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, 2009.
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.
-----------------
(Exact name of registrant as specified in its charter)
New Jersey 26-0065262
---------- ----------
(State or other jurisdiction of incorporation (IRS Employer I.D. No.)
or organization)
104-110 Avenue C Bayonne, New Jersey 07002
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(201) 823-0700
--------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------------------
(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 [ ]
Smaller Reporting Company [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
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
[ ] 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 12, 2009, BCB
Bancorp, Inc., had 4,648,125 shares of common stock, no par value, outstanding.
BCB BANCORP INC. AND SUBSIDIARIES
INDEX
Page
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 2009 and December 31, 2008 (unaudited) ......................... 1
Consolidated Statements of Income for the three months
ended March 31, 2009 and March 31, 2008 (unaudited) ...................... 2
Consolidated Statement of Changes in Stockholders' Equity
for the three months ended March 31, 2009 (unaudited) .................... 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 2009 and March 31, 2008 (unaudited) ...................... 4
Notes to Unaudited Consolidated Financial Statements ..................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 16
Item 4T. Controls and Procedures ......................................... 18
PART II. OTHER INFORMATION ........................................................ 19
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 STATEMENTS
BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition at
March 31, 2009 and December 31, 2008
(Unaudited)
(in thousands except for share data)
At At
March 31, 2009 December 31, 2008
-------------- -----------------
ASSETS
------
Cash and amounts due from depository institutions $ 3,693 $ 3,495
Interest-earning deposits 38,912 3,266
-------------- -----------------
Total cash and cash equivalents 42,605 6,761
-------------- -----------------
Securities available for sale 505 888
Securities held to maturity, fair value $132,836 and $143,245,
respectively 130,677 141,280
Loans held for sale 2,109 1,422
Loans receivable, net of allowance for loan losses of $5,642 and
$5,304, respectively 401,089 406,826
Premises and equipment 5,558 5,627
Federal Home Loan Bank of New York stock 5,646 5,736
Interest receivable 3,469 3,884
Other real estate owned 1,435 1,435
Deferred income taxes 3,463 3,113
Other assets 1,340 1,652
-------------- -----------------
Total assets $ 597,896 $ 578,624
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
-----------
Non-interest bearing deposits $ 33,395 $ 30,561
Interest bearing deposits 397,629 379,942
-------------- -----------------
Total deposits 431,024 410,503
Short-term Borrowings -- 2,000
Long-term Debt 114,124 114,124
Other liabilities 2,481 2,282
-------------- -----------------
Total Liabilities 547,629 528,909
-------------- -----------------
STOCKHOLDERS' EQUITY
--------------------
Common stock, stated value $0.064; 10,000,000 shares authorized;
5,184,320 and 5,183,731 shares respectively, issued 331 331
Additional paid-in capital 46,867 46,864
Treasury stock, at cost, 536,195 and 533,680 shares,
respectively (8,705) (8,680)
Retained earnings 12,130 11,325
Accumulated other comprehensive loss (356) (125)
-------------- -----------------
Total stockholders' equity 50,267 49,715
-------------- -----------------
Total liabilities and stockholders' equity $ 597,896 $ 578,624
============== =================
See accompanying notes to consolidated financial statements.
1
BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the three months ended
March 31, 2009 and 2008
(Unaudited)
(in thousands except for per share data)
Three Months Ended
March 31,
---------------------
2009 2008
---------------------
Interest income:
Loans ............................................... $ 6,889 $ 6,645
Securities .......................................... 1,980 2,339
Other interest-earning assets ....................... 4 73
--------- ---------
Total interest income ............................ 8,873 9,057
--------- ---------
Interest expense:
Deposits:
Demand ........................................... 198 301
Savings and club ................................. 297 360
Certificates of deposit .......................... 2,221 2,441
--------- ---------
2,716 3,102
--------- ---------
Borrowed money ................................... 1,236 1,278
--------- ---------
Total interest expense ......................... 3,952 4,380
--------- ---------
Net interest income .................................... 4,921 4,677
Provision for loan losses .............................. 350 250
--------- ---------
Net interest income, after provision for loan losses ... 4,571 4,427
--------- ---------
Non-interest income:
Fees and service charges ............................ 130 158
Gain on sales of loans originated for sale .......... 42 80
Other ............................................... 9 10
--------- ---------
Total non-interest income ........................ 181 248
--------- ---------
Non-interest expense:
Salaries and employee benefits ...................... 1,323 1,375
Occupancy expense of premises ....................... 264 263
Equipment ........................................... 515 498
Advertising ......................................... 47 51
Other ............................................... 437 440
--------- ---------
Total non-interest expense ....................... 2,586 2,627
--------- ---------
Income before income tax provision ..................... 2,166 2,048
Income tax provision ................................... 803 744
--------- ---------
Net Income ............................................. $ 1,363 $ 1,304
========= =========
Net Income per common share-basic and diluted ..........
