ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to focus on significant changes in the financial condition of Century Next Financial Corporation (the “Company”) from December 31, 2012 to March 31, 2013 and on its results of operations during the three months ended March 31, 2013 and 2012. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the financial statements and related notes appearing in Item 1.
To the extent that statements in this Form 10-Q relate to future plans, objectives, financial results or performance of the Company, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on management’s current information, estimates and assumptions and the current economic environment, are generally identified by the use of the words “plan”, “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions. The Company’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties.
General
The Company was formed by the Bank in June 2010, in connection with the Bank’s conversion from a mutual to a stock form savings bank (the “Conversion”) completed on September 30, 2010. The Company’s results of operations are primarily dependent on the results of the Bank, which became a wholly owned subsidiary upon completion of the Conversion. The Bank’s results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by provisions for loan losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation and employee benefits, office occupancy and equipment expense, data processing, advertising and business promotion and other expense. The Bank’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial condition and results of operations.
Critical Accounting Policies
In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our financial statements. The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.
Allowance for Loan Losses.
The allowance for loan losses is maintained at a level to provide for probable credit losses related to specifically identified loans and for losses inherent in the loan portfolio that have been incurred as of the balance sheet date. The allowance for loan losses is comprised of specific allowances and a general allowance. Specific provisions are assessed for each loan that is reviewed for impairment or for which a probable loss has been identified. The allowance related to loans that are identified as impaired is based on discounted expected future cash flows using the loan’s initial effective interest rate, the observable market value of the loan, or the estimated fair value of the collateral for certain collateral dependent loans. Factors contributing to the determination of specific provisions include the financial condition of the borrower, changes in the value of pledged collateral and general economic conditions. General allowances are established based on historical charge-offs considering factors that include risk rating, concentrations and loan type. For the general allowance, management also considers trends in delinquencies and non-accrual loans, concentrations, volatility of risk ratings and the evolving mix in terms of collateral, relative loan size and the degree of seasoning within the various loan products.
Our allowance levels may be impacted by changes in underwriting standards, credit administration and collection policies, regulation and other factors which affect the credit quality and collectability of the loan portfolio also impact the allowance levels. The allowance for loan losses is based on management’s estimate of probable credit losses inherent in the loan portfolio; actual credit losses may vary from the current estimate. The allowance for loan losses is reviewed periodically, taking into consideration the risk characteristics of the loan portfolio, past charge-off experience, general economic conditions and other factors that warrant current recognition. As adjustments to the allowance for loan losses become necessary, they are reflected as a provision for loan losses in current-period earnings. Actual loan charge-offs are deducted from and subsequent recoveries of previously charged-off loans are added to the allowance.
Other-Than-Temporary Impairment.
We review our investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer including any specific events that may influence the operations of the issuer, and the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market. Inherent in this analysis is a certain amount of imprecision in the judgment used by management.
We recognize credit-related other-than-temporary impairment on debt securities in earnings while noncredit-related other-than-temporary impairment on debt securities not expected to be sold is recognized in accumulated other comprehensive income. We assess whether the credit loss existed by considering whether (a) we have the intent to sell the security, (b) it is more likely than not that we will be required to sell the security before recovery, or (c) we do not expect to recover the entire amortized cost basis of the security. We may bifurcate the other-than-temporary impairment on securities not expected to be sold or where the entire amortized cost of the security is not expected to be recovered into the components representing credit loss and the component representing loss related to other factors. The portion of the fair value decline attributable to credit loss is recognized through earnings.
Corporate debt securities are evaluated for other-than-temporary impairment by determining whether it is probable that an adverse change in estimated cash flows has occurred. Determining whether there has been an adverse change in estimated cash flows involves the calculation of the present value of remaining cash flows compared to previously projected cash flows. We consider the discounted cash flow analysis to be our primary evidence when determining whether credit-related other-than-temporary impairment exists on corporate debt securities.
Income Taxes.
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 assets and liabilities and gives current recognition to changes in tax rates and laws. Realizing our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change.
Financial Overview
Comparison of Financial Condition at March 31, 2013 and December 31, 2012
The Company’s total assets increased by $411,000 or 0.34% to $121.0 million at March 31, 2013 compared to $120.6 million at December 31, 2012. The increase in assets was primarily a result of increases in net loans, including loans held for sale, of $2.1 million and other assets of $436,000 partially offset by a decrease in cash and cash equivalents of $2.2 million.
