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 June 30, 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 (IRS Employer I.D. No.)
incorporation 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 August 5, 2009, BCB
Bancorp, Inc., had 4,659,475 shares of common stock, no par value, outstanding.
BCB BANCORP INC., AND SUBSIDIARIES
INDEX
PART I. CONSOLIDATED FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 2009 and December 31, 2008 (unaudited).......................1
Consolidated Statements of Income for the three and six months
ended June 30, 2009 and June 30, 2008 (unaudited).....................2
Consolidated Statement of Changes in Stockholders' Equity
for the six months ended June 30, 2009 (unaudited)....................3
Consolidated Statements of Cash Flow for the six months
ended June 30, 2009 and June 30, 2008 (unaudited).....................4
Notes to Unaudited Consolidated Financial Statements..................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk...23
Item 4T. Controls and Procedures.....................................25
PART II. OTHER INFORMATION....................................................26
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
June 30, 2009 and December 31, 2008
(Unaudited)
(in thousands except for share data )
At At
June 30, 2009 December 31, 2008
------------- -----------------
ASSETS
------
Cash and amounts due from depository institutions $ 3,741 $ 3,495
Interest-earning deposits 67,530 3,266
--------------- --------------
Total cash and cash equivalents 71,271 6,761
--------------- --------------
Securities available for sale 908 888
Securities held to maturity, fair value $116,692 and $143,245
respectively 115,419 141,280
Loans held for sale 3,379 1,422
Loans receivable, net of allowance for loan losses of $5,938 and
$5,304 respectively 405,268 406,826
Premises and equipment 5,479 5,627
Federal Home Loan Bank of New York stock 5,715 5,736
Interest receivable 3,004 3,884
Other real estate owned 1,335 1,435
Deferred income taxes 3,421 3,113
Other assets 2,421 1,652
--------------- --------------
Total assets $ 617,620 $ 578,624
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
-----------
Non-interest bearing deposits $ 32,314 $ 30,561
Interest bearing deposits 418,261 379,942
--------------- --------------
Total deposits 450,575 410,503
Short-term Borrowings -- 2,000
Long-term Debt 114,124 114,124
Other Liabilities 2,168 2,282
--------------- --------------
Total Liabilities 566,867 528,909
--------------- --------------
STOCKHOLDERS' EQUITY
--------------------
Common stock, stated value $0.064; 10,000,000 shares authorized;
5,195,664 and 5,183,731 shares respectively, issued 332 331
Additional paid-in capital 46,926 46,864
Treasury stock, at cost, 536,189 and 533,680 shares,
respectively (8,705) (8,680)
Retained Earnings 12,313 11,325
Accumulated other comprehensive loss (113) (125)
--------------- --------------
Total stockholders' equity 50,753 49,715
--------------- --------------
Total liabilities and stockholders' equity $ 617,620 $ 578,624
=============== ==============
See accompanying notes to consolidated financial statements.
1
BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the three and six months ended
June 30, 2009 and 2008
(Unaudited)
(in thousands except for per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2009 2008 2009 2008
------------------- -------------------
Interest income:
Loans ............................................. $ 6,827 $ 6,623 $ 13,716 $ 13,268
Securities ........................................ 1,392 2,281 3,372 4,620
Other interest-earning assets ..................... 19 108 23 181
-------- -------- -------- --------
Total interest income .......................... 8,238 9,012 17,111 18,069
-------- -------- -------- --------
Interest expense:
Deposits:
Demand ......................................... 205 241 403 542
Savings and club ............................... 279 339 576 699
Certificates of deposit ........................ 2,176 2,300 4,397 4,741
-------- -------- -------- --------
2,660 2,880 5,376 5,982
-------- -------- -------- --------
Borrowed money ................................. 1,242 1,262 2,478 2,540
-------- -------- -------- --------
Total interest expense ....................... 3,902 4,142 7,854 8,522
-------- -------- -------- --------
Net interest income ................................. 4,336 4,870 9,257 9,547
Provision for loan losses ........................... 300 300 650 550
-------- -------- -------- --------
Net interest income after provision for loan losses . 4,036 4,570 8,607 8,997
-------- -------- -------- --------
Non-interest income:
Fees and service charges ......................... 144 147 274 305
Gain on sales of loans originated for sale ....... 86 20 128 100
Gain on sale of real estate owned ................ 5 -- 5 --
Other ............................................ 7 6 16 16
-------- -------- -------- --------
Total non-interest income ..................... 242 173 423 421
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits ................... 1,306 1,378 2,629 2,753
Occupancy expense of premises .................... 282 262 546 525
Equipment ........................................ 526 504 1,041 1,002
Advertising ...................................... 72 71 119 122
Other ............................................ 844 524 1,281 964
-------- -------- -------- --------
Total non-interest expense .................... 3,030 2,739 5,616 5,366
-------- -------- -------- --------
Income before income tax provision .................. 1,248 2,004 3,414 4,052
Income tax provision ................................ 506 728 1,309 1,472
-------- -------- -------- --------
Net Income .......................................... $ 742 $ 1,276 $ 2,105 $ 2,580
======== ======== ======== ========
Net Income per common share-basic and diluted
