Management’s discussion and analysis of the financial condition and results of operations at and for three and nine months ended September 30, 2013 and 2012 is intended to assist in understanding the financial condition and results of operations of the Company on a consolidated basis. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report on Form 10-Q.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:
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statements of our goals, intentions and expectations;
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statements regarding our business plans, prospects, growth and operating strategies;
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statements regarding the asset quality of our loan and investment portfolios; and
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estimates of our risks and future costs and benefits.
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These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this quarterly report.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
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general economic conditions, either nationally or in our market areas, that are worse than expected;
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changes in government policy towards farming subsidies, and especially towards the production of ethanol which is highly dependent upon #2 Yellow Corn, the primary commodity produced in our market area;
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competition among depository and other financial institutions;
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our success in continuing to emphasize agricultural real estate and agricultural and commercial non-real estate loans;
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Madison County Financial, Inc.
Form 10-Q
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changes in the interest rate environment that reduce our margins or reduce the fair value of our financial instruments;
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adverse changes in the securities markets;
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changes in laws or government regulations or policies affecting financial institutions, including changes in deposit insurance premiums, regulatory fees and capital requirements, which increase our compliance costs;
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our ability to enter new markets successfully and capitalize on growth opportunities;
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changes in consumer spending, borrowing and savings habits;
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changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;
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changes in our organization, compensation and benefit plans;
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loan delinquencies and changes in the underlying cash flows of our borrowers;
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changes in our financial condition or results of operations that reduce capital available to pay dividends; and
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changes in the financial condition or future prospects of issuers of securities that we own.
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Critical Accounting Policies
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There are no material changes to the critical accounting policies disclosed in Madison County Financial, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on March 28, 2013.
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Comparison of Financial Condition at September 30, 2013 and December 31, 2012
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Total assets increased $9.8 million, or 3.7%, to $277.1 million at September 30, 2013 from $267.3 million at December 31, 2012. The increase was due primarily to increases in investment securities classified as held to maturity and net loans receivable, offset in part by a decrease in cash and cash equivalents and investment in Federal Home Loan Bank stock. Net loans increased primarily due to an increase in agricultural real estate loans. Investment securities increased, and cash and cash equivalents decreased, as we continued to deploy funds from the stock conversion proceeds to purchase these securities. Investment in Federal Home Loan Bank stock decreased as a result of the Federal Home Loan Bank of Topeka’s repurchase of excess common stock.
Madison County Financial, Inc.
Form 10-Q
Net loans receivable increased $4.3 million, or 2.1%, to $211.5 million at September 30, 2013 from $207.2 million at December 31, 2012. Agricultural real estate loans increased $6.7 million, or 7.0%, to $103.3 million at September 30, 2013 from $96.6 million at December 31, 2012. One- to four-family residential real estate loans increased $507,000, or 1.4%, to $36.5 million at September 30, 2013, from $36.0 million at December 31, 2012. The increase in agricultural real estate loans reflects purchase activity by our current agricultural loan customers and the addition of new agricultural real estate customers. The increase in one- to four-family residential real estate loans reflects a slightly higher demand for housing in our market area combined with the decline in competition for these loans from community banks reflecting increased compliance changes. Agricultural and commercial non-real estate loans decreased $1.9 million, or 3.5%, to $51.7 million at September 30, 2013, from $53.6 million at December 31, 2012. The decrease in agricultural and commercial non-real estate loans resulted from seasonal loan paydowns relating primarily to the cash flow cycle of our farming customers. Consumer loans decreased $238,000, or 5.0%, to $4.5 million at September 30, 2013, from $4.7 million at December 31, 2012.
