UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 31, 2007.
Or
[ ] 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: 0-50275
BCB Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
New Jersey 26-0065262
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(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
104-110 Avenue C Bayonne, New Jersey 07002
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(Address of principal executive offices) (Zip Code)
(201) 823-0700
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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.
[X] Yes [ ] No
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and larger accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ X]
Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of May 10, 2007, BCB
Bancorp, Inc., had 4,791,197 shares of common stock, no par value, issued and
outstanding.
BCB BANCORP INC., AND SUBSIDIARY
INDEX
PART I. CONSOLIDATED FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 2007 and December 31, 2006 (unaudited).....................1
Consolidated Statements of Income for the three months
ended March 31, 2007 and March 31, 2006 (unaudited)..................2
Consolidated Statement of Changes in Stockholders' Equity for the
three months ended March 31, 2007 (unaudited)........................3
Consolidated Statements of Cash Flows for the three months
ended March 31, 2007 and March 31, 2006 (unaudited)..................4
Notes to Unaudited Consolidated Financial Statements.................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................7
Item 3. Quantitative and Qualitative Disclosures about
Market Risk..............................................12
Item 4. Controls and Procedures.....................................14
PART II. OTHER INFORMATION...................................................15
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENT
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition at
March 31, 2007 and December 31, 2006
(Unaudited)
(in thousands except for share data)
At At
31-Mar-07 31-Dec-06
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ASSETS
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Cash and amounts due from depository institutions ........... $ 2,846 $ 3,400
Interest-earning deposits ................................... 32,850 22,437
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Total cash and cash equivalents .......................... 35,696 25,837
--------- ---------
Securities held to maturity ................................. 147,737 148,672
Loans held for sale ......................................... 3,003 2,976
Loans receivable, net ....................................... 316,187 318,130
Premises and equipment ...................................... 6,104 5,885
Federal Home Loan Bank of New York stock .................... 3,724 3,724
Interest receivable, net .................................... 3,120 3,697
Deferred income taxes ....................................... 1,239 1,238
Other assets ................................................ 775 676
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Total assets ............................................ 517,585 510,835
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
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Deposits .................................................... 388,487 382,747
Long-term Debt .............................................. 74,124 74,124
Other Liabilities ........................................... 2,514 2,001
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Total Liabilities ....................................... 465,125 458,872
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STOCKHOLDERS' EQUITY
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Common stock, stated value $0.06
10,000,000 shares authorized; 5,068,331 and 5,063,432 shares,
respectively, issued ........................................ 324 324
Additional paid-in capital .................................. 45,674 45,632
Treasury stock, at cost, 81,731 and 55,293 shares,
respectively ................................................ (1,316) (859)
Retained Earnings ........................................... 7,778 6,866
--------- ---------
Total stockholders' equity .............................. 52,460 51,963
--------- ---------
Total liabilities and stockholders' equity ............. $ 517,585 $ 510,835
========= =========
See accompanying notes to consolidated financial statements.
1
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Income
For the three months ended
March 31, 2007 and 2006
(Unaudited)
(in thousands except for per share data)
Three Months Ended
March 31,
-----------------------
2007 2006
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Interest income:
Loans ............................................ $ 5,756 $ 5,342
Securities ....................................... 2,044 1,816
Other interest-earning assets .................... 288 175
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Total interest income ......................... 8,088 7,333
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Interest expense:
Deposits:
Demand ........................................ 183 82
Savings and club .............................. 520 813
Certificates of deposit ....................... 2,361 1,515
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3,064 2,410
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Borrowed money ................................ 832 492
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Total interest expense ...................... 3,896 2,902
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Net interest income ................................ 4,192 4,431
Provision for loan losses .......................... -- 250
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Net interest income, after provision for loan losses 4,192 4,181
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Non-interest income:
Fees and service charges ........................ 141 155
Gain on sales of loans originated for sale ...... 121 136
Other ........................................... 8 7
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Total non-interest income .................... 270 298
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Non-interest expense:
Salaries and employee benefits .................. 1,334 1,299
Occupancy expense of premises ................... 235 218
Equipment ....................................... 433 450
Advertising ..................................... 95 61
Other ........................................... 380 333
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Total non-interest expense ................... 2,477 2,361
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Income before income tax provision ................. 1,985 2,118
Income tax provision ............................... 722 789
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Net Income ......................................... $ 1,263 $ 1,329
========== ==========
Net Income per common share
basic ............................... $ 0.25 $ 0.27
========== ==========
diluted ............................. $ 0.25 $ 0.26
========== ==========
Weighted average number of common shares outstanding
basic ............................... 5,006 5,002
========== ==========
diluted ............................. 5,136 5,159
========== ==========
See accompanying notes to consolidated financial statements.
