form10qsb-84493_3cb.htm
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB
(Mark
one)
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ý
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31,
2007
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o
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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: 000-50828
THIRD
CENTURY BANCORP
(Exact
name of small business issuer as specified in its charter)
|
Indiana
|
20-0857725
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|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
Number)
|
80
East
Jefferson Street
Franklin,
Indiana 46131
(Address
of principal executive offices)
(317)
736-7151
(Issuer’s
telephone number)
Check
whether the Issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past twelve months (or for 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 ý NO
o
Indicate
by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
YES o NO ý
APPLICABLE
ONLY TO CORPORATE ISSUERS
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: April 30, 2007 – 1,611,003 common
shares
Transitional
Small Business Disclosure Format (Check one): Yes o No ý
THIRD
CENTURY BANCORP
FORM
10-QSB
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Page
No.
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3
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3
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4
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5
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6
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7
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9
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13
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13
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13
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14
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14
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14
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14
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14
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15
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E-1
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Consolidated
Condensed Balance Sheets
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As
of
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As
of
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March
31, 2007
(Unaudited)
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December
31, 2006
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Assets
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(in
thousands)
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Cash
and due from
banks
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$ |
488
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$ |
620
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Interest-earning
demand
deposits
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12,058
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8,872
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Cash
and cash
equivalents
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12,546
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9,492
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Held
to maturity
securities
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6,264
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5,209
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Loans,
net of allowance for
loan losses of $899 and $936
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111,436
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111,937
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Premises
and
equipment
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4,302
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4,328
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Federal
Home Loan Bank
stock
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1,255
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1,255
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Interest
receivable
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631
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643
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Other
assets
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720
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639
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Total
assets
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$ |
137,154
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$ |
133,503
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Liabilities
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Deposits
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Demand
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$ |
10,009
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$ |
9,590
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Savings,
NOW and money
market
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41,243
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40,085
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Time
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41,229
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38,893
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Total
deposits
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92,481
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88,568
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Federal
Home Loan Bank
advances
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24,600
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24,600
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Other
liabilities
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568
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585
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Total
liabilities
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117,649
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113,753
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Commitments
and Contingencies
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–
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–
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Equity
Contributed by ESOP
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354
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324
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Stockholders'
Equity
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Preferred
stock, without par
value, authorized and unissued
2,000,000
shares
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Common
stock, without par
value
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Authorized -
20,000,000 shares
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Issued
and outstanding –
1,627,843 and 1,653,125 shares
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13,431
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13,685
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Retained
earnings
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5,720
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5,741
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Total
stockholders'
equity
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19,151
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19,426
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Total
liabilities and
stockholders’ equity
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$ |
137,154
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$ |
133,503
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See
notes
to consolidated condensed financial statements.
Consolidated
Condensed Statements of Income
(Unaudited)
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Three
Months Ended
March
31,
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2007
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2006
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(dollars
in thousands, except per share amounts)
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Interest
Income
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Loans
receivable
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$ |
1,891
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$ |
1,682
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Investment
securities
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66
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92
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Federal
Home Loan Bank stock
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13
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14
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Interest-earning
deposits
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84
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47
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Total
interest income
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2,054
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1,835
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Interest
expense
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Deposits
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654
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480
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Federal
Home Loan Bank advances
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284
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160
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Total
interest expense
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938
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640
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Net
interest income
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1,116
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1,195
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Provision
for loan losses
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15
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15
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Net
interest income after provision for loan losses
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1,101
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1,180
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Other
income
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Service
charges on deposit accounts
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66
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74
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Other
service charges and fees
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68
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70
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Net
gains on loan sales
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13
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19
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Other
income
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45
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57
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Total
other income
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192
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220
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Other
expenses
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Salaries
and employee benefits
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720
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733
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Net
occupancy and equipment expenses
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142
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110
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Data
processing fees
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103
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105
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Professional
Services
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|
38
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26
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ATM
Expense
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|
34
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29
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Other
expenses
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176
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164
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Total
other expenses
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1,213
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1,167
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Income
before income tax
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80
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233
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Income
tax expense
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40
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90
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Net
income
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$ |
40
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$ |
143
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Weighted
average common shares - basic
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|
1,482
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|
1,472
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Weighted
average common shares- diluted
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|
1,488
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|
1,472
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Earnings
per share - basic
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$ |
0.03
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$ |
0.10
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Earnings
per share - diluted
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$ |
0.03
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$ |
0.10
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Dividends
declared per share
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$ |
0.04
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$ |
0.04
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See
notes
to consolidated condensed financial statements.