Investment securities classified as available for sale increased $590,000, or 6.6%, to $9.6 million at September 30, 2013, from $9.0 million at December 31, 2012. Investment securities classified as held to maturity increased $9.7 million, or 38.6%, to $34.7 million at September 30, 2013, from $25.0 million at December 31, 2012. Agricultural loan customers aggressively paid down lines of credit in the first and second quarters due to record high grain prices, and the funds received from these repayments and the additional capital raised in the public stock offering which closed October 3, 2012, were reinvested in cash and cash equivalents, and subsequently used to purchase investment securities and fund an increase in loans receivable. Investment in Federal Home Loan Bank stock decreased $607,000, or 29.2%, to $1.5 million at September 30, 2013, from $2.1 million at December 31, 2012, due to the Federal Home Loan Bank of Topeka’s repurchase of our excess Class A and Class B common stock.
Accrued interest receivable on loans increased $430,000, or 11.2%, to $4.3 million at September 30, 2013, from $3.8 million at December 31, 2012, due to the increase in net loans at September 30, 2013, as compared to December 31, 2012, offset by a decrease in the average yield on loans to 5.05% at September 30, 2013, from 5.63% at December 31, 2012.
Deposits increased $8.6 million, or 4.4%, to $203.8 million at September 30, 2013, from $195.2 million at December 31, 2012, due primarily to a net increase in core deposits. Interest-bearing checking and money market savings accounts increased $5.8 million, or 5.4%, and $5.2 million, or 12.7%, respectively, at September 30, 2013, from December 31, 2012. This increase was offset by a decrease in noninterest-bearing checking accounts of $1.3 million, or 7.3%, at September 30, 2013, from December 31, 2012. We believe the net increase in our core deposits resulted from our continued efforts to build relationships with our existing customers as well as our marketing efforts with new customers. Certificates and time deposits decreased $1.2 million, or 4.4%, to $27.0 million at September 30, 2013, from $28.3 million at December 31, 2012, reflecting continued customer preference for more liquid transaction accounts rather than longer term deposits in the current low interest rate environment.
Madison County Financial, Inc.
Form 10-Q
We borrow periodically from the Federal Home Loan Bank of Topeka (“FHLB-Topeka”) and the Federal Reserve Bank of Kansas City (“FRB-Kansas City”), and as needed, to a lesser extent from the Bankers’ Bank of the West. Our borrowings from the FHLB-Topeka decreased $300,000, or 4.8%, to $6.0 million at September 30, 2013, from $6.3 million at December 31, 2012. We continue to utilize borrowings as an alternative funding source, and our borrowings from the FHLB-Topeka generally consist of advances with laddered terms of up to 10 years and our borrowings from the FRB-Kansas City are short-term borrowings under our Line of Credit.
Total stockholders’ equity increased $1.3 million, or 2.2%, to $63.4 million at September 30, 2013, from $62.1 million at December 31, 2012. The increase resulted primarily from net income of $2.3 million during the nine months ended September 30, 2013, offset by an annual cash dividend of $0.28 per share, for an aggregate of $826,000, that was declared and paid during the period. In addition, accumulated other comprehensive income declined by $247,000.
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Comparison of Operating Results for the Three Months Ended September 30, 2013 and 2012
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General.
Net income decreased $145,000, or 15.3%, to $800,000 for the three months ended September 30, 2013, from $945,000 for the three months ended September 30, 2012. The decrease reflected an increase in our provision for loan losses and other expense and a decrease in other income, offset in part by an increase in net interest income and a decrease in income tax expense during the 2013 quarter.
Interest and Dividend Income.
Interest and dividend income increased slightly by $8,000, or 0.3%, to $2.9 million for the quarter ended September 30, 2013 from $2.9 million for the quarter ended September 30, 2012. The increase reflected an increase in average interest-earning assets to $266.5 million for the 2013 quarter compared to $226.7 million for the 2012 quarter, which was offset by a decrease in the average yield on interest-earning assets to 4.35% for the 2013 quarter from 5.10% for the 2012 quarter, reflecting the lower interest rate environment.