2
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
For the three months ended March 31, 2007
(Unaudited)
(in thousands)
Additional Treasury Retained
Common Stock Paid-In Capital Stock Earnings Total
------------ --------------- ------------ ------------ ------------
Balance, December 31, 2006 ............ $ 324 $ 45,632 $ (859) $ 6,866 $ 51,963
Exercise of Stock Options (4,899 shares) -- 42 -- -- 42
Treasury Stock Purchases (26,438 shares) -- (457) -- (457)
Cash dividend ($0.07per share) declared -- -- (351) (351)
Net income for the three months ended
March 31, 2007 .................... -- -- -- 1,263 1,263
------------ --------------- ------------ ------------ ------------
Balance, March 31, 2007 ................ $ 324 $ 45,674 $ (1,316) $ 7,778 $ 52,460
------------ --------------- ------------ ------------ ------------
See accompanying notes to consolidated financial statements.
3
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the three months ended
March 31, 2007 and 2006
(Unaudited)
(in thousands)
Three Months Ended
March 31,
--------------------
2007 2006
--------------------
Cash flows from operating activities:
Net Income .................................................. $ 1,263 $ 1,329
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation .......................................... 88 85
Amortization and accretion, net ....................... (168) (145)
Provision for loan losses ............................. -- 250
Stock-based compensation .............................. -- 20
Deferred income tax ................................... (1) (54)
Loans originated for sale ............................. (6,014) (6,818)
Proceeds from sale of loans originated for sale ....... 6,108 6,510
(Gain) on sale of loans originated for sale ........... (121) (136)
Decrease in interest receivable ....................... 577 160
Decrease in subscriptions receivable .................. -- 2,353
(Increase) Decrease in other assets ................... (99) 476
(Decrease) Increase in accrued interest payable ....... (2) 61
Increase in other liabilities ......................... 515 346
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Net cash provided by operating activities ...... 2,146 4,437
-------- --------
Cash flows from investing activities:
Proceeds from maturation of security held to maturity .... -- 5,000
Purchases of security held to maturity ................... -- (7,500)
Proceeds from repayments on securities held to maturity .. 938 1,311
Net decrease(increase) in loans receivable ............... 2,108 (24,227)
Additions to premises and equipment ...................... (307) (19)
-------- --------
Net cash provided by (used in) investing activities 2,739 (25,435)
-------- --------
Cash flows from financing activities:
Net increase in deposits ................................. 5,740 14,741
Purchases of treasury stock .............................. (457) (24)
Cash dividend paid ....................................... (351) --
Exercise of stock options ................................ 42 40
Stock Issuance costs ..................................... -- (9)
-------- --------
Net cash provided by financing activities ......... 4,974 14,748
-------- --------
Net increase (decrease) in cash and cash equivalents ........... 9,859 (6,250)
Cash and cash equivalents-begininng ............................ 25,837 25,147
-------- --------
Cash and cash equivalents-ending ............................... $ 35,696 $ 18,897
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes .......................................... $ 138 $ --
Interest .............................................. 3,898 2,841
See accompanying notes to consolidated financial statements.
4
BCB Bancorp Inc., and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of BCB Bancorp, Inc. (the "Company") and the Company's wholly owned
subsidiaries, BCB Community Bank (the "Bank") and BCB Holding Company Investment
Company. The Company's business is conducted principally through the Bank. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not
necessarily include all information that would be included in audited financial
statements. The information furnished reflects all adjustments that are, in the
opinion of management, necessary for a fair presentation of consolidated
financial condition and results of operations. All such adjustments are of a
normal recurring nature. The results of operations for the three months ended
March 31, 2007 are not necessarily indicative of the results to be expected for
the fiscal year ended December 31, 2007 or any other future interim period.
