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| MTGB > SEC Filings for MTGB > Form 10-Q on 24-Sep-2012 | All Recent SEC Filings |
24-Sep-2012
Quarterly Report
Safe Harbor Statement for Forward-Looking Statements
This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts; rather they are statements based on the Company's current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Bank's actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed beginning on page 12 of the Company's prospectus dated August 10, 2012 under the section titled "Risk Factors." These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.
Critical Accounting Policies
We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies.
Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: the likelihood of default; the loss exposure at default; the amount and timing of future cash flows on impaired loans; the value of collateral; and the determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation. In addition, the Federal Deposit Insurance Corporation and Massachusetts Commissioner of Banks, as an integral part of their examination process, periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.
Deferred Tax Assets. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. Management reviews deferred tax assets on a quarterly basis to identify any uncertainties pertaining to realization of such assets. In determining whether a valuation allowance is required against deferred tax assets, management assesses historical and forecasted operating results, including a review of eligible carryforward periods, tax planning opportunities and other relevant considerations. We believe the accounting estimate related to the valuation allowance is a critical estimate because the underlying assumptions can change from period to period. For example, tax law changes or variances in future projected operating performance could result in a change in the valuation allowance. Should actual factors and conditions differ materially from those used by management, the actual realization of net deferred tax assets could differ materially from the amounts recorded in the financial statements. If we were not able to realize all or part of our deferred tax assets in the future, an adjustment to the related valuation allowance would be charged to income tax expense in the period such determination was made and could have a negative impact on earnings. In addition, if actual factors and conditions differ materially from those used by management, we could incur penalties and interest imposed by taxing authorities.
Comparison of Financial Condition at June 30, 2012 (unaudited) and September 30, 2011
Total Assets. Total assets increased by $7.1 million, from $66.2 million at September 30, 2011 to $73.3 million at June 30, 2012, primarily due to an increase in loans held-for-sale and net loans. This increase was primarily offset by a decrease in cash and cash equivalents.
Cash and Cash Equivalents. Cash and cash equivalents decreased by $648,000, from $8.5 million at September 30, 2011 to $7.9 million at June 30, 2012, in order to fund new loan originations. Federal funds sold and interest-bearing demand deposit balances decreased by $2.4 million, from $6.1 million at September 30, 2011 to $3.7 million at June 30, 2012, in order to fund new loan originations.
Securities. Our securities portfolio consists primarily of residential mortgage-backed securities issued by U.S. government agencies and government sponsored enterprises. Investments in available-for-sale securities increased by $420,000 from $6.1 million at September 30, 2011 to $6.5 million at June 30, 2012, due to new investment purchases, net of repayments.
Loans, Net. Loans, net, increased by $2.0 million, from $42.4 million at September 30, 2011 to $44.4 million at June 30, 2012. This increase was primarily due to new loans originated, net of repayments.
Loans Held-for-Sale. Loans held-for-sale increased by $2.5 million, from $4.4 million at September 30, 2011 to $6.9 million at June 30, 2012, primarily due to demand created for fixed-rate residential mortgage loans by the prevailing low interest rate environment.
Deposits. Our primary sources of funds are retail deposit accounts held primarily by individuals and businesses within our primary market area. Total deposits increased by $7.0 million, from $60.8 million at September 30, 2011 to $67.8 million at June 30, 2012, primarily due to a $3.9 million increase in noninterest-bearing accounts and a $1.9 million increase in certificates of deposit. Cumulative increases in the balances of other deposit accounts accounted for the remainder of the increase in total deposits.
Borrowings. We generally use borrowings from the Federal Home Loan Bank of Boston to supplement our supply of funds for loans and securities. No Federal Home Loan Bank of Boston borrowings were outstanding at either June 30, 2012 or September 30, 2011.
Comparison of Results of Operations for the Three Months Ended June 30, 2012 and 2011 (unaudited)
Net Income (Loss). Net income decreased by $7,000, from $4,000 in the 2011 period to $(3,000) in the 2012 period, primarily due to a decrease in net interest and dividend income and an increase in noninterest expense, offset by an increase in noninterest income.
Net Interest and Dividend Income. Net interest and dividend income decreased by $34,000, from $506,000 in the 2011 period to $472,000 in the 2012 period, primarily due to declining market interest rates. The yield on interest-earning assets decreased from 4.48% in the 2011 period to 3.72% in the 2012 period, which offset an increase in the average balance of interest-earning assets from $59.3 million to $66.4 million. The average rate paid on interest-bearing liabilities decreased from 1.26% in the 2011 period to 1.07% in the 2012 period, which offset an increase in the average balance of interest-bearing liabilities from $50.2 million to $54.0 million. The interest rate spread decreased from 3.22% in the 2011 period to 2.65% in the 2012 period.
Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Loan fees are included in interest income on loans and are insignificant.
For the Three Months Ended June 30,
2012 2011
Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/
(Dollars in thousands) Balance Paid Rate Balance Paid Rate
Interest-earning assets:
Securities (1) $ 7,507 $ 51 2.72 % $ 6,971 $ 62 3.56 %
Loans, net (2) 46,494 558 4.80 43,411 599 5.52
Other interest-earning
assets (3) 12,369 8 0.26 8,918 3 0.13
Total interest-earning
assets 66,370 617 3.72 59,300 664 4.48
Noninterest earning assets 6,559 4,866
Total assets $ 72,929 $ 64,166
Interest-bearing
liabilities:
Regular savings accounts $ 8,961 6 0.27 $ 8,656 6 0.28
Money market accounts 9,636 12 0.50 8,240 16 0.78
Time deposits 35,413 127 1.43 32,290 134 1.66
Total interest-bearing
deposits 54,010 145 1.07 49,186 156 1.27
Federal Home Loan Bank
advances - - - 1,058 2 0.76
Total interest-bearing
liabilities 54,010 145 1.07 50,244 158 1.26
Demand deposits 13,633 8,446
Other liabilities 5 389
Equity 5,281 5,087
Total liabilities and
equity $ 72,929 $ 64,166
Net interest income $ 472 $ 506
Interest rate spread 2.65 % 3.22 %
Net yield on earning
assets 2.84 % 3.41 %
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(2) Includes non accruing loan balances and interest received on such loans, and loans held-for-sale.
(3) Includes short-term investments.
Rate/Volume Analysis. The following table sets forth the effects of changing
rates and volumes on our net interest and dividend income. The rate column shows
the effects attributable to changes in rate (changes in rate multiplied by prior
volume). The volume column shows the effects attributable to changes in volume
(changes in volume multiplied by prior rate). The total increase (decrease)
column represents the sum of the prior columns. For purposes of this table,
changes attributable to changes in both rate and volume that cannot be
segregated have been allocated proportionally based on the changes due to rate
and the changes due to volume.
Three Months Ended
June 30, 2012
Compared to
Three Months Ended
June 30, 2011
Increase (Decrease)
Due to
Volume Rate Net
Interest income:
Securities (1) $ 5 $ (16 ) $ (11 )
Loans, net (2) 49 (90 ) (41 )
Other interest-earning assets (3) 1 4 5
Total interest-earning assets 55 (102 ) (47 )
Interest expense:
Deposits 21 (32 ) (11 )
Federal Home Loan Bank advances (2 ) - (2 )
Total interest-bearing liabilities 19 (32 ) (13 )
Increase (decrease) in net interest income $ 36 $ (70 ) $ (34 )
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(2) Includes non accruing loan balances and interest received on such loans, and loans held-for-sale.
(3) Includes short-term investments.
Provision for Loan Losses. The provision for loan losses increased by $4,000, from $4,000 in the 2011 period to $8,000 in the 2012 period, as a result of the increase in the balance of net loans.
Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated.
For the
Three Months Ended
June 30,
(Dollars in thousands) 2012 2011
Allowance at beginning of period $ 328 $ 316
Provision for loan losses 8 4
Charge-offs - -
Recoveries - -
Net (charge-offs) recoveries - -
Allowance at end of period $ 336 $ 320
Allowance for loan losses as a percent of
non-performing loans 137.14 % 1,280.00 %
Allowance for loan losses as a percent of total
loans 0.75 % 0.74 %
Net (charge-offs) recoveries to average loans
outstanding during the period - -
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Noninterest Income. Noninterest income increased by $61,000, from $132,000 in the 2011 period to $193,000 in the 2012 period, primarily due to an increase in gain on secondary market activities from $51,000 to $110,000. The increase in gain on secondary market activities was primarily due to increased volume and the timing of funding loans held-for-sale.
Noninterest Expense. Noninterest expense increased by $35,000, from $628,000 in the 2011 period to $663,000 in the 2012 period primarily as a result of increases in salaries and employee benefits expense, data processing expense, and other expenses. Salary and employee benefits expense increased $23,000 due to increased payroll taxes paid on increased commissions paid to commissioned loan originators due to higher origination volume. Data processing expenses increased $11,000 due to higher monthly expenses following the upgrade of our core data processing system. Other expenses increased $11,000 due primarily to normal inflationary increases. Offsetting these increased expenses was an $11,000 decrease in deposit insurance premiums due to an adjustment of the expense accrual to reflect the implementation of a new assessment formula.
Income Tax Expense (Benefit). Income tax expense decreased by $4,000, from $1,000 in the 2011 period to $(3,000) in the 2012 period, due to lower pre-tax income. The effective tax rate was (53)% and 24% in the 2012 and 2011 periods, respectively.
Comparison of Results of Operations for the Nine Months Ended June 30, 2012 and 2011 (unaudited)
Net Income. Net income decreased by $84,000, from $226,000 in the 2011 period to $142,000 in the 2012 period, primarily due to a decrease in net interest and dividend income and an increase in noninterest expense, offset by an increase in noninterest income.
Net Interest and Dividend Income. Net interest and dividend income decreased by $79,000, from $1.6 million in the 2011 period to $1.5 million in the 2012 period, due to declining market interest rates. The yield on interest-earnings assets decreased from 4.69% in the 2011 period to 4.03% in the 2012 period, which offset an increase in the average balance of interest-earning assets from $58.5 million to $64.2 million. The average rate paid on interest-bearing liabilities decreased from 1.34% in the 2011 period to 1.14% in the 2012 period, which offset an increase in the average balance of interest-bearing liabilities from $49.5 million to $53.0 million. The interest rate spread decreased from 3.35% in the 2011 period to 2.89% in the 2012 period.
Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Loan fees are included in interest income on loans and are insignificant.
For the Nine Months Ended June 30,
2012 2011
Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/
(Dollars in thousands) Balance Paid Rate Balance Paid Rate
Interest-earning
assets:
Securities (1) $ 7,059 $ 194 3.66 % $ 7,298 $ 209 3.82 %
Loans, net (2) 45,931 1,727 5.01 45,449 1,844 5.41
Other interest-earning
assets (3) 11,170 16 0.19 5,732 6 0.14
Total interest-earning
assets 64,160 1,937 4.03 58,479 2,059 4.69
Noninterest earning
assets 5,469 5,149
Total assets $ 69,629 $ 63,628
Interest-bearing
liabilities:
Regular savings
accounts $ 8,831 17 0.26 $ 8,249 16 0.26
Money market accounts 9,097 37 0.54 8,116 52 0.85
Time deposits 35,038 400 1.52 32,097 423 1.76
Total interest-bearing
deposits 52,966 454 1.14 48,462 491 1.35
Federal Home Loan Bank
advances - - - 1,048 6 0.76
Total interest-bearing
liabilities 52,966 454 1.14 49,510 497 1.34
Demand deposits 11,371 8,685
Other liabilities 76 397
Equity 5,216 5,036
Total liabilities and
equity $ 69,629 $ 63,628
Net interest income $ 1,483 $ 1,562
Interest rate spread 2.89 % 3.35 %
Net yield on earning
assets 3.08 % 3.56 %
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(2) Includes non accruing loan balances and interest received on such loans, and loans held-for-sale.
(3) Includes short-term investments.
Rate/Volume Analysis. The following table sets forth the effects of changing
rates and volumes on our net interest and dividend income. The rate column shows
the effects attributable to changes in rate (changes in rate multiplied by prior
volume). The volume column shows the effects attributable to changes in volume
(changes in volume multiplied by prior rate). The total increase (decrease)
column represents the sum of the prior columns. For purposes of this table,
changes attributable to changes in both rate and volume that cannot be
segregated have been allocated proportionally based on the changes due to rate
and the changes due to volume.
Nine Months Ended
June 30, 2012
Compared to
Nine Months Ended
June 30, 2011
Increase (Decrease)
Due to
Volume Rate Net
Interest income:
Securities (1) $ (7 ) $ (8 ) $ (15 )
Loans, net (2) 20 (137 ) (117 )
Other interest-earning assets (3) 7 3 10
Total interest-earning assets 20 (142 ) (122 )
Interest expense:
Deposits 58 (95 ) (37 )
Federal Home Loan Bank advances (6 ) - (6 )
Total interest-bearing liabilities 52 (95 ) (43 )
Increase (decrease) in net interest income $ (32 ) $ (47 ) $ (79 )
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(2) Includes non accruing loan balances and interest received on such loans, and loans held-for-sale.
(3) Includes short-term investments.
Provision (Benefit) for Loan Losses. The provision for loan losses increased by $26,000, from $(6,000) in the 2011 period to $20,000 in the 2012 period, as a result of the increase in the balance of net loans.
Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated.
For the
Nine Months Ended
June 30,
(Dollars in thousands) 2012 2011
Allowance at beginning of period $ 316 $ 326
Provision (benefit) for loan losses 20 (6 )
Charge-offs - -
Recoveries - -
Net (charge-offs) recoveries - -
Allowance at end of period $ 336 $ 320
Allowance for loan losses as a percent of
non-performing loans 137.14 % 1,280.00 %
Allowance for loan losses as a percent of total
loans 0.75 % 0.74 %
Net (charge-offs) recoveries to average loans
outstanding during the period - -
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Noninterest Income. Noninterest income increased by $13,000, from $647,000 in the 2011 period to $660,000 in the 2012 period, primarily due to an increase in gain on secondary market activities from $393,000 to $411,000. The increase in gain on secondary market activities was primarily due to increased volume and timing of loan funding.
Noninterest Expense. Noninterest expense increased by $48,000, from $1.84 million in the 2011 period to $1.89 million in the 2012 period. Salaries and employee expense increased $74,000 primarily due to normal increases in payroll, insurance and other benefits expenses. Professional fees decreased from $186,000 to $142,000 primarily due to a $16,000 decrease in temporary help expense and a $15,000 decrease in legal expense. Deposit insurance expense decreased from $77,000 to $27,000 primarily due to an adjustment of the expense accrual to reflect the implementation of a new assessment formula.
Income Tax Expense. Income tax expense decreased by $56,000, from $150,000 in . . .
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