basic .................................... $ 0.16 $ 0.28 $ 0.45 $ 0.56
======== ======== ======== ========
diluted .................................. $ 0.16 $ 0.27 $ 0.45 $ 0.55
======== ======== ======== ========
Weighted average number of common shares outstanding-
basic .................................... 4,653 4,604 4,651 4,610
======== ======== ======== ========
diluted .................................. 4,676 4,691 4,677 4,705
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
2
BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the six months ended June 30, 2009
(Unaudited)
(in thousands except for share and per 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 (11,933 shares) 1 62 -- -- -- 63
Treasury Stock Purchases (2,509 shares) -- -- (25) -- -- (25)
Cash dividends ($0.24 per share) declared -- -- -- (1,117) -- (1,117)
------------
Comprehensive Income:
Net income for the six months ended
June 30, 2009 -- -- -- 2,105 -- 2,105
Unrealized gain on securities,
available for sale, net of
deferred income tax of $8 -- -- -- -- 12 12
------------
Total Comprehensive income -- -- -- -- -- 2,117
------------ ------------ ---------- ---------- ------------ ------------
Balance, June 30, 2009 $ 332 $ 46,926 $ (8,705) $ 12,313 $ (113) $ 50,753
============ ============ ========== ========== ============ ============
See accompanying notes to consolidated financial statements.
3
BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended
June 30, 2009 and 2008
(Unaudited)
(in thousands)
Six Months Ended
June 30,
------------------------
2009 2008
------------------------
Cash flows from operating activities :
Net Income ................................................................. $ 2,105 $ 2,580
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation ......................................................... 179 206
Amortization and accretion, net ...................................... (86) (364)
Provision for loan losses ............................................ 650 550
Deferred income tax .................................................. (316) (164)
Loans originated for sale ............................................ (10,726) (4,653)
Proceeds from sale of loans originated for sale ...................... 8,897 5,334
Gain on sale of loans originated for sale ............................ (128) (100)
Gain on sale of real estate owned .................................... (5) --
Decrease in interest receivable ...................................... 880 62
(Increase) in other assets ........................................... (769) (11)
Decrease in accrued interest payable ................................. (71) (98)
Increase (Decrease) in other liabilities ............................. (43) 90
---------- ----------
Net cash provided by operating activities ..................... 567 3,432
---------- ----------
Cash flows from investing activities:
Redemption (Purchase) of FHLB stock ..................................... 21 (86)
Proceeds from calls of securities held to maturity ...................... 98,455 68,870
Purchases of securities held to maturity ................................ (77,912) (58,606)
Proceeds from repayments on securities held to maturity ................. 5,199 3,019
Purchases of securities available for sale .............................. -- (2,000)
Proceeds from sale of real estate owned ................................. 228 287
Net decrease (increase) in loans receivable ............................. 1,042 (29,359)
Improvements to other real estate owned ................................. (52) (151)
Additions to premises and equipment ..................................... (31) (43)
---------- ----------
Net cash provided by (used in) investing activities .............. 26,950 (18,069)
---------- ----------
Cash flows from financing activities:
Net increase in deposits ................................................ 40,072 13,932
Repayment of short-term borrowings ...................................... (2,000) --
Purchases of treasury stock ............................................. (25) (1,009)
Cash dividends paid ..................................................... (1,117) (875)
Exercise of stock options ............................................... 63 622
---------- ----------
Net cash provided by financing activities ........................ 36,993 12,670
---------- ----------
Net increase (decrease) in cash and cash equivalents .......................... 64,510 (1,967)
Cash and cash equivalents-begininng ........................................... 6,761 11,780
---------- ----------
Cash and cash equivalents-ending .............................................. $ 71,271 $ 9,813
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes ......................................................... $ 2,483 $ 1,754
Interest ............................................................. $ 7,925 $ 8,620
Transfer of loans to other real estate owned ........................... $ 71 $ 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 and six months
ended June 30, 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.
Effective April 1, 2009, BCB Bancorp, Inc., adopted Statement of Financial
Accounting Standards ("Statement") No. 165, "Subsequent Events". Statement No.
165 establishes general standards for accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued. Statement No. 165 sets forth the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition in the financial
statements, identifies the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements, and the disclosures that should be made about events or transactions
that occur after the balance sheet date. In preparing these consolidated
financial statements, BCB Bancorp, Inc., evaluated the events that occurred
between June 30, 2009 through August 5, 2009, the date these consolidated
financial statements were issued.
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.