Consolidated
Condensed Statement of Stockholders’ Equity
(Unaudited)
(Dollar
amounts in thousands)
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Common
Stock
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Shares
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Retained
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Outstanding
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Amount
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Earnings
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Total
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Balances,
January 1, 2007
|
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|
1,653,125
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$ |
13,685
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$ |
5,741
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$ |
19,426
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Net
and comprehensive income
|
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|
40
|
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|
40
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Repurchase
of stock
|
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|
(25,282 |
) |
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|
(294 |
) |
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|
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|
(294 |
) |
|
RRP
Shares Earned
|
|
|
|
|
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|
40
|
|
|
|
|
|
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|
40
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|
Dividends
paid ($0.04 per share outstanding)
|
|
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|
|
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|
(61 |
) |
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|
(61 |
) |
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Balances, March
31, 2007
|
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|
1,627,843
|
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|
$ |
13,431
|
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|
$ |
5,720
|
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|
$ |
19,151
|
|
See
notes
to consolidated condensed financial statements.
Consolidated
Condensed Statements of Cash Flows
(Unaudited)
| |
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Three
Months Ended March 31,
|
|
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|
2007
|
|
|
2006
|
|
| |
|
(in
thousands)
|
|
|
Operating
Activities
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
40
|
|
|
$ |
143
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
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|
Provision
for loan losses
|
|
|
15
|
|
|
|
15
|
|
|
Depreciation
|
|
|
53
|
|
|
|
44
|
|
|
Investment securities (accretion) amortization, net
|
|
|
39
|
|
|
|
4
|
|
|
Amortization
of mortgage servicing rights
|
|
|
11
|
|
|
|
10
|
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|
Gain
on sale of loans
|
|
|
(13 |
) |
|
|
(19 |
) |
|
Loans
originated for sale in the secondary market
|
|
|
(698 |
) |
|
|
(1,022 |
) |
|
Proceeds
from sale of loans in the secondary market
|
|
|
711
|
|
|
|
1,041
|
|
|
RRP
compensation expense
|
|
|
40
|
|
|
|
40
|
|
|
ESOP
compensation expense
|
|
|
30
|
|
|
|
34
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|
Net
change in
|
|
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
12
|
|
|
|
5
|
|
|
Other
assets
|
|
|
(86 |
) |
|
|
22
|
|
|
Other
liabilities
|
|
|
(18 |
) |
|
|
43
|
|
|
Net
cash provided by operating activities
|
|
|
136
|
|
|
|
360
|
|
| |
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
Purchases
of securities held to maturity
|
|
|
(2,341 |
) |
|
|
(1,000 |
) |
|
Proceeds
from maturities of securities held to maturity
|
|
|
1,248
|
|
|
|
2,074
|
|
|
Proceeds
from maturities of interest-bearing time deposits
|
|
|
–
|
|
|
|
200
|
|
|
Net
changes in loans
|
|
|
480
|
|
|
|
(3,475 |
) |
|
Purchases
of premises and equipment
|
|
|
(27 |
) |
|
|
(292 |
) |
|
Net
cash used by investing activities
|
|
|
(640 |
) |
|
|
(2,493 |
) |
| |
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
Net
change in
|
|
|
|
|
|
|
|
|
|
Demand
and savings deposits
|
|
|
1,578
|
|
|
|
834
|
|
|
Certificate
of deposits
|
|
|
2,335
|
|
|
|
(547 |
) |
|
Cash
dividend on common stock
|
|
|
(61 |
) |
|
|
(68 |
) |
|
Repurchase
shares of common stock
|
|
|
(294 |