These statements should be read in conjunction with the Company's audited
consolidated financial statements and related notes for the year ended December
31, 2006, which are included in the Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission.
Note 2 - Earnings Per Share
Basic net income per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding. The diluted net
income per common share is computed by adjusting the weighted average number of
shares of common stock outstanding to include the effects of outstanding stock
options, if dilutive, using the treasury stock method.
New Accounting Pronouncements
In September 2006, the FASB issued FASB Statement No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for measuring
fair value under U. S. GAAP, and expands disclosures about fair value
measurements. Statement No. 157 applies to other accounting pronouncements that
require or permit fair value measurements. SFAS No. 157 is effective for our
Company January 1, 2008. We are currently evaluating the potential impact, if
any, of the adoption of FASB Statement No. 157 on our consolidated financial
position, results of operations and cash flows.
5
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. SFAS No. 159 is
effective for our Company January 1, 2008. The Company is evaluating the impact
that the adoption of SFAS No. 159 will have on our consolidated financial
statements.
In March 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No.
06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards." EITF 06-11 requires companies to recognize the income tax benefit
realized from dividends or dividend equivalents that are charged to retained
earnings and paid to employees for nonvested equity-classified employee
share-based payment awards as an increase to additional paid-in capital. EITF
06-11 is effective for fiscal years beginning after September 15, 2007. The
Company does not expect EITF 06-11 will have a material impact on its financial
position, results of operations or cash flows.
In March 2007, the FASB ratified EITF Issue No. 06-10 "Accounting for Collateral
Assignment Split-Dollar Life Insurance Agreements". EITF 06-10 provides guidance
for determining a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the terms of
the collateral assignment agreement. EITF 06-10 is effective for fiscal years
beginning after December 15, 2007. The Company is currently assessing the impact
of EITF 06-10 on its consolidated financial position and results of operations.
On September 7, 2006, the Task Force reached a conclusion on EITF 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". The scope of EITF 06-5 consists of
six separate issues relating to accounting for life insurance policies purchased
by entities protecting against the loss of "key persons." The six issues are
clarifications of previously issued guidance on FASB Technical Bulletin No.
85-4. EITF 06-5 is effective for fiscal years beginning after December 15, 2006.
Adoption of EITF 06-5 did not have a material impact on the financial position,
results of operations or cash flows of the Company.
6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
Total assets increased by $6.8 million or 1.3% to $517.6 million at March 31,
2007 from $510.8 million at December 31, 2006. The Bank continued to grow
assets, funded primarily through cash flow provided by retail deposit growth,
and repayments and prepayments of loans and mortgage backed securities. During
the first quarter the Company increased its interest earning deposits in an
effort to increase liquid assets in anticipation of higher loan originations
later in the year. Asset growth stabilized as management is concentrating on
controlled loan growth and maintaining adequate liquidity in the anticipation of
funding loans in the loan pipeline. The composition of the Bank's assets will
shift more significantly to loans as compared to investments reflecting
management's desire to obtain higher yields from loan products than are
obtainable from investments. We intend to continue to grow at a measured pace
consistent with our capital levels and as business opportunities permit.
Total cash and cash equivalents increased by $9.9 million or 38.4% to $35.7
million at March 31, 2007 from $25.8 million at December 31, 2006. Investment
securities classified as held-to-maturity decreased by $1.0 million or 0.7% to
$147.7 million at March 31, 2007 from $148.7 million at December 31, 2006. This
decrease was primarily attributable to repayments and prepayments in the
mortgage backed security portfolio during the three months ended March 31, 2007.
Loans receivable decreased by $1.9 million or 0.6% to $316.2 million at March
31, 2007 from $318.1 million at December 31, 2006. The decrease resulted
primarily from a $3.4 million decrease in commercial loans comprising business
loans and commercial lines of credit, net of amortization, partially offset by a
$783,000 increase in real estate mortgages comprising residential, commercial,
construction and participation loans with other financial institutions, net of
amortization, and an $801,000 increase in consumer loans, net of amortization.