Interest income and fees on loans decreased $26,000, or 1.0%, to $2.6 million for the three months ended September 30, 2013, from $2.6 million for the three months ended September 30, 2012, due to a decrease in the average yield on loans to 4.99% during the 2013 quarter from 5.45% during the 2012 quarter, reflecting lower market interest rates, offset by an increase in average loans outstanding to $207.9 million for the quarter ended September 30, 2013, from $192.1 million for the quarter ended September 30, 2012. Interest income on taxable investment securities decreased $24,000, or 27.0%, to $65,000 for the 2013 quarter from $89,000 for the 2012 quarter. Interest income on non-taxable investment securities increased $59,000, or 34.1%, to $232,000 for the 2013 quarter from $173,000 for the 2012 quarter, reflecting a $10.7 million increase in the average balance of these securities to $29.6 million for the quarter ended September 30, 2013, from $18.9 million for the quarter ended September 30, 2012. This increase was offset by a decrease in the average yield on such securities to 3.12% from 3.64%, quarter to quarter, reflecting lower market interest rates.
Interest Expense.
Interest expense decreased $55,000, or 11.4%, to $429,000 for the three months ended September 30, 2013, from $484,000 for the three months ended September 30, 2012. The decrease reflected a decrease in the average rate paid on interest-bearing liabilities in the 2013 quarter to 0.87% compared to 1.04% for the 2012 quarter, offset by an increase in the average balance of interest-bearing liabilities to $195.3 million for the 2013 quarter from $184.6 million for the 2012 quarter.
Madison County Financial, Inc.
Form 10-Q
Interest expense on interest-bearing deposits decreased $52,000, or 12.2%, to $374,000 for the quarter ended September 30, 2013 from $426,000 for the quarter ended September 30, 2012, as the average rate paid on these deposits decreased to 0.79% for the 2013 quarter from 0.96% for the 2012 quarter, offset by a $12.9 million increase in the average balance of these deposits to $189.0 million during the 2013 quarter from $176.2 million during the 2012 quarter. Interest expense on borrowings decreased $3,000, or 5.2%, to $55,000 during the three months ended September 30, 2013, from $58,000 during the three months ended September 30, 2012, reflecting a decrease of $2.2 million, or 25.9%, in the average balance of borrowings to $6.3 million for the 2013 quarter from $8.5 million for the 2012 quarter. This was offset by an increase in the rate paid on borrowings to 3.48% from 2.72% quarter to quarter, reflecting a larger percentage of long-term borrowings during the 2013 quarter as compared to the 2012 quarter.
Net Interest Income.
Net interest income increased $63,000, or 2.6%, to $2.5 million for the three months ended September 30, 2013, from $2.4 million for the three months ended September 30, 2012, reflecting a $29.1 million increase in our average net interest-earning assets, to $71.1 million for the 2013 period from $42.0 million for the year earlier period. This increase was offset by a decrease in our net interest rate spread to 3.48% for the 2013 quarter from 4.06% for the 2012 quarter, and a decrease in our net interest margin to 3.71% for the 2013 quarter from 4.25% for the 2012 quarter. The increase in our average net interest-earning assets resulted primarily from the additional capital raised in the conversion stock offering and earnings which were reinvested in investment securities and other interest-earning assets. The ratio of our average interest-earning assets to average interest-bearing liabilities increased to 136.4% for the 2013 quarter from 122.8% for the 2012 quarter. The decreases in our net interest rate spread and net interest margin reflected the 75 basis point decrease in the average yield on our interest-earning assets which was partially offset by a 17 basis point decrease in the average cost of our interest-bearing liabilities.
Provision for Loan Losses.
We recorded a provision for loan losses of $305,000 for the three months ended September 30, 2013, which was an increase of $55,000, or 22.0%, from our provision of $250,000 for the three months ended September 30, 2012. The provision was increased as a result of management’s determination to address a possible asset bubble in agricultural real estate in our market area that may be forming due to the continued increase in farmland prices at a double-digit rate over the past several years. At the same time, agricultural real estate loans have increased $20.5 million, or 24.7%, period to period, and now comprise 47.6% of net loans receivable. The additional reserves were recorded largely to address the increasing risk and increasing balance in this loan class. Furthermore, effective December 31, 2011, the federal government allowed a major ethanol subsidy to expire which could adversely impact the price of corn and thus, adversely impact our agricultural borrowers and the risks associated with these types of loans.