) |
|
|
–
|
|
|
Proceeds
from FHLB advances
|
|
|
–
|
|
|
|
1,000
|
|
|
Payments
on FHLB advances
|
|
|
–
|
|
|
|
(2,000 |
) |
|
Net
cash provided (used) by financing activities
|
|
|
3,558
|
|
|
|
(781 |
) |
| |
|
|
|
|
|
|
|
|
|
Net
Change in Cash and Equivalents
|
|
|
3,054
|
|
|
|
(2,914 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents, Beginning of Period
|
|
|
9,492
|
|
|
|
7,853
|
|
| |
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents, End of Period
|
|
$ |
12,546
|
|
|
$ |
4,939
|
|
|
Additional
Cash Flows Information
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
918
|
|
|
$ |
634
|
|
|
Income
tax paid (net of refunds)
|
|
$ |
12
|
|
|
$ |
30
|
|
|
Noncash
Activity
|
|
|
|
|
|
|
|
|
|
Return
of capital declared March 16, 2006 paid May 8, 2006
|
|
|
|
|
|
$ |
3,306
|
|
| |
|
|
|
|
|
|
|
|
|
See
notes to consolidated condensed financial statements.
|
|
|
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|
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|
|
Notes
to
Unaudited Consolidated Condensed Financial Statements
Third
Century Bancorp (Third Century) is an Indiana corporation that was formed on
March 15, 2004 for the purpose of owning all of the capital stock of Mutual
Savings Bank (Mutual or Bank) following the completion of Mutual’s
mutual-to-stock conversion. Third Century offered for sale 1,653,125
shares of its common stock at $10.00 per share in a public offering to eligible
depositors that was completed on June 14, 2004. On June 29, 2004,
Third Century purchased all of the capital stock issued by
Mutual. Prior to that date, Third Century had no assets or
liabilities.
The
activities of Third Century are primarily limited to holding the stock of
Mutual. Mutual conducts business primarily in Johnson County, southeast Marion
County and surrounding counties. Mutual attracts deposits from
the general public and originates loans for consumer, residential and commercial
purposes. Mutual’s profitability is significantly dependent on net interest
income, which is the difference between interest income generated from
interest-earning assets (i.e. loans and investments) and the interest expense
paid on interest-bearing liabilities (i.e. customer deposits and borrowed
funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest paid or
received by Mutual can be significantly influenced by a number of factors,
such
as governmental monetary policy, competition within our market area and the
performance of the national and local economies.
Mutual
also owns one subsidiary, Mutual Financial Services, Inc. (Financial), which
is
engaged primarily in mortgage life insurance sales and servicing.
Note
1: Basis of Presentation
The
accompanying unaudited consolidated condensed financial statements were prepared
in accordance with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with accounting
principles generally accepted in the United States of
America. Accordingly, these financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
Third Century for the fiscal year ended December 31, 2006 included in Third
Century’s Annual Report filed as an attachment to its Form
10-KSB. However, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) which are necessary for a fair
representation of the financial statements have been included. The
results of operations for the three-month period ended March 31, 2007, are
not necessarily indicative of the results which may be expected for the entire
year.
The
consolidated condensed balance sheet of Third Century as of December 31, 2006
has been derived from the audited consolidated balance sheet of Third Century
as
of that date.
Note
2: Change in Accounting Principle
Effective
January 1, 2007, Third Century Bancorp adopted Statement of Financial Accounting
Standards No. 156 (SFAS No. 156), Accounting for Servicing of Financial
Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS 156 requires that all separately recognized
servicing assets and servicing liabilities be initially measured at fair value,
if practicable, and permits entities to elect either fair value measurement
with
changes in fair value reflected in earnings or the amortization and impairment
requirements of SFAS No. 140 for subsequent measurement. The Company
elected to continue with the amortization and impairment requirements of SFAS
No. 140, which will not have a material effect on our financial condition or
results of operations.