basic ...................................... $ 0.29 $ 0.28
========= =========
diluted .................................... $ 0.29 $ 0.28
========= =========
Weighted average number of common shares outstanding-
basic ...................................... 4,649 4,617
========= =========
diluted .................................... 4,678 4,721
========= =========
See accompanying notes to consolidated financial statements.
2
BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the three months ended March 31, 2009
(Unaudited)
(in thousands except for share data)
Accumulated
Other
Additional Treasury Retained Comprehensive
Common Stock Paid-In Capital Stock Earnings Loss Total
------------ --------------- --------- -------- ------------- --------
Balance, December 31, 2008 $ 331 $ 46,864 $ (8,680) $ 11,325 $ (125) $ 49,715
Exercise of Stock Options (589 shares) -- 3 -- -- -- 3
Treasury Stock Purchases (2,515 shares) -- -- (25) -- -- (25)
Cash dividend ($0.12 per share) declared -- -- -- (558) -- (558)
--------
Comprehensive Income:
Net income for the three months ended
March 31, 2009 -- -- -- 1,363 -- 1,363
Unrealized loss on securities,
available for sale, net of
deferred income tax of $152 -- -- -- -- (231) (231)
--------
Total Comprehensive income -- -- -- -- -- 1,161
------------ --------------- --------- -------- ------------- --------
Balance, March 31, 2009 $ 331 $ 46,867 $ (8,705) $ 12,130 $ (356) $ 50,267
------------ --------------- --------- -------- ------------- --------
See accompanying notes to consolidated financial statements.
3
BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended
March 31, 2009 and 2008
(Unaudited)
(in thousands)
Three Months Ended
March 31,
--------------------
2009 2008
--------------------
Cash flows from operating activities:
Net Income $ 1,363 $ 1,304
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 91 102
Accretion, net (115) (124)
Provision for loan losses 350 250
Deferred income tax (198) (77)
Loans originated for sale (3,603) (3,788)
Proceeds from sale of loans originated for sale 2,958 4,363
Gain on sale of loans originated for sale (42) (80)
Decrease in interest receivable 415 442
Decrease (increase) in other assets 312 (79)
Decrease in accrued interest payable (19) (51)
Increase (decrease) in other liabilities 218 (111)
-------- --------
Net cash provided by operating activities 1,730 2,151
-------- --------
Cash flows from investing activities:
Proceeds from calls of securities held to maturity 8,500 58,670
Purchases of securities held to maturity -- (42,858)
Proceeds from repayments on securities held to maturity 2,110 1,308
Proceeds from sale of real estate owned -- 287
Net decrease (increase) in loans receivable 5,495 (10,390)
Redemption of Federal Home Loan Bank of New York Stock 90 --
Additions to premises and equipment (22) --
Improvements to other real estate owned -- (36)
-------- --------
Net cash provided by investing activities 16,173 6,981
-------- --------
Cash flows from financing activities:
Net increase in deposits 20,521 2,546
Net change in short-term borrowings (2,000) --
Purchases of treasury stock (25) (793)
Cash dividend paid (558) (417)
Exercise of stock options 3 --
-------- --------
Net cash provided by financing activities 17,941 1,336
-------- --------
Net increase in cash and cash equivalents 35,844 10,468
Cash and cash equivalents-beginning 6,761 11,780
-------- --------
Cash and cash equivalents-ending $ 42,605 $ 22,248
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 35 $ 750
Interest $ 3,971 $ 4,431
Transfer of loan to real estate owned $ -- $ 1,194
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, 2009 are not necessarily indicative of the results to be expected for
the fiscal year ended December 31, 2009 or any other future interim period.
These unaudited consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements and related notes
for the year ended December 31, 2008, 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.
Note 3 - Fair Values of Financial Instruments
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("Statement") No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value measurements.
Statement No. 157 applies to other accounting pronouncements that require or
permit fair value measurements.
In December 2007, the FASB issued FSP FAS 157-2, "Effective Date of FASB
Statement No. 157". FSP FAS 157-2 delayed the effective date of Statement No.
