Exhibit 99.1

 

 

 

 

 

 

 

MINDEN BANCORP, INC. AND SUBSIDIARY

 

MINDEN, LOUISIANA

 

DECEMBER 31, 2017 AND 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MINDEN BANCORP, INC. AND SUBSIDIARY

 

MINDEN, LOUISIANA

 

DECEMBER 31, 2017 AND 2016

 

 

TABLE OF CONTENTS

 

 

 

 

	Page
Report of Independent Registered Public Accounting Firm	1-2
Consolidated Balance Sheets	3-4
Consolidated Statements of Income	5
Consolidated Statements of Comprehensive Income	6
Consolidated Statements of Stockholders’ Equity	7
Consolidated Statements of Cash Flows	8-9
Notes to Consolidated Financial Statements	10-32

 

 

February 28, 2018

 

 

 

The Board of Directors

Minden Bancorp, Inc. and Subsidiary

Minden, Louisiana

 

Report of Independent Registered Public Accounting Firm

 

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Minden Bancorp, Inc. and Subsidiary as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended and the related notes. In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Minden Bancorp, Inc. and Subsidiary as of December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

These consolidated financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on the Bank’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Bank is not required to have, nor have we been engaged to perform, an audit of its internal control over financial reporting. As a part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

We have served as the Bank’s auditor since 2001.

 

 

Emphasis of Matter

As discussed in Note 22 to the financial statements, on January 1, 2018, BFB Acquisition Company merged with and into Minden Bancorp, Inc., with Minden Bancorp, Inc. surviving the merger as a wholly-owned subsidiary of Business First Bancshares, Inc. Our opinion is not modified with respect to that matter.

 

 

/s/ Heard, McElroy, & Vestal, LLC

 

 

Shreveport, Louisiana

 

 

MINDEN BANCORP, INC. AND SUBSIDIARY

 

CONSOLIDATED BALANCE SHEETS

 

DECEMBER 31, 2017 AND 2016

(in thousands, except shares and per share)

 

 

 

A S S E T S		2017				2016
Cash and noninterest-bearing deposits			5,748				4,381
Interest-bearing demand deposits			643				20,953
Federal funds sold			9,500				1,000
Total cash and cash equivalents			15,891				26,334
Securities available-for-sale, at estimated market value			99,626				108,846
First National Banker’s Bank stock, at cost			210				210
Federal Home Loan Bank stock, at cost			338				129
Financial Institution Service Corp. stock, at cost			10				10
Loans, net of allowance for loan losses of $2,073- 2017 and $2,058-2016			193,291				188,710
Accrued interest receivable			1,155				1,339
Premises and equipment, net			2,678				4,187
Prepaid and other assets			1,873				1,589
Total assets			315,072				331,354

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY		2017				2016
Liabilities:
Deposits:
Noninterest-bearing			34,962				31,938
Interest-bearing			228,989				235,518
Total deposits			263,951				267,456
Securities sold under agreements to repurchase			16,047				11,387
Federal Home Loan Bank advances			5,000				-
Accrued interest payable			230				206
Other liabilities			1,628				1,176
Total liabilities			286,856				280,225
Stockholders’ equity:
Preferred stock-$.01 par value; authorized 10,000,000 shares; none issued-no rights/preferences set by board			-				-
Common stock-$.01 par value; authorized 40,000,000 shares; 2,409,107 shares-2017 and 2,390,995 shares-2016 issued			24				24
Additional paid-in capital			31,463				31,142
Retained earnings (deficit)			(2,165	)			21,803
Accumulated other comprehensive (loss)			(748	)			(1,418	)
Unearned common stock held by Recognition Retention Plan (RRP) (1,480 shares-2017 and 7,637 shares-2016)			(26	)			(45	)
Unallocated common stock held by ESOP (29,908 shares-2017 and 34,509 shares-2016)			(332	)			(377	)
Total stockholders’ equity			28,216				51,129
Total liabilities and stockholders’ equity			315,072				331,354

 

 

MINDEN BANCORP, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF INCOME

 

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(in thousands, except per share)

 

		2017				2016
Interest income:
Loans, including fees			11,368				10,653
Investments:
Securities			467				426
Mortgage-backed securities			1,688				1,477
Other			155				82
Total interest income			13,678				12,638
Interest expense:
Interest-bearing demand deposits, savings, and repurchase agreements			496				589
Certificates of deposit			971				975
Total interest expense			1,467				1,564
Net interest income			12,211				11,074
Provision for loan losses			130				211
Net interest income after provision for loan losses			12,081				10,863
Noninterest income:
Customer service fees			892				878
Gain (loss) on sale of assets-net			(263	)			4
Other operating income			22				55
Total noninterest income			651				937
Noninterest expenses:
Salaries and benefits			4,039				2,900
Office occupancy expense			637				725
Professional fees and supervisory examinations			1,063				115
FDIC insurance premium			90				125
Computer department expenses			129				101
Other general and administrative expenses			716				676
Total noninterest expenses			6,674				4,642
Income before income taxes			6,058				7,158
Income tax expense			2,126				2,309
Net income			3,932				4,849
Earnings per share (EPS)-basic			1.66				2.07
Diluted EPS			1.62				2.00

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

MINDEN BANCORP, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(in thousands)

 

 

 

			2017				2016
Consolidated net income			3,932				4,849
Other comprehensive income before income tax:
Unrealized gains (losses) on securities available for sale:
Unrealized holdings gains (losses) arising during period			1,015				(2,405	)
			1,015				(2,405	)
Income tax:
Unrealized gains (losses) on securities available for sale			345				(818	)
			345				(818	)
Other comprehensive income (loss)			670				(1,587	)
Comprehensive income			4,602				3,262

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

MINDEN BANCORP, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(in thousands, except per share)

                 