The
Company and its subsidiary file income tax returns in the U.S. federal and
Indiana jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal, state and local examinations by tax authorities for
years before 2003.
The
Company adopted the provisions of the Financial Accounting Standards Board
(FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109, on January 1,
2007. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, and disclosure and transition. As a
result of the implementation of FIN 48, the Company did not identify any
uncertain tax positions that it believes should be recognized in the financial
statements.
Note
3: Principles of Consolidation
The
consolidated financial statements include the accounts of Third Century, Mutual
and Financial. All significant intercompany balances and transactions
have been eliminated in the accompanying consolidated financial
statements.
Note
4: Earnings Per Share
Earnings
per share is computed based upon the weighted average common shares outstanding
during the period. Unearned ESOP shares and unearned RRP shares are not
considered outstanding for the earnings per share calculation. The
following table presents the factors used in the earnings per share computation
for the three months ending March 31, 2007 and March 31, 2006:
| |
|
Three
Months
Ended
March
31,
|
|
|
Three
Months
Ended
March
31,
|
|
| |
|
2007
|
|
|
2006
|
|
|
Basic:
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
40
|
|
|
$ |
143
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
1,482
|
|
|
|
1,472
|
|
| |
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
0.03
|
|
|
$ |
0.10
|
|
| |
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
40
|
|
|
$ |
143
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
1,482
|
|
|
|
1,472
|
|
|
Add: Dilutive
effects of assumed exercises of stock options
|
|
|
6
|
|
|
|
–
|
|
| |
|
|
|
|
|
|
|
|
|
Average
shares and dilutive potential
common shares
|
|
|
1,488
|
|
|
|
1,472
|
|
| |
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$ |
0.03
|
|
|
$ |
0.10
|
|
Note
5: Effect of Recent Accounting Pronouncements
In
September 2006, the FASB issued Statement No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. This Statement establishes a fair value hierarchy about the
assumptions used to measure fair value and clarifies assumptions about risk
and
the effect of a restriction on the sale or
use
of an
asset. The standard is effective for fiscal years beginning after November
15,
2007. The Company is currently evaluating and has not yet determined the impact
the new standard is expected to have on its financial position and results
of
operations.
In
September 2006, the FASB Emerging Issues Task Force (EITF) finalized Issue
No.
06−5, Accounting for Purchases of Life Insurance - Determining the Amount
That Could Be Realized in Accordance with FASB Technical Bulletin No. 85−4
(Accounting for Purchases of Life Insurance). This issue requires
that a policyholder consider contractual terms of a life insurance policy in
determining the amount that could be realized under the insurance
contract. It also requires that if the contract provides for a
greater surrender value if all individual policies in a group are surrendered
at
the same time, that the surrender value be determined based on the assumption
that policies will be surrendered on an individual basis. Lastly, the
issue discusses whether the cash surrender value should be discounted when
the
policyholder is contractually limited in its ability to surrender a
policy. This issue is effective for fiscal years beginning after
December 15, 2006. The Company does not expect that the adoption EITF
No. 06-5 will have a material impact on financial condition of results of
operations.
On
February 15, 2007, the FASB issued its Statement No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities—Including an Amendment of
FASB Statement No. 115. FAS 159 permits entities to elect to
report most financial assets and liabilities at their fair value with changes
in
fair value included in net income. The fair value option may be
applied on an instrument-by-instrument or instrument class-by-class
basis. The option is not available for deposits withdrawable on
demand, pension plan assets and obligations, leases, instruments classified
as
stockholders’ equity, investments in consolidated subsidiaries and variable
interest entities and certain insurance policies. The new standard is effective
at the beginning of the Company’s fiscal year beginning January 1, 2008, and
early application may be elected in certain circumstances. The
Company is currently evaluating and has not yet determined the impact the new
standard is expected to have on its financial position and results of
operations.
