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 January 31, 2011

 

¨	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  ¨    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 February 25, 2011

 

Common Stock $1.00 par value		2,079,703
(Title of class)		(Shares outstanding)

 

 

 

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PART I - FINANCIAL INFORMATION

ITEM I - Financial Statements

MAYFLOWER BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

		January 31, 2011				April 30, 2010
ASSETS		(unaudited)				(audited)
		(in Thousands)
Cash and cash equivalents:
Cash and due from banks		$	4,644			$	4,559
Federal funds sold and interest-bearing deposits in banks			7,419				15,914
Total cash and cash equivalents			12,063				20,473
Investment securities:
Securities available-for-sale, at fair value			42,471				49,576
Securities held-to-maturity (fair value of $44,534 and $45,897, respectively)			43,898				44,793
Total investment securities			86,369				94,369
Loans receivable, net			127,864				120,545
Accrued interest receivable			927				926
Real estate held for investment			1,011				1,020
Real estate acquired by foreclosure			1,211				1,815
Premises and equipment, net			11,199				11,147
Deposits with The Co-operative Central Bank			449				449
Stock in Federal Home Loan Bank of Boston, at cost			1,650				1,650
Refundable income taxes			393				25
Deferred income taxes			838				797
Other assets			1,525				2,314
Total assets		$	245,499			$	255,530
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits		$	218,649			$	225,317
Advances and borrowings			4,500				7,500
Advances from borrowers for taxes and insurance			367				213
Allowance for loan losses on off-balance sheet credit exposures			110				110
Accrued expenses and other liabilities			986				1,910
Total liabilities			224,612				235,050
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 2,079,703 at January 31, 2011 and 2,078,985 at April 30, 2010			2,079				2,079
Additional paid-in capital			4,334				4,300
Retained earnings			13,921				13,293
Accumulated other comprehensive income			553				808
Total stockholders’ equity			20,887				20,480
Total liabilities and stockholders’ equity		$	245,499			$	255,530

See accompanying notes to consolidated financial statements

 

2

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

Unaudited

 

		Three months ended January 31,								Nine months ended January 31,
		2011				2010				2011				2010
		(In Thousands, Except Per Share Data)
Interest income:
Loans receivable		$	1,801			$	1,818			$	5,422			$	5,622
Securities held-to-maturity			349				460				1,151				1,362
Securities available-for-sale			396				504				1,306				1,572
Federal funds sold and interest-bearing deposits in banks			5				4				17				11
Total interest income			2,551				2,786				7,896				8,567
Interest expense:
Deposits			412				605				1,334				2,410
Borrowed funds			46				101				168				358
Total interest expense			458				706				1,502				2,768
Net interest income			2,093				2,080				6,394				5,799
Provision for loan losses			20				75				156				75
Net interest income after provision for loan losses			2,073				2,005				6,238				5,724
Noninterest income:
Loan origination and other loan fees			26				37				85				86
Customer service fees			157				175				523				545
Gain on sales of mortgage loans			113				73				427				343
Gain on sales of investment securities			183				28				231				159
Interchange income			53				43				152				126
Other			58				19				103				70
Total noninterest income			590				375				1,521				1,329
Noninterest expense:
Compensation and fringe benefits			1,059				997				3,158				2,976
Occupancy and equipment			290				277				850				834
FDIC assessment			81				74				250				299
Data processing			98				92				289				263
Losses & expenses of other real estate owned			195				15				234				68
Other			443				433				1,351				1,389
Total noninterest expense			2,166				1,888				6,132				5,829
Income before income taxes			497				492				1,627				1,224
Provision for income taxes			172				176				581				374
Net income		$	325			$	316			$	1,046			$	850
Earnings per share (basic)		$	0.15			$	0.15			$	0.50			$	0.41
Earnings per share (diluted)		$	0.15			$	0.15			$	0.50			$	0.41
Weighted average basic shares outstanding			2,082				2,083				2,083				2,084
Diluted effect of outstanding stock options			—				—				—				4
Weighted average diluted shares outstanding			2,082				2,083				2,083				2,088

See accompanying notes to consolidated financial statements

 

3

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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, April 30, 2009		$	2,086			$	4,311			$	12,747			$	194			$	19,338
Net income for the nine months ended January 31, 2010			—				—				850				—				850
Other comprehensive income, net of tax:
Change in unrealized gain on securities available- for-sale, net of deferred income taxes of $540,000			—				—				—				773				773
Reclassification adjustment for gains included in net income, net of deferred income taxes of $55,000			—				—				—				(104	)			(104	)
																			669
Total comprehensive income			—				—				—				—				1,519
Purchase of 4,462 shares of Company stock			(5	)			(7	)			(21	)			—				(33	)
Cash dividends ($0.22 per share)			—				—				(458	)			—				(458	)
BALANCE, January 31, 2010		$	2,081			$	4,304			$	13,118			$	863			$	20,366
BALANCE, April 30, 2010		$	2,079			$	4,300			$	13,293			$	808			$	20,480
Net income for the nine months ended January 31, 2011			—				—				1,046				—				1,046
Other comprehensive income, net of tax:
Change in unrealized gain on securities available- for-sale, net of deferred income taxes of $80,000			—				—				—				(117	)			(117	)
Reclassification adjustment for gains included in net income, net of deferred income taxes of $93,000			—				—				—				(138	)			(138	)
																			(255	)
Total comprehensive income			—				—				—				—				791
Issuance of 7,500 shares of common stock			7				46				—				—				53
Purchase of 6,782 shares of Company stock			(7	)			(12	)			(43	)			—				(62	)
Cash dividends ($0.18 per share)			—				—				(375	)			—				(375	)
BALANCE, January 31, 2011		$	2,079			$	4,334			$	13,921			$	553			$	20,887

See accompanying notes to consolidated financial statements.

 

4

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine months ended January 31,
		2011				2010
		(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received		$	8,062			$	8,615
Fees and other income received			1,305				1,169
Interest paid			(1,512	)			(2,770	)
Cash paid to suppliers and employees			(5,415	)			(7,556	)
Income taxes paid			(818	)			(507	)
Net cash provided by (used in) operating activities			1,622				(1,049	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans receivable			(7,381	)			8,708
Purchases of available-for-sale securities			(18,395	)			(20,731	)
Proceeds from sales,calls, and maturities of available-for-sale securities			25,341				19,601
Purchase of held-to-maturity securities			(30,058	)			(15,402	)
Proceeds from maturities and calls of held-to-maturity securities			30,351				12,798
Proceeds from sales of other real estate owned			—				40
Proceeds from sales of real estate acquired by foreclosure			408				25
Capital additions to real estate acquired by foreclosure			(76	)			(216	)
Purchases of premises and equipment			(426	)			(749	)
Other - net			102				(60	)
Net cash (used in) provided by investing activities			(134	)			4,014
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits			(6,668	)			1,884
Payments on advances and borrowings			(3,000	)			(5,388	)
Net increase in advances from borrowers for taxes and insurance			154				97
Issuance of common stock			53				—
Repurchase of Company stock			(62	)			(33	)
Dividends paid on common stock			(375	)			(458	)
Net cash used in financing activities			(9,898	)			(3,898	)
Net decrease in cash and cash equivalents			(8,410	)			(933	)
Cash and cash equivalents - beginning of period			20,473				10,376
Cash and cash equivalents - end of period		$	12,063			$	9,443

See accompanying notes to consolidated financial statements

 

5

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

Reconciliation of Net Income to Net Cash

Provided by (Used in) Operating Activities

(Unaudited)

 

		Nine months ended January 31,
		2011				2010
		(In Thousands)
Net income		$	1,046			$	850
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation			383				398
Provision for loan losses			156				75
Loss on other real estate owned			162				29
Premium amortization			166				91
Amortization of intangible assets			8				11
Deferred income taxes			132				(134	)
Gain on sales of investments			(231	)			(159	)
Decrease (increase) in accrued interest receivable			(1	)			(43	)
Decrease (increase) in prepaid expenses			189				(1,021	)
Decrease (increase) in mortgage servicing rights			(22	)			(38	)
Decrease (increase) in refundable income taxes			(368	)			—
Increase (decrease) in accrued expenses			(4	)			(1,106	)
Increase (decrease) in accrued interest payable			(10	)			(1	)
Increase (decrease) in deferred loan origination fees			16				(1	)
Total adjustments			576				(1,899	)
Net cash provided by (used in) operating activities		$	1,622			$	(1,049	)
SUPPLEMENTAL DISCLOSURES:
Total (decrease) increase in unrealized gain on securities available-for-sale		$	(428	)		$	1,154
Loans transferred to real estate acquired by foreclosure		$	295			$	—
Proceeds from sales of other real estate financed through loans		$	—			$	314
Proceeds from sales of other real estate acquired by foreclosure financed through loans		$	—			$	140
Proceeds from sales of foreclosed real estate financed through loans		$	457			$	—
Transfer of premises and equipment to real estate held for investment		$	—			$	1,094

See accompanying notes to consolidated financial statements

 

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

January 31, 2011 and 2010

 

A.	Reorganization and 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 and for the year ended April 30, 2010. 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.	Recent Accounting Pronouncements:

In January 2010, the FASB issued Accounting Standards Update No. 2010-6, Improving Disclosures About Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. This update is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The Company does not expect the adoption this guidance to have a material impact on its consolidated financial statements.

In July 2010, the FASB issued Accounting Standards Update No. 2010-20, Disclosures about the Credit Quality of Financing Receivables, which amends Accounting Standards Codification Topic 310, Receivables, by requiring more robust and disaggregated disclosure about the credit quality of an entity’s loans and its allowance for loan losses. These new disclosures will significantly expand the existing requirements and are focused on providing transparency regarding an entity’s exposure to credit losses. This update is effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosure requirements have been incorporated in the notes to the Company’s consolidated financial statements. The adoption of this Update did not have a material impact on the Company’s consolidated financial statements.

In January 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in ASU 2011-01 temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, for public entities. The delay is intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. The deferral in ASU 2011-01 was effective January 19, 2011 (date of issuance).

 

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

January 31, 2011 and 2010

 

C.	Investment Securities

Investment securities have been classified according to management’s intent. The amortized cost of securities and their respective fair values at January 31, 2011 and April 30, 2010 follows:

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		January 31, 2011
		(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
U.S. Government obligations		$	12,979			$	34			$	(76	)		$	12,937
Corporate debt securities			500				—				—				500
Municipal obligations			2,494				55				(26	)			2,523
Mortgage-backed and related securities			24,826				931				(38	)			25,719
Trust preferred securities			750				—				(55	)			695
Marketable equity securities			—				97				—				97
		$	41,549			$	1,117			$	(195	)		$	42,471
HELD-TO-MATURITY SECURITIES:
U.S. Government obligations		$	16,000			$	48			$	(171	)		$	15,877
Municipal obligations			3,441				60				(30	)			3,471
Mortgage-backed and related securities			24,457				828				(99	)			25,186
		$	43,898			$	936			$	(300	)		$	44,534

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		April 30, 2010
		(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
U.S. Government obligations		$	14,739			$	66			$	(1	)		$	14,804
Corporate debt securities			500				—				—				500
Municipal obligations			1,977				75				—				2,052
Mortgage-backed and related securities			29,512				1,281				—				30,793
Trust preferred securities			750				—				(122	)			628
Marketable equity securities			748				73				(22	)			799
		$	48,226			$	1,495			$	(145	)		$	49,576
HELD-TO-MATURITY SECURITIES:
U.S. Government obligations		$	18,756			$	83			$	(2	)		$	18,837
Municipal obligations			2,661				90				—				2,751
Mortgage-backed and related securities			23,376				954				(21	)			24,309
		$	44,793			$	1,127			$	(23	)		$	45,897

There was no impairment charge recognized against investment securities during the nine months ended January 31, 2011 or 2010.

 

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

January 31, 2011 and 2010

 

D.	Loans Receivable

Loans receivable at January 31, 2011 and April 30, 2010 are summarized as follows:

 

(In Thousands)		January 31, 2011				April 30, 2010
Mortgage loans on real estate
Residential		$	50,796			$	46,814
Commercial			44,556				41,061
Construction			6,034				5,684
Home equity loans			3,583				4,329
Home equity lines of credit			18,126				17,578
Total mortgage loans			123,095				115,466
Consumer loans			1,455				1,688
Commercial loans			5,611				5,936
Total loans			130,161				123,090
Less:
Due borrowers on construction and other loans			1,091				1,453
Net deferred loan origination costs			(86	)			(102	)
Allowance for loan losses			1,292				1,194
			2,297				2,545
Loans receivable, net		$	127,864			$	120,545

Activity in the allowance for loan losses is summarized as follows for the nine months ended January 31:

 

		Nine months ended
		January 31, 2011				January 31, 2010
		(In Thousands)
Beginning balance		$	1,194			$	1,305
Provision for loan losses			156				75
Loans charged off			(64	)			(119	)
Recoveries			6				5
Balance at end of period		$	1,292			$	1,266

 

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

January 31, 2011 and 2010

 

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 January 31, 2011:

 

		Residential Mortgages				Commercial Mortgages				Construction Mortgages				Home Equity Loans and Lines of Credit				Commercial Business Loans				Consumer Loans				Unallocated				Total
Allowance for loan losses:
Beginning balance		$	161			$	639			$	95			$	151			$	129			$	19			$	—			$	1,194
Loans charged off			—				—				—				—				(56	)			(8	)			—				(64	)
Recoveries			—				—				—				—				6				—				—				6
Provision for loan losses			5				96				(3	)			13				33				5				7				156
Ending Balance		$	166			$	735			$	92			$	164			$	112			$	16			$	7			$	1,292
Ending balance: individually evaluated for impairment		$	—			$	87			$	—			$	35			$	—			$	—			$	—			$	122
Ending balance: collectively evaluated for impairment		$	166			$	648			$	92			$	129			$	112			$	16			$	7			$	1,170
Loans Receivable:
Ending balance		$	50,796			$	44,556			$	6,034			$	21,709			$	5,611			$	1,455			$	—			$	130,161
Ending balance: individually evaluated for impairment		$	761			$	579			$	—			$	139			$	—			$	—			$	—			$	1,479
Ending balance: collectively evaluated for impairment		$	50,035			$	43,977			$	6,034			$	21,570			$	5,611			$	1,455			$	—			$	128,682

 

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

January 31, 2011 and 2010

 

Impaired loans were as follows:

As of January 31, 2011:     (In thousands)
		Recorded Investment				Unpaid Principal Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized
With no related allowance recorded:
Residential mortgages		$	761			$	761			$	—			$	764			$	14
With an allowance recorded:
Commercial mortgages			579				579				87				582				20
Home equity loans and lines of credit			139				139				35				139				1
Total:
Residential mortgages		$	761			$	761			$	—			$	764			$	14
Commercial mortgages		$	579			$	579			$	87			$	582			$	20
Home equity loans and lines of credit		$	139			$	139			$	35			$	139			$	1

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still accruing by class of loans as of January 31, 2011:

 

(In thousands)		Non accrual				Loans Past Due Over 90 Days and Still Accruing
Residential mortgages		$	761			$	—
Commercial mortgages			579				—
Home equity loans and lines of credit			139				—
Commercial business loans			63				—
Total		$	1,542			$	—

The following table presents the aging of the recorded investment in past due loans as of January 31, 2011:

 

		30-59 Days Past Due				60-89 Days Past Due				Greater Than 90 Days Past Due				Total Past Due				Current				Total Loans Receivable
Residential Mortgages		$	170			$	349			$	761			$	1,280			$	49,516			$	50,796
Commercial Mortgages			177				300				579				1,056				43,500				44,556
Construction Mortgages			—				—				—				—				6,034				6,034
Home Equity Loans and Lines of Credit			14				—				139				153				21,556				21,709
Commercial Business Loans			—				—				63				63				5,548				5,611
Consumer Loans			2				—				—				2				1,453				1,455
		$	363			$	649			$	1,542			$	2,554			$	127,607			$	130,161

 

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

January 31, 2011 and 2010

 

The following table displays the loan portfolio by credit quality indicators as of January 31, 2011:

 

		Residential Mortgages				Commercial Mortgages				Construction Mortgages				Home Equity Loans and Lines of Credit				Commercial Business Loans				Consumer Loans				Total
Pass		$	50,035			$	43,977			$	6,034			$	21,570			$	5,611			$	1,455			$	128,682
Special mention			761				—				—				—				—				—				761
Substandard			—				579				—				139				—				—				718
		$	50,796			$	44,556			$	6,034			$	21,709			$	5,611			$	1,455			$	130,161

 

E.	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 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

 

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

January 31, 2011 and 2010

 

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.

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

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.

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.

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.

 

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

January 31, 2011 and 2010

 

The estimated fair values of the Company’s financial instruments at January 31, 2011 and April 30, 2010 were as follows:

 

		January 31, 2011								April 30, 2010
		Carrying Amount				Fair Value				Carrying Amount				Fair Value
		(In Thousands)
Financial assets:
Cash and due from banks		$	4,644			$	4,644			$	4,559			$	4,559
Federal funds sold and interest-bearing deposits in banks			7,419				7,419				15,914				15,914
Investment securities			86,369				87,005				94,369				95,473
Loans, net			127,864				127,630				120,545				121,990
Accrued interest receivable			927				927				926				926
Deposits with The Co-operative Central Bank			449				449				449				449
Stock in Federal Home Loan Bank of Boston			1,650				1,650				1,650				1,650
Financial liabilities:
Deposits			218,649				219,097				225,317				225,726
Advances and borrowings			4,500				4,841				7,500				7,985

 

F.	Fair Value Measurement

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.

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.

 

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MAYFLOWER BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

January 31, 2011 and 2010

 

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. 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 writedowns based on observable market prices or current appraised values.

The balances of assets and liabilities measured at fair value on a recurring basis as of January 31, 2011, 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)
Securities available-for-sale		$	42,471			$	—			$	42,471			$	—

The balances of assets and liabilities measured at fair value on a non-recurring basis as of January 31, 2011, 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)
Impaired loans		$	1,479			$	—			$	1,479			$	—
Real estate acquired by foreclosure		$	1,211			$	—			$	1,211			$	—

 

G.	Real Estate Held for Investment

Real estate held for investment includes costs approximating $729,000 for office units constructed with the Obery Street branch in Plymouth, Massachusetts. The Company anticipates selling these units during the current fiscal year.

 

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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 April 30, 2010 and Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2010. 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:

A provision for loan losses represents a charge against current earnings and an addition to or deduction from the allowance for loan losses. In determining the amount to provide for potential loan losses, a key factor is the current adequacy of the allowance for loan losses. Management uses a methodology to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio for purposes of establishing an adequate allowance for loan losses. The methodology includes three elements: (1) an analysis of individual loans deemed to be impaired or potentially impaired and a subsequent allocation as required, (2) general loss allocations for various categories of loans based on loss experience factors, and (3) an unallocated allowance. General and unallocated allowances are determined as a function of management’s assessment of many factors including the risk characteristics of the loan portfolio, concentrations of credit, current and anticipated economic conditions that may affect borrowers’ ability to pay, and trends in loan delinquencies and charge-offs.

Material estimates that are susceptible to change in the near-term relate to the allowance for loan losses. Any significant changes in these assumptions and/or conditions could result in higher than estimated losses that could adversely affect the Company’s earnings. Management believes that the allowance for loan losses as currently constituted is adequate based on its review of the portfolio and other factors associated with the loans. While management uses available information to recognize loan losses, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, regulatory agencies, as part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additional allowances based on judgments different than those of management, which could also adversely affect the Company’s earnings.

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 and interest 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 when due. Loans that experience insignificant payment delays and payment shortfalls generally are not

 

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classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into account all the circumstances surrounding the loan and borrower, including the length of delay, 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, commercial real estate, 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 similar balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

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 (shown separately on the balance sheet) 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. Management considers many factors in their analysis of which, if any, securities might be classified as other-than-temporarily impaired, including industry analyst reports, sector credit ratings, volatility in market price and other relevant information such as: financial condition, earnings capacity, near term prospects of the issuing company, length of time and extent to which the market value has been less than cost, and whether the instrument is performing in accordance with its terms.

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 January 31, 2011 and April 30, 2010, 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.

 

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Financial Condition:

At January 31, 2011, the Company’s total assets were $245.5 million as compared to $255.5 million at April 30, 2010, a decrease of $10.0 million. During the nine months ended January 31, 2011, cash and cash equivalents decreased by $8.4 million, total investments decreased by $8.0 million, and net loans receivable increased by $7.3 million.

During the nine months ended January 31, 2011, historically low interest rates resulted in increased residential mortgage financing activity, as the Company originated $27.0 million in residential mortgages as compared to $16.9 million originated for the same period one year ago. During the nine months, the Company sold $17.8 million of fixed-rate residential loans in the secondary mortgage market, producing gains of $427,000, compared to sales of $17.9 million for the prior year period which resulted in gains of $343,000. Additionally, during the year, the Company elected to retain in portfolio certain fixed-rate residential mortgages totaling $5.2 million. These loans, which were underwritten in accordance with all secondary mortgage market guidelines, have a weighted average interest rate of 4.16%, an average final maturity of 20.3 years, and an average loan to value of 50.4%. This activity, combined with other mortgage payoffs and regularly scheduled amortization, resulted in a $4.0 million increase in residential loan balances as compared to April 30, 2010.

Also contributing to the growth in the loan portfolio was an increase of $3.2 million in commercial loans and mortgages and an increase of $715,000 in net construction loans outstanding. These increases were partially offset by a decrease of $198,000 in home equity loans and lines of credit and a decrease of $233,000 in consumer loan balances. In aggregate, net loans outstanding increased from $120.5 million at April 30, 2010 to $127.9 million at January 31, 2011.

During the nine months ended January 31, 2011, total investments decreased by $8.0 million as the Company chose to focus on loan portfolio growth.

Non-performing assets are comprised of non-performing loans, non-accrual investments 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 January 31, 2011, non-performing assets totaled $2.8 million, compared to $2.3 million at April 30, 2010. The increase in non-performing assets is comprised of an increase of $1.0 million in non-performing loans offset by decrease of $604,000 in real estate acquired by foreclosure. During the period, the Company was able to resolve certain previously classified non-performing loans and charged off others. However, during the nine months ended January 31, 2011, five additional loans with balances approximating $1.4 million were classified as non-performing. This $1.4 million was comprised of two residential first mortgages totaling $761,000, one commercial mortgage totaling $579,000, one commercial loan totaling $63,000 and one home equity line of credit totaling $40,000. At January 31, 2011, non-performing assets represented 1.12% of total assets compared to 0.91% of total assets at April 30, 2010.

At January 31, 2011, the Company’s allowance for loan losses was $1,292,000, which represented an allowance of 1.01% of net loans receivable and 83.8% of non-performing loans at that date. This compares to $1,194,000 at April 30, 2010, which represented 0.99% of net loans receivable and 232.3% of non-performing loans. During the nine months ended January 31, 2011, the Company provided $156,000 to augment the reserve and charged off, net of recoveries, $50,000 in commercial loans and $8,000 in consumer loans. Management continues to closely monitor the loan portfolio and will continue to provide for potential losses as they become likely.

The Company’s loan portfolio continues to be heavily dependent on the strength of the local real estate market and a significant deterioration in that market or other negative economic conditions could have a adverse impact on the Company’s results. In addition, commercial business, construction, and commercial real estate financing are generally considered to involve a higher degree of credit risk than

 

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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 closely 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 (shown separately on the balance sheet). This allowance totaled $110,000 at January 31, 2011 and April 30, 2010. This allowance is intended to protect the Company against potential losses on undrawn or unfunded loan commitments made to customers.

Total deposits, after interest credited, decreased by $6.7 million due primarily to a reduction of $6.1 million in certificate of deposit balances and $2.7 million in money market deposit accounts, partially offset by growth of $2.1 million in checking and savings account balances. These fluctuations are the result of a management decision to reduce interest rates paid on certificates of deposit which the Company considers non-core, and the result of decreases in municipal deposits which tend to be larger in April during the tax collection period. Additionally, during the nine months ended January 31, 2011, advances and borrowings decreased by $3.0 million, from $7.5 million at April 30, 2010 to $4.5 million at January 31, 2011.

Total stockholders’ equity increased by $407,000 when compared to April 30, 2010. The increase in total equity is due to net income for the nine-months of $1,046,000 and the exercise of employee stock options totaling $53,000. Those increases in total equity were partially offset during the nine-month period by dividends paid of $0.18 per share and totaling $375,000, Company stock repurchases totaling $62,000, and a decrease of $255,000 in the net unrealized gain on securities classified as available-for-sale.

Results of Operations:

Comparison of the three months ended January 31, 2011 and January 31, 2010.

General:

Net income for the three months ended January 31, 2011 was $325,000 compared with net income of $316,000 for the three months ended January 31, 2010, an increase of $9,000 or 2.8%. Net interest income increased by $13,000, the provision for loan losses decreased by $55,000, total non-interest income increased by $215,000, and total non-interest expense increased by $278,000.

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 three months ended January 31, 2011, the Company’s net interest margin increased from 3.71% to 3.73%. This increase in net interest margin is primarily the result of the maturity of shorter-term certificates of deposit repricing into lower rates, as offset by reduced yields earned on investments and loans.

 

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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 January 31,
		2011												2010
		Average Balance (1)				Interest				Rate (Annualized)				Average Balance (1)				Interest				Rate (Annualized)
		(Dollars in Thousands)
Interest-earning assets:
Loans		$	127,826			$	1,801				5.64	%		$	121,957			$	1,818				5.96	%
Investment securities			88,834				745				3.35	%			96,414				964				4.00	%
Federal funds sold and interest-bearing deposits in banks			7,550				5				0.26	%			5,700				4				0.28	%
All interest-earning assets		$	224,210				2,551				4.55	%		$	224,071				2,786				4.97	%
Interest-bearing liabilities:
Deposits		$	218,425				412				0.75	%		$	214,689				605				1.13	%
Borrowed funds			4,500				46				4.09	%			10,016				101				4.03	%
All interest-bearing liabilities		$	222,925				458				0.82	%		$	224,705				706				1.26	%
Net interest income						$	2,093											$	2,080
Weighted average interest rate spread (2)											3.73	%											3.71	%
Net interest margin											3.73	%											3.71	%

 

(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.

 

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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 January 31,
		2011 vs. 2010
		Changes due to increase (decrease)
		(in thousands)
		Total				Volume				Rate				Rate/ Volume
Interest income:
Loans		$	(17	)		$	87			$	(99	)		$	(5	)
Investment securities			(219	)			(76	)			(155	)			12
Federal funds sold and interest-bearing deposits in banks			1				1				—				—
Total			(235	)			12				(254	)			7
Interest expense:
Deposits			(193	)			10				(200	)			(3	)
Borrowed funds			(55	)			(56	)			1				—
Total			(248	)			(46	)			(199	)			(3	)
Increase (decrease) in net interest income		$	13			$	58			$	(55	)		$	10

Interest and Dividend Income:

Total interest and dividend income decreased by $235,000, or 8.4%, to $2.6 million for the three months ended January 31, 2011. Interest income from loans decreased by $17,000. This decrease was due to a reduction in the average rate earned on loans, from 5.96% to 5.64% on an annualized basis, as offset by an increase of $5.9 million in the average balance of loans outstanding. Interest and dividend income on investment securities decreased by $219,000 as a result of a decrease in the average yield earned, from 4.00% in the quarter ended January 31, 2010 to 3.35% in the quarter ended January 31, 2011, coupled with a decrease of $7.6 million in the average balance of investments. Interest on short-term investments increased by $1,000 due to an increase of $1.9 million in the average balance of short-term investments outstanding, offset by a decrease in the average yield earned, from 0.28% in the 2010 quarter to 0.26% in the 2011 quarter.

Interest Expense:

Interest expense decreased by $248,000, or 35.1%, to $458,000 for the three months ended January 31, 2011. Interest expense on deposits decreased by $193,000 as a result of a decrease in the average rate paid, from 1.13% to 0.75%, offset by an increase of $3.7 million in the average balance of deposits. Interest expense on borrowed funds decreased by $55,000, or 54.5%, for the three months ended January 31, 2011. This decrease was due to a reduction of $5.5 million in the average balance of advances outstanding, offset by a slight increase in the average rate paid on borrowed funds, from 4.03% in the January 2010 three-month period to 4.09% in the January 2011 three-month period.

 

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Provision for Loan Losses:

The provision for loan losses was $20,000 for the quarter ended January 31, 2011, compared to $75,000 for the quarter ended January 31, 2010. The allowance for loan losses is maintained at a level that management considers 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 increased by $215,000 for the three months ended January 31, 2011 as compared to the three months ended January 31, 2010. This increase was primarily due to an increase of $155,000 in gains on sales of investments, coupled with an increase of $40,000 in gains on sales of loans. Additionally, debit card interchange income increased by $10,000 and other income increased by $39,000, primarily due to the receipt of a special dividend of $36,000 from The Co-operative Central Bank, the Company’s excess deposit insurer. These increases were offset by a decrease of $11,000 in loan origination and other loan fees and by a reduction of $18,000 in customer service fees, primarily a result of reduced return check fee income.

Non-interest Expense:

Total non-interest expense increased by $278,000 or 14.7% for the quarter ended January 31, 2011. This increase was partially a result of an increase of $180,000 in losses and related expenses of foreclosed real estate. This additional expense is due to a write-down of $168,000 recorded during the quarter on a foreclosed property owned by the Company, as well as due to higher balances of foreclosed real-estate. Additionally, salary and benefit expense increased by $62,000 due to salary adjustments and increased retirement and other benefit costs. Also contributing to the increase in operating expenses was an increase of $13,000 in occupancy and equipment expense, an increase of $7,000 in FDIC assessment expense, an increase of $6,000 in data processing expense and an increase of $10,000 in other expenses.

Provision for Income Taxes:

The provision for income taxes decreased by $4,000 for the three months ended January 31, 2011 when compared to the three months ended January 31, 2010. Effective income tax rates were 34.6% and 35.8% respectively in the 2011 and 2010 periods. The lower effective tax rate in comparison to statutory rates is reflective of income earned by a non-Bank investment subsidiary, which is taxed, for state tax purposes, at a lower rate.

Results of Operations:

Comparison of the nine months ended January 31, 2011 and January 31, 2010.

General:

Net income for the nine months ended January 31, 2011 was $1,046,000 compared with net income of $850,000 for the nine months ended January 31, 2010. Net interest income increased by $595,000, the provision for loan losses increased by $81,000, total non-interest income increased by $192,000, and total non-interest expense increased by $303,000.

 

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During the nine months ended January 31, 2011, the Company’s net interest margin increased from 3.44% to 3.77%. This margin increase is primarily the result of the downward repricing of certificate of deposit balances.

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.

 

										Nine months ended January 31,
		2011												2010
		Average Balance (1)				Interest				Rate (Annualized)				Average Balance (1)				Interest				Rate (Annualized)
		(Dollars in Thousands)
Interest-earning assets:
Loans		$	124,742			$	5,422				5.80	%		$	123,901			$	5,622				6.05	%
Investment securities			92,025				2,457				3.56	%			94,625				2,934				4.13	%
Federal funds sold and interest-bearing deposits in banks			9,404				17				0.24	%			6,270				11				0.23	%
All interest-earning assets		$	226,171				7,896				4.65	%		$	224,796				8,567				5.08	%
Interest-bearing liabilities:
Deposits		$	220,017				1,334				0.81	%		$	213,504				2,410				1.51	%
Borrowed funds			5,490				168				4.08	%			11,596				358				4.12	%
All interest-bearing liabilities		$	225,507				1,502				0.89	%		$	225,100				2,768				1.64	%
Net interest income						$	6,394											$	5,799
Weighted average interest rate spread (2)											3.76	%											3.44	%
Net interest margin											3.77	%											3.44	%

 

(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.

 

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The effect on net interest income due to 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).

 

		Nine months ended January 31,
		2011 vs. 2010
		Changes due to increase (decrease)
		(in thousands)
		Total				Volume				Rate				Rate/ Volume
Interest income:
Loans		$	(200	)		$	38			$	(237	)		$	(1	)
Investment securities			(477	)			(81	)			(407	)			11
Short-term investments			6				6				—				—
Total			(671	)			(37	)			(644	)			10
Interest expense:
Deposits			(1,076	)			74				(1,116	)			(34	)
Borrowed funds			(190	)			(189	)			(3	)			2
Total			(1,266	)			(115	)			(1,119	)			(32	)
Increase (decrease) in net interest income		$	595			$	78			$	475			$	42

Interest and Dividend Income:

Interest and dividend income decreased by $671,000, or 7.8%, to $7.9 million for the nine months ended January 31, 2011 from $8.6 million for the nine months ended January 31, 2010. Interest income from loans decreased by $200,000. This decline was due to a decrease in the average rate earned on loans from 6.05% to 5.80% on an annualized basis, offset by an increase of $841,000 in the average balance of loans outstanding. Interest and dividend income on investment securities decreased by $477,000 as a result of a decrease in the average yield earned, from 4.13% in 2010 to 3.56% in 2011, coupled with a decrease of $2.6 million in the average outstanding balance of investments. Interest on short-term investments increased by $6,000 as a result of an increase of $3.1 million in the average balance of short-term investments, coupled with a slight increase in the average yield earned, from 0.23% in the 2010 nine-month period to 0.24% in the 2011 nine-month period.

Interest Expense:

Interest expense decreased by $1.3 million, or 45.7%, to $1.5 million for the nine months ended January 31, 2011. Interest expense on deposits decreased by $1,076,000, or 44.6%, as a result of a decrease in the average rate paid, from 1.51% in the 2010 nine-month period to 0.81% in the 2011 nine-month period, offset by an increase of $6.5 million in the average balance of deposits. Interest expense on borrowed funds decreased by $190,000, or 53.1%, for the nine months ended January 31, 2011. This decrease was due to a decrease in the average balance of borrowed funds, from $11.6 million in the 2010 nine-month period to $5.5 million in the 2011 nine-month period, augmented by a decrease in the average rate paid on borrowed funds, from 4.12% in the January 2010 nine-month period to 4.08% in the January 2011 nine-month period.

 

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Provision for Loan Losses:

The provision for loan losses was $156,000 for the nine months ended January 31, 2011, compared to $75,000 for the nine months ended January 31, 2010. The allowance for loan losses is maintained at a level that management considers adequate to provide for probable losses based upon evaluation of known and inherent risks in the loan portfolio. Management considers the allowance for loan losses to be adequate at this time. However, 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 increased by $192,000 for the nine months ended January 31, 2011 as compared to the nine months ended January 31, 2010. This increase was primarily due to an increase of $84,000 in gains on sales of loans and an increase of $72,000 in gains on sales of investments. These additional gains on loan sales were a function of decreases in prevailing mortgage interest rates during the period, which resulted in increased volumes of fixed-rate residential mortgage closings, which the Company was able to profitably sell. Finally, debit card interchange income increased by $26,000 and other income increased by $33,000. These increases were offset by a decrease of $1,000 in loan origination fees and by a decrease of $22,000 in customer service fees, primarily a result of reduced return check fee income.

Non-interest Expense:

Non-interest expense increased by $303,000 for the nine months ended January 31, 2011 as compared to the nine months ended January 31, 2010. This increase was partially attributable to an increase of $182,000 in salary and benefit expense, a result of normal salary adjustments and increases in retirement and other benefit costs. Additionally, losses and expenses of foreclosed properties increased by $166,000, due to an increase of $133,000 in real-estate charge-offs and an increase of $33,000 in foreclosed property expenses. Finally, data processing expense and occupancy and equipment expense increased by $26,000 and $16,000, respectively. These increases were offset by a decrease of $49,000 in FDIC assessment expense and a decrease of $38,000 in other expenses.

Provision for Income Taxes:

The provision for income taxes increased by $207,000 for the nine months ended January 31, 2011 when compared to the nine months ended January 31, 2010, due to the increase in net income before taxes. Effective income tax rates were 35.7% and 30.6% respectively in the 2011 and 2010 periods. The lower effective tax rate in comparison to statutory rates is reflective of income earned by a non-Bank investment subsidiary, which is taxed, for state tax purposes, at a lower rate. The increase in the effective tax rate for the most recent nine months ended January 31, 2011, is due to a higher proportion of net income earned by the Bank entity as compared to its non-Bank investment subsidiary. Accordingly, a greater proportion of the net income was taxed at a higher tax rate in the 2011 period compared to the same period in 2010.

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 (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.

 

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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.

 

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Delinquent Loans, Loans in Foreclosure and Foreclosed Property:

The following table sets forth information with respect to the Company’s non-performing assets as of the date indicated.

 

		January 31, 2011				April 30, 2010				January 31, 2010
		(Dollars in Thousands)
Loans past due over 90 days:
Residential mortgages		$	761			$	—			$	—
Home equity loans and lines of credit			139				99				—
Commercial and construction mortgages			579				295				1,424
Commercial time and demand loans			63				120				—
Consumer and other loans			—				—				—
		$	1,542			$	514			$	1,424
Loans past due over 90 days as a percentage of:
Net loans receivable			1.21	%			0.43	%			1.16	%
Total assets			0.63	%			0.20	%			0.58	%
Non-performing assets
**Non-accrual loans		$	1,542			$	514			$	1,424
Real estate acquired by foreclosure			1,211				1,815				647
		$	2,753			$	2,329			$	2,071
Non-performing assets as a percentage of:
Net loans receivable			2.15	%			1.93	%			1.69	%
Total assets			1.12	%			0.91	%			0.84	%
Allowance for loan losses		$	1,292			$	1,194			$	1,266
Allowance for loan losses as a percentage of non-performing loans			83.79	%			232.30	%			88.90	%
Allowance for loan losses as a percentage of net loans			1.01	%			0.99	%			1.03	%

 

**	Includes loans which are contractually past due 90 days or more and/or loans less than 90 days past due on which the Bank has ceased accruing interest

 

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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 April 30, 2010 and Quarterly Report on Form 10-Q for the quarter ended July 31, 2010.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information regarding the Company’s stock repurchases during the periods indicated.

 

Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of a Publicly Announced Repurchase Program (1)				Maximum Number of Shares That May Yet Be Purchased Under the Repurchase Program (1)
November 1-30, 2010			—			$	—				—				75,143
December 1-31, 2010			2,998				9.06				2,998				72,145
January 1-31, 2011			849				9.00				849				71,296
TOTAL			3,847			$	9.04				3,847				71,296

 

(1)	On July 2, 2007, Mayflower Bancorp, Inc. announced that it had approved a stock repurchase program to acquire up to 104,792 shares, or 5%, of the Company’s outstanding common stock.

 

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Item 3.

Defaults Upon Senior Securities

None

 

Item 4.

Removed and Reserved

 

Item 5.

Other Information

None

 

Item 6.

Exhibits

 

Exhibit 3.1		Articles of Organization of Mayflower Bancorp, Inc (1)
Exhibit 3.2		Bylaws of Mayflower Bancorp, Inc. (2)
Exhibit 4		Stock Certificate for Common Stock of Mayflower Bancorp, Inc. (1)
Exhibit 10		Mayflower Bancorp, Inc. 2010 Equity Incentive Plan (3)
Exhibit 31		Rule 13a-14(a)/15d-14(a) Certifications
Exhibit 32		Section 1350 Certifications

 

(1)	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.

(2)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q (File No. 0-52477) for the quarter ended January 31, 2009, filed with the SEC on March 13, 2009.

(3)	Incorporated by reference to Appendix C to the Company’s definitive proxy materials (File No. 0-52477), filed with the SEC on July 22, 2010.

 

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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:		March 8, 2011
				/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)

 

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