157 for all non-financial assets and liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008 and interim periods within
5
those fiscal years. FSP FAS 157-2 was adopted for the Company's March 31, 2009
consolidated financial statements. The adoption of Statement FSP FAS 157-2 had
no impact on the amounts reported in the consolidated financial statements as of
and for the three months ended March 31, 2009.
Statement No. 157 establishes a fair value hierarchy that prioritizes the inputs
to valuation methods used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets and
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy
under Statement No. 157 are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or inputs that are
observable either directly or indirectly, for substantially the full term
of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable (i.e. supported
with little or no market activity).
An asset or liability's level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value measurement.
The only assets or liabilities that the Company measured at fair value on a
recurring basis were as follows (in thousands):
(Level 1) (Level 2)
Quoted Prices in Significant (Level 3)
Active Markets Other Significant
for Identical Observable Unobservable
Description Total Assets Inputs Inputs
--------------------------------------------------------------------------------------------
As of March 31, 2009:
Securities available for sale $ 505 $ 505 $ -- $ --
--------------------------------------------------------------------------------------------
As of December 31, 2008:
Securities available for sale $ 888 $ 888 $ -- $ --
--------------------------------------------------------------------------------------------
The fair value for the securities illustrated in the aforementioned table were
obtained through a primary broker/dealer from readily available price quotes.
6
The only assets or liabilities that the Company measured at fair value on a
nonrecurring basis were as follows (in thousands):
(Level 1) (Level 2)
Quoted Prices in Significant (Level 3)
Active Markets Other Significant
for Identical Observable Unobservable
Description Total Assets Inputs Inputs
--------------------------------------------------------------------------------------------
As of March 31, 2009:
Impaired loans $ 1,867 $ -- $ -- $ 1,867
--------------------------------------------------------------------------------------------
As of December 31, 2008:
Impaired Loans $ 2,847 $ -- $ -- $ 2,847
--------------------------------------------------------------------------------------------
Impaired loans are those that are accounted for under FASB Statement No. 114,
"Accounting by Creditors for Impairment of a Loan", in which the Company has
measured impairment generally based on the fair value of the loan's collateral.
Fair value is generally determined based upon independent third party appraisals
of the properties, or discounted cash flows based upon the expected proceeds.
These assets are included as Level 3 fair values, based upon the lowest level of
input that is significant to the fair value measurements. The fair value
consists of the loan balances of $2,265,000 and $3,728,000, net of a valuation
allowance of $398,000 and $881,000 at March 31, 2009 and December 31, 2008,
respectively.
New Accounting Pronouncements
In May 2008, the FASB issued Statement No. 162, "The Hierarchy of Generally
Accepted Accounting Principles." This Statement identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements. This statement is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles." The Company believes that this new
pronouncement will not have a material impact on its consolidated financial
statements.
In June 2008, the FASB issued Staff Position ("FSP") EITF 03-6-1, "Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities." This FSP clarifies that all outstanding unvested
share-based payment awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders. Awards of this
nature are considered participating securities and the two-class method of
computing basic and diluted earnings per share must be applied. This FSP is
effective for fiscal years beginning after December 15, 2008. The adoption of
EITF 03-6-1 did not have an impact on our consolidated financial statements.
In November 2008, the SEC released a proposed roadmap regarding the potential
use by U.S. insurers of financial statements prepared in accordance with
International Financial Reporting Standards ("IFRS"). IFRS is a comprehensive
series of accounting standards published by the International Accounting
Standards Board ("IASB"). Under the proposed roadmap, the Company
7
may be required to prepare financial statements in accordance with IFRS as early
as 2014. The SEC will make a determination in 2011 regarding the mandatory
adoption of IFRS. The Company is currently assessing the impact that this
potential change would have on its consolidated financial statements, and it
will continue to monitor the development of the potential implementation of
IFRS.
In November 2008, the FASB ratified Emerging Issues Task Force ("EITF") Issue
No. 08-6, "Equity Method Investment Accounting Considerations". EITF 08-6
clarifies the accounting for certain transactions and impairment considerations
involving equity method investments. EITF 08-6 is effective for fiscal years
beginning after December 15, 2008, with early adoption prohibited. The adoption
of EITF 08-6 did not have an impact on our consolidated financial statements.