|
|
Management’s
Discussion and Analysis or Plan of
Operation
|
Forward
Looking Statements
This
Quarterly Report on Form 10-QSB (“Form 10-QSB”) contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in
a number of places in this Form 10-QSB and include statements regarding the
intent, belief, outlook, estimate or expectations of Third Century (as defined
in the notes to the consolidated condensed financial statements), its directors
or its officers primarily with respect to future events and the future financial
performance of Third Century. Readers of the Form 10-QSB are
cautioned that any such forward looking statements are not guarantees of future
events or performance and involve risks and uncertainties, and that actual
results may differ materially from those in the forward looking statements
as a
result of various factors. The accompanying information contained in
this Form 10-QSB identifies important factors that could cause such
differences. These factors include changes in interest rates; loss of
deposits and loan demand to other financial institutions; substantial changes
in
financial markets; changes in real estate values and the real estate market;
or
regulatory changes, as discussed further below:
(a) Regulatory
Risk. The banking industry is heavily
regulated. These regulations are intended to protect depositors, not
shareholders. Third Century and Mutual are subject to regulation and
supervision by the Indiana Department of Financial Institutions, Federal Deposit
Insurance Corporation, and the Board of Governors of the Federal Reserve
System. The burden imposed by federal and state regulations puts
banks at a competitive disadvantage compared to less regulated competitors
such
as finance companies, mortgage banking companies and leasing
companies. The banking industry continues to lose market share to
such competitors.
(b) Legislation. Because
of concerns relating to the competitiveness and the safety and soundness of
the
industry, Congress continues to consider a number of wide-ranging
proposals
for altering the structure, regulation, and competitive relationships of the
nation’s financial institutions. Management cannot predict whether or
in what form any of these proposals will be adopted or the extent to which
the
business of Third Century or Mutual may be affected thereby.
(c) Credit
Risk. One of the greatest risks facing lenders is credit
risk, that is, the risk of losing principal and interest due to a borrower’s
failure to perform according to the terms of a loan agreement. While
management attempts to provide an allowance for loan losses at a level adequate
to cover probable incurred losses based on loan portfolio growth, past loss
experience, general economic conditions, information about specific borrower
situations, and other factors (all as discussed below in Critical Accounting
Policies--Allowance for Loan Losses), future adjustments to reserves may become
necessary, and net income could be significantly affected, if circumstances
differ substantially from assumptions used with respect to such
factors.
(d) Exposure
to Local Economic Conditions. Mutual’s primary market area
for deposits and loans encompasses Johnson County and southeast Marion County,
in central Indiana. A substantial percent of the Bank’s business
activities are within this area. This concentration exposes the Bank
to risks resulting from changes in the local economy. A dramatic drop
in local real estate values would, for example, adversely affect the quality
of
the Bank’s loan portfolio.
(e) Interest
Rate Risk. Third Century’s earnings depend to a great extent
upon the level of net interest income, which is the difference between interest
income earned on loans and investments and the interest expense paid on deposits
and other borrowings. Interest rate risk is the risk that the
earnings and capital will be adversely affected by changes in interest
rates.
(f) Competition. The
activities of Third Century and Mutual in the geographic market served involve
competition with other banks as well as with other financial institutions and
enterprises, many of which have substantially greater resources than those
available to Third Century. In addition, non-bank competitors are generally
not
subject to the extensive regulation applicable to Third Century and
Mutual.
Critical
Accounting Policies
Generally
accepted accounting principles are complex and require management to apply
significant judgments to various accounting, reporting and disclosure matters.
Management of Third Century must use assumptions and estimates to apply these
principles where actual measurement is not possible or practical. For a complete
discussion of Third Century’s significant accounting policies, see Note 1 to the
Consolidated Financial Statements of Third Century’s Form 10KSB as of December
31, 2006. Certain policies are considered critical because they are highly
dependent upon subjective or complex judgments, assumptions and estimates.
Changes in such estimates may have a significant impact on the financial
statements. Management has reviewed the application of these policies with
the
Audit Committee of Third Century’s Board of Directors. Those policies include
the following:
Allowance
for Loan Losses
The
allowance for loan losses represents management’s estimate of probable losses
inherent in the Bank’s loan portfolios. In determining the appropriate amount of
the allowance for loan losses, management makes numerous assumptions, estimates
and assessments.