Cash and cash equivalents decreased $2.2 million or 24.0% to $7.0 million at March 31, 2013 compared to $9.2 million at December 31, 2012 primarily from use in funding lending activity.
Total debt and equity securities decreased from $6.90 million at December 31, 2012 to $6.86 million at March 31, 2013. The net decrease of $46,000 or 0.67% was the result of scheduled payments and other pay downs for the three-month period ended March 31, 2013.
Total loans, net of deferred fees and allowance for loan losses, increased over the three-month period ended March 31, 2013 by $2.1 million or 2.2% compared to December 31, 2012. Total net loans at March 31, 2013 were $98.6 million compared to $96.4 million at December 31, 2012. Loans secured by 1-4 family residential properties increased $2.2 million, which includes an increase of $931,000 in loans held for sale, land loans increased $1.5 million, residential construction increased $238,000, and commercial loans, not secured by real estate, increased $59,000. This was partially offset by decreases in multi-family loans of $1.5 million, consumer loans, not secured by real estate, of $265,000, commercial real estate loans of $47,000, and home equity lines of credit of $31,000.
Total deposits at March 31, 2013 were up $882,000 or 0.93% to $95.5 million compared to $94.6 million at December 31, 2012. The net increase included an increase in time deposits of $4.8 million partially offset by decreases in noninterest-bearing demand deposits of $2.9 million, savings deposits of $598,000, money market deposits of $182,000, and interest-bearing demand deposits of $174,000. The increase in time deposits included an increase in brokered time deposits of $5.2 million from none at December 31, 2012. The average maturity of the brokered deposits is approximately three years.
Total borrowings, consisting of Federal Home Loan Bank advances and securities sold under agreements to repurchase, decreased to $4.8 million at March 31, 2013 from $5.6 million at December 31, 2012, a decrease of $832,000 or 15.7%.
Total Stockholders’ Equity increased by $211,000 or 1.1% to $19.6 million at March 31, 2013 compared to $19.4 million at December 31, 2012. The increase for the three-month period primarily resulted from net income of $150,000, an increase in additional paid in capital of $54,000 from equity compensation, and the release of shares for the employee stock ownership plan of $8,000 offset by a decrease in accumulated other comprehensive income of $1,000.
Comparison of Operating Results for the Three Months Ended March 31, 2013 and 2012
Our net income was $150,000 for the three months ended March 31, 2013, a $9,000 or 5.7%, decrease over net income of $159,000 for the three months ended March 31, 2012. Our average interest rate spread increased by 23 basis points to 4.69% for the three months ended March 31, 2013 over the first quarter of 2012, while our net interest margin increased 18 basis points to 4.81% in the first quarter of 2013 compared to the first quarter of 2012.
Our total interest income was $1.44 million for the three months ended March 31, 2013, compared to $1.33 million for the three months ended March 31, 2012, a $106,000, or 8.0%, increase. The increase in interest income in the three-month period ended March 31, 2013 over the comparable period in 2012 was due primarily to an increase in the average balances of our interest-earnings assets, particularly loans. The average rate earned on earning assets decreased by 2 basis points to 5.33% in the quarter ended March 31, 2013 compared to 5.35% in the quarter ended March 31, 2012.
Our total interest expense was $140,000 for the three months ended March 31, 2013, a decrease of $39,000, or 21.8%, compared to $179,000 of interest expense during the first quarter of 2012. The average rate paid on our interest-bearing liabilities decreased by 25 basis points to 0.64% in the quarter ended March 31, 2013 compared to 0.89% in the quarter ended March 31, 2012. The decrease was primarily due to a reduction in the average rate paid on savings, money market and time deposits and other borrowings.
Our provision for loan losses amounted to $36,000 for the quarter ended March 31, 2013, compared to $30,000 for the quarter ended March 31, 2012. The increase in loan loss provision was primarily due to loan growth and adjustments to economic and other qualitative factors.
Our loans, net of unearned income and allowance for loan losses, increased by $2.1 million during the quarter ended March 31, 2013 from December 31, 2012, which included $16.8 million in loan originations, offset by sales of $5.0 million and repayments of loans of $9.7 million. At March 31, 2013, our allowance for loan losses amounted to $411,000, or 0.42% of loans, net of unearned loan fees. Our total non-performing loans, including loans past due 90 days or more and non-accrual loans, amounted to $79,000 at March 31, 2013, compared to $133,000 at December 31, 2012. At March 31, 2013, our allowance for loan losses amounted to 520.3% of total non-performing loans. There were no charge-offs of loans during the three months ended March 31, 2013, however, recoveries amounted to $1,000.
Our total non-interest income amounted to $213,000 for the quarter ended March 31, 2013 compared to $246,000 for the quarter ended March 31, 2012, a decrease of $33,000 or 13.4%. The primary reason for the decrease during the three-month period ended March 31, 2013 was decreases in loan servicing fees of $16,000 and gain on sale of loans of $39,000 partially offset by increases in service charges on deposits of $15,000 and other non-interest income items of $7,000.
Our total non-interest expense increased by $117,000 or 10.2% to $1.27 million for the three months ended March 31, 2013, compared to $1.15 million for the three months ended March 31, 2012. The primary reasons for the increase in non-interest expense were increases in salaries and benefits of $56,000, occupancy and equipment of $20,000, data processing of $18,000, advertising of $15,000 audit and examination fees of $14,000, office supplies of $13,000, and foreclosed assets of $7,000. The increases were partially offset by decreases in directors’ expense of $2,000, legal and professional of $13,000, FDIC deposit insurance of $2,000, and other operating expense of $9,000. For the comparative periods, the increase in salaries and benefits was due mainly to normal salary increases and new staff additions, the increase in occupancy and equipment expense consists mainly of depreciation on new equipment, the increase in data processing was due mostly to software maintenance expense and consulting, the increase in advertising was primarily due to additional program advertising, the increase in audit and examination fees was due primarily to additional internal auditing fees, the increase in office supplies expense was due to increased purchases of usable goods, and the increase in foreclosed assets was due to foreclosure of one real estate property.
At March 31, 2013 and 2012, we had 37 and 35 full-time equivalent employees, respectively.
Income tax expense for the three months ended March 31, 2013 amounted to $55,000, a decrease of $2,000 compared to $57,000 for the quarter ended March 31, 2012 resulting in effective tax rates of 26.8% and 26.4%, respectively.
Net Interest Income
Net interest income, the difference between interest earned on loans and investments and interest paid on deposits and other borrowings, is the principal component of our earnings. The following table provides a summary of average earning assets and interest-bearing liabilities as well as the income or expense attributable to each item for the periods indicated.
Average Balances, Net Interest Income, Yields Earned, and Rates Paid.
The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.
|
|
|
Three Months Ended March 31,
|
|
|
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
|
|
|
Avg.
Balance
|
|
|
Interest
|
|
|
Avg.
Yield
|
|
|
Avg.
Balance
|
|
|
Interest
|
|
|
Avg.
Yield
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(1)
|
|
$
|
97,425
|
|
|
$
|
1,387
|
|
|
|
5.77
|
%
|
|
$
|
86,635
|
|
|
$
|
1,299
|
|
|
|
6.03
|
%
|
|
Debt Securities
|
|
|
6,266
|
|
|
|
47
|
|
|
|
3.04
|
%
|
|
|
6,961
|
|
|
|
29
|
|
|
|
1.68
|
%
|
|
Other earning assets
|
|
|
5,584
|
|
|
|
2
|
|
|
|
0.15
|
%
|
|
|
6,387
|
|
|
|
2
|
|
|
|
0.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
109,275
|
|
|
|
1,436
|
|
|
|
5.33
|
%
|
|
|
99,983
|
|
|
|
1,330
|
|
|
|
5.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-earning assets
|
|
|
9,189
|
|
|
|
|
|
|
|
|
|
|
|
8,720
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
118,464
|
|
|
|
|
|
|
|
|
|
|
$
|
108,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking
|
|
$
|
17,587
|
|
|
$
|
11
|
|
|
|
0.25
|
%
|
|
$
|
15,446
|
|
|
$
|
12
|
|
|
|
0.31
|
%
|
|
Savings & MMDA
|
|
|
27,468