In November 2008, the FASB ratified EITF Issue No. 08-7, "Accounting for
Defensive Intangible Assets". EITF 08-7 clarifies the accounting for certain
separately identifiable intangible assets which an acquirer does not intend to
actively use but intends to hold to prevent its competitors from obtaining
access to them. EITF 08-7 requires an acquirer in a business combination to
account for a defensive intangible asset as a separate unit of accounting which
should be amortized to expense over the period the asset diminishes in value.
EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with
early adoption prohibited. This new announcement will impact the Company's
accounting for any defensive intangible assets acquired in a business
combination completed beginning January 1, 2009.
In January 2009, the FASB issued FSP EITF 99-20-1, "Amendments to the Impairment
of Guidance of EITF Issue No. 99-20". FSP EITF 99-20-1 amends the impairment
guidance in EITF Issue No. 99-20, "Recognition of Interest Income and Impairment
on Purchased Beneficial Interests and Beneficial Interests That Continue to Be
Held by a Transferor in Securitized Financial Assets", to achieve more
consistent determination of whether an other-than-temporary impairment has
occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an
other-than-temporary impairment assessment and the related disclosure
requirements in SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", and other related guidance. FSP EITF 99-20-1 is effective
for interim and annual reporting periods ending after December 15, 2008, and
shall be applied prospectively. Retrospective application to a prior interim or
annual reporting period is not permitted. The adoption of EITF 99-20-1 did not
have a material impact on our consolidated financial statements.
In April 2009, the FASB issued Statement No. 157, FSP FAS 157-4, "Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly".
Statement No. 157, "Fair Value Measurements", defines fair value as the price
that would be received to sell the asset or transfer the liability in an orderly
transaction (that is, not a forced liquidation or distressed sale) between
market participants at the measurement date under current market conditions. FSP
FAS 157-4 provides additional guidance on determining when the volume and level
of activity for the asset or liability has significantly decreased. The FSP also
includes guidance on identifying circumstances when a transaction may not be
considered orderly. FSP FAS 157-4 provides a list of factors that a reporting
entity should evaluate to determine whether there has been a
8
significant decrease in the volume and level of activity for the asset or
liability in relation to normal market activity for the asset or liability. When
the reporting entity concludes there has been a significant decrease in the
volume and level of activity for the asset or liability, further analysis of the
information from that market is needed and significant adjustments to the
related prices may be necessary to estimate fair value in accordance with
Statement No. 157. This FSP clarifies that when there has been a significant
decrease in the volume and level of activity for the asset or liability, some
transactions may not be orderly. In those situations, the entity must evaluate
the weight of the evidence to determine whether the transaction is orderly. The
FSP provides a list of circumstances that may indicate that a transaction is not
orderly. A transaction price that is not associated with an orderly transaction
is given little, if any, weight when estimating fair value. This FSP is
effective for interim and annual reporting periods ending after June 15, 2009,
with early adoption permitted for periods ending after March 15, 2009. An entity
early adopting FSP FAS 157-4 must also early adopt FSP FAS 115-2 and FAS 124-2,
"Recognition and Presentation of Other-Than-Temporary Impairments". The Company
has not early adopted this pronouncement and does not believe the adoption of
this pronouncement will have an impact on its consolidated financial statements.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, "Recognition and
Presentation of Other-Than-Temporary Impairments". FSP FAS 115-2 and FAS 124-2
clarifies the interaction of the factors that should be considered when
determining whether a debt security is other-than-temporarily impaired. For debt
securities, management must assess whether (a) it has the intent to sell the
security and (b) it is more likely than not that it will be required to sell the
security prior to its anticipated recovery. These steps are done before
assessing whether the entity will recover the cost basis of the investment.
Previously, this assessment required management to assert it has both the intent
and ability to hold a security for a period of time sufficient to allow for an
anticipated recovery in fair value to avoid recognizing an other-than-temporary
impairment. This change does not affect the need to forecast recovery of the
value of the security through either cash flows or market price. In instances
when a determination is made that an other-than-temporary impairment exists but
the investor does not intend to sell the debt security and it is not more likely
than not that it will be required to sell debt security prior to its anticipated
recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation and amount of
other-than-temporary impairment recognized in the income statement. The
other-than-temporary impairment is separated into (a) the amount of the total
other-than-temporary impairment related to a decrease in cash flows expected to
be collected from the debt security (the credit loss) and (b) the amount of the
total other-than-temporary impairment related to all other factors. The amount
of the total other-than-temporary impairment related to the credit loss is
recognized in earnings. The amount of the total other-than-temporary impairment
related to all other factors is recognized in other comprehensive income. This
FSP is effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15, 2009. An
entity early adopting FSP FAS 115-2 and FAS 124-2 must early adopt FSP FAS
157-4, "Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly". The Company has not early adopted this pronouncement and
does not believe the adoption of this pronouncement will have an impact on its
consolidated financial statements.