The
strategy also emphasizes diversification on an industry and customer level,
regular credit quality reviews and quarterly management reviews of large credit
exposures and loans experiencing deterioration of credit quality.
Mutual’s
allowance consists of three components: probable losses estimated from
individual reviews of specific loans, probable losses estimated from historical
loss rates, and probable losses
resulting
from economic or other deterioration above and beyond what is reflected in
the
first two components of the allowance.
Larger
commercial loans that exhibit probable or observed credit weaknesses are subject
to individual review. Where appropriate, reserves are allocated to individual
loans based on management’s estimate of the borrower’s ability to repay the loan
given the availability of collateral, other sources of cash flow and legal
options available to Mutual. Included in the review of individual loans are
those that are impaired as provided in SFAS No. 114, Accounting by Creditors
for Impairment of a Loan. Any allowances for impaired loans are determined
by the present value of expected future cash flows discounted at the loan’s
effective interest rate or fair value of the underlying collateral. Mutual
evaluates the collectibility of both principal and interest when assessing
the
need for a loss accrual. Historical loss rates are applied to other commercial
loans not subject to specific reserve allocations.
Homogenous
smaller balance loans, such as consumer installment and residential mortgage
loans are not individually risk graded. Reserves are established for each pool
of loans based on the expected net charge-offs for one year. Loss rates are
based on the average net charge-off history by loan category.
Historical
loss rates for commercial and consumer loans may be adjusted for significant
factors that, in management’s judgment, reflect the impact of any current
conditions on loss recognition. Factors which management considers in the
analysis include the effects of the national and local economies, trends in
the
nature and volume of loans (delinquencies, charge-offs and nonaccrual loans),
changes in mix, asset quality trends, risk management and loan administration,
changes in the internal lending policies and credit standards, collection
practices and examination results from bank regulatory agencies and the Bank’s
internal loan review.
An
unallocated reserve is maintained to recognize the imprecision in estimating
and
measuring loss when evaluating reserves for individual loans or pools of loans.
Allowances on individual loans are reviewed quarterly and historical loss rates
are reviewed annually and adjusted as necessary based on changing borrower
and/or collateral conditions and actual collection and charge-off
experience.
Mutual’s
primary market area for lending is southeastern Marion County and Johnson
County, Indiana. When evaluating the adequacy of the allowance, consideration
is
given to this regional geographic concentration and the closely associated
effect changing economic conditions have on Mutual’s customers.
Mortgage
Servicing Rights
Mortgage
servicing rights (MSRs) associated with loans originated and sold, where
servicing is retained, are capitalized and included in other intangible assets
in the consolidated balance sheet. The value of the capitalized servicing rights
represents the present value of future servicing fees arising from the right
to
service loans in the portfolio. Critical accounting policies for MSRs relate
to
the initial valuation and subsequent impairment tests. The methodology used
to
determine the valuation of MSRs requires the development and use of a number
of
estimates, including anticipated principal amortization and prepayments of
that
principal balance. Events that may significantly affect the estimates used
are
changes in interest rates, mortgage loan prepayment speeds and the payment
performance of the underlying loans. The carrying value of the MSRs is
periodically reviewed for impairment based on a determination of fair value.
For
purposes of measuring impairment, the servicing rights are compared to a
valuation prepared based on a discounted cash flow methodology, utilizing
current prepayment speeds and discount rates. Impairment, if any, is recognized
through a valuation allowance and is recorded as amortization of intangible
assets.
Comparison
of Financial Condition at March 31, 2007 and at December 31,
2006
Total
assets increased $3.7 million or 2.73% to $137.2 million at March 31, 2007
from
$133.5 million at December 31, 2006. Total interest-earning demand
deposits grew by $3.2 million or 35.91% to $12.1 million at March 31, 2007
from
$8.9 million at December 31, 2006. In addition, investments held to
maturity increased to $6.3 million at March 31, 2007 from $5.2 million at
December 31, 2006, which
represented
an increase of $1.1 million or 20.25%. The increases in
interest-earning demand deposits and investments reflected the investment of
$3.9 million in new deposits.
Total
liabilities increased by $3.9 million or 3.42% to $117.6 million at March 31,
2007 from $113.7 million at December 31, 2006. The majority of
this increase was due to growth in total deposits to $92.5 million at March
31,
2007 from $88.6 million at December 31, 2006. Time deposits increased
to $41.2 million at March 31, 2007, which represented an increase of $2.3
million, or 6.01%, and savings, NOW and money market balances increased to
$41.2
million at March 31, 2007, which represented an increase of $1.2 million, or
2.89% from $40.0 million at December 31, 2006, respectively. The Bank
continued to offer special rates for new time deposits opened at Mutual and
opened several new money market accounts which represented $1.5 million in
new
balances as of March 31, 2007. Mutual does not currently bid for
public funds or offer brokered deposits.
Total
stockholders’ equity decreased to $19.2 million at March 31, 2007 from $19.4
million at December 31, 2006, representing a decrease of $275,000 or
1.42%. On November 17, 2006, the Company announced that its Board of
Directors had authorized the repurchase of up to 5% of its outstanding shares
of
common stock, or 82,656 shares, commencing November 17, 2006. For the
quarter ended March 31, 2007, the Company paid $294,000 to repurchase 25,282
shares of stock. The equity contributed by the ESOP increased $30,000 to
$354,000 at March 31, 2007 from $324,000 at December 31, 2006. Third Century
paid year-to-date cash dividends of $61,000.
Comparison
of Operating Results for the Three Months Ended March 31, 2007 and
2006
General. Net
income for the quarter ended March 31, 2007 was $40,000 compared to net income
of $143,000 for the quarter ended March 31, 2006. Net interest income
decreased $79,000 or 6.61% and other income decreased by $28,000, or 12.73%
for
the quarter ended March 31, 2007 compared to the quarter ended March 31,
2006. In contrast, other expenses increased by $46,000 or
3.94%. See the following subsections for further discussion of these
changes.
Interest
Income. Interest income for the quarter ended March 31, 2007 was
$2.1 million compared to $1.8 million for the quarter ended March 31,
2006. The increase during the comparative periods of $219,000,
consisted primarily of an increase in interest income from loans of $209,000
or
12.43%.
The
average balances of interest-earning assets for the quarter ended March 31,
2007
was $128.5 million, which represented an increase of $5.5 million or 4.47%,
from
the quarter ended March 31, 2006. The average yield on the average
balance of interest-earning assets increased to 6.39% for the quarter ended
March 31, 2007 from 5.97% for the quarter ended March 31, 2006. The average
yield on loan balances increased by 41 basis points, the average yield on
interest-earning deposit balances increased 40 basis points and the average
yield on investment balances increased 77 basis points during the quarter ended
March 31, 2007 as compared to the quarter ended March 31, 2006. The
average balances for loans increased $5.9 million to $113.5 million and the
average balance for interest-earning deposits increased $3.1 million to $8.2
million, while the average balances for investments decreased $3.7 million
to
$5.5 million during the quarter ended at March 31, 2007 as compared to the
quarter ended March 31, 2006.
Interest
Expense. Interest expense for the quarter ended March 31, 2007
was $938,000 compared to $640,000 for the quarter ended March 31, 2006, an
increase of $298,000 or 46.56%. The average balance of
interest-bearing liabilities increased to $102.5 million for the quarter ended
March 31, 2007 from $94.1 million for the quarter ended March 31, 2006, with
the
average interest rate increasing to 3.66% for the quarter ended March 31, 2007
from 2.72% for the quarter ended March 31, 2006.
Net
Interest Income. Net interest income of $1.1 million for the
quarter ended March 31, 2007 reflects a $79,000 or 6.61% decrease from the
net
interest income before provision for loan losses for the quarter ended March
31,
2006.
Provision
for Loan Losses. Mutual recorded a provision for loan losses of
$15,000 during the quarter ended March 31, 2007 and March 31,
2006. In evaluating the adequacy of loan loss allowances, management
considers factors such as delinquency trends, portfolio compositions, past
loss
experience
and
other
factors such as general economic conditions. During the past year,
Mutual’s nonperforming assets increased to $259,000 at March 31, 2007 from
$243,000 at March 31, 2006 and the percentage of nonperforming assets to total
assets was 0.19% for both respective time periods. Mutual recorded
charge offs of $53,000 less recoveries of $1,000 for the quarter ended March
31,
2007 and charge offs of $1,000 less recoveries of $2,000 for the quarter ended
March 31, 2006.
Other
Income. Total other income was $192,000 for the quarter ended
March 31, 2007 and $220,000 for the quarter ended March 31, 2006, which
represents a decrease of $28,000 or 12.73%. Income from fiduciary
services decreased $13,000, or 47.27%, to $15,000 and service charges on deposit
accounts decreased $8,000, or 10.84%, to $66,000, respectively, for the quarter
ended March 31, 2007. The decrease in income from fiduciary services
was due to two estate fees collected in March 2006 of approximately
$14,000. The decrease in service charges on deposit accounts was due
to the changes made to the Bank’s deposit fee structure which encouraged changes
in some customers’ account management practices.
Other
Expense. Total other expense for each of the quarters ended
March 31, 2007 and 2006 was approximately $1.2 million. Net occupancy
and equipment expenses increased $32,000 or 29.09% to $142,000 for the quarter
ended March 31, 2007. The Bank started recording depreciation and
utility expenses for its Franklin Central Branch, which opened June 1,
2006. Increased property tax rates and taxable property in 2006
resulted in increased real estate tax expense for 2007.
Income
Taxes. Mutual recognized income tax expense of $40,000 for the
quarter ended March 31, 2007, as compared to $90,000 for the quarter ended
March
31, 2006, which represents an increase in the effective tax rate to 38.95%
at
March 31, 2007 from 38.63% at March 31, 2006.
Other
The
Securities and Exchange Commission maintains a Web site that contains reports,
proxy information statements, and other information regarding registrants that
file electronically with the Commission, including Third Century. The
address is http://www.sec.gov.
A. Evaluation
of disclosure controls and procedures. Third Century’s chief
executive officer and chief financial officer, after evaluating the
effectiveness of Third Century’s disclosure controls and procedures (as defined
in Sections 13a-15(e) and 15d-15(e) of regulations promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end
of the most recent fiscal quarter covered by this quarterly report (the
“Evaluation Date”), have concluded that as of the Evaluation Date, Third
Century’s disclosure controls and procedures were effective in ensuring that
information required to be disclosed by Third Century in reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms.
B. Changes
in internal control over financial reporting. There were no
changes in Third Century’s internal control over financial reporting identified
in connection with Third Century’s evaluation of controls that occurred during
Third Century’s last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, Third Century’s internal control over
financial reporting.
Third
Century, from time to time, is a party to routine litigation, which arises
in
the normal course of business, such as claims to enforce liens, condemnation
proceedings on properties in which Mutual Savings Bank holds security interests,
claims involving the making and servicing of real property loans,
and
other
issues incident to the business of Third Century. There were no
lawsuits pending or known to be contemplated against Third Century at March
31,
2007 that would have a material effect on Third Century’s operations or
income.
|
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
None.
|
|
Defaults
Upon Senior Securities
|
None.
|
|
Submission
of Matters to a Vote of Security
Holders
|
None.
None.
The
exhibits filed as part of this Form 10-QSB are listed in the Exhibit Index,
which is incorporated by this reference.
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
| |
THIRD
CENTURY BANCORP
|
| |
|
|
|
Date: May
4, 2007
|
By:
|
/s/
Robert D. Heuchan
|
| |
|
Robert
D. Heuchan
President
and Chief Executive Officer
|
| |
|
|
| |
By:
|
/s/
Debra K. Harlow
|
| |
|
Debra
K. Harlow
Chief
Financial Officer
|
| |
|
|
E-1