The balance in the loan pipeline as of March 31, 2007 stood at $40.5 million. In
the absence of significant asset quality issues and in addition to the
aforementioned limited loan balance decrease, the allowance for loan loss
balance remained static for the three months ended March 31, 2007. At March 31,
2007, the allowance for loan losses was $3.7 million or 224.52% of
non-performing assets.
Deposit liabilities increased by $5.8 million or 1.5% to $388.5 million at March
31, 2007 from $382.7 million at December 31, 2006. The increase resulted
primarily from an increase of $1.9 million in time deposit accounts and a $6.1
million increase in transaction accounts, partially offset by a $2.3 million
decrease in savings and club accounts as the Bank has experienced a change in
the composition of deposits with savings and club balances being reduced in
favor of higher cost time deposits. Short term time deposit rates continue to be
much more competitive than core deposit rates as the
7
yield curve continues to remain inverted and the Federal Open Market Committee
persists in its posture of keeping short term rates unchanged since June 2006.
The balance of borrowed money remained constant at $74.1 million during the
three months ended March 31, 2007. The purpose of the borrowings reflects the
use of long term Federal Home Loan Bank advances to augment deposits as the
Bank's funding source for originating loans and investing in Government
Sponsored Enterprise, (GSE) investment securities.
Stockholders' equity increased by $497,000 or 1.0% to $52.5 million at March 31,
2007 from $52.0 million at December 31, 2006. The increase in stockholders'
equity is primarily attributable to net income of the Company for the three
months ended March 31, 2007 of $1.26 million and $42,000 from the exercise of
stock options, partially offset by $457,000 paid to repurchase 26,438 shares of
common stock and the payment of a quarterly cash dividend totaling $351,000
representing a $0.07/share payment during the three months ended March 31, 2007.
At March 31, 2007 the Company's Tier 1, Tier 1 Risk-Based and Total Risk Based
Capital Ratios were 10.74%, 15.66% and 16.73% respectively.
Results of Operations
Net income decreased by $66,000 or 5.0% to $1.26 million for the three months
ended March 31, 2007 from $1.33 million for the three months ended March 31,
2006. The decrease in net income primarily reflects decreases in net interest
income, and non-interest income, and an increase in non-interest expense,
partially offset by decreases in the provision for loan losses and income taxes.
Net interest income decreased by $239,000 or 5.4% to $4.2 million for the three
months ended March 31, 2007 from $4.4 million for the three months ended March
31, 2006. This decrease resulted primarily from a decrease in the net interest
margin to 3.35% for the three months ended March 31, 2007 from 3.82% for the
three months ended March 31, 2006, as the cost of interest bearing liabilities
increased at a more rapid pace than the yield on interest earning assets. The
cost of interest bearing liabilities increased by seventy-six basis points to
3.69% for the three months ended March 31, 2007 from 2.93% for the three months
ended March 31, 2006, reflecting the shift in the composition of deposits to
higher cost time deposits. This was partially offset by an increase in average
interest earning assets of $36.3 million or 7.8% to $500.3 million for the three
months ended March 31, 2007 from $464.0 million for the three months ended March
31, 2006, and an increase in the yield on interest earning assets to 6.47% for
the three months ended March 31, 2007 from 6.32% for the three months ended
March 31, 2006.
Interest income on loans receivable increased by $414,000 or 7.7% to $5.76
million for the three months ended March 31, 2007 from $5.34 million for the
three months ended March 31, 2006. The increase was primarily attributable to an
increase in the balance of average loans receivable of $20.1 million or 6.7% to
$320.8 million for the three months ended March 31, 2007 from $300.7 million for
the three months ended March 31, 2006, and an increase in the average yield on
loans receivable to 7.13% for the three months
8
ended March 31, 2007 from 7.07% for the three months ended March 31, 2006. The
increase in average loans reflects management's philosophy to deploy funds in
higher yielding assets, specifically commercial real estate loans in an effort
to achieve higher returns. The increase in average yield reflects the increase
in loan yields tied to the prime lending rate which was higher during the three
months ended March 31, 2007 than during the three months ended March 31, 2006.