5
Note 3 - Securities Available for Sale
June 30, 2009
---------------------------------------------------------
Gross Gross
Unrealized Unrealized
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
(In Thousands)
Equity securities $ 1,097 $ -- $ 189 $ 908
============ ============ ============ ============
The age of unrealized losses and fair value of related securities available for
sale were as follows:
Less than 12 Months More than 12 Months Total
--------------------------- --------------------------- ---------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
------------ ------------ ------------ ------------ ------------ ------------
(In Thousands)
June 30, 2009
Preferred Stock $ -- $ -- $ 811 $ 189 $ 811 $ 189
============ ============ ============ ============ ============ ============
Management does not believe that any of the unrealized losses at June 30, 2009,
represent an other-than-temporary impairment as they are primarily related to
market interest rates and not related to the underlying credit quality of the
issuers of the securities. Additionally, the Company has the ability, and
management has the intent, to hold such securities for the time necessary to
recover cost and does not have the intent to sell the securities, and it is more
likely than not that it will not have to sell the securities before recovery of
their cost.
6
Note 4 - Securities Held to Maturity
June 30, 2009
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
(In Thousands)
U.S. Government Agencies:
Due after one through five years $ 3,315 $ 277 $ -- $ 3,592
Due after ten years 73,914 56 394 73,576
------------ ------------ ------------ ------------
77,229 333 394 77,168
------------ ------------ ------------ ------------
Mortgage-backed securities:
Due within one year $ 707 $ 4 $ -- $ 711
Due after one year through five years 63 2 -- 65
Due after five years through ten years 6,266 291 -- 6,557
Due after ten years 31,154 1,037 -- 32,191
------------ ------------ ------------ ------------
38,190 1,334 -- 39,524
------------ ------------ ------------ ------------
$ 115,419 $ 1,667 $ 394 $ 116,692
============ ============ ============ ============
The amortized cost and carrying values shown above are by contractual final
maturity. Actual maturities will differ from contractual final maturities due to
scheduled monthly payments related to mortgage-backed securities and due to the
borrowers having the right to prepay obligations with or without prepayment
penalties.
There were no sales of securities during the six months ended June 30, 2009.
The age of unrealized losses and fair value of related securities held to
maturity were as follows:
Less than 12 Months More than 12 Months Total
--------------------------- --------------------------- ---------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
------------ ------------ ------------ ------------ ------------ ------------
(In Thousands)
December 31, 2008
U.S. Government
Agencies $ 31,756 $ 359 $ 5,265 $ 35 $ 37,021 $ 394
------------ ------------ ------------ ------------ ------------ ------------
$ 31,756 $ 359 $ 5,265 $ 35 $ 37,021 $ 394
============ ============ ============ ============ ============ ============
Management does not believe that any of the unrealized losses at June 30, 2009,
(which are related to 21 U.S. Government Agency bonds) represent an
other-than-temporary impairment as they are primarily related to market interest
rates and not related to the underlying credit quality of the issuers of the
securities. Additionally, the Company has the ability, and management has the
7
intent, to hold such securities for the time necessary to recover cost and does
not have the intent to sell the securities, and it is more likely than not that
it will not have to sell the securities before recovery of their cost.
Note 5 - Fair Values of Financial Instruments
In September 2006, the Financial Accounting Standards Board ("FASB") issued
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
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.
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 June 30, 2009:
Securities available for sale $ 908 $ 908 $ -- $ --
-------------------------------------------------------------------------------------------
As of December 31, 2008:
Securities available for sale $ 888 $ 888 $ -- $ --
-------------------------------------------------------------------------------------------
8
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 June 30, 2009:
Impaired loans $ 3,651 $ -- $ -- $ 3,651
-------------------------------------------------------------------------------------------
Real Estate Owned $ 71 $ -- $ -- $ 71
As of December 31, 2008:
Impaired Loans $ 2,847 $ -- $ -- $ 2,847
-------------------------------------------------------------------------------------------
The following information should not be interpreted as an estimate of the fair
value of the entire Company since a fair value calculation is only provided for
a limited portion of the Company's assets and liabilities. Due to a wide range
of valuation techniques and the degree of subjectivity used in making the
estimates, comparisons between the Company's disclosures and those of other
companies may not be meaningful. The following methods and assumptions were used
to estimate the fair values of the Company's financial instruments at June 30,
2009 and December 31, 2008.
Cash and Cash Equivalents (Carried at Cost)
The carrying amounts reported in the balance sheet for cash and short-term
instruments approximate those assets' fair values.
Securities
The fair value of securities available for sale (carried at fair value) and
held to maturity (carried at amortized cost) are determined by obtaining
quoted market prices on nationally recognized securities exchanges (Level
1), or matrix pricing (Level 2), which is a mathematical technique used
widely in the industry to value debt securities without relying exclusively
on quoted market prices for the specific securities but rather by relying
on the securities' relationship to other benchmark quoted prices. For
certain securities which are not traded in active markets or are subject to
transfer restrictions, valuations are adjusted to reflect illiquidity
and/or non-transferability, and such adjustments are generally based on
available market evidence (Level 3). In the absence of such evidence,
management's best estimate is used. Management's best estimate consists of
both internal and external support on certain Level 3 investments. Internal
cash flow models using a present value formula that inludes assumptions
market participants would use along with indicative exit pricing obtained
from broker/dealers (where available) were used to support fair values of
certain Level 3 investments.