|
|
|
|
38
|
|
|
|
0.56
|
%
|
|
|
26,731
|
|
|
|
62
|
|
|
|
0.93
|
%
|
|
Time deposits
|
|
|
36,583
|
|
|
|
84
|
|
|
|
0.93
|
%
|
|
|
34,010
|
|
|
|
98
|
|
|
|
1.16
|
%
|
|
Other borrowings
|
|
|
6,470
|
|
|
|
7
|
|
|
|
0.44
|
%
|
|
|
4,272
|
|
|
|
7
|
|
|
|
0.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
88,108
|
|
|
|
140
|
|
|
|
0.64
|
%
|
|
|
80,459
|
|
|
|
179
|
|
|
|
0.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
9,678
|
|
|
|
|
|
|
|
|
|
|
|
8,534
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
1,054
|
|
|
|
|
|
|
|
|
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
98,840
|
|
|
|
|
|
|
|
|
|
|
|
89,983
|
|
|
|
|
|
|
|
|
|
|
Shareholders
’
equity
|
|
|
19,623
|
|
|
|
|
|
|
|
|
|
|
|
18,720
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
$
|
118,463
|
|
|
|
|
|
|
|
|
|
|
$
|
108,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income & Spread
|
|
|
|
|
|
$
|
1,296
|
|
|
|
4.69
|
%
|
|
|
|
|
|
$
|
1,151
|
|
|
|
4.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin
(2)
|
|
|
|
|
|
|
|
|
|
|
4.81
|
%
|
|
|
|
|
|
|
|
|
|
|
4.63
|
%
|
|
Average earning assets to interest-bearing liabilities
|
|
|
|
124.02
|
%
|
|
|
|
|
|
|
|
|
|
|
124.27
|
%
|
|
1)
|
Loan interest income includes fee income of $28,000 and $57,000 for the three months ended March 31, 2013 and 2012, respectively. Average quarterly balance of loans includes average deferred loan fees of $68,000 and $70,000 for March 31, 2013 and 2012, respectively. The average balance of nonaccrual loans has been included in net loans.
|
|
2)
|
Net interest margin is computed by dividing net interest income by the total average earning assets.
|
Asset Quality
“Classified loans” are the loans and other credit facilities that we consider to be of the greatest risk to us and, therefore, they receive the highest level of attention by our account officers and senior credit management. Classified loans include both performing and nonperforming loans. During the first quarter of 2013, the Company continued to closely monitor all of its more significant loans, including all loans previously classified.
At March 31, 2013, the Company had $434,000 in classified loans compared to $537,000 at December 31, 2012. Of these loans, at March 31, 2013, $367,000 was accruing loans and $67,000 was non-accruing loans. Total loans included in classified loans at March 31, 2013 that were evaluated for impairment was $67,000 compared to $128,000 evaluated for impairment and included in classified loans at December 31, 2012. A loan “impairment” is a designation required under generally accepted accounting principles when it is considered probable that we may be unable to collect all amounts due according to the contractual terms of our loan agreement. Non-performing loans include loans past due 90 days or more that are still accruing interest and nonaccrual loans. At March 31, 2013, we had $79,000 in non-performing loans. This compares to $133,000 in non-performing loans at December 31, 2012. Non-performing loans as a percentage of total loans at March 31, 2013 were 0.08% as compared to 0.14% at December 31, 2012.
During the quarter ended March 31, 2013, the Company foreclosed on a delinquent loan secured by residential 1-4 family real estate that had previously been included in non-accrual loans with an outstanding balance of $62,000. Foreclosed assets are recorded at the lesser of the outstanding loan balance or cost at the time of foreclosure or fair value less estimated selling expenses. Total foreclosed assets at March 31, 2013 were $62,000. There were no foreclosed assets at December 31, 2012. Total non-performing assets, including non-performing loans and foreclosed assets, as a percentage of total assets at March 31, 2013 were 0.12% compared to 0.11% at December 31, 2012.
The Company recovered $1,000 of loan balances previously charged off in prior years and had no charge offs of loan balances during the quarter ended March 31, 2013. This compares $12,000 of recoveries and no charge offs during the quarter ended March 31, 2012.
Provision for Loan Losses
The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to have occurred in our loan portfolio. The allowance for loan losses is maintained at a level to provide for probable credit losses related to specifically identified loans and for losses inherent in the loan portfolio that have been incurred as of the balance sheet date. The allowance for loan losses is comprised of specific allowances and a general allowance.
Specific provisions are assessed for each loan that is reviewed for impairment or for which a probable loss has been identified. The allowance related to loans that are identified as impaired is based on discounted expected future cash flows using the loan’s initial effective interest rate, the observable market value of the loan, or the estimated fair value of the collateral for certain collateral dependent loans. Factors contributing to the determination of specific provisions include the financial condition of the borrower, changes in the value of pledged collateral and general economic conditions. General allowances are established based on historical charge-offs considering factors that include risk rating, concentrations and loan type. For the general allowance, management also considers trends in delinquencies and non-accrual loans, concentrations, volatility of risk ratings and the evolving mix in terms of collateral, relative loan size and the degree of seasoning within the various loan products.
Changes in underwriting standards, credit administration and collection policies, regulation and other factors which affect the credit quality and collectability of the loan portfolio also impact the allowance levels. The allowance for loan losses is based on management’s estimate of probable credit losses inherent in the loan portfolio; actual credit losses may vary from the current estimate. The allowance for loan losses is reviewed periodically, taking into consideration the risk characteristics of the loan portfolio, past charge-off experience, general economic conditions and other factors that warrant current recognition. As adjustments to the allowance for loan losses become necessary, they are reflected as a provision for loan losses in current-period earnings. Actual loan charge-offs are deducted from and subsequent recoveries of previously charged-off loans are added to the allowance.
During the quarter ended March 31, 2013, we made a provision of $36,000 compared to a provision of $30,000 for the quarter ended March 31, 2012. At March 31, 2013, the Company had $79,000 of non-performing loans compared to $78,000 at March 31, 2012. To the best of management’s knowledge, the allowance is maintained at a level believed to cover all known and inherent losses in the loan portfolio, both probable and reasonable to estimate.
Liquidity and Capital Resources
The Company maintains levels of liquid assets deemed adequate by management. The Company adjusts its liquidity levels to fund deposit outflows, repay its borrowings and to fund loan commitments. The Company also adjusts liquidity as appropriate to meet asset and liability management objectives.
The Company’s primary sources of funds are deposits, loan payments, and to a lesser extent, funds provided from operations. While scheduled payments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company sets the interest rates on its deposits to maintain a desired level of total deposits. In addition, the Company invests excess funds in short-term interest-earning accounts, if greater liquidity needs are expected in the near term, and medium- to longer-term investments if liquidity is expected to be in excess of needs for an extended period of time. Excess liquidity assists in providing availability of funds to meet lending requirements and additional demand from deposit accounts as the need arises. The Company’s cash and cash equivalents amounted to $7.0 million at March 31, 2013.
A portion of the Company’s liquidity consists of non-interest earning deposits. The Company’s primary sources of cash are payments on loans and increases in deposit accounts. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas, which provide an additional source of funds. During the first quarter of 2013, the Company initiated the sale of brokered deposits as an additional source of funding. This funding source presented the Company with the benefits of lower cost fixed-rate funding for a longer term with an average maturity of approximately three years. At March 31, 2013, the Company had short-term and long-term advances from the Federal Home Loan Bank of Dallas in the amounts of $3.5 million and $330,000, respectively with a total borrowing capacity of $42.6 million. In addition, the Company had outstanding brokered deposits of $5.2 million. Bank of Ruston was also a party to a Master Purchase Agreement with First National Bankers Bank whereby Bank of Ruston may purchase Federal Funds from First National Bankers Bank in an amount not to exceed $5.4 million. There were no amounts purchased under this agreement as of March 31, 2013.
At March 31, 2013, the Company had outstanding loan commitments of $5.0 million to originate loans and $7.4 million of unfunded commitments under lines of credit. At March 31, 2013, certificates of deposit scheduled to mature in less than one year totaled $29.1 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In addition, in a rising interest rate environment, the cost of such deposits could be significantly higher upon renewal. The Company intends to utilize its liquidity to fund its lending activities.
The Bank is required to maintain regulatory capital sufficient to meet tier-1 leverage, tier-1 risk-based and total risk-based capital ratios of at least 4.0%, 4.0% and 8.0%, respectively. At March 31, 2013, the Bank exceeded each of its capital requirements with ratios of 13.57%, 17.05% and 17.15%, respectively.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein regarding the Company have been prepared in accordance with accounting principles generally accepted in the United States of America which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the Company’s assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on the Company’s performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.