Interest income on securities held-to-maturity increased by $228,000 or 12.6% to
$2.0 million for the three months ended March 31, 2007 from $1.8 million for the
three months ended March 31, 2006. The increase was primarily attributable to an
increase in the average balance of securities held-to-maturity of $9.6 million
or 6.7% to $152.0 million for the three months ended March 31, 2007 from $142.4
million for the three months ended March 31, 2006, and an increase in the
average yield on securities to 5.38% for the three months ended March 31, 2007
from 5.10% for the three months ended March 31, 2006. Investments in securities
held to maturity are intended to compliment our lending efforts as we seek
investments that will result in higher returns.
Interest income on other interest-earning assets increased by $113,000 or 64.6%
to $288,000 for the three months ended March 31, 2007 from $175,000 for the
three months ended March 31, 2006. The increase was primarily due to an increase
in the average balance of other interest-earning assets of $5.7 million or 29.1%
to $25.3 million for the three months ended March 31, 2007 from $19.6 million
for the three months ended March 31, 2006, and an increase in the average yield
on other interest-earning assets to 4.55% for the three months ended March 31,
2007 from 3.57% for the three months ended March 31, 2006. The increase in the
average yield reflects the higher short-term interest rate environment for
overnight deposits in 2007 as compared to 2006. The increase in the average
balance primarily reflects the accumulation of liquidity to facilitate the
funding of loan closings in the Bank's loan pipeline.
Total interest expense increased by $994,000 or 34.3% to $3.9 million for the
three months ended March 31, 2007 from $2.9 million for the three months ended
March 31, 2006. The increase resulted primarily from an increase in average
interest bearing liabilities of $26.8 million or 6.8% to $422.7 million for the
three months ended March 31, 2007 from $395.9 million for the three months ended
March 31, 2006, as well as an increase in the average cost of interest bearing
liabilities to 3.69% for the three months ended March 31, 2007 from 2.93% for
the three months ended March 31, 2006.
The Company did not record a loan loss provision for the three months ended
March 31, 2007 as compared to a $250,000 provision made for the three months
ended March 31, 2006. The provision for loan losses is established based upon
management's review of the Bank's loans and consideration of a variety of
factors including, but not limited to, (1) the risk characteristics of the loan
portfolio, (2) current economic conditions, (3) actual losses previously
experienced, (4) level of loan growth and (5) the existing level of reserves for
loan losses that are probable and estimable. During the three months ended March
31, 2007, the Bank experienced $3,000 in net recoveries (consisting of $5,000 in
recoveries and $2,000 in charge-offs). During the three months ended March 31,
2006,
9
the Bank experienced $67,000 in charge-offs. The Bank had non-performing loans
totaling $1.7 million or 0.52% of gross loans at March 31, 2007, $323,000 or
0.10% of gross loans at December 31, 2006 and $1.9 million or 0.58% of gross
loans at March 31, 2006. The allowance for loan losses stood at $3.7 million or
1.17% of gross loans at March 31, 2007, $3.7 million or 1.16% of gross loans at
December 31, 2006 and $3.3 million or 1.05% of gross loans at March 31, 2006.
The amount of the allowance is based on estimates and the ultimate losses may
vary from such estimates. Management assesses the allowance for loan losses on a
quarterly basis and makes provisions for loan losses as necessary in order to
maintain the adequacy of the allowance. While management uses available
information to recognize losses on loans, future loan loss provisions may be
necessary based on changes in the aforementioned criteria. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses and may require the Bank to
recognize additional provisions based on their judgment of information available
to them at the time of their examination. Management believes that the allowance
for loan losses was adequate at March 31, 2007, December 31, 2006 and March 31,
2006.
Total non-interest income decreased by $28,000 or 9.4% to $270,000 for the three
months ended March 31, 2007 from $298,000 for the three months ended March 31,
2006. The decrease in non-interest income resulted primarily from a $15,000
decrease in gains on sales of loans originated for sale to $121,000 for the
three months ended March 31, 2007 from $136,000 for the three months ended March
31, 2006, and a $14,000 decrease in general fees and service charges to $141,000
for the three months ended March 31, 2007 from $155,000 for the three months
ended March 31, 2006.