9
Loans Held for Sale (Carried at Lower of Cost or Fair Value)
The fair value of loans held for sale is determined, when possible, using
quoted secondary-market prices. If no such quoted prices exist, the fair
value of a loan is determined using quoted prices for a similar loan or
loans, adjusted for specific attributes of that loan. Loans held for sale
are carried at their cost.
Loans Receivable (Carried at Cost)
The fair values of loans are estimated using discounted cash flow analyses,
using market rates at the balance sheet date that reflect the credit and
interest rate-risk inherent in the loans. Projected future cash flows are
calculated based upon contractual maturity or call dates, projected
repayments and prepayments of principal. Generally, for variable rate loans
that reprice frequently and with no significant change in credit risk, fair
values are based on carrying values.
Impaired Loans (Generally Carried at Fair Value)
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 $4,322,000 and $3,728,000, net of a valuation allowance of $671,000 and
$881,000 at June 30, 2009 and December 31, 2008, respectively.
Real Estate Owned (Generally Carried at Fair Value)
Real Estate Owned is generally carried at fair value, whose value is
determined based upon independent third-party appraisals of the properties,
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.
FHLB of New York Stock (Carried at Cost)
The carrying amount of restricted investment in bank stock approximates
fair value, and considers the limited marketability of such securities.
Interest Receivable and Payable (Carried at Cost)
The carrying amount of interest receivable and interest payable
approximates its fair value.
Deposits (Carried at Cost)
The fair values disclosed for demand deposits (e.g., interest and
non-interest checking, passbook savings and money market accounts) are, by
definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered in the market on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
10
Short-Term Borrowings (Carried at Cost)
The carrying amounts of short-term borrowings approximate their fair
values.
Long-Term Debt (Carried at Cost)
Fair values of long-term debt are estimated using discounted cash flow
analysis, based on quoted prices for new long-term debt with similar credit
risk characteristics, terms and remaining maturity. These prices obtained
from this active market represent a market value that is deemed to
represent the transfer price if the liability were assumed by a third
party.
Off-Balance Sheet Financial Instruments (Disclosed at Cost)
Fair values for the Bank's off-balance sheet financial instruments (lending
commitments and unused lines of credit) are based on fees currently charged
in the market to enter into similar agreements, taking into account, the
remaining terms of the agreements and the counterparties' credit standing.
The fair value of these commitments was deemed immaterial and is not
presented in the accompanying table.
The carrying values and estimated fair values of financial instruments were as
follows at June 30, 2009:
June 30, 2009
Carrying Fair
Value Value
(In Thousands)
Financial assets:
Cash and cash equivalents $ 71,271 $ 71,271
Securities available for sale 908 908
Securities held to maturity 115,419 116,692
Loans held for sale 3,379 3,379
Loans receivable 405,268 418,630
FHLB of New York stock 5,715 5,715
Interest receivable 3,004 3,004
Financial liabilities:
Deposits 450,575 454,147
Long-term debt 114,124 134,441
Interest payable 896 896
Note 6 - Acquisition
On June 30, 2009, BCB Bancorp, Inc., the holding company of BCB Community Bank
and Pamrapo Bancorp, the holding company for Pamrapo, announced the execution of
an agreement and plan of merger under which Pamrapo will merge with BCB
Community Bank. The merger is expected to be completed by the end of 2009,
pending regulatory and shareholder approval.
11
New Accounting Pronouncements
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 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 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 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 adoption
12
of Statement No. 157, FSP FAS 157-4 did not have an impact on our 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 adoption of FSP FAS 115-2 and FAS 124-2 did not have
an impact on our consolidated financial statements.
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
adoption of FSP FAS 107-1 and APB 28-1 did not have an impact on our
consolidated financial statements.
13
In June 2009, the FASB issued Statement No. 166, "Accounting for transfers of
Financial Assets, an amendment of FASB Statement No. 140". This statement
prescribes the information that a reporting entity must provide in its financial
reports about a transfer of financial assets; the effects of a transfer on its
financial position, financial performance and cash flows; and a transferor's
continuing involvement in transferred financial assets. Specifically, among
other aspects, Statement No. 166 amends Statement No. 140, "Accounting for
transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
by removing the concept of a qualifying special-purpose entity from Statement
No. 140 and removes the exception from applying FIN 46(R) to variable interest
entities that are qualifying special-purpose entities. It also modifies the
financial-components approach used in Statement No. 140. Statement No. 166 is
effective for fiscal years beginning after November 15, 2009. We have not
determined the effect that the adoption of Statement No. 166 will have on our
financial position or results of operations.