The provision for loan losses for the three months ended September 30, 2013 and 2012, reflected no charge-offs or recoveries. The allowance for loan losses was $5.7 million, or 2.6% of total loans, including loans held for sale, at September 30, 2013, compared to $4.5 million, or 2.3% of total loans, including loans held for sale, at September 30, 2012. Total nonperforming loans were $464,000 at September 30, 2013, compared to $220,000 at September 30, 2012. As a percentage of nonperforming loans, the allowance for loan losses was 1,236% at September 30, 2013, compared to 2,066% at September 30, 2012.
Madison County Financial, Inc.
Form 10-Q
Other Income.
Other income decreased $60,000, or 10.8%, to $497,000 for the three months ended September 30, 2013, from $557,000 for the three months ended September 30, 2012. The decrease was due primarily to a decrease in gains on sales of loans, offset by an increase in loan servicing income and insurance commission income, quarter to quarter. The increase in loan servicing income reflects the steady growth in the portfolio of serviced loans. The decline in gains on sales of loans resulted from a decline in the volume of loans sold, quarter to quarter.
Other Expense.
Other expense increased $167,000, or 11.8%, to $1.6 million for the three months ended September 30, 2013, from $1.4 million for the three months ended September 30, 2012, due primarily to a $65,000 increase in salaries and employee benefits expense and a $70,000 increase in professional fees. Salaries and employees benefits increased due to a $45,000 increase in ESOP-related expense, and other normal annual salary increases and payouts under our benefit plans. Professional fees increased as a result of additional public company-required costs and the timing of such services, quarter to quarter.
Income Tax Expense.
The provision for income taxes was $298,000 for the three months ended September 30, 2013, compared to $372,000 for the three months ended September 30, 2012, reflecting a decrease in pretax income. Our effective tax rate was 27.1% for the quarter ended September 30, 2013, compared to 28.2% for the quarter ended September 30, 2012. This difference resulted primarily from the levels of tax-exempt income derived from our municipal bond investment portfolio and from bank-owned life insurance.
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Comparison of Operating Results for the Nine Months Ended September 30, 2013 and 2012
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General.
Net income decreased $692,000, or 23.2%, to $2.3 million for the nine months ended September 30, 2013, from $3.0 million for the nine months ended September 30, 2012. The decrease reflected a decrease in our net interest income and other income, and an increase in our provision for loan losses and other expenses during the 2013 period.
Interest and Dividend Income.
Interest and dividend income decreased $173,000, or 2.0%, to $8.6 million for the nine months ended September 30, 2013 from $8.8 million for the nine months ended September 30, 2012. The decrease reflected a decrease in the average yield on interest-earning assets to 4.29% for the 2013 period from 5.30% for the 2012 period, which was offset by an increase in average interest-earning assets to $268.4 million for the 2013 period compared to $221.5 million for the 2012 period, reflecting the lower interest rate environment.
Interest income and fees on loans decreased $325,000, or 4.1%, to $7.7 million for the nine months ended September 30, 2013, from $8.0 million for the nine months ended September 30, 2012. The decrease was due to a decrease in the average yield on loans to 5.05% during the 2013 period from 5.75% during the 2012 period, reflecting lower market interest rates, offset by an increase in average loans outstanding to $203.2 million for the period ending September 30, 2013, from $186.0 million for the period ending September 30, 2012. Interest income on taxable investment securities decreased $30,000, or 11.4%, to $233,000 for the 2013 period from $263,000 for the 2012 period. Interest income on non-taxable investment securities increased $160,000, or 33.5%, to $638,000 for the 2013 period from $478,000 for the 2012 period, reflecting a $9.6 million increase in the average balance of these securities to $26.0 million for the period ending September 30, 2013, from $16.4 million for the period ending September 30, 2012. This increase was offset by a decrease in the average yield on such securities to 3.27% from 3.89%, period to period, reflecting lower market interest rates.