9
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim Disclosures
about Fair Value of Financial Instruments". FSP FAS 107-1 and APB 28-1 amends
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments",
to require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements. This FSP also amends APB Opinion No. 28, "Interim Financial
Reporting", to require those disclosures in summarized financial information at
interim reporting periods. This FSP is effective for interim and annual
reporting periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. An entity early adopting FSP FAS 107-1 and
APB 28-1 must early adopt FSP FAS 157-4, "Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly", and FSP FAS 115-2 and FAS
124-2, "Recognition and Presentation of Other-Than-Temporary Impairments". The
Company has not early adopted this pronouncement and does not believe the
adoption of this pronouncement will have an impact on its consolidated financial
statements.
10
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
Total assets increased by $19.3 million or 3.3% to $597.9 million at March 31,
2009 from $578.6 million at December 31, 2008. 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's balance in interest earning assets increased
primarily as a result of an increase in cash and cash equivalents, partially
offset by a decrease in loans receivable and a decrease in investment securities
categorized as held-to-maturity. Asset growth stabilized as management is
concentrating on controlled balance sheet growth and maintaining adequate
liquidity in the anticipation of funding loans in the loan pipeline as well as
seeking opportunities in the secondary market that provide reasonable returns
absent the invocation of undue levels of various forms of risk. During the first
quarter, the composition of the Bank's assets has increased to cash and cash
equivalents reflecting management's desire to maintain higher than usual liquid
investments during the current recessionary and low interest rate period. This
decision reflects the lower return available to the Bank in the current
environment versus the risk of aggressive lending or investment activity during
the current economic downturn. 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 $35.8 million or 526.5% to $42.6
million at March 31, 2009 from $6.8 million at December 31, 2008. Investment
securities classified as held-to-maturity decreased by $10.6 million or 7.5% to
$130.7 million at March 31, 2009 from $141.3 million at December 31, 2008. This
decrease was primarily attributable to call options exercised on $8.5 million of
callable agency securities during the three months ended March 31, 2009 and $2.1
million in repayments and prepayments in the mortgage backed security portfolio.
These proceeds were allocated to cash and cash equivalents in an effort to
accumulate liquidity in anticipation of future loan closings or investment
security purchase opportunities.
Loans receivable decreased by $5.7 million or 1.4% to $401.1 million at March
31, 2009 from $406.8 million at December 31, 2008. The decrease resulted
primarily from a $5.5 million decrease in real estate mortgages comprising
residential, commercial, construction and participation loans with other
financial institutions, net of amortization, and a $771,000 decrease in consumer
loans, net of amortization, partially offset by a $1.7 million increase in
commercial loans comprising business loans and commercial lines of credit, net
of amortization and a $338,000 increase in the allowance for loan losses. The
balance in the loan pipeline as of March 31, 2009 stood at $13.0 million. At
March 31, 2009, the allowance for loan losses was $5.6 million or 205.46% of
non-performing loans.
11
Deposit liabilities increased by $20.5 million or 5.0% to $431.0 million at
March 31, 2009 from $410.5 million at December 31, 2008. The increase resulted
primarily from an increase of $15.6 million in time deposit accounts, a $2.8
million increase in transaction accounts, and a $2.1 million increase in savings
and club accounts. During the three months ended March 31, 2009, the Federal
Open Market Committee, (FOMC) has continued its philosophy of keeping short term
interest rates at historically low levels in an effort to lessen the recession
in the American economy. This has resulted in a steepening of the yield curve,
helping decrease short term time deposit account yields which in turn has had
the effect of decreasing interest expense.
The balance of borrowed money decreased by $2.0 million or 1.8% to $114.1
million at March 31, 2009 from $116.1 million at December 31, 2008. The decrease
resulted primarily from the repayment of an overnight line of credit at the
Federal Home Loan Bank of New York during the three months ended March 31, 2009
utilizing the increase in retail deposits to facilitate the borrowing reduction.