Total non-interest expense increased by $116,000 or 4.9% to $2.5 million for the
three months ended March 31, 2007 from $2.4 million for the three months ended
March 31, 2006. Salaries and employee benefits expense increased by $35,000 or
2.7% to $1.33 million for the three months ended March 31, 2007 from $1.30
million for the three months ended March 31, 2006. This increase was primarily
attributable to annual salary increases in conjunction with annual reviews as
well as an increase in the number of full-time equivalent employees to 94 for
the three months ended March 31, 2007 from 82 for the three months ended March
31, 2006. Equipment expense decreased by $17,000 to $433,000 for the three
months ended March 31, 2007 from $450,000 for the three months ended March 31,
2006. Occupancy expense increased by $17,000 to $235,000 for the three months
ended March 31, 2007 from $218,000 for the three months ended March 31, 2006.
Advertising expense increased by $34,000 to $95,000 for the three months ended
March 31, 2007 from $61,000 for the three months ended March 31, 2006. The
increase in advertising expense relates to advertisements for deposit and loan
promotions in an effort to attract additional business during the three months
ended March 31, 2007. Other non-interest expense increased by $47,000 to
$380,000 for the three months ended March 31, 2007 from $333,000 for the three
months ended March 31, 2006. The increase in other non-interest expense is
primarily attributable to increases in expenses commensurate with a growing
franchise. Other non-interest expense is comprised of directors' fees,
stationary, forms and printing, professional fees, legal fees, check
10
printing, correspondent bank fees, telephone and communication, shareholder
relations and other fees and expenses.
Income tax expense decreased $67,000 to $722,000 for the three months ended
March 31, 2007 from $789,000 for the three months ended March 31, 2006
reflecting decreased income earned during the three month time period ended
March 31, 2007. The consolidated effective income tax rate for the three months
ended March 31, 2007 was 36.4% as compared to 37.3% the three months ended March
31, 2006.
11
Item 3. Quantitative and Qualitative Analysis of Market Risk
Management of Market Risk
General. The majority of our assets and liabilities are monetary in nature.
Consequently, one of our most significant forms of market risk is interest rate
risk. Our assets, consisting primarily of mortgage loans, have longer maturities
than our liabilities, consisting primarily of deposits. As a result, a principal
part of our business strategy is to manage interest rate risk and reduce the
exposure of our net interest income to changes in market interest rates.
Accordingly, our Board of Directors has established an Asset/Liability Committee
which is responsible for evaluating the interest rate risk inherent in our
assets and liabilities, for determining the level of risk that is appropriate
given our business strategy, operating environment, capital, liquidity and
performance objectives, and for managing this risk consistent with the
guidelines approved by the Board of Directors. Senior Management monitors the
level of interest rate risk on a regular basis and the Asset/Liability
Committee, which consists of senior management and outside directors operating
under a policy adopted by the Board of Directors, meets as needed to review our
asset/liability policies and interest rate risk position.
The following table presents the Company's net portfolio value ("NPV"). These
calculations were based upon assumptions believed to be fundamentally sound,
although they may vary from assumptions utilized by other financial
institutions. The information set forth below is based on data that included all
financial instruments as of March 31, 2007. Assumptions have been made by the
Company relating to interest rates, loan prepayment rates, core deposit
duration, and the market values of certain assets and liabilities under the
various interest rate scenarios. Actual maturity dates were used for fixed rate
loans and certificate accounts. Investment securities were scheduled at either
the maturity date or the next scheduled call date based upon management's
judgment of whether the particular security would be called in the current
interest rate environment and under assumed interest rate scenarios. Variable
rate loans were scheduled as of their next scheduled interest rate repricing
date. Additional assumptions made in the preparation of the NPV table include
prepayment rates on loans and mortgage-backed securities, core deposits without
stated maturity dates were scheduled with an assumed term of 48 months, and
money market and noninterest bearing accounts were scheduled with an assumed
term of 24 months. The NPV at "PAR" represents the difference between the
Company's estimated value of assets and estimated value of liabilities assuming
no change in interest rates. The NPV for a decrease of 300 basis points has been
excluded since it would not be meaningful, in the interest rate environment as
of March 31, 2007. The following sets forth the Company's NPV as of March 31,
2007.
NPV as a % of Assets
Change in Net Portfolio $ Change from % Change from ---------------------
calculation Value PAR PAR NPV Ratio Change
----------- ------------- ------------- -------------- ---------------------
+300bp $ 41,265 $ (30,367) (42.39)% 8.81% (512)bp
+200bp 51,136 (20,496) (28.61) 10.60 (333)
+100bp 61,548 (10,084) (14.08) 12.36 (157)
PAR 71,632 -- -- 13.93 --
-100bp 75,322 3,690 5.15 14.38 45
-200bp 71,213 (419) (0.58) 13.43 (50)
12
The table above indicates that at March 31, 2007, in the event of a 100 basis
point decrease in interest rates, we would experience a 5.15% increase in NPV.
In the event of a 100 basis point increase in interest rates, we would
experience a 14.08% decrease in NPV.
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurement. Modeling changes in NPV requires making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV table
presented assumes that the composition of our interest-sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured and assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration or
repricing of specific assets and liabilities. Accordingly, although the NPV
table provides an indication of our interest rate risk exposure at a particular
point in time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes in market interest rates on our net
interest income, and will differ from actual results.
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ITEM 4.
Controls and Procedures
Under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer, the Company
has evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this quarterly report.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the end of the period covered by this quarterly
report, the Company's disclosure controls and procedures are effective to ensure
that information required to be disclosed in the reports that the Company files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. There has been no change in the Company's
internal control over financial reporting during the most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no changes in the Company's risk factors since the filing of the
Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Securities sold within the past three years without registering the securities
under the Securities Act of 1933
On June 17, 2004 the Company sold $4.1 million in debentures in connection with
its participation in a pooled trust preferred offering. The proceeds of the
offering were used to fund asset growth and qualify as regulatory capital.
Other than as stated below, the Company has not sold any securities during the
past three years. In connection with the Plan of Acquisition completed on May 1,
2003 the Bank reorganized into the holding company form of ownership and each
share of Bank common stock became a share of Company common stock. No new
capital was received in the reorganization.
The Company conducted a secondary public stock offering during the fourth
quarter of 2005. The Company sold 1,265,000 shares of its common stock for an
aggregate offering price of $19.3 million. The Company offered 1,100,000 shares
of its common stock, (with an over-allotment option of 165,000 shares) to the
public at a price of $15.25. The stock offering was underwritten by Janney
Montgomery Scott LLC on a firm commitment basis. The Company's registration
statement on Form S-1 (Commission File No. 333-128214) was declared effective by
the Securities and Exchange Commission on December 13, 2005. The Company also
filed a rule 462 registration statement on Form S-1 (Commission File No.
333-130307) which was effective upon filing December 14, 2005. The sale of 1.1
million shares was completed on December 19, 2005, and the over-allotment was
exercised in full on January 5, 2006.
During 2005, the Company announced a stock repurchase plan which provides for
the purchase of up to 187,096 shares, adjusted for the 25% stock dividend paid
on October 27, 2005. The Company's stock purchases during the last three months
are as follows:
15
Shares Average Total Number of Maximum Number of Shares
Period Purchased Price Shares Purchased That May Yet be Purchased
------ --------- ----- ---------------- -------------------------
1/1-1/31 -- -- -- 131,803
2/1-2/28 1,538 $ 16.52 1,538 130,265
3/1-3/31 24,900 $ 17.32 26,438 105,365
On April 26, 2007, the Company announced a second stock repurchase plan which
provides for the repurchase of 5% or 249,080 shares of the outstanding shares of
the Company's common stock. This plan will commence upon the completion of the
above mentioned plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit 31.1 and 31.2 Officers' Certification filed pursuant to section 302 of
the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Officers' Certification filed pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
16