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LABC > SEC Filings for LABC > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for LOUISIANA BANCORP INC

Form 10-Q for LOUISIANA BANCORP INC


13-Nov-2012

Quarterly Report


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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to the Company and the Bank that are based on the beliefs of management as well as assumptions made by and information currently available to management. In addition, in portions of this document the words "anticipate," "believe," "estimate," "expect," "intend," "should" and similar expressions or the negative thereof, as they relate to the Company or the Bank or their management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company and/or the Bank with respect to forward-looking events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.

General

The Company's results of operations are primarily dependent on the results of the Bank, which is a wholly owned subsidiary of the Company. The Bank's results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by provisions for, or recoveries from, the allowance for loan losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation and employee benefits, office occupancy and equipment expense, data processing, advertising and business promotion and other expense. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial conditions and results of operations.

Critical Accounting Policies

In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our financial statements. The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that represents the amount of probable and reasonably estimable known and inherent losses in the loan portfolio, based on evaluations of the collectibility of loans. The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, the value of collateral, estimated losses on our commercial and residential loan portfolios and general amounts for historical loss experience. All of these estimates may be susceptible to significant change.

While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. Historically, our estimates of the allowance for loan loss have not required significant adjustments from management's initial estimates. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination processes, periodically reviews our allowance for loan losses. The Office of the Comptroller of the Currency may require the recognition of adjustments to the allowance for loan losses based on its judgment of information available to it at the time of its examinations. To the extent that actual outcomes differ from management's estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.

Income Taxes. We make estimates and judgments to calculate some of our tax liabilities and determine the recoverability of some of our deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenues and expenses. We also estimate a reserve for deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. These estimates and judgments are inherently subjective. Historically, our estimates and judgments to calculate our deferred tax accounts have not required significant revision to our initial estimates.


In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results, recent cumulative losses and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.

Comparison of Financial Condition at September 30, 2012 and December 31, 2011

Total assets were $319.4 million at September 30, 2012, an increase of $6.2 million compared to December 31, 2011. During the first nine months of 2012, cash and cash equivalents decreased by $20.4 million to $7.2 million. Total securities available-for-sale were $13.1 million at September 30, 2012, a decrease of $9.6 million compared to December 31, 2011. This decrease in securities available-for-sale was primarily due to maturities of U.S. Agency issued securities and repayments of principal on mortgage-backed securities during the first nine months of 2012. Total securities held-to-maturity increased by $15.1 million, to $74.7 million, during the first nine months of 2012. This increase in securities held-to-maturity was primarily due to the purchase of $27.4 million in US Agency issued CMOs and $4.0 million in US Agency issued mortgage-backed securities. These purchases were partially offset by $16.1 million in repayments of principal on mortgage-backed securities and CMOs. Net loans receivable were $215.9 million at September 30, 2012, an increase of $20.3 million, or 10.4%, compared to December 31, 2011. During the nine months ended September 30, 2012, our first mortgage loans secured by single family residential loans increased by $10.3 million, our funded home equity loans and lines increased by $3.3 million, our loans secured by multifamily residential collateral increased by $3.1 million, and our first mortgage loans secured by non-residential commercial real estate increased by $5.1 million.

Total impaired loans were $715,000 at September 30, 2012, a decrease of $359,000 compared to December 31, 2011. At these dates, our impaired loans were comprised solely of nonaccrual loans. Other real estate owned increased by $100,000 to $632,000 during the first nine months of 2012. At September 30, 2012, our other real estate owned was comprised of a restaurant located in Baton Rouge, Louisiana with a fair value of $250,000, and the Bank's participation interest in a $170 million construction loan secured by a multi-use development in Baton Rouge, Louisiana, which had a fair value of $382,000 at such date. Total nonperforming assets were $1.3 million at September 30, 2012, and $1.6 million at December 31, 2011. Expressed as a percentage of total assets, nonperforming assets were 0.42% at September 30, 2012, and 0.51% at December 31, 2011.

Total deposits were $195.9 million at September 30, 2012 and $194.3 million at December 31, 2011. Non-interest bearing deposits increased during the nine month period by $3.0 million, to $12.8 million, and interest-bearing deposits decreased by $1.4 million, to $183.1 million. Total Federal Home Loan Bank advances and other borrowings were $61.4 million at September 30, 2012, an increase of $4.3 million from December 31, 2011. This increase in borrowings was primarily used to fund the growth in our loans receivable during the first nine months of 2012.

Total shareholders' equity was $55.6 million at September 30, 2012, a decrease of $1.9 million from December 31, 2011. During the first nine months of 2012, the Company acquired 264,878 shares of its common stock at a total cost of $4.3 million pursuant to its repurchase plans. The cost of our stock repurchases during the first nine months of 2012 was partially offset by net income of $1.8 million, and the release of 43,084 shares held by the Company's Recognition and Retention Plan Trust, with a total cost basis of $543,000, which became vested and were released to plan participants during the period. The Bank's tier 1 leverage ratio was 15.24% at September 30, 2012 compared to 15.00% at December 31, 2011. Tier 1 risk-based capital and total risk-based capital at the bank level were 28.21% and 29.33%, respectively, at September 30, 2012, and 29.32% and 30.38%, respectively, at December 31, 2011.


Comparison of Our Operating Results for the Three Months and Nine Months Ended September 30, 2012 and 2011

General. Net income for the quarter ended September 30, 2012 was $647,000, an increase of $151,000 from the third quarter of 2011. Diluted earnings per share were $0.24 and $0.17, respectively for the quarters ended September 30, 2012 and 2011. Net interest income was $2.6 million during the third quarter of 2012, an increase of $129,000 compared to the second quarter of 2011. Non-interest income was $548,000 during the third quarter of 2012, an increase of $235,000 compared to the third quarter of 2011. This increase in non-interest income was due primarily to an increase in commissions earned on brokered reverse mortgage loans and an increase in gains on the sale of residential mortgage loans. Non-interest expense was $2.0 million and $1.9 million, respectively, for the quarters ended September 30, 2012, and 2011.

For the nine month period September 30, 2012, net income was $1.8 million, or $0.64 per diluted share, compared to net income of $1.5 million, or $0.50 per diluted share for the nine month period ended September 30, 2011. Net interest income was $7.5 million and $7.3 million, respectively, for the nine month periods ended September 30, 2012 and 2011. Our provision for loan losses during the first nine months of 2012 was $226,000 compared to $59,000 during the first nine months of 2011. Non-interest income increased by $611,000, to $1.4 million, during the nine months ended September 30, 2012 compared to the nine month period ended September 30, 2011. This increase in non-interest income was primarily due to the increase in commissions earned on brokered reverse mortgage loans and an increase in the gain on the sale of loans, referenced previously. Non-interest expense was $5.9 million and $5.6 million, respectively, for the nine month periods ended September 30, 2012 and 2011.


Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following tables show for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.

                                                          Three months Ended September 30,
                                                   2012                                      2011
                                                                Average                                   Average
                                    Average                      Yield/       Average                      Yield/
                                    Balance       Interest        Rate        Balance       Interest        Rate
                                                               (Dollars in Thousands)
Interest-Earning Assets:
Loans Receivable (1)               $ 216,763     $    2,902         5.36 %   $ 188,879     $    2,749         5.82 %
Mortgage-backed Securities            85,082            680         3.20 %      64,199            761         4.74 %
Investment Securities                  6,398             37         2.31 %      46,268            178         1.54 %
Other Interest-Earning Assets          5,915              3         0.20 %      11,818              9         0.30 %
Total Interest-Earning Assets        314,158          3,622         4.61 %     311,164          3,697         4.75 %

Non-Interest Earning Assets            8,268                                     7,629

Total Assets                       $ 322,426                                 $ 318,793

Interest-Bearing Liabilities:
Passbook, Checking and Money
Market Accounts                    $  50,929             30         0.24 %   $  46,943             32         0.27 %
Certificates of Deposit              132,146            482         1.46 %     134,626            612         1.82 %
Total Interest-Bearing Deposits      183,075            512         1.12 %     181,569            644         1.42 %

Borrowings                            65,796            552         3.36 %      63,827            624         3.91 %
Total Interest-Bearing
Liabilities                          248,871          1,064         1.71 %     245,396          1,268         2.07 %

Non-Interest Bearing Liabilities      17,897                                    15,400

Total Liabilities                    266,768                                   260,796

Stockholders' Equity                  55,658                                    57,997

Total Liabilities and
Stockholders' Equity               $ 322,426                                 $ 318,793

Net Interest-Earning Assets        $  65,287                                 $  65,768

Net Interest Income; Average
Interest Rate Spread                             $    2,558         2.90 %                 $    2,429         2.68 %

Net Interest Margin (2)                                             3.26 %                                    3.12 %

Average Interest-Earning Assets
to Average Interest-Bearing
Liabilities                                                       126.23 %                                  126.80 %


__________________________________________


(1) Includes nonaccrual loans during the respective periods. Calculated net of deferred fees/costs and allowance for loan losses.

(2) Equals net interest income divided by average interest-earning assets.


                                                          Nine Months Ended September 30,
                                                   2012                                     2011
                                                               Average                                  Average
                                    Average                     Yield/       Average                     Yield/
                                    Balance      Interest        Rate        Balance      Interest        Rate
                                                              (Dollars in Thousands)
Interest-Earning Assets:
Loans Receivable (1)               $ 208,919     $   8,421         5.37 %   $ 185,415     $   8,211         5.90 %
Mortgage-backed Securities            87,124         2,221         3.40 %      68,641         2,482         4.82 %
Investment Securities                  6,984           113         2.16 %      49,587           575         1.55 %
Other Interest-Earning Assets          8,295            16         0.26 %       9,616            24         0.33 %
Total Interest-Earning Assets        311,322        10,771         4.61 %     313,259        11,292         4.81 %

Non-Interest Earning Assets            7,790                                    7,854

Total Assets                       $ 319,112                                $ 321,113

Interest-Bearing Liabilities:
Passbook, Checking and Money
Market Accounts                    $  50,436            87         0.23 %   $  46,167           116         0.34 %
Certificates of Deposit              132,909         1,518         1.52 %     135,287         1,932         1.90 %
Total Interest-Bearing Deposits      183,345         1,605         1.17 %     181,454         2,048         1.50 %

Borrowings                            63,278         1,669         3.52 %      66,279         1,930         3.88 %
Total Interest-Bearing
Liabilities                          246,623         3,274         1.77 %     247,733         3,978         2.14 %

Non-Interest Bearing Liabilities      15,575                                   13,835

Total Liabilities                    262,198                                  261,568

Stockholders' Equity                  56,914                                   59,545

Total Liabilities and
Stockholders' Equity               $ 319,112                                $ 321,113

Net Interest-Earning Assets        $  64,699                                $  65,526

Net Interest Income; Average
Interest Rate Spread                             $   7,497         2.84 %                 $   7,314         2.67 %

Net Interest Margin (2)                                            3.21 %                                   3.11 %

Average Interest-Earning Assets
to Average Interest-Bearing
Liabilities                                                      126.23 %                                 126.45 %



(1) Includes nonaccrual loans during the respective periods. Calculated net of deferred fees/costs and allowance for loan losses.

(2) Equals net interest income divided by average interest-earning assets.

Interest Income. Net interest income was $2.6 million during the third quarter of 2012, an increase of $129,000 compared to the third quarter of 2011. During the third quarter of 2012, interest income was $3.6 million, a decrease of $75,000 compared to the third quarter of 2011. This decrease in interest income between the respective quarterly periods was due to a 14 basis point decrease in the average yield on our interest-earning assets, which was partially offset by a $3.0 million increase in the average balance of our interest-earning assets. The average yield on our interest-earning assets was 4.61% and 4.75%, respectively, for the quarterly periods ended September 30, 2012 and 2011. Interest income on loans receivable was $2.9 million during the third quarter of 2012, an increase of $153,000 compared to the third quarter of 2011. The increase in interest income on loans receivable was due primarily to a $27.9 million increase in the average balance of our loans receivable, the effect of which was partially reduced by a 46 basis point decrease in the average yield of our loan portfolio. The average balance of our mortgage-backed securities and CMOs increased by $20.9 million while the average yield on these securities decreased by 154 basis points during the third quarter of 2012 compared to the third quarter of 2011, resulting in a decrease of $81,000 in interest income earned on mortgage-backed securities and CMOs. Interest income on investment securities during the third quarter of 2012 was $37,000, at an average yield of 2.31%, compared to $178,000, at an average yield of 1.54%, during the third quarter of 2011.


During the nine months ended September 30, 2012, net interest income was $7.5 million, an increase of $183,000 compared to the nine months ended September 30, 2011. Interest income was $10.8 million and $11.3 million, respectively, for the nine month periods ended September 30, 2012 and September 30, 2011. This decrease in interest income was due to a $1.9 million decrease in the average balance of our interest-earning assets, and a 20 basis point decrease in the average yield on interest-earning assets. Interest income on our loans receivable was $8.4 million for the nine month period ended September 30, 2012, an increase of $210,000 compared to the nine month period ended September 30, 2011. The average balance of our loans receivable increased by $23.5 million during the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. The benefit derived by this increase in the average balance of our loans was partially offset by a 53 basis point decrease in the average yield earned on our loans receivable. During the first nine months of 2012, the average balance of our mortgage-backed securities and CMOs increased by $18.5 million compared to the first nine months of 2011, while the average yield of our mortgage-backed securities and CMOs decreased by 142 basis points, resulting in a decrease in interest income of $261,000. The Company earned $113,000 on an average investment securities portfolio of $7.0 million during the first nine months of 2012 compared to $575,000 on an average investment securities portfolio $49.6 million during the first nine months of 2011.

Interest Expense. Total interest expense was $1.1 million, with our interest-bearing liabilities having an average cost of 1.71%, during the third quarter of 2012, compared to $1.3 million and an average cost of 2.07% for the third quarter of 2011. The average rate paid on interest-bearing deposits was 1.12% during the quarter ended September 30, 2012, a decrease of 30 basis points from the quarter ended September 30, 2011. Interest expense on borrowings was $552,000 at an average cost of 3.36% during the third quarter of 2012, and $624,000 at an average cost of 3.91% during the third quarter of 2011. The net interest rate spread between our interest-earning assets and our interest-bearing liabilities was 2.90% for the third quarter of 2012, compared to 2.68% for the third quarter of 2011. Our net interest margin, which expresses net interest income as a percentage of average interest-earning assets, was 3.26% for the three month period ended September 30, 2012, an increase of 14 basis points from the three month period ended September 30, 2011.

Total interest expense for the first nine months of 2012 was $3.3 million, a decrease of $704,000 compared to the first nine months of 2011. Average interest-bearing liabilities were $246.6 million during the nine month period ended September 30, 2012, compared to $247.7 million during the nine month period ended September 30, 2011. The average cost of our interest-bearing liabilities was 1.77% for the nine months ended September 30, 2012, compared to 2.14% for the nine months ended September 30, 2011. The net interest rate spread between our interest-earning assets and interest-bearing liabilities was 2.84% for the first nine months of 2012, an increase of 17 basis points compared to the first nine months of 2011.

Provision for Loan Losses. The Company recorded provisions for loan losses of $98,000 and $89,000, respectively, for the quarters ended September 30, 2012 and 2011. Our allowance for loan losses was $1.9 million at September 30, 2012, or 267.83% of our non-performing loans at such date.

For the nine month periods ended September 30, 2012 and September 30, 2011, our provisions for loan losses were $226,000 and $59,000, respectively. Total non-performing loans were $715,000, and total non-performing assets were $1.3 million at September 30, 2012. Stated as a percentage of total loans receivable, our allowance for loan losses was 0.88% and 0.91% at September 30, 2012 and December 31, 2011, respectively.

Non-interest Income. Non-interest income for the third quarter of 2012 was $548,000, an increase of $235,000 from the third quarter of 2011. Our customer service fees, which are primarily comprised of fees earned on transaction accounts, loan servicing fees, and broker commissions earned on reverse mortgage loans, were $160,000 during the third quarter of 2012, an increase of $61,000 from the comparable 2011 period. Gains on the sale of mortgage loans were $359,000 during the third quarter of 2012, compared to $122,000 during the third quarter of 2011. During the third quarter of 2011, the Company realized gains of $72,000 on the sale of securities. There were no such sales during the third quarter of 2012. Other non-interest income was $29,000 and $20,000, respectively, for the three month periods ended September 30, 2012 and 2011.

For the nine month periods ended September 30, 2012 and 2011, total non-interest income was $1.4 million and $756,000, respectively. During the 2012 period, the Company recorded a $189,000 increase in its customer service fees, and a $465,000 increase in the gain on the sale of loans. There were no securities sold during the nine month period ended September 30, 2012, compared to the sale of $1.1 million in mortgage-backed securities which resulted in gains of $72,000 during the nine month period ended September 30, 2011. Other non-interest income was $95,000 during the first nine months of 2012 and $66,000 during the first nine months of 2011.


Non-interest Expense. Non-interest expense was $2.0 million for the quarter ended September 30, 2012 compared to $1.9 million for the quarter ended September 30, 2011. Salaries and employee benefits expense was $1.3 million during the third quarter of 2012, an increase of $142,000 compared to the third quarter of 2011. Occupancy expenses were $319,000 and $280,000 for the respective quarters ended September 30, 2012 and 2011. The increases in our salaries and employee benefits expense and our occupancy expenses were primarily due to the staffing and operating expenses associated with our new full service . . .

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