														Accumulated
						Additional								Other
		Common				Paid-In				Retained				Comprehensive				Unearned				Unallocated
		Stock				Capital				Earnings				Income (Loss)				RRP				ESOP				Total
Balance-December 31, 2015			24				31,185				18,286				169				(230	)			(421	)			49,013
Net income			-				-				4,849				-				-				-				4,849
Other comprehensive (loss)			-				-				-				(1,587	)			-				-				(1,587	)
Exercise of stock options			-				300				-				-				-				-				300
Dividends (.56 per share)			-				-				(1,332	)			-				-				-				(1,332	)
Amortization of awards under RRP-net of release of RRP/SOP			-				24				-				-				66				-				90
Maturity of 2011 RRP awards			-				(119	)			-				-				119				-				-
Unearned ESOP			-				-				-				-				-				44				44
Company stock purchased			-				(248	)			-				-				-				-				(248	)
Balance-December 31, 2016			24				31,142				21,803				(1,418	)			(45	)			(377	)			51,129
Net income			-				-				3,932				-				-				-				3,932
Other comprehensive income			-				-				-				670				-				-				670
Exercise of stock options			-				287				-				-				-				-				287
Dividends (11.60 per share)			-				-				(27,900	)			-				-				-				(27,900	)
Amortization of awards under RRP-net of release of RRP/SOP			-				34				-				-				19				-				53
Unearned ESOP			-				-				-				-				-				45				45
Balance-December 31, 2017			24				31,463				(2,165	)			(748	)			(26	)			(332	)			28,216

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

MINDEN BANCORP, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(in thousands)

 

 

		2017				2016
Cash flows from operating activities:
Net income			3,932				4,849
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			161				255
Provision for loan losses			130				211
Deferred income taxes			145				(85	)
RRP and other expenses			98				134
Net amortization of securities			848				1,007
(Gain) loss on sale of assets			263				(4	)
(Increase) in prepaid expenses and accrued income			(591	)			(406	)
Increase (decrease) in interest payable and other liabilities			464				(83	)
Net cash provided by operating activities			5,450				5,878
Cash flows from investing activities:
Activity in available for sale securities:
Sales, maturities and pay-downs			20,162				19,157
Purchases			(10,774	)			(31,205	)
Purchases of Federal Home Loan Bank stock			(209	)			(5	)
Net (increase) in loans			(4,964	)			(1,721	)
Proceeds from sale of premises and equipment			1,064				-
Proceeds from sale of other assets			286				8
Net cash provided (used) by investing activities			5,565				(13,766	)
Cash flows from financing activities:
Net increase (decrease) in deposits			(3,505	)			5,874
Net increase in repurchase agreements			4,660				2,081
Increase in Federal Home Loan Bank advances			5,000				-
Dividends paid			(27,900	)			(1,332	)
Proceeds from stock options exercised			287				300
Company stock purchased			-				(248	)
Net cash provided (used) by financing activities			(21,458	)			6,675
Net (decrease) in cash and cash equivalents			(10,443	)			(1,213	)
Cash and cash equivalents at January 1			26,334				27,547
Cash and cash equivalents at December 31			15,891				26,334

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

MINDEN BANCORP, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(in thousands)

 

 

		2017				2016
Supplemental disclosures:
Interest paid on deposits and borrowed funds			1,443				1,571
Income taxes paid			2,710				2,407
Noncash investing and financing activities:
Transfer of loans to real estate owned and other repossessed assets			286				4
Increase (decrease) in unrealized gain on securities available for sale			1,015				(2,405	)

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

MINDEN BANCORP, INC. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

DECEMBER 31, 2017 AND 2016

 

 

 

1.	Summary of Significant Accounting Policies

Minden Bancorp, Inc. is a holding company (the “Company”) established in 2010 as the successor to Minden Bancorp, Inc., a Federal corporation established in 2001 as described below. MBL Bank (the “Bank”) is the wholly-owned subsidiary of the Company. The Company’s significant assets and business activity are its investment in the Bank. All intercompany transactions have been eliminated in consolidation of Minden Bancorp, Inc. and MBL Bank. The Bank accepts customer demand, savings, and time deposits and provides residential mortgages, commercial mortgages, and consumer and business loans to customers. The Bank is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. The Company was a savings and loan holding company prior to February 5, 2014, at which time it became a bank holding company as a result of the conversion of the Bank to a state-chartered commercial bank.

 

Basis of Presentation. In accordance with the subsequent events topic of the ASC, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements. The effects of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of December 31, 2017. In preparing these financial statements, the Company evaluated subsequent events through the date these financial statements were available to be issued.

 

Use of Estimates. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and the valuation of foreclosed real estate, deferred tax assets and fair value of financial instruments.

 

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses on loans, deferred tax assets, fair value of financial instruments, and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for losses on credits and foreclosed real estate, management obtains independent appraisals for significant properties. While management uses available information to recognize losses on credits, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowances for losses on loans. Such agencies may require the Bank to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowances for credit losses on loans may change materially in the future.

 

 

1.	Summary of Significant Accounting Policies (Continued)

 

Significant Group Concentrations of Credit Risk. Most of the Bank’s activities are with customers located within Webster Parish, Louisiana. Note 2 to the financial statements summarizes the types of investment securities in which the Bank makes investments, and Note 3 summarizes the types of loans included in the Bank’s loan portfolio. The Bank does not have any significant concentrations to any one industry or customer.

 

Cash and Cash Equivalents. For purposes of the statements of cash flows, cash and cash equivalents include cash and balances due from banks, federal funds sold and interest-bearing deposits at other banks, all of which mature within ninety days.

 

Investment Securities. Management determines the appropriate classification of securities at the time of purchase. If management has the positive intent and ability to hold investments in bonds, notes, and debentures until maturity, they are classified as held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts which are recognized in interest income using the effective interest method over the period to maturity. Securities to be held for indefinite periods of time yet not intended to be held to maturity or on a long-term basis are classified as securities available for sale and carried at fair value. Unrealized gains and losses on securities available for sale which have been reported as direct increases or decreases in stockholders’ equity, net of related deferred tax effects, are accounted for as other comprehensive income. The cumulative changes in unrealized gains and losses on such securities are accounted for in accumulated other comprehensive income as part of stockholders’ equity. Gains and losses on the sale of securities available for sale are determined using the specific-identification method. Other-than-temporary impairments of debt securities is based upon the guidance as follows: (a) if a company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to- maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment will be amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

 

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

 

Loans. The Bank grants mortgage, business and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans secured by properties throughout Webster Parish, Louisiana and the surrounding parishes. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any net deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

 

 

1.	Summary of Significant Accounting Policies (Continued)

 

The accrual of interest on mortgage, commercial real estate and commercial business, and consumer loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Past due status is based upon contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

 

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured or, when the loan becomes well secured and in the process of collection.