In June 2009, the FASB issued Statement No. No. 167, "Amendments to FASB
Interpretation No. 46(R)". This statement amends FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (revised December 2003) - an
interpretation of ARB No. 51, or FIN 46(R), to require an enterprise to
determine whether it's variable interest or interests give it a controlling
financial interest in a variable interest entity. The primary beneficiary of a
variable interest entity is the enterprise that has both (1) the power to direct
the activities of a variable interest entity that most significantly impact the
entity's economic performance and (2) the obligation to absorb losses of the
entity that could potentially be significant to the variable interest entity or
the right to receive benefits from the entity that could potentially be
significant to the variable interest entity. Statement No. 167 also amends FIN
46(R) to require ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity. Statement No. 167 is effective for
fiscal years beginning after November 15, 2009. We have not determined the
effect that the adoption of Statement No. 167 will have on our financial
position or results of operations.
In June 2009, the FASB issued Statement No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles", a
replacement of FASB Statement No. 162. Statement No. 168 replaces Statement No.
162, "The Hierarchy of Generally Accepted Accounting Principles", to establish
the FASB Accounting Standards Codification as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in preparation of financial statements in conformity with generally
accepted accounting principles in the United States. Statement No. 168 is
effective for interim and annual periods ending after September 15, 2009. We do
not expect the adoption of this standard to have an impact on our financial
position or results of operations.
14
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
Total assets increased by $39.0 million or 6.7% to $617.6 million at June 30,
2009 from $578.6 million at December 31, 2008. The Bank's asset growth has been
funded primarily through cash flow provided by retail deposit growth, and
repayments and prepayments of loans and mortgage backed securities. During the
first half of 2009, 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 was moderate 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.
During the first half of 2009, the composition of the Bank's assets has
emphasized 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 $64.5 million or 948.5% to $71.3
million at June 30, 2009 from $6.8 million at December 31, 2008. Investment
securities classified as held-to-maturity decreased by $25.9 million or 18.3% to
$115.4 million at June 30, 2009 from $141.3 million at December 31, 2008. This
decrease was primarily attributable to call options exercised on $98.5 million
of callable agency securities during the six months ended June 30, 2009 and $5.2
million in repayments and prepayments in the mortgage backed security portfolio,
partially offset by investment security purchases totaling $77.9 million during
the six months ended June 30, 2009. The excess proceeds were allocated to cash
and cash equivalents in an effort to accumulate liquidity in the anticipation of
future loan closings or investment security purchase opportunities.
Loans receivable decreased by $1.5 million or 0.4% to $405.3 million at June 30,
2009 from $406.8 million at December 31, 2008. The decrease resulted primarily
from a $7.8 million decrease in real estate mortgages comprising residential,
commercial, construction and participation loans with other financial
institutions, net of amortization, and a $2.1 million decrease in consumer
loans, net of amortization, partially offset by a $9.0 million increase in
commercial loans comprising business loans and commercial lines of credit, net
of amortization and a $634,000 increase in the allowance for loan losses. The
balance in the loan pipeline as of June 30, 2009 stood at $21.5 million. At June
30, 2009, the allowance for loan losses was $5.9 million or 119.31% of
non-performing loans.
15
Deposit liabilities increased by $40.1 million or 9.8% to $450.6 million at June
30, 2009 from $410.5 million at December 31, 2008. The increase resulted
primarily from an increase of $20.1 million in time deposit accounts, a $16.3
million increase in transaction accounts, and a $3.7 million increase in savings
and club accounts. During the six months ended June 30, 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,
resulting in lower 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 1.7% to $114.1
million at June 30, 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 six months ended June 30, 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 $1.1 million or 2.2% to $50.8 million at June
30, 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 six months
ended June 30, 2009 of $2.1 million, a $63,000 increase resulting from the
exercise of stock options totaling 11,933 shares and a $12,000 increase in the
market value of our available-for-sale securities portfolio, net of tax,
partially offset by the payment of two quarterly cash dividends totaling $1.1
million representing two $0.12/share payments during the six months ended June
30, 2009, and $25,000 paid to repurchase 2,509 shares of the Company's common
stock. At June 30, 2009 the Bank's Tier 1, Tier 1 Risk-Based and Total Risk
Based Capital Ratios were 8.88%, 13.04% and 14.30% respectively.
Results of Operations
Three Months
Net income decreased by $534,000 or 41.8% to $742,000 for the three months ended
June 30, 2009 from $1.28 million for the three months ended June 30, 2008. The
decrease in net income was due to a decrease in net interest income and an
increase in total non-interest expense, partially offset by an increase in total
non-interest income and a decrease in income taxes. Net interest income
decreased by $534,000 or 11.0% to $4.34 million for the three months ended June
30, 2009 from $4.87 million for the three months ended June 30, 2008. This
decrease in net interest income resulted primarily from a decrease in the
average yield on interest earning assets to 5.50% for the three months ended
June 30, 2009 from 6.41% for the three months ended June 30, 2008, partially
offset by an increase of $36.9 million or 6.6% in the average balance of
interest earning assets to $599.5 million for the three months ended June 30,
2009 from $562.6 million for the three months ended June 30, 2008. The average
16
balance of interest bearing liabilities increased by $37.3 million or 7.6% to
$525.5 million for the three months ended June 30, 2009 from $488.2 million for
the three months ended June 30, 2008 and the average cost of interest bearing
liabilities decreased by forty-two basis points to 2.97% for the three months
ended June 30, 2009 from 3.39% for the three months ended June 30, 2008. As a
consequence of the aforementioned, our net interest margin decreased to 2.89%
for the three months ended June 30, 2009 from 3.46% for the three months ended
June 30, 2008.