Madison County Financial, Inc.
Form 10-Q
Interest Expense.
Interest expense decreased $115,000, or 8.2%, to $1.3 million for the nine months ended September 30, 2013, from $1.4 million for the nine months ended September 30, 2012. The decrease reflected a decrease in the average rate paid on interest-bearing liabilities in the 2013 period to 0.88% compared to 1.03% for the 2012 period, offset by an increase in the average balance of interest-bearing liabilities to $197.2 million for the 2013 period from $182.7 million for the 2012 period.
Interest expense on interest-bearing deposits decreased $107,000, or 8.6%, to $1.1 million for the nine months ended September 30, 2013 from $1.2 million for the nine months ended September 30, 2012, as the average rate paid on these deposits decreased to 0.79% for the 2013 period from 0.95% for the 2012 period, offset by a $16.1 million increase in the average balance of these deposits to $190.9 million during the 2013 period from $174.8 million during the 2012 period. Interest expense on borrowings decreased $8,000, or 4.7%, to $163,000 for the nine months ended September 30, 2013, from $171,000 for the nine months ended September 30, 2012, reflecting a decrease in the average balance of borrowings to $6.3 million for the 2013 period from $7.9 million for the 2012 period. This was offset by an increase in the rate paid on borrowings to 3.46% from 2.90%, period to
period, reflecting a larger percentage of long-term borrowings during the 2013 period as compared to the 2012 period.
Net Interest Income.
Net interest income decreased $58,000, or 0.8%, to $7.3 million for the nine months ended September 30, 2013, from $7.4 million for the nine months ended September 30, 2012, reflecting a $32.3 million increase in our average net interest-earning assets, to $71.1 million for the 2013 period from $38.9 million for the 2012 period. This increase was offset by a decrease in our net interest rate spread to 3.41% for the 2013 period from 4.27% for the 2012 period, and a decrease in our net interest margin to 3.64% for the 2013 period from 4.45% for the 2012 period. The increase in our average net interest-earning assets resulted primarily from the additional capital raised in the conversion stock offering and earnings which were reinvested in investment securities and other interest-earning assets. The ratio of our average interest-earning assets to average interest-bearing liabilities increased to 136.1% for the 2013 period from 121.3 % for the 2012 period. The decreases in our net interest rate spread and net interest margin reflected the 1.0% decrease in the average yield on our interest-earning assets which was partially offset by a 15 basis point decrease in the average cost of our interest-bearing liabilities.
Provision for Loan Losses.
We recorded a provision for loan losses of $815,000 for the nine months ended September 30, 2013, which was an increase of $380,000, or 87.4%, from our provision of $435,000 for the nine months ended September 30, 2012. The provision was increased as a result of management’s determination to address a possible asset bubble in agricultural real estate that may be forming due to the continued increase in farmland prices at a double-digit rate over the past several years. At the same time, agricultural real estate loans have increased $20.5 million, or 24.7%, period to period, and now comprise 47.6% of the net loans receivable. The additional reserves were recorded largely to address the increasing risk and increasing balance in this loan class. Furthermore, effective December 31, 2011, the federal government allowed a major ethanol subsidy to expire which could adversely impact the price of corn and thus, adversely impact our agricultural borrowers and the risks associated with these types of loans.
Madison County Financial, Inc.
Form 10-Q
The provision for loan losses for the nine months ended September 30, 2013 reflected charge-offs of $20,000 and no recoveries, compared to the nine months ended September 30, 2012, which reflected no charge-offs and net recoveries of $94,000. The allowance for loan losses was $5.7 million, or 2.6% of total loans, including loans held for sale, at September 30, 2013, compared to $4.5 million, or 2.3% of total loans, including loans held for sale, at September 30, 2012. Total nonperforming loans were $464,000 at September 30, 2013, compared to $220,000 at September 30, 2012. As a percentage of nonperforming loans, the allowance for loan losses was 1,236% at September 30, 2013, compared to 2,066% at September 30, 2012.
Other Income.
Other income decreased $59,000, or 4.0%, to $1.4 million for the nine months ended September 30, 2013, from $1.5 million for the nine months ended September 30, 2012. The decrease was due primarily to a decrease in gains on sales of loans, offset by increases in service charges on deposit accounts, loan servicing income and insurance commission income, period to period. The increase in loan servicing income reflects the steady growth in the portfolio of serviced loans. The decline in gains on sales of loans resulted from a decline in the volume of loans sold, period to period.
Other Expense.
Other expense increased $560,000, or 13.3%, to $4.8 million for the nine months ended September 30, 2013, from $4.2 million for the nine months ended September 30, 2012, due primarily to a $298,000 increase in sales and employee benefits expense and a $190,000 increase in professional fees. Salaries and employees benefits increased due to a $134,000 increase in ESOP-related expense, and other normal annual salary increases and payouts under our benefit plans. Professional fees increased as a result of additional public company-required costs and the timing of such services, period to period.
Income Tax Expense.
The provision for income taxes was $853,000 for the nine months ended September 30, 2013, compared to $1.2 million for the nine months ended September 30, 2012, reflecting a decrease in pretax income. Our effective tax rate was 27.1% for the period ended September 30, 2013, compared to 28.9% for the period ended September 30, 2012. This difference resulted primarily from the levels of tax-exempt income derived from our municipal bond investment portfolio and from bank-owned life insurance.
Liquidity and Capital Resources
Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from sales of loans, proceeds from maturities and calls of securities, advances from the Federal Home Loan Bank-Topeka and borrowings from the Federal Reserve Bank of Kansas City, and to a lesser extent from the Bankers’ Bank of the West, and other income including income from our insurance agency subsidiary. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. Additionally, we historically have experienced significant increases in our deposits during the first and second calendar quarters of each year as a result of our farm customers depositing proceeds
from the sale of agricultural commodities during this period. Similarly, our borrowings have historically increased during the fourth calendar quarter of each year in response to increased loan demand from our farm customers during this period, many of whom purchase their crop production supplies (seed, fertilizer, fuel and chemicals) during October through December.
Madison County Financial, Inc.
Form 10-Q
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $3.1 million and $3.9 million for the nine months ended September 30, 2013 and 2012, respectively. Net cash used in investing activities, which consists primarily of net change in loans receivable and net change in purchases of/proceeds from maturities of investment securities was $15.3 million and $9.3 million for the nine months ended September 30, 2013 and 2012, respectively, principally due to a decrease in loans receivable and by purchases of investment securities in excess of maturities. Net cash provided by financing activities, which is comprised of net change in deposits and proceeds from
and repayment of borrowings and dividends paid, was $7.4 million and $13.0 million for the nine months ended September 30, 2013 and 2012, respectively, and resulted primarily from the repayment of advances, and the declaration and payment of an annual cash dividend of $0.28 per share, offset by an increase in deposits.
At September 30, 2013, we exceeded all of our regulatory capital requirements with a Tier 1 (core) capital level of $48.6 million, or 17.5% of adjusted total assets, which is above the required level of $11.1 million, or 4.0%; and total risk-based capital of $52.1 million, or 18.8% of risk-weighted assets, which is above the required level of $22.2 million, or 8.0%. Accordingly Madison County Bank was categorized well capitalized at September 30, 2013. Management is not aware of any conditions or events since the most recent notification that would change our category.
In July 2013, the OCC and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.
The final rule becomes effective for the Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective. The final rule also implements consolidated capital requirements for savings and loan holding companies, such as the Company, effective January 1, 2015.
Madison County Financial, Inc.
Form 10-Q
At September 30, 2013, we had outstanding commitments to originate loans of $20.8 million and lines of credit of $20.9 million. We anticipate that we will have sufficient funds available to meet our current loan origination commitments. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2013 totaled $19.4 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB-Topeka advances or FRB-Kansas City borrowings or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.