 

Allowance for Loan Losses. The allowance for loan losses is established as a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon an amount management believes will cover known and inherent losses in the loan portfolio based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

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

 

Credit Related Financial Instruments. In the ordinary course of business, the Bank has entered into commitments to extend credit, including commitments under commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded.

 

Other Real Estate Owned. Other real estate owned represents properties acquired through foreclosure or acceptance of a deed in lieu of foreclosure on loans on which the borrowers have defaulted as to payment of principal and interest. These properties are carried at the lower of cost of acquisition or the asset’s fair value, less estimated selling costs. Reductions in the balance at the date of acquisition are charged to the allowance for loan losses. Any subsequent write-downs to reflect current fair value are charged to noninterest expense. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

 

 

1.	Summary of Significant Accounting Policies (Continued)

 

Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation. The Bank records depreciation on property and equipment using accelerated and straight-line methods with lives ranging from 5 to 15 years on furniture, fixtures and equipment and to 40 years on the buildings.

 

Income Taxes. The Company files a consolidated federal income tax return with its subsidiary. Income taxes and benefits are generally allocated based on the subsidiary’s contribution to the total federal tax liability. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities. Current recognition is given to changes in tax rates and laws.

 

Securities Sold Under Agreements to Repurchase. Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction. The Bank may be required to provide additional collateral based on the fair value of the underlying securities.

 

Advertising Costs. Advertising costs are expensed as incurred. Such costs (in thousands) amounted to approximately $26 and $36 for the years ended December 31, 2017 and 2016, respectively, and are included in other general expense.

 

Stock Compensation. The cost of employee services received in exchange for stock options and stock grants (RRP) is measured using the fair value of the award on the grant date and is recognized over the service period, which is usually the vesting period.

 

Company Stock Repurchased. Common stock shares repurchased are recorded at cost.

 

Earnings Per Share. Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period less ESOP & RRP shares not released. Diluted earnings per share reflects additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

 

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

 

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income. ASU 2011-05 requires entities to present the total comprehensive income, and the components of net income and the components of other comprehensive income in a single continuous statement of comprehensive income or in two separate consecutive statements. The effective date for ASU 2011-05 was for annual and interim periods beginning after December 15, 2011. The Company has adopted ASU 2011-05 with the inclusion of the Consolidated Statements of Other Comprehensive Income in the financial statements.

 

 

1.	Summary of Significant Accounting Policies (Continued)

 

Reclassification. Certain prior year amounts have been reclassified to conform to current year financial statement presentation.

 

2.	Investment Securities

There were no securities held-to-maturity at December 31, 2017 and 2016.

 

Securities available-for-sale (in thousands) consists of the following:

 

		December 31, 2017
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Municipals			21,587				170				251				21,506
CMO			1,653				-				46				1,607
Mortgage Pools			77,519				42				1,048				76,513
			100,759				212				1,345				99,626

 

		December 31, 2016
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Municipals			23,656				24				867				22,813
CMO			2,153				2				55				2,100
Mortgage Pools			85,185				77				1,329				83,933
			110,994				103				2,251				108,846

 

The amortized cost and estimated fair value (in thousands) of investment securities at December 31, 2017, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

		Available for Sale
		Amortized				Fair
		Cost				Value
One year or less			-				-
After 1 year thru 5 years			59,764				58,973
After 5 years thru 10 years			33,951				33,708
After 10 years			7,044				6,945
			100,759				99,626

 

At December 31, 2017 and 2016, investment securities with a financial statement carrying amount (in thousands) of $73,026 and $80,656, respectively, were pledged to secure public and private deposits. A net gain of (in thousands) $1 was recognized on sale of investments in 2017. There were no gains or losses recognized on sale of investments in 2016. Sales, maturities and calls are detailed on the statements of cash flows.

 

 

2.	Investment Securities (Continued)

 

Information pertaining to securities with gross unrealized losses (in thousands) at December 31, 2017 and 2016, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

 

		Less than 12 Months								12 Months or Greater								Total
						Gross								Gross								Gross
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
December 31, 2017:
Municipals			5,582				36				5,118				215				10,700				251
CMO			298				1				1,309				45				1,607				46
Mortgage Pools			39,537				333				30,738				715				70,275				1,048
			45,417				370				37,165				975				82,582				1,345
December 31, 2016:
Municipals			20,832				847				230				20				21,062				867
CMO			-				-				1,650				55				1,650				55
Mortgage Pools			65,130				1,315				958				14				66,088				1,329
			85,962				2,162				2,838				89				88,800				2,251

 

Management evaluates securities for other-than-temporary impairment on a monthly basis. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

 

The majority of these securities are guaranteed directly by the U.S. Government or other U.S. Government agencies. These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary.

 

3.	Loans and Allowance for Loan Losses

The composition of the Company’s loan portfolio (in thousands) at December 31, 2017 and 2016 consisted of the following:

                   

		2017				2017
Loans secured by real estate:
Secured by 1-4 family residential properties			64,729				67,537
Secured by nonresidential properties			92,232				86,055
Commercial and industrial loans			29,339				28,593
Consumer loans (including overdrafts of $67 and $88)			5,323				5,324
Loans secured by deposits			3,741				3,259
Total			195,364				190,768

 

 

3.	Loans and Allowance for Loan Losses (Continued)

 

Less: Allowance for loan losses			(2,073	)			(2,058	)
Loans, net			193,291				188,710

 

Changes in the allowance for loan losses (in thousands) are summarized as follows:

 

		2017				2016
Balance, beginning of period			2,058				1,852
Provision for loan losses			130				211
Recoveries			13				5
Loans charged off			(128	)			(10	)
Balance, end of period			2,073				2,058

 

The following tables detail the balance in the allowance for loan losses (in thousands) by portfolio segment at December 31, 2017 and 2016:

 

		Balance												Provision				Balance
		January 1,				Charge-								for Loan				December
		2017				offs				Recoveries				Losses				31, 2017
Loans secured by real estate:
Secured by 1-4 family residential properties			723				(1	)			3				(51	)			674
Secured by nonresidential properties			1,021				-				-				11				1,032
Commercial and industrial loans			231				-				1				40				272
Consumer loans			83				(127	)			9				130				95
Loans secured by deposits			-				-				-				-				-
Total			2,058				(128	)			13				130				2,073

 

		Balance												Provision				Balance
		January 1,				Charge-								for Loan				December
		2016				offs				Recoveries				Losses				31, 2016
Loans secured by real estate:
Secured by 1-4 family residential properties			690				-				-				33				723
Secured by nonresidential properties			780				-				-				241				1,021
Commercial and industrial loans			291				-				-				(60	)			231
Consumer loans			91				(10	)			5				(3	)			83
Loans secured by deposits			-				-				-				-				-
Total			1,852				(10	)			5				211				2,058

 

 

3.	Loans and Allowance for Loan Losses (Continued)

 

		December 31, 2017
		Allowance for Loan Losses
		Disaggregated by Impairment Method
		Individually				Collectively				Total
Loans secured by real estate:
Secured by 1-4 family residential properties			-				674				674
Secured by nonresidential properties			-				1,032				1,032
Commercial and industrial loans			-				272				272
Consumer loans			-				95				95
Loans secured by deposits			-				-				-
			-				2,073				2,073

 

		December 31, 2016
		Allowance for Loan Losses
		Disaggregated by Impairment Method
		Individually				Collectively				Total
Loans secured by real estate:
Secured by 1-4 family residential properties			-				723				723
Secured by nonresidential properties			-				1,021				1,021
Commercial and industrial loans			-				231				231
Consumer loans			-				83				83
Loans secured by deposits			-				-				-
			-				2,058				2,058

 

The following table summarizes loans restructured in troubled debt restructurings (“TDR’s”) (in thousands) as of December 31, 2017 and 2016.

 

		2017
						Pre-				Post-
						Modification				Modification
						Outstanding				Outstanding
		Number of				Recorded				Recorded
		Contracts				Investment				Investment
Loans secured by real estate:
Secured by 1-4 family residential properties			-				-				-
Secured by nonresidential properties			3				7,656				7,411
Commercial and industrial loans			-				-				-
Consumer loans			-				-				-
Loans secured by deposits			-				-				-
Total loans			3				7,656				7,411

 

 

3.	Loans and Allowance for Loan Losses (Continued)

 

		2016
						Pre-				Post-
						Modification				Modification
						Outstanding				Outstanding
		Number of				Recorded				Recorded
		Contracts				Investment				Investment
Loans secured by real estate:
Secured by 1-4 family residential properties			-				-				-
Secured by nonresidential properties			1				3,144				3,144
Commercial and industrial loans			-				-				-
Consumer loans			-				-				-
Loans secured by deposits			-				-				-
Total loans			1				3,144				3,144

 

The following tables detail loans individually and collectively evaluated for impairment (in thousands) at December 31, 2017 and 2016:

 

		December 31, 2017
		Loans Evaluated for Impairment
		Individually				Collectively				Total
Loans secured by real estate:
Secured by 1-4 family residential properties			1,374				63,355				64,729
Secured by nonresidential properties			7,475				84,757				92,232
Commercial and industrial loans			280				29,059				29,339
Consumer loans			171				5,152				5,323
Loans secured by deposits			-				3,741				3,741
Total			9,300				186,064				195,364

 

		Loans Evaluated for Impairment
		Individually				Collectively				Total
Loans secured by real estate:
Secured by 1-4 family residential properties			1,388				66,149				67,537
Secured by nonresidential properties			5,051				81,004				86,055
Commercial and industrial loans			434				28,159				28,593
Consumer loans			141				5,183				5,324
Loans secured by deposits			-				3,259				3,259
Total			7,014				183,754				190,768

 

 

3.	Loans and Allowance for Loan Losses (Continued)

 

		Impaired Loans
		For the Year Ended December 31, 2017
						Unpaid								Interest
		Recorded				Principal				Related				Income
		Investment				Balance				Allowance				Recognized
With no related allowance recorded:
Secured by 1-4 family residential properties			881				881				-				50
Secured by nonresidential properties			4,783				4,783				-				193
Commercial and industrial loans			158				158				-				1
Consumer loans			76				76				-				7
Loans secured by deposits			-				-				-				-
			5,898				5,898				-				251
With an allowance recorded:
Secured by 1-4 family residential properties			-				-				-				-
Secured by nonresidential properties			-				-				-				-
Commercial and industrial loans			-				-				-				-
Consumer loans			-				-				-				-
Loans secured by deposits			-				-				-				-
			-				-				-				-
Total:
Secured by 1-4 family residential properties			881				881				-				50
Secured by nonresidential properties			4,783				4,783				-				193
Commercial and industrial loans			158				158				-				1
Consumer loans			76				76				-				7
Loans secured by deposits			-				-				-				-
			5,898				5,898				-				251

 

 

		Impaired Loans
		For the Year Ended December 31, 2016
						Unpaid								Interest
		Recorded				Principal				Related				Income
		Investment				Balance				Allowance				Recognized
With no related allowance recorded:
Secured by 1-4 family residential properties			767				767				-				22
Secured by nonresidential properties			5,051				5,051				-				165
Commercial and industrial loans			154				154				-				2
Consumer loans			103				103				-				4
Loans secured by deposits			-				-				-				-
			6,075				6,075				-				193
With an allowance recorded:
Secured by 1-4 family residential properties			-				-				-				-
Secured by nonresidential properties			-				-				-				-
Commercial and industrial loans			-				-				-				-
Consumer loans			-				-				-				-
Loans secured by deposits			-				-				-				-
			-				-				-				-
Total:
Secured by 1-4 family residential properties			767				767				-				22
Secured by nonresidential properties			5,051				5,051				-				165
Commercial and industrial loans			154				154				-				2
Consumer loans			103				103				-				4
Loans secured by deposits			-				-				-				-
			6,075				6,075				-				193

 

 

3.	Loans and Allowance for Loan Losses (Continued)

 

The average recorded investment in the impaired loans (in thousands) for the year 2017 and 2016 was $5,986 and $3,489, respectively.

 

Total non-accrual loans (in thousands) at December 31, 2017 and 2016 were $611 and $810, respectively. Additional interest income (in thousands) of approximately $42 and $40 would have been recognized for the period ended December 31, 2017 and 2016, respectively, had the loans not been on non-accrual.

 

Credit Indicators

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The following definitions are utilized for risk ratings, which are consistent with the definitions used in supervisory guidance:

 

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

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

 

Loss – Loans classified as loss are considered uncollectible and their continuance as a Bank asset is unwarranted.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

 

The table below illustrates the carrying amount (in thousands) of loans by credit quality indicator:

 

		December 31, 2017
						Special
		Pass				Mention				Substandard				Doubtful				Loss				Total
Loans secured by real estate:
Secured by 1-4 family residential properties			63,355				493				881				-				-				64,729
Secured by nonresidential properties			84,757				2,693				4,782				-				-				92,232
Commercial and industrial loans			29,059				122				158				-				-				29,339
Consumer loans			5,152				94				77				-				-				5,323
Loans secured by deposits			3,741				-				-				-				-				3,741
Total			186,064				3,402				5,898				-				-				195,364

 

 

3.	Loans and Allowance for Loan Losses (Continued)

 

		December 31, 2016
						Special
		Pass				Mention				Substandard				Doubtful				Loss				Total
Loans secured by real estate:
Secured by 1-4 family residential  properties			66,149				621				767				-				-				67,537
Secured by nonresidential properties			81,004				-				5,051				-				-				86,055
Commercial and industrial loans			28,159				280				154				-				-				28,593
Consumer loans			5,183				38				103				-				-				5,324
Loans secured by deposits			3,259				-				-				-				-				3,259
Total			183,754				939				6,075				-				-				190,768

 

A summary of current, past due and nonaccrual loans (in thousands) was as follows:

 

		December 31, 2017
						Past Due
		Past Due				Over 90 Days
		30-89				and				Non-				Total								Total
		Days				Accruing				Accruing				Past Due				Current				Loans
Loans secured by real estate:
Secured by 1-4 family residential properties			2,372				256				409				3,037				61,692				64,729
Secured by nonresidential properties			5,280				30				14				5,324				86,908				92,232
Commercial and industrial loans			1,469				-				158				1,627				27,712				29,339
Consumer loans			269				2				30				301				5,022				5,323
Loans secured by deposits			-				-				-				-				3,741				3,741
Total			9,390				288				611				10,289				185,075				195,364

 

		December 31, 2016
						Past Due
		Past Due				Over 90 Days
		30-89				and				Non-				Total								Total
		Days				Accruing				Accruing				Past Due				Current				Loans
Loans secured by real estate:
Secured by 1-4 family residential properties			2,042				193				442				2,677				64,860				67,537
Secured by nonresidential properties			759				-				148				907				85,148				86,055
Commercial and industrial loans			1,622				-				154				1,776				26,817				28,593
Consumer loans			168				17				66				251				5,073				5,324
Loans secured by deposits			-				-				-				-				3,259				3,259
Total			4,591				210				810				5,611				185,157				190,768

 

The Company charges a flat rate for the origination or assumption of a loan. These fees are designed to offset direct loan origination costs and the net amount, if material, is deferred and amortized, as required by accounting standards.

 

The Company’s lending activity is concentrated within Webster Parish, Louisiana. The Company’s lending activities include one-to-four-family dwelling units, commercial real estate, commercial business and consumer loans. The Company requires collateral sufficient in value to cover the principal amount of the loan. Such collateral is evidenced by mortgages on property held and readily accessible to the Bank.

 

 

4.	Accrued Interest Receivable

Accrued interest receivable (in thousands) at December 31, 2017 and 2016, consists of the following:

                         

		2017				2016
Loans			767				920
Mortgage-backed securities			188				207
Investment securities and other			200				212
Total accrued interest receivable			1,155				1,339

 

5.	Premises and Equipment

Premises and equipment (in thousands) are summarized as follows:

 

		2017				2016
Land and buildings			3,549				5,806
Furniture, fixtures and equipment			1,215				1,224
Total			4,764				7,030
Less-accumulated depreciation			(2,086	)			(2,843	)
Net premises and equipment			2,678				4,187

 

Depreciation expense was (in thousands) $161 and $255 for the years ended December 31, 2017 and 2016, respectively.

 

6.	Prepaid and Other Assets

Prepaid and other assets (in thousands) consist of the following:

 

		2017				2016
Cash value of life insurance			743				719
Prepaid expenses			137				57
Other			993				813
			1,873				1,589

 

7.

Deposits

Deposits (in thousands) as of December 31, 2017 and 2016 are summarized as follows:

 

		2017				2016
Demand deposit accounts (including official checks of $1,096 in 2017 and $1,189 in 2016)			149,062				150,672
Savings			22,435				21,472
Certificates of deposit:
0.00% – 0.99%			35,179				46,668
1.00% – 1.99%			57,275				48,644
Total certificates of deposit			92,454				95,312
Total deposits			263,951				267,456

 

 

7.	Deposits (Continued)

 

Scheduled maturities of certificates of deposit (in thousands) at December 31, 2017 are as follows:

 

					2018				2019				2020				2021				2022				Total
0.00%	–	0.99%				35,178				1				-				-				-				35,179
1.00%	–	1.99%				17,963				15,810				15,259				3,466				4,777				57,275
						53,141				15,811				15,259				3,466				4,777				92,454

 

Included in deposits (in thousands) at December 31, 2017 and 2016 are $32,724 and $29,545, respectively, of certificates of deposit (CD) in denominations of $250,000 or more.

 

8.	Federal Income Taxes

Federal income tax expense (in thousands, except %) applicable to net income for the periods ended December 31, 2017 and 2016 was as follows:

 

		2017				2016
		(in thousands)
Federal income taxes:
Current			1,981				2,394
Deferred			145				(85	)
Income tax expense			2,126				2,309

 

The reconciliation of the effective income tax rate to the federal statutory rate is as follows for the years ended December 31:

        

		2017				2016
Statutory federal income tax rate			34	%			34	%
Other-primarily tax exempt income			1	%			(2	%)
Effective income tax rate			35	%			32	%

 

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Due to regulatory changes, the statutory federal tax rate effective January 2018 changed to 21%; therefore, deferred tax assets (liabilities) have been calculated according to the new rates. Significant components of our deferred tax asset (liability) are as follows at December 31, 2017 and 2016:

 

		2017				2016
		(in thousands)
Deferred tax assets (liabilities):
Allowance for loan losses and credit losses			203				196
Deferred compensation/stock options/incentive plans			58				166
Basis difference in premises and equipment			(38	)			(351	)
Basis difference on investments			242				731
Net deferred tax asset (liability)			465				742

 

 

8.	Federal Income Taxes (Continued)

 

In computing federal taxes on income under provisions of the Internal Revenue Code in years past, earnings appropriated by savings associations to general reserves were deductible in arriving at taxable income if certain conditions were met. Retained earnings appropriated to federal insurance reserve at December 31, 2017 and 2016 includes appropriations of net income (in thousands) of prior years of $1,456, for which no provision for federal income taxes has been made. If this portion of the reserve is used for any purpose other than to absorb losses, a tax liability will be imposed upon the Company at the then current federal income tax rate.

 

The Company, as required under GAAP, reviewed its various tax positions taken or expected to be taken in its tax return and has determined it does not have unrecognized tax benefits. The Company does not expect that position to change significantly over the next twelve months. The Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2017, the Company has not accrued interest or penalties related to uncertain tax positions.

 

The Company files a consolidated U.S. federal income tax return. The Company’s federal income tax returns for the tax years 2015 and beyond remain subject to examination by the IRS. No significant state income taxes are applicable to the Company.

 

9.	Other Borrowed Funds

Federal Home Loan Bank (FHLB) advances represent short-term, fixed-rate borrowings from the Federal Home Loan Bank of Dallas. The Bank has a line of credit with the FHLB of $89.5 million at December 31, 2017 with $69.4 million available for use. Interest rates paid on the advances vary by term and are set by FHLB. Advances of $5.0 million were outstanding at December 31, 2017. There were no advances outstanding at December 31, 2016.

 

As of December 31, 2017, the Bank held an unfunded letter of credit from the FHLB of $15.0 million expiring January 12, 2018. There were no letters of credit held at December 31, 2016.

 

The Bank also has the ability to borrow under a federal funds line of credit with First National Bankers Bank (FNBB) of $19 million. Borrowings under this line, including the rates and maturities for such borrowings, are at the sole discretion of the issuing bank.

 

10.	Pension/ESOP Plan

In 2001, the Bank adopted a 401(k) retirement plan covering all employees based upon years of service. The Bank contributes up to a 6% match of the employees’ contribution based upon Board approval. Plan contributions (in thousands) for 2017 and 2016 were $107 and $84, respectively.

 

The ESOP was extended a loan in 2011 in connection with the second-step conversion in the amount of (in thousands) $558, to purchase 55,772 shares of common stock. The remaining balance (in thousands) due of $332 at $57 (in thousands) per year including interest is payable over approximately seven years. The Bank made contributions to the ESOP to enable it to make the note payments (in thousands) of $57 and $57 during the years ended December 31, 2017 and 2016, respectively, which is included in salaries and benefits on the income statement. As the note on the loan is paid, the shares will be released and allocated to the participants of the ESOP. The market value at December 31, 2017 and 2016 of the unallocated ESOP shares (29,908 and 34,509) was approximately $694 and $820 (in thousands), respectively.

 

 

11.	Retained Earnings and Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below, in thousands) of total, Tier I, and common equity Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2017, that the Bank met all capital adequacy requirements to which it is subject.

 

As of December 31, 2017, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, common equity Tier I risk-based, and Tier I leverage ratios as set forth in the table (amounts in thousands). The Bank’s actual capital amounts (in thousands) and ratios are also presented in the table. There are no conditions or events since that notification that management believes have changed the institution’s category.

 

																To Be Well
																Capitalized Under
										For Capital						Prompt Corrective
		Actual								Adequacy Purposes:						Action Provisions:
		Amount				Ratio				Amount			Ratio			Amount			Ratio
As of December 31, 2017
Total capital ratio (to Risk Weighted Assets)			31,465				16.25	%		≥15,492			≥8	%		≥19,365			≥10	%
Common Equity Tier I Capital Ratio (to Risk Weighted Assets)			29,392				15.18	%		≥8,714			≥4.5			≥12,587			≥6.5	%
Tier I Capital ratio (to Risk Weighted Assets)			29,392				15.18	%		≥11,619			≥6	%		≥15,492			≥8	%
Leverage Capital Ratio (to Total Assets)			29,392				9.19	%		≥12,797			≥4	%		≥15,996			≥5	%
As of December 31, 2016
Total capital ratio (to Risk Weighted Assets)			54,175				27.97	%		≥15,496			≥8	%		≥19,370			≥10	%
Common Equity Tier I Capital Ratio (to Risk Weighted Assets)			52,117				26.91	%		≥8,717			≥4.5			≥12,591			≥6.5	%
Tier I Capital ratio (to Risk Weighted Assets)			52,117				26.91	%		≥11,622			≥6	%		≥15,496			≥8	%
Leverage Capital Ratio (to Total Assets)			52,117				16.28	%		≥12,802			≥4	%		≥16,002			≥5	%

 

Minden Bancorp’s capital ratios are not significantly different from those of the Bank.

 

 

12.	Fair Value of Financial Instruments

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. 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. FASB Accounting Standards Codification Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

 

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

 

Cash and cash equivalents: The carrying amounts of cash and short-term instruments approximate fair values.

 

Interest-bearing deposits in banks: The carrying amounts of interest-bearing deposits approximate their fair values.

 

Securities: Fair values for securities, excluding Federal Home Loan Bank stock, First National Bankers Bank (“FNBB”) stock and Financial Institution Service Corporation (“FISC”) stock are based on quoted market prices. The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank. The carrying value of FNBB and FISC stock is based on the purchase price which approximates fair value.

 

Loans receivable: For variable-rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (e.g., one-to-four family residential), and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

 

Deposit liabilities: The fair values disclosed for demand deposits (e.g., interest and noninterest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

 

Short-term borrowings: The carrying amounts of Federal Home Loan Bank advances maturing within ninety days approximate their fair values.

 

Accrued interest: The carrying amounts of accrued interest approximate fair value.

 

 

12.	Fair Value of Financial Instruments (Continued)

 

Off-balance-sheet instruments: Fair values for off-balance-sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Fair values for off-balance sheet commitments to extend credit approximate their carrying value.

 

From time to time, certain assets may be recorded at fair value on a non-recurring basis, typically as a result of the application of lower of cost or fair value accounting or a write-down occurring during the period. The only item recorded at fair value on a non-recurring basis is foreclosed real estate, which is recorded at the lower of cost or fair value less estimated costs to sell. Fair value is determined by reference to appraisals (performed either by the Bank or by independent appraisers) on the subject property, using market prices of similar real estate assets (level 2 measurements). The Bank held no foreclosed real estate at December 31, 2017 or 2016.

 

The estimated fair values (in thousands), and related carrying or notional amounts, of the Company’s financial instruments are as follows:

 

		2017								2016
		Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value
Financial assets:
Cash and cash equivalents			15,891				15,891				26,334				26,334
Securities available for sale			99,626				99,626				108,846				108,846
FNBB, FHLB and FISC stock			558				558				349				349
Loans, net			193,291				192,691				188,710				188,125
Accrued interest receivable			1,155				1,155				1,339				1,339
Financial liabilities:
Deposits			263,951				264,188				267,456				267,696
Accrued interest payable			230				230				206				206
Off-balance sheet credit related to financial instruments:
Commitments to extend credit			46,032				46,032				36,226				26,226

 

Off-balance sheet derivative financial instruments: None

 

The Company adopted FASB Accounting Standards Topic 820, “Fair Value Measurements” (Topic 820), as of January 1, 2008. Topic 820 requires disclosures that stratify balance sheet amounts measured at fair value based on the inputs used to derive fair value measurements. These strata included:

 

●

Level 1 valuations, where the valuation is based on quoted market prices for identical assets or liabilities traded in active markets (which include exchanges and over-the-counter markets with sufficient volume),

 

●

Level 2 valuations, where the valuation is based on quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market, and

 

 

12.	Fair Value of Financial Instruments (Continued)

 

●

Level 3 valuations, where the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on the Company’s specific data. These unobservable assumptions reflect the Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability.

 

Fair values of assets and liabilities (in thousands) measured on a recurring basis at December 31, 2017 and 2016 are as follows:

 

		Level 1				Level 2				Level 3				Fair Value
December 31, 2017:
Securities available for sale			-				99,626				-				99,626
December 31, 2016:
Securities available for sale			-				108,846				-				108,846

 

13.	Segment Reporting

The Company, due to its size (both assets and employees), has only one reportable segment. The Company reports its lending activities (mortgages, consumer and commercial) as one segment. It does not operate as multiple segments nor does it manage or report as other than one segment.

 

The Company does not have a single external customer from which it derives 10% or more of its revenue. Refer to Note 3 for the one geographical area in which it operates.

 

14.	Stock Based Benefits Plans

In 2011, the Company established a recognition and retention plan and trust agreement (“RRP”), which is a stock-based incentive plan. Shares subject to awards under the agreement vest at the rate of 20% per year.

 

The Company authorized 49,534 shares of the Company’s common stock to be awarded under the RRP agreement and purchased the shares in the open market to fund the RRP plan at a cost of $686,000. As of December 31, 2017, 44,487 shares had been awarded under the RRP agreement. As of December 31, 2017, 1,480 authorized shares had not vested. Shares vested during the years ended December 31, 2017 and 2016 were 1,110 and 8,891, respectively. During 2016, approximately 38,905 shares awarded under the plan in 2011 became fully vested and were reclassed into additional paid-in capital. In 2017, it was determined 5,047 RRP shares had not and will be awarded and were moved to the authorized account.

 

Expense for the RRP is being amortized over a 60-month period and is based on the market value of the Company’s stock as of the date of the awards which was $12.00, $17.15 and $17.65 for the 2011, 2013 and 2014 awards, respectively. Total compensation under the RRP agreement for the years ended December 31, 2017 and 2016 was $19,000 and $66,000, respectively, and is included in salaries and benefits.

 

 

14.	Stock Based Benefits Plan (Continued)

 

The Company established the 2011 Stock Option Plan (“the 2011 Option Plan”) under which 123,836 shares of Company stock are reserved for the grant of stock options to directors, officers and employees. The Plan provides for vesting of options granted to participants at 20% per year and the options expire in ten years. The exercise price of the options is equal to the fair market value of the common stock on the grant date. As of December 31, 2017, options covering 17,822 shares were outstanding and had an average exercise price of $14.90. Options totaling 14,037 shares were vested and exercisable at December 31, 2017 with an average exercise price of $14.22.

 

The fair value of each outstanding option is estimated on the date of the grant using the Black-Scholes option-pricing formula with the following weighted average assumptions; 1% dividend yield, 10 years expected life, 30.07% expected volatility and 3.53% risk free interest. Option Plan shares granted at December 31, 2017 (17,822) had an approximate value of $34,000 under the Black-Scholes option-pricing formula.

 

The expected volatility is based on historical volatility. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend yield assumption is based upon the Company’s history and expectation of dividend payouts.

 

The Company’s Stock Benefits Administration Committee of the Board of Directors oversees the RRP and Option Plans.

 

15.	Supplemental Retirement Benefit Agreement

The Bank has entered into supplemental retirement benefit agreements (the “Agreements”) with certain members of management. The Agreements provide for monthly retirement benefits in the amount of $5,000 per month for ten to fifteen years from the date they retire for the executive group as a whole. As of December 31, 2017 and 2016, a liability (in thousands) of $277 and $300, respectively, was accrued in accordance for the Agreements. Total expense for the supplement retirement benefit agreement for the years ended December 31, 2017 and 2016 was (in thousands) $13 and $24, respectively.

 

16.	Earnings Per Share (EPS)

EPS is calculated based on average weighted common shares outstanding less ESOP and RRP shares not released. The number of shares used in the EPS computation at December 31, 2017 was 2,369,775 and at December 31, 2016 was 2,341,407.

 

 

17.	Related Party Transactions

In the ordinary course of business, MBL Bank makes loans to directors, executive officers, principal shareholders, and other entities in which these individuals have 10% or more beneficial ownership.

 

 

17.	Related Party Transactions (Continued)

 

Annual activity consisted of the following:

 

		2017				2016
		(in thousands)
Balance-beginning of period			2,662				2,951
New loans			8,879				10,361
Net change in lines of credit			(193	)			(245	)
Principal repayments			(8,297	)			(10,405	)
Change in director retirement			(113	)			-
Balance-end of period			2,938				2,662

 

Deposits (in thousands) from related parties held by MBL Bank at December 31, 2017 and 2016 amounted to $2,717 and $3,118, respectively.

 

18.	Commitments and Contingencies

In the ordinary course of business, the Bank has outstanding commitments on which management does not anticipate losses. They include, among other things, commitments to extend credit and letters of credit undertaken in the normal course of business. As of December 31, 2017 and 2016, the Bank had $46.0 million and $36.2 million, respectively, of loan commitments and lines of credit outstanding, including loans in process. Loan commitments outstanding at December 31, 2017 were $2.1 million in fixed rates and $8.6 million in variable rates, for a total of $10.7 million. The fixed rate commitments range from 5.25% to 8.5%. The variable rate commitments range from WSJ Prime -1.0% to MBL Prime + 1.0%.

 

When entered into, these commitments represent off-balance sheet risk to the Bank, with the contractual notional amount representing the Bank’s exposure to credit loss in the event of nonperformance by the other party to the instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. They generally have fixed expiration dates and require payment of a fee. Since many commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis, and obtains an amount of collateral it deems sufficient.

 

19.	Stock Repurchase Plan

The Board of Directors approved a stock repurchase plan which provided for the repurchase of 150,000 shares, of the Company’s issued and outstanding shares of common stock on September 30, 2013. A total of 80,223 shares have been repurchased at a cost of $1.5 million under this plan as of December 31, 2017 and 2016.

 

The shares for the stock repurchase plan may be purchased in the open market or in privately negotiated transactions from time to time depending upon the market conditions and other factors.

 

20.	Building Lease

The Bank entered into a non-cancellable building lease during 2017. The future minimum lease payments by year consisted of the following as of December 31, 2017:

 

 

20.	Building Lease (Continued)

 

2018			24,000
2019			24,000
2020			24,000
2021			24,000
2022			16,000
Total minimum lease payments			112,000

Lease expense was $8,000 and $-0- for 2017 and 2016, respectively.

 

21.	Condensed Financial Statements of Parent Company

Financial information pertaining to Minden Bancorp, Inc. is as follows (in thousands):

 

		2017				2016
Balance Sheets
Assets
Cash			135				429
Investment in subsidiaries			28,644				50,699
Other assets			457				17
Total assets			29,236				51,145
Liabilities and Stockholders’ Equity
Other liabilities			1,020				16
Stockholders’ equity-net			28,216				51,129
Total liabilities and stockholders’ equity			29,236				51,145
Income Statements
Income			12				13
Expenses			2,090				63
			(2,078	)			(50	)
Equity in earnings of subsidiary			5,580				4,882
Income before income taxes			3,502				4,832
Income tax expense (benefit)			(430	)			(17	)
Net income			3,932				4,849
Cash Flow Statements		2017				2016
Cash flows from operating activities:
Net income			3,932				4,849
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in income of subsidiaries			(5,580	)			(4,882	)
Other			637				34
Net cash provided (used) by operating activities			(1,011	)			1

 

 

21.	Condensed Financial Statements of Parent Company (Continued)

 

		2017				2016
Cash Flow Statements
Cash flows from financing activities:
Dividends received-MBL Bank			28,330				800
Dividends paid			(27,900	)			(1,332	)
Exercise of stock options			287				300
Company stock purchased			-				(248	)
Net cash provided (used) by financing activities			717				(480	)
Net decrease in cash and cash equivalents			(294	)			(479	)
Cash and cash equivalents at beginning of period			429				908
Cash and cash equivalents at end of period			135				429

 

22.	Agreement and Plan of Reorganization

On October 5, 2017, Minden Bancorp, Inc. entered into an Agreement and Plan of Reorganization by and among Business First Bancshares, Inc., Minden Bancorp, Inc., and BFB Acquisition Company providing for the acquisition of Minden Bancorp, Inc. by Business First Bancshares, Inc. at a price of $31.50 per share, less a per share special dividend of $8.30 paid by Minden Bancorp, Inc. on December 29, 2017. Effective January 1, 2018, BFB Acquisition Company merged with and into Minden Bancorp, Inc., with Minden Bancorp, Inc. surviving the merger as a wholly-owned subsidiary of Business First Bancshares, Inc. Immediately following the merger, Minden Bancorp, Inc. merged with and into Business First Bancshares, Inc. and MBL Bank, our subsidiary bank, merged with and into Business First Bank, a Louisiana state bank, and wholly-owned subsidiary of Business First Bancshares, Inc. As a result of these transactions, Minden Bancorp, Inc. and MBL Bank were combined with those of Business First Bancshares, Inc., and Minden Bancorp, Inc. and MBL Bank ceased to exist as separate corporate entities.

 

23.	Subsequent Events

The Company has evaluated events and transactions that occurred after the balance sheet date through February 28, 2018, the date the financial statements were available to be issued. As discussed in Note 22, BFB Acquisition Company merged with and into Minden Bancorp, Inc. effective January 1, 2018.

 

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