Interest income on loans receivable increased by $204,000 or 3.1% to $6.8
million for the three months ended June 30, 2009 from $6.6 million for the three
months ended June 30, 2008. The increase was primarily attributable to an
increase in the average balance of loans receivable of $25.7 million or 6.7% to
$411.2 million for the three months ended June 30, 2009 from $385.5 million for
the three months ended June 30, 2008, partially offset by a decrease in the
average yield on loans receivable to 6.64% for the three months ended June 30,
2009 from 6.87% for the three months ended June 30, 2008. The increase in
average loans reflects management's philosophy to deploy funds in higher
yielding instruments, specifically commercial real estate loans, in an effort to
achieve higher returns. The decrease in average yield reflects the competitive
price environment prevalent in the Bank's primary market area on loan facilities
as well as the repricing downward of certain rates on loan facilities tied to
variable indices, consistent with the decrease in the prime lending rate through
the reduction in rates forwarded by the FOMC's philosophy of easing market
rates.
Interest income on securities decreased by $889,000 or 39.0% to $1.39 million
for the three months ended June 30, 2009 from $2.28 million for the three months
ended June 30, 2008. This decrease was primarily due to a decrease in the
average balance of securities held-to-maturity of $47.7 million or 30.2% to
$110.2 million for the three months ended June 30, 2009 from $157.9 million for
the three months ended June 30, 2008, and a decrease in the average yield on
securities held-to-maturity to 5.05% for the three months ended June 30, 2009
from 5.78% for the three months ended June 30, 2008. The decrease in the average
balance reflects the level of call options exercised by their issuing agency on
certain investment securities previously discussed. The decrease in the average
yield reflects the lower long term interest rate environment during the three
months ended June 30, 2009.
Interest income on other interest-earning assets decreased by $89,000 or 82.4%
to $19,000 for the three months ended June 30, 2009 from $108,000 for the three
months ended June 30, 2008. This decrease was primarily due to a decrease in the
average yield on other interest-earning assets to 0.10% for the three months
ended June 30, 2009 from 2.24% for the three months ended June 30, 2008
partially offset by a $58.7 million or 304.1% increase in the average balance of
other interest-earning assets to $78.0 million for the three months ended June
30, 2009 from $19.3 million for the three months ended June 30, 2008. The
decrease in the average yield reflects the lower short-term interest rate
environment for overnight deposits during the three months ended June 30, 2009
as compared to the three months ended June 30, 2008. The increase in the average
17
balance primarily reflects management's philosophy to accumulate liquidity in
the anticipation of future loan closings or investment security purchase
opportunities.
Total interest expense decreased by $240,000 or 5.8% to $3.90 million for the
three months ended June 30, 2009 from $4.14 million for the three months ended
June 30, 2008. The decrease resulted primarily from a decrease in the average
cost of interest bearing liabilities to 2.97% for the three months ended June
30, 2009 from 3.39% for the three months ended June 30, 2008, partially offset
by an increase in the balance of average interest bearing liabilities of $37.3
million or 7.6% to $525.5 million for the three months ended June 30, 2009 from
$488.2 million for the three months ended June 30, 2008. The decrease in the
average cost reflects the Company's reaction to the lower short term interest
rate environment and our ability to reduce our pricing on a select number of
retail deposit products.
The provision for loan losses totaled $300,000 for the three months ended June
30, 2009 as well as for the three months ended June 30, 2008. 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) significant level of loan growth and
(5) the existing level of reserves for loan losses that are probable and
estimable. During the three months ended June 30, 2009, the Bank experienced
$4,000 in net charge-offs, (consisting of $4,000 in charge-offs and no
recoveries). During the three months ended June 30, 2008, the Bank experienced
$4,000 in net recoveries, (consisting of $7,000 in recoveries and $3,000 in
charge-offs). The Bank had non-performing loans totaling $5.0 million or 1.20%
of gross loans at June 30, 2009, $2.7 million or 0.67% of gross loans at March
31, 2009 and $282,000 or 0.07% of gross loans at June 30, 2008. The allowance
for loan losses was $5.9 million or 1.43% of gross loans at June 30, 2009, $5.6
million or 1.38% of gross loans at March 31, 2009 and $4.6 million or 1.15% of
gross loans at June 30, 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 June 30, 2009, March
31, 2009 and June 30, 2008.