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 $552,000 or 1.1% to $50.3 million at March 31,
2009 from $49.7 million at December 31, 2008. The increase in stockholders'
equity is primarily attributable to net income of the Company for the three
months ended March 31, 2009 of $1.36 million, partially offset by the payment of
a quarterly cash dividend totaling $558,000 representing a $0.12/share payment
during the three months ended March 31, 2009, a $231,000 decrease in the market
value of our available-for-sale securities portfolio, net of tax, and $25,000
paid to repurchase 2,515 shares of common stock. At March 31, 2009 the Bank's
Tier 1, Tier 1 Risk-Based and Total Risk Based Capital Ratios were 9.37%, 13.49%
and 14.75% respectively.
Results of Operations
Net income increased by $59,000 or 4.5% to $1.36 million for the three months
ended March 31, 2009 from $1.30 million for the three months ended March 31,
2008. The increase in net income primarily reflects an increase in net interest
income and a decrease in non-interest expense, partially offset by a decrease in
non-interest income and increases in the provision for loan losses and income
taxes. Net interest income increased by $244,000 or 5.2% to $4.9 million for the
three months ended March 31, 2009 from $4.7 million for the three months ended
March 31, 2008. This increase resulted primarily from an increase in average
earning assets of $21.6 million or 3.9% to $571.6 million for the three months
ended March 31, 2009 from $550.0 million for the three months ended March 31,
2008, funded primarily through an increase in average interest bearing
liabilities of $24.4 million or 5.1% to $501.5 million for the three months
ended March 31, 2009 from $477.1 million for the three months ended March 31,
2008 and an increase in the net interest margin to 3.44% for the three months
ended March 31, 2009 from 3.40% for the three months ended March 31, 2008. Our
results have been positively
12
affected by the steepening yield curve over the past year as our cost of
interest bearing liabilities has decreased faster than our yield on interest
earning assets.
Interest income on loans receivable increased by $244,000 or 3.7% to $6.89
million for the three months ended March 31, 2009 from $6.65 million for the
three months ended March 31, 2008. The increase was primarily attributable to an
increase in the balance of average loans receivable of $36.4 million or 9.7% to
$410.3 million for the three months ended March 31, 2009 from $373.9 million for
the three months ended March 31, 2008, partially offset by a decrease in the
average yield on loans receivable to 6.72% for the three months ended March 31,
2009 from 7.08% for the three months ended March 31, 2008. 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 decrease in average yield reflects the competitive
pricing environment for attracting quality loan product in an increasingly
challenging lending landscape.
Interest income on securities held-to-maturity decreased by $359,000 or 15.4% to
$1.98 million for the three months ended March 31, 2009 from $2.34 million for
the three months ended March 31, 2008. The decrease was primarily attributable
to a decrease in the average balance of securities held-to-maturity of $21.1
million or 13.0% to $141.7 million for the three months ended March 31, 2009
from $162.8 million for the three months ended March 31, 2008, and a decrease in
the average yield on securities to 5.59% for the three months ended March 31,
2009 from 5.75% for the three months ended March 31, 2008. The decrease in
average balance was primarily attributable to call options exercised on a select
number of GSE investment securities. The decrease in the average yield reflects
the reduction in yield on the remaining investment portfolio subsequent to the
higher yielding securities having had their call options exercised by the
issuing Government agency.
Interest income on other interest-earning assets decreased by $69,000 or 94.5%
to $4,000 for the three months ended March 31, 2009 from $73,000 for the three
months ended March 31, 2008. The decrease was primarily due to a decrease in the
average yield on other interest-earning assets to 0.08% for the three months
ended March 31, 2009 from 2.56% for the three months ended March 31, 2008,
partially offset by an increase in the average balance of other interest earning
assets of $8.2 million or 71.9% to $19.6 million for the three months ended
March 31, 2009 from $11.4 million for the three months ended March 31, 2008. The
decrease in the average yield reflects the lower short-term interest rate
environment for overnight deposits in 2009 as compared to 2008. The increase in
the average balance primarily reflects management's philosophy to have greater
liquidity in anticipation of future loan closings or investment security
purchase opportunities as the current environment offers limited risk/reward
opportunities.
Total interest expense decreased by $428,000 or 9.8% to $3.95 million for the
three months ended March 31, 2009 from $4.38 million for the three months ended
March 31, 2008. The decrease resulted primarily from a decrease in the average
cost of interest bearing liabilities to 3.15% for the three months ended March
31, 2009 from 3.67% for the three months ended March 31, 2008, partially offset
by an increase in average interest
13
bearing liabilities of $24.4 million or 5.1% to $501.5 million for the three
months ended March 31, 2009 from $477.1 million for the three months ended March
31, 2008. The decrease in average yield reflects the continuing easing
philosophy adopted by the Federal Open Market Committee for the three months
ended March 31, 2009 and the ability of the Company to reduce pricing on a
select number of retail deposit products thereby reducing interest expense.
The provision for loan losses totaled $350,000 and $250,000 for the three month
periods ended March 31, 2009 and 2008, respectively. 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, 2009, the Bank experienced $13,000 in
net charge-offs (consisting of no recoveries and $13,000 in charge-offs). During
the three months ended March 31, 2008, the Bank experienced $57,000 in net
charge-offs (consisting of $33,000 in recoveries and $90,000 in charge-offs).
The Bank had non-performing loans totaling $2.7 million or 0.67% of gross loans
at March 31, 2009, $3.7 million or 0.90% of gross loans at December 31, 2008 and
$1.5 million or 0.41% of gross loans at March 31, 2008. The allowance for loan
losses stood at $5.6 million or 1.38% of gross loans at March 31, 2009, $5.3
million or 1.28% of gross loans at December 31, 2008 and $4.3 million or 1.13%
of gross loans at March 31, 2008. 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, 2009,
December 31, 2008 and March 31, 2008.
Total non-interest income decreased by $67,000 or 27.0% to $181,000 for the
three months ended March 31, 2009 from $248,000 for the three months ended March
31, 2008. The decrease in non-interest income resulted primarily from a $38,000
decrease in gains on sales of loans originated for sale to $42,000 for the three
months ended March 31, 2009 from $80,000 for the three months ended March 31,
2008 and a $29,000 decrease in general fees, service charges and other income to
$139,000 for the three months ended March 31, 2009 from $168,000 for the three
months ended March 31, 2008. The decrease in gain on sale of loans originated
for sale reflects the softening one- to four-family residential real estate
market during the three months ended March 31, 2009.
Total non-interest expense decreased by $41,000 or 1.6% to $2.59 million for the
three months ended March 31, 2009 from $2.63 million for the three months ended
March 31,
14
2008. Salaries and employee benefits expense decreased by $52,000 or 3.8% to
$1.32 million for the three months ended March 31, 2009 from $1.38 million for
the three months ended March 31, 2008. This decrease was primarily attributable
to a decrease in the number of full time equivalent employees to 82 for the
three months ended March 31, 2009, from 84 for the three months ended March 31,
2008, partially offset by salary increases in conjunction with annual reviews.
Equipment expense increased by $17,000 or 3.4% to $515,000 for the three months
ended March 31, 2009 from $498,000 for the three months ended March 31, 2008.
Occupancy expense increased marginally by $1,000 or 0.4% to $264,000 for the
three months ended March 31, 2009 from $263,000 for the three months ended March
31, 2008. Advertising expense decreased by $4,000 or 7.8% to $47,000 for the
three months ended March 31, 2009 from $51,000 for the three months ended March
31, 2008. Other non-interest expense decreased by $3,000 or 0.7% to $437,000 for
the three months ended March 31, 2009 from $440,000 for the three months ended
March 31, 2008. Other non-interest expense is comprised of directors' fees,
stationary, forms and printing, professional fees, legal fees, check printing,
correspondent bank fees, telephone and communication, shareholder relations and
other fees and expenses.
The income tax provision increased $59,000 or 7.9% to $803,000 for the three
months ended March 31, 2009 from $744,000 for the three months ended March 31,
2008 reflecting increased income earned during the three month time period ended
March 31, 2009. The consolidated effective income tax rate for the three months
ended March 31, 2009 was 37.1% as compared to 36.3% the three months ended March
31, 2008.
15
Item 3. Quantitative and Qualitative Disclosures About 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 December 31, 2008. 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 non-interest 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 100 to 300 basis points
has been excluded since it would not be meaningful, in the interest rate
environment as of December 31, 2008. The following sets forth the Company's NPV
as of 12/31/08.
NPV as a % of Assets
Change in Net Portfolio $ Change from % Change from --------------------
Calculation Value PAR PAR NPV Ratio Change
----------- ------------- ------------- ------------- --------- --------
+300bp $ 33,632 $ (34,528) -50.66% 6.21% -528 bps
+200bp 59,526 (8,634) -12.67 10.61 -88 bps
+100bp 70,348 2,188 3.21 12.07 58 bps
PAR 68,160 -- -- 11.49 --
-100bp -- -- -- -- --
-200bp -- -- -- -- --
-300bp -- -- -- -- --
bp - basis points
16
The table above indicates that at December 31, 2008, in the event of a 100 basis
point increase in interest rates, we would experience a 3.21% increase in NPV.
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurement. Modeling changes in NPV require 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.
17
ITEM 4T.
Controls and Procedures
Under the supervision and with the participation of the Company's management,
including the Chief Executive Officer, Chief Financial Officer and Principal
Accounting 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, Chief Financial Officer and Principal Accounting 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.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Provident Bank filed a Complaint on February 20, 2009, in the Superior Court
of New Jersey, Law Division, Hudson County, Docket No. HUD-L-947-09, against BCB
Community Bank seeking recovery of damages in the amount of $672,500.00.
Provident's claim is broken down as follows: (1) it alleges that BCB breached
its obligations under the Uniform Commercial Code, as codified in New Jersey, by
failing to return at least seven checks drawn upon BCB, totaling $384,500.00,
before the expiration of its midnight deadline, as allegedly required by the
Uniform Commercial Code; and, (2) BCB failed to honor at least four cashier's
checks that it issued in the aggregate amount of $288,000.00.
BCB has filed an Answer to Provident's Complaint denying the allegations. BCB
has also filed and served an Amended Third-Party Complaint against Mr. Steven
DeMaio, Bayonne Community Group, LLC, Mel-Eri Associates, Inc., Direct Leasing,
Inc. and Szklarski Development Corporation, seeking the appropriate
contribution, identification and damages from those third-party defendants for
any potential damages Provident obtains against BCB. Those third-party
defendants have recently been served with the Amended Third -Party Complaint.
BCB has put its liability insurance carrier on notice of this claim. The carrier
has acknowledged the claim, and authorized BCB to proceed under its policy to
defend Provident's Complaint.
BCB and Provident are presently exchanging discovery demands and materials. The
time within which the third-party defendants have to answer BCB's Amended
Third-Party Complaint has not yet expired. None of the third-party defendants
have yet served an Answer to BCB's Complaint.
ITEM 1.A. RISK FACTORS
In addition to the risk factors set forth in our 2008 Annual Report on Form
10-K, set forth below are additional factors for our investors to consider.
If Economic Conditions Deteriorate in our Primary Market, Our Results of
Operations and Financial Condition could be Adversely Impacted as Borrowers'
Ability to Repay Loans Declines and the Value of the Collateral Securing Loans
Decreases.
Our financial results may be adversely affected by changes in prevailing
economic conditions, including decreases in real estate values, changes in
interest rates which may cause a decrease in interest rate spreads, adverse
employment conditions, the monetary and fiscal policies of the federal
government and other significant external events.
19
Decreases in real estate values could potentially adversely affect the value of
property used as collateral for our mortgage loans. In the event that we are
required to foreclose on a property securing a mortgage loan, there can be no
assurance that we will recover funds in an amount equal to any remaining loan
balance as a result of prevailing general economic conditions, real estate
values and other factors associated with the ownership of real property. As a
result, the market value of the real estate underlying the loans may not, at any
given time, be sufficient to satisfy the outstanding principal amount of the
loans. Consequently, we would sustain loan losses and potentially incur a higher
provision for loan loss expense. Adverse changes in the economy may also have a
negative effect of the ability of borrowers to make timely repayments of their
loans, which could have an adverse impact on earnings.
Our Securities Portfolio may be Negatively Impacted by Fluctuations in Market
Value.
Our securities portfolio may be impacted by fluctuations in market value,
potentially reducing accumulated other comprehensive income and/or earnings.
Fluctuations in market value may be caused by decreases in interest rates, lower
market prices for securities and lower investor demand. Our securities portfolio
is evaluated for other-than-temporary impairment on at least a quarterly basis.
If this evaluation shows an impairment to cash flow connected with one or more
securities, a potential loss to earnings may occur.
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
Other than as stated below, the Company has not sold any securities during the
past three years.
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.
20
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. 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. On November 20, 2007, the
Company announced a third stock repurchase plan to repurchase 5% or 234,002
shares of the Company's common stock. This plan commenced upon the completion of
the prior plan. The Company's stock purchases for the three months ended March
31, 2009 are as follows:
Shares Average Total Number of Maximum Number of Shares
Period Purchased Price Shares Purchased That May Yet be Purchased
-------- --------- ------- ---------------- -------------------------
1/1-1/31 250 $ 10.40 250 136,248
2/1-2/28 1,697 $ 10.08 1,947 134,551
3/1-3/31 568 $ 9.50 2,515 133,983
Total 2,515 $ 9.98 2,515 133,983
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.
21