impairment is measured on a loan by loan basis for residential mortgages, commercial mortgages, construction mortgages, home equity loans and lines of credit, and commercial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession that the Company would not otherwise consider is made because the borrower is experiencing financial difficulty, the modification is considered a troubled debt restructuring (TDR). All TDRs are initially classified as impaired.

Allowance for loan losses on off-balance sheet credit exposures :

The Company also maintains an allowance for possible losses on its outstanding loan commitments. The allowance for loan losses on off-balance sheet credit exposures is maintained based on expected drawdowns of committed loans and their loss experience factors and management’s assessment of various other factors including current and anticipated economic conditions that may affect the borrowers’ ability to pay, and trends in loan delinquencies and charge-offs.

Other-Than-Temporarily Impaired Investment Securities :

Management judgment is involved in the evaluation of declines in value of individual investment securities held by the Company. Declines in value that are deemed other-than-temporary are recognized in the income statement through a write-down in the recorded value of the affected security. In estimating other-than-temporary impairment losses, management considers whether the Company intends to sell the security or will, more likely than not, have to sell the security before its fair value is recovered. If either of these conditions is met, an other-than-temporary impairment is recognized.

 

25

Whenever a debt or equity security is deemed to be other-than-temporarily impaired as determined by management’s analysis, it is written-down to its current fair market value. Any unfavorable change in general market conditions or the condition of a specific issuer could cause an increase in the Company’s impairment write-downs on investment securities, which would have an adverse effect on the Company’s earnings.

Liquidity and Capital Resources:

The Company’s primary sources of liquidity are deposits, loan payments and payoffs, investment income, principal repayments and maturities of investments, and advances from the Federal Home Loan Bank of Boston. The Company’s liquidity management program is designed to insure that sufficient funds are available to meet its daily cash requirements and this management program has proven to be successful toward that end. The Company has also established a line of credit with The Federal Reserve Bank, collateralized by certain securities issued by Government Sponsored Entities. Additionally, as a member of The Co-operative Central Bank’s Reserve Fund, the Company has the right to borrow from that entity’s Reserve Fund for short-term cash needs.

The Company believes its capital resources, including deposits, scheduled loan repayments, revenue generated from the sales of loans and investment securities, unused borrowing capacity at the Federal Home Loan Bank of Boston, and cash flows from other sources are adequate to meet its funding commitments and requirements.

At September 30, 2013 and March 31, 2013, the Company’s and the Bank’s capital ratios were in excess of regulatory requirements and the Company and the Bank are considered to be well-capitalized under all regulatory requirements.

Financial Condition:

At September 30, 2013, the Company’s total assets were $244.1 million, a decrease of $17.2 million when compared to March 31, 2013. During the six months ended September 30, 2013, net loans receivable decreased by $9.9 million and total investment securities decreased by $15.0 million. These decreases were offset by an increase of $8.5 million in cash and cash equivalents.

Net loans receivable were $129.4 million at September 30, 2013, compared to $139.3 million at March 31, 2013, a decrease of $9.9 million. This decrease was partially due to a reduction of $5.4 million in residential mortgage loans on real estate. Residential mortgage rates increased significantly during the six months ended September 30, 2013, and refinancing activity slowed dramatically. Accordingly, the Company originated $11.8 million in residential mortgages as compared to $21.2 million originated for the six months ended September 30, 2012. Additionally, during the six months, the Company sold $8.8 million of fixed-rate residential loans in the secondary mortgage market, producing gains of $102,000, compared to sales of $12.4 million for the prior year quarter, which resulted in gains of $377,000. This activity, combined with other mortgage payoffs and regularly scheduled amortization, resulted in a $5.4 million decrease in residential loan balances as compared to March 31, 2013.

Additionally, during the quarter, higher than typical repayments resulted in a decrease of $3.5 million in commercial loans and mortgages, while home equity loans and lines of credit decreased by $569,000 and net construction loans outstanding decreased by $152,000. Finally, consumer loans decreased by $241,000.

During the six months ended September 30, 2013, total investment securities decreased by $15.0 million, due in part to investment calls received totaling $5.8 million and principal repayments of $8.1 million on mortgage-backed and related securities. Additionally, investment balances declined due to a decrease of $822,000 in the unrealized gain on securities available for sale, from $894,000 at March 31, 2013 to $72,000 at September 30, 2013.

 

26

Non-performing assets are comprised of non-performing loans and real estate acquired by foreclosure. Non-performing loans consist of loans that are more than 90 days past due and loans less than 90 days past due on which the Company has ceased accruing interest. As of September 30, 2013, non-performing assets totaled $1.4 million, compared to $584,000 at March 31, 2013. The increase in non-performing assets is comprised of an increase of $134,000 in real estate acquired by foreclosure, coupled with an increase of $672,000 in non-performing loans. During the period, two commercial mortgages and one home equity line of credit with balances totaling $678,000 were classified as non-performing. At September 30, 2013, non-performing assets represented 0.57% of total assets compared to 0.22% of total assets at March 31, 2013.

At September 30, 2013, the Company’s allowance for loan losses was $1,212,000, which represented an allowance of 0.94% of net loans receivable and 108.5% of non-performing loans at that date. This compares to a balance of $1,208,000 at March 31, 2013, which represented 0.87% of net loans receivable and 271.5% of non-performing loans. During the six months ended September 30, 2013, the Company recovered $2,000 against previously charged off commercial loans, $1,000 against charged off construction mortgages, and $1,000 against residential mortgages previously charged off. Management and the Board of the Company continue to closely monitor the loan portfolio and will continue to provide for potential losses as they become likely.

The Company’s loan portfolio is dependent on the strength of the local real estate market and further deterioration in that market or other negative economic conditions could have an adverse impact on the Company’s results. In addition, commercial, construction, and commercial real estate financing are generally considered to involve a higher degree of credit risk than long-term financing of residential properties due to their higher potential for default and the possible difficulty of disposing of the underlying collateral. As management continues to monitor the Company’s loan portfolio, higher provisions for loan losses and foreclosed property expense may be required should economic conditions worsen or the levels of non-performing assets increase.

The Company also maintains an allowance for loan losses against off-balance sheet credit exposures (included in other liabilities on the balance sheet). This allowance totaled $110,000 at September 30, 2013 and March 31, 2013. This allowance is intended to protect the Company against potential losses on undrawn or unfunded loan commitments made to customers.

During the six months ended September 30, 2013, total deposits, after interest credited, decreased by $16.5 million. This decrease was comprised of a reduction of $6.5 million in certificates of deposit, coupled with a decrease of $10.0 million in checking and savings accounts. During the six months ended September 30, 2013, advances and borrowings outstanding remained constant at $1.0 million.

Total stockholders’ equity decreased by $710,000 when compared to March 31, 2013. This decrease is partially due to a decrease of $503,000 in the unrealized gain (net of tax) on securities available for sale and dividends declared of $0.18 per share, totaling $372,000. Offsetting these decreases was net income for the period of $73,000, proceeds from the issuance of common stock totaling $77,000, and stock based compensation credits totaling $15,000.

Results of Operations :

Comparison of the three months ended September 30, 2013 and 2012:

General:

The net loss for the three months ended September 30, 2013 was $21,000 compared with net income of $375,000 for the three months ended September 30, 2012, a decrease of $396,000. Net interest income decreased by $245,000, the provision for loan losses decreased by $20,000, total non-interest income decreased by $305,000, and total non-interest expense increased by $110,000.

 

27

The Company’s results largely depend upon its net interest margin, which is the difference between the income earned on loans and investments, and the interest paid on deposits and borrowings as a percentage of average interest-earning assets. As compared to the quarter ended September 30, 2012, during the three months ended September 30, 2013, the Company’s net interest margin decreased from 3.45% to 3.05%. This decrease in net interest margin is primarily a result of the decrease in yields on interest-earning assets.

Mayflower Bancorp, Inc. and Subsidiary

Analysis of Interest Rate Spread

The following table reflects the weighted average yield, interest earned, and the average balances of loans and investments, and the weighted average rates, interest expense, and the average balances of deposits and borrowed funds for the periods indicated. The yield data for loans does not include loan origination and other loan fees.

 

     Three months ended September 30,  
     2013     2012  
     Average
Balance (1) 		     Interest      Rate
(Annualized) 		    Average
Balance (1) 		     Interest      Rate
(Annualized) 		 
     (Dollars in Thousands)  

Interest-earning assets:

                

Loans

   $ 132,196       $ 1,568         4.74 %    $ 135,380       $ 1,738         5.14 % 

Investment securities

     83,306         385         1.85 %      87,929         534         2.43 % 

Interest-bearing deposits in banks

     15,689         6         0.15 %      9,287         5         0.22 % 
  

 

 

    

 

 

      

 

 

    

 

 

    

All interest-earning assets

   $ 231,191         1,959         3.39 %    $ 232,596         2,277         3.92 % 
  

 

 

         

 

 

       

Interest-bearing liabilities:

                

Deposits

   $ 222,408         184         0.33 %    $ 225,607         257         0.46 % 

Borrowed funds

     1,000         12         4.80 %      1,000         12         4.80 % 
  

 

 

    

 

 

      

 

 

    

 

 

    

All interest-bearing liabilities

   $ 223,408         196         0.35 %    $ 226,607         269         0.47 % 
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Net interest income

      $ 1,763            $ 2,008      
     

 

 

         

 

 

    

Weighted average interest rate spread (2)

  

     3.04 %            3.45 % 
        

 

 

         

 

 

 

Net interest margin

           3.05 %            3.45 % 
        

 

 

         

 

 

 

 

(1) Average balances calculated using daily balances
(2) Represents the weighted average yield earned on all interest-earning assets during the period less the weighted average interest rate paid on all interest-bearing liabilities.

 

28

The effect on net interest income as a result of changes in interest rates and in the amount of interest-earning assets and interest-bearing liabilities is shown in the following table. Information is provided in the table below on changes for the period indicated attributable to (1) changes in volume (change in average balance multiplied by prior period yield), (2) changes in interest rates (changes in yield multiplied by prior period average balance) and (3) the combined effect of changes in interest rates and volume (change in yield multiplied by change in average balance).

 

     Three months ended September 30,
2013 vs. 2012 		 
     Changes due to increase (decrease)  
     (in thousands)  
     Total     Volume     Rate     Rate/
Volume 		 

Interest income:

        

Loans

   $ (170 )    $ (41 )    $ (132 )    $ 3   

Investment securities

     (149 )      (28 )      (128 )      7   

Interest-bearing deposits in banks

     1        3        (1 )      (1 ) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     (318 )      (66 )      (261 )      9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Deposits

     (73 )      (4 )      (70 )      1   

Borrowed funds

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     (73 )      (4 )      (70 )      1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in net interest income

   $ (245 )    $ (62 )    $ (191 )    $ 8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and Dividend Income:

Total interest and dividend income decreased by $318,000, or 14.0%, to $2.0 million for the three months ended September 30, 2013. Interest income from loans decreased by $170,000. This decrease was due to a decrease in the average rate earned on loans, from 5.14% to 4.74% on an annualized basis, coupled with a decrease of $3.2 million in the average balance of loans outstanding. Interest and dividend income on investment securities decreased by $149,000 as a result of a decrease in the average yield earned, from 2.43% in the quarter ended September 30, 2012 to 1.85% in the quarter ended September 30, 2013, coupled with a decrease of $4.6 million in the average balance of investments. Income from interest-bearing deposits in banks increased by $1,000 due to an increase of $6.4 million in their average balance, offset by a decrease in the average yield earned, from 0.22% for the quarter ended September 30, 2012 to 0.15% for the quarter ended September 30, 2013.

Interest Expense:

Interest expense decreased by $73,000, or 27.1%, to $196,000 for the three months ended September 30, 2013. Interest expense on deposits decreased by $73,000 as a result of a decrease in the average rate paid, from 0.46% to 0.33%, coupled with a decrease of $3.2 million in the average balance of deposits. Interest expense on borrowed funds was $12,000 for both the quarters ended September 30, 2013 and 2012.

Provision for Loan Losses:

There was no provision made to the reserve for loan losses for the quarter ended September 30, 2013, as compared to a provision of $20,000 for the quarter ended September 30, 2012. The allowance for loan losses is maintained at a level that management and the Board of the Company consider adequate to provide for probable losses based upon evaluation of known and inherent risks in the loan portfolio. In determining the appropriate level for the allowance for loan losses, the Company considers past loss experience, evaluations of underlying collateral, prevailing economic conditions, the nature of the loan portfolio and levels of non-performing and other classified loans. While management uses available information to recognize loan losses, future additions to the allowance may be necessary based on additional increases in non-performing loans, changes in economic conditions, or for other reasons.

 

29

Non-interest Income:

Non-interest income decreased by $305,000 for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012. This decrease was partially due to a decrease of $241,000 in gains/losses on sales of mortgage loans, from a gain of $216,000 during the September 2012 quarter to a loss of $25,000 during the quarter ending September 30, 2013. Also, during the quarter, gains on sales of investments decreased by $69,000, other income decreased by $6,000, and customer service fees decreased by $7,000 due to reduced return check fees collected. These decreases were offset by an increase of $11,000 in loan origination and other loan fees, due to reduced amortization of the mortgage servicing asset. Finally, interchange income increased by $7,000.

Non-interest Expense:

Total non-interest expense increased by $110,000 or 5.6% for the quarter ended September 30, 2013. This increase was primarily the result of merger related expenses totaling $295,000. Additionally, compensation and fringe benefits increased by $22,000 due to increased benefit costs and the FDIC assessment expense increased by $4,000. These increases were partially offset by a decrease of $210,000 in other expenses, due to the elimination of various ongoing operating costs as a result of the pending merger and occupancy and equipment expense decreased by $1,000.

Provision for Income Taxes:

The provision for income taxes decreased by $244,000 for the quarter ended September 30, 2013 when compared to the quarter ended September 30, 2012, due to the decrease in net income before taxes.

Results of Operations :

Comparison of the six months ended September 30, 2013 and September 30, 2012:

General:

Net income for the six months ended September 30, 2013 was $73,000 compared with net income of $764,000 for the six months ended September 30, 2012, a decrease of $691,000. Net interest income decreased by $404,000, the provision for loan losses decreased by $30,000, total non-interest income decreased by $376,000, and total non-interest expense increased by $293,000.

The Company’s results largely depend upon its net interest margin, which is the difference between the income earned on loans and investments, and the interest paid on deposits and borrowings as a percentage of average interest-earning assets. During the six months ended September 30, 2013, the Company’s net interest margin decreased from 3.49% to 3.13%, when compared to the six months ended September 30, 2012. This decrease in net interest margin is partially the result of a decrease in the yield on interest earning assets, in particular, loans and investments.

 

30

Mayflower Bancorp, Inc. and Subsidiary

Analysis of Interest Rate Spread

The following table reflects the weighted average yield, interest earned, and the average balances of loans and investments, and the weighted average rates, interest expense, and the average balances of deposits and borrowed funds for the periods indicated. The yield data for loans does not include loan origination and other loan fees.

 

     Six months ended September 30,  
     2013     2012  
     Average
Balance (1) 		     Interest      Rate
(Annualized) 		    Average
Balance (1) 		     Interest      Rate
(Annualized) 		 
     (Dollars in Thousands)  

Interest-earning assets:

                

Loans

   $ 135,986       $ 3,255        4.79 %    $ 135,972       $ 3,518         5.17 % 

Investment securities

     86,895         825        1.90 %      88,387         1,115         2.52 % 

Interest-bearing deposits in banks

     12,447         11        0.18 %      9,678         11         0.23 % 
  

 

 

    

 

 

      

 

 

    

 

 

    

All interest-earning assets

   $ 235,328         4,091        3.48 %    $ 234,037         4,644         3.97 % 
  

 

 

         

 

 

       

Interest-bearing liabilities:

                

Deposits

   $ 226,784         384        0.34 %    $ 227,583         533         0.47 % 

Borrowed funds

     1,000         23        4.60 %      1,000         23         4.60 % 
  

 

 

    

 

 

      

 

 

    

 

 

    

All interest-bearing liabilities

   $ 227,784         407        0.36 %    $ 228,583         556         0.49 % 
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Net interest income

      $ 3,684           $ 4,088      
     

 

 

         

 

 

    

Weighted average interest rate spread (2)

           3.12 %            3.48 % 
        

 

 

         

 

 

 

Net interest margin

           3.13 %            3.49 % 
        

 

 

         

 

 

 

 

(1) Average balances calculated using daily balances
(2) Represents the weighted average yield earned on all interest-earning assets during the period less the weighted average interest rate paid on all interest-bearing liabilities.

 

31

The effect on net interest income as a result of changes in interest rates and in the amount of interest-earning assets and interest-bearing liabilities is shown in the following table. Information is provided in the table below on changes for the period indicated attributable to (1) changes in volume (change in average balance multiplied by prior period yield), (2) changes in interest rates (changes in yield multiplied by prior period average balance) and (3) the combined effect of changes in interest rates and volume (change in yield multiplied by change in average balance).

 

     Six months ended September 30,
2013 vs. 2012 		 
     Changes due to increase (decrease)  
     (in thousands)  
     Total     Volume     Rate     Rate/
Volume 		 

Interest income:

        

Loans

   $ (263 )    $ —        $ (263 )    $ —     

Investment securities

     (290 )      (19 )      (276 )      5   

Interest-bearing deposits in banks

     —          3        (2 )      (1 ) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     (553 )      (16 )      (541 )      4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Deposits

     (149 )      (2 )      (148 )      1   

Borrowed funds

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     (149 )      (2 )      (148 )      1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in net interest income

   $ (404 )    $ (14 )    $ (393 )    $ 3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and Dividend Income:

Total interest and dividend income decreased by $553,000, or 11.9%, to $4.1 million for the six months ended September 30, 2013. Interest income from loans decreased by $263,000. This decrease was primarily due a reduction in the average rate earned on loans, from 5.17% to 4.79% on an annualized basis. Interest and dividend income on investment securities decreased by $290,000 as a result of a decrease in the average yield earned, from 2.52% for the six months ended September 30, 2012 to 1.90% for the six months ended September 30, 2013, coupled with a decrease of $1.5 million in the average balance of investments. Income from interest-bearing deposits in banks was $11,000 for both the six months ended September 30, 2013 and 2012.

Interest Expense:

Interest expense decreased by $149,000, or 26.8%, to $407,000 for the six months ended September 30, 2013. Interest expense on deposits decreased by $149,000, primarily as a result of a decrease in the average rate paid, from 0.47% to 0.34%, coupled with a decline of $799,000 in the average balance of deposits. Interest expense on borrowed funds was $23,000 for both the six months ended September 30, 2013 and 2012.

Provision for Loan Losses:

There was no provision for loan losses for the six months ended September 30, 2013, compared to $30,000 for the six months ended September 30, 2012. The allowance for loan losses is maintained at a level that management and the Company’s Board of Directors consider adequate to provide for probable losses based upon evaluation of known and inherent risks in the loan portfolio. In determining the appropriate level for the allowance for loan losses, the Company considers past loss experience, evaluations of underlying collateral, prevailing economic conditions, the nature of the loan portfolio and levels of non-performing and other classified loans. While management uses available information to recognize loan losses, future additions to the allowance may be necessary based on additional increases in non-performing loans, changes in economic conditions, or for other reasons.

Non-interest Income:

Non-interest income decreased by $376,000 for the six months ended September 30, 2013 as compared to the six months ended September 30, 2012. This decrease was due to a reduction of $275,000 in gains/losses on sales of residential mortgage loans to the secondary market, coupled with a decrease of

 

32

$117,000 in gains realized upon the on sale of investments. Additionally, customer service fees decreased by $25,000, due to a reduction in return check fees collected. These decreases were offset by an increase of $31,000 in loan origination and other loan fees and $15,000 in interchange income on debit card transactions. Finally, other income decreased by $5,000.

Non-interest Expense:

Total non-interest expense increased by $293,000 or 7.4% for the six months ended September 30, 2013. This increase was primarily the result of merger related expenses totaling $449,000. Additionally, compensation and fringe benefits increased by $41,000 due to increased benefit costs and the FDIC assessment expense increased by $6,000. Other expenses decreased by $194,000 as a result of the elimination of various ongoing operating costs as a result of the pending merger and occupancy and equipment expense decreased by $9,000.

Provision for Income Taxes:

The provision for income taxes decreased by $352,000 for the six months ended September 30, 2013 when compared to the six months ended September 30, 2012 due to a decrease in net income before taxes. Effective income tax rates were 34.8% and 33.9% respectively in the 2013 and 2012 periods.

Interest Rate Risk Exposure and the Interest Rate Spread:

The Company’s net earnings depend primarily upon the difference between the income (interest and dividends) earned on its loans and investment securities (interest-earning assets) and the interest paid on its deposits and borrowed funds (interest-bearing liabilities), together with other income and other operating expenses. The Company’s investment income and interest paid (cost of funds) are significantly affected by general economic conditions and by policies of regulatory authorities.

Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest rate risk inherent in its lending, security investments, and deposit taking activities. To that end, management actively monitors and manages its interest rate risk exposure.

The Company’s primary objective in managing interest rate risk is to minimize the adverse impact of interest rate changes on its net interest income and capital, while adjusting its rate-sensitive asset and liability structure to obtain the maximum net yield on that structure. The Company relies primarily on this structure to control interest rate risk. However, a sudden and substantial shift in interest rates may adversely impact the Company’s earnings to the extent that the interest rate earned on interest-earning assets and interest paid on interest-bearing liabilities do not change at the same frequency, to the same extent or on the same basis.

 

33

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

This item is not applicable as the Company is a smaller reporting company.

 

Item 4. Controls and Procedures

As of the end of the period covered by this report, management of the Company carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of both the Securities and Exchange Commission. It should be noted that the design of the Company’s disclosure controls and procedures is based in part upon certain reasonable assumptions about the likelihood of future events, and there can be no reasonable assurance that any design of disclosure controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote, but the Company’s principal executive and financial officers have concluded that the Company’s disclosure controls and procedures are, in fact, effective at a reasonable assurance level.

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required under paragraph (d) of Securities and Exchange Commission Rule 13a-15 that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

 

Item 1. Legal Proceedings

None

 

Item 1.A. Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

 

Item 3. Defaults Upon Senior Securities

None

 

Item 4. Mine Safety Disclosures

Not applicable

 

Item 5. Other Information

None

 

34

Item 6. Exhibits

 

Exhibit 2.1    Agreement and Plan of Merger, dated as of May 14, 2013, by and among Independent Bank Corp., Rockland Trust Company, Mayflower Bancorp, Inc. and Mayflower Co-operative Bank (1)
Exhibit 3.1    Articles of Organization of Mayflower Bancorp, Inc. (2)
Exhibit 3.2    Bylaws of Mayflower Bancorp, Inc., as amended (3)
Exhibit 4    Stock Certificate for Common Stock of Mayflower Bancorp, Inc. (2)
Exhibit 10.1    Settlement agreement by and between Independent Bank Corp., Rockland Trust Company, Mayflower Bancorp, Inc., Mayflower Co-operative Bank, and Edward M. Pratt
Exhibit 10.2    Settlement agreement by and between Independent Bank Corp., Rockland Trust Company, Mayflower Bancorp, Inc., Mayflower Co-operative Bank, and John J. Biggio
Exhibit 10.3    Settlement agreement by and between Independent Bank Corp., Rockland Trust Company, Mayflower Bancorp, Inc., Mayflower Co-operative Bank, and Maria Vafiades
Exhibit 31    Rule 13a-14(a)/15d-14(a) Certifications
Exhibit 32    Section 1350 Certifications
Exhibit 101    The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Changes in Stockholders’ Equity; (iv) the Consolidated Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements.

 

(1) Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 0-52477), filed with the SEC on May 20, 2013.
(2) Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 0-52477), filed with the SEC on February 16, 2007.
(3) Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 0-52477), filed with the SEC on February 14, 2012.

 

35

SIGNATURES

In accordance with the requirements of the Exchange Act the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    MAYFLOWER BANCORP, INC.
Date: November 13, 2013    
   

/s/ Edward M. Pratt

    Edward M. Pratt, President & Chief Executive Officer
    (Duly Authorized Officer)
   

/s/ Maria Vafiades

    Maria Vafiades, Chief Financial Officer
    (Principal Financial & Accounting Officer)

 

36

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