Total non-interest income increased by $69,000 or 39.9% to $242,000 for the
three months ended June 30, 2009 from $173,000 for the three months ended June
30, 2008. The increase in non-interest income resulted primarily from a $66,000
increase in gain on sales of loans originated for sale to $86,000 for the three
months ended June 30, 2009 from $20,000 for the three months ended June 30,
2008, and a $5,000 increase in gain on sale of real estate owned. General fees,
service charges and other income decreased slightly to $151,000 for the three
18
months ended June 30, 2009 from $153,000 for the three months ended June 30,
2008. The increase in gain on sale of loans originated for sale reflects the
increased level of re-finance activity in the one- to four-family residential
real estate market during the three months ended June 30, 2009, due primarily to
the present lower long-term interest rate environment.
Total non-interest expense increased by $291,000 or 10.6% to $3.03 million for
the three months ended June 30, 2009 from $2.74 million for the three months
ended June 30, 2008. Salaries and employee benefits expense decreased by $72,000
or 5.2% to $1.31 million for the three months ended June 30, 2009 from $1.38
million for the three months ended June 30, 2008. This decrease occurred
primarily as the result of the departure of a highly compensated officer during
the three months ended June 30, 2009, partially offset by an increase in the
number of full time equivalent employees to 89 for the three months ended June
30, 2009, from 84 for the three months ended June 30, 2008. Equipment expense
increased by $22,000 or 4.4% to $526,000 for the three months ended June 30,
2009 from $504,000 for the three months ended June 30, 2008. The primary
component of this expense item is data service provider expense which increases
with the growth in the Bank's assets. Occupancy expense and advertising
increased by an aggregate of $21,000 or 6.3% to $354,000 for the three months
ended June 30, 2009 from $333,000 for the three months ended June 30, 2008.
Other non-interest expense increased by $320,000 or 61.1% to $844,000 for the
three months ended June 30, 2009 from $524,000 for the three months ended June
30, 2008. The increase in non-interest expense resulted primarily from the
one-time recapitalization assessment levied by the Federal Deposit Insurance
Corporation on all financial institutions. This assessment totaled $300,000 for
the Company which was required to be accrued for in the second quarter of 2009
and payable in the third quarter of 2009. Exclusive of the aforementioned, 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.
Income tax expense decreased by $222,000 or 30.5% to $506,000 for the three
months ended June 30, 2009 from $728,000 for the three months ended June 30,
2008 reflecting decreased pre-tax income earned during the three month time
period ended June 30, 2009. The consolidated effective income tax rate for the
three months ended June 30, 2009 was 40.5% as compared to 36.3% for the three
months ended June 30, 2008. The effective tax rate for the three months ended
June 30, 2009 increased primarily as a result of an allowance that was recorded
against a state tax benefit that was deemed uncollectible as well as a higher
percentage of the Company's income being generated by the Bank and a lower
percentage being generated by the Bank's investment subsidiary.
Six Months of Operations
Net income decreased by $475,000 or 18.4% to $2.1 million for the six months
ended June 30, 2009 from $2.6 million for the six months ended June 30, 2008.
The decrease in net income was due to a decrease in net interest income, an
increase in the provision for loan losses and an increase in total non-interest
expense, partially offset by an increase in non-interest income and a decrease
19
in income taxes. Net interest income decreased by $290,000 or 3.0% to $9.26
million for the six months ended June 30, 2009 from $9.55 million for the six
months ended June 30, 2008. This decrease in net interest income resulted
primarily from a decrease in the average yield on interest earning assets to
5.84% for the six months ended June 30, 2009 from 6.50% for the six months ended
June 30, 2008, partially offset by an increase of $29.3 million or 5.3% in the
average balance of interest earning assets to $585.6 million for the six months
ended June 30, 2009 from $556.3 million for the six months ended June 30, 2008.
The average balance of interest bearing liabilities increased by $30.9 million
or 6.4% to $513.6 million for the six months ended June 30, 2009 from $482.7
million for the six months ended June 30, 2008, while the average cost of
interest bearing liabilities decreased to 3.06% for the six months ended June
30, 2009 from 3.53% for the six months ended June 30, 2008. As a consequence of
the decrease in the average yield earned on our interest earning assets, our net
interest margin decreased to 3.16% for the six months ended June 30, 2009 from
3.43% for the six months ended June 30, 2008.
Interest income on loans receivable increased by $448,000 or 3.4% to $13.72
million for the six months ended June 30, 2009 from $13.27 million for the six
months ended June 30, 2008. The increase was primarily attributable to an
increase in the balance of average loans receivable of $30.1 million or 7.9% to
$410.7 million for the six months ended June 30, 2009 from $380.6 million for
the six months ended June 30, 2008, partially offset by a decrease in the
average yield on loans receivable to 6.68% for the six months ended June 30,
2009 from 6.97% for the six months ended June 30, 2008. The increase in average
loans reflects management's philosophy to deploy funds in higher yielding
instruments, specifically commercial real estate loans, in an effort to achieve
higher returns.
Interest income on securities decreased by $1.25 million or 27.1% to $3.37
million for the six months ended June 30, 2009 from $4.62 million for the six
months ended June 30, 2008. The decrease was primarily due to an decrease in the
average balance of securities of $34.5 million or 21.5% to $125.9 million for
the six months ended June 30, 2009 from $160.4 million for the six months ended
June 30, 2008 and a decrease in the average yield on securities to 5.36% for the
six months ended June 30, 2009 from 5.76% for the six months ended June 30,
2008. The decrease in the average balance reflects the level of call options
20
exercised by their issuing agency on certain investment securities previously
discussed. The decrease in average yield reflects the lower long term interest
rate environment during the six months ended June 30, 2009.
Interest income on other interest-earning assets decreased by $158,000 or 87.3%
to $23,000 for the six months ended June 30, 2009 from $181,000 for the six
months ended June 30, 2008. This decrease was primarily due to a decrease in the
average yield on other interest-earning assets to 0.09% for the six months ended
June 30, 2009 from 2.36% for the six months ended June 30, 2008, partially
offset by an increase of $33.7 million or 220.3% in the average balance of other
interest-earning assets to $49.0 million for the six months ended June 30, 2009
from $15.3 million for the six months ended June 30, 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 accumulate liquidity in
the anticipation of future loan closings or investment security purchase
opportunities.
Total interest expense decreased by $668,000 or 7.8% to $7.85 million for the
six months ended June 30, 2009 from $8.52 million for the six months ended June
30, 2008. The decrease resulted primarily from a decrease in the average cost of
interest bearing liabilities to 3.06% for the six months ended June 30, 2009
from 3.53% for the six months ended June 30, 2008 partially offset by an
increase in the balance of average interest bearing liabilities of $30.9 million
or 6.4% to $513.6 million for the six months ended June 30, 2009 from $482.7
million for the six months ended June 30, 2008.
The provision for loan losses totaled $650,000 for the six months ended June 30,
2009 and $550,000 for the six months ended June 30, 2008. 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) significant level of loan growth and
(5) the existing level of reserves for loan losses that are probable and
estimable. During the six months ended June 30, 2009, the Bank experienced
$16,000 in net charge-offs (consisting of $16,000 in charge-offs and no
recoveries). During the six months ended June 30, 2008, the Bank experienced
$53,000 in net charge-offs (consisting of $93,000 in charge-offs and $40,000 in
recoveries). The Bank had non-performing loans totaling $5.0 million or 1.20% of
gross loans at June 30, 2009, $3.7 million or 0.90% of gross loans at December
31, 2008 and $282,000 or 0.07% of gross loans at June 30, 2008. The allowance
for loan losses was $5.9 million or 1.43% of gross loans at June 30, 2009, $5.3
million or 1.28% of gross loans at December 31, 2008 and $4.6 million or 1.15%
of gross loans at June 30, 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 June 30, 2009,
December 31, 2008 and June 30, 2008.
Total non-interest income increased by $2,000 or 0.5% to $423,000 for the six
months ended June 30, 2009 from $421,000 for the six months ended June 30, 2008.
The increase in non-interest income resulted primarily from an increase of
$28,000 or 28.0% in gain on sales of loans originated for sale to $128,000 for
the six months ended June 30, 2009 from $100,000 for the six months ended June
30, 2008 and a $5,000 increase in gain on sale of real estate owned, partially
offset by a decrease of $31,000 or 9.7% in general fees, service charges and
other income to $290,000 for the six months ended June 30, 2009 from $321,000
for the six months ended June 30, 2008. The increase in gain on sale of loans
21
originated for sale reflects the increased level of re-finance activity in the
one- to four-family residential real estate market during the six months ended
June 30, 2009, due primarily to the present lower long-term interest rate
environment.
Total non-interest expense increased by $250,000 or 4.7% to $5.62 million for
the six months ended June 30, 2009 from $5.37 million for the six months ended
June 30, 2008. Salaries and employee benefits expense decreased by $124,000 or
4.5% to $2.63 million for the six months ended June 30, 2009 from $2.75 million
for the six months ended June 30, 2008. This decrease occurred primarily as a
result of the departure of a highly compensated officer during the six months
ended June 30, 2009, partially offset by an increase in the number of full time
equivalent employees to 89 for the six months ended June 30, 2009, from 84 for
the six months ended June 30, 2008. Equipment expense increased by $39,000 or
3.9% to $1.04 million for the six months ended June 30, 2009 from $1.0 million
for the six months ended June 30, 2008. The primary component of this expense
item is data service provider expense which increases with the growth of the
Bank's assets. Occupancy expense increased by $21,000 or 4.0% to $546,000 for
the six months ended June 30, 2009 from $525,000 for the six months ended June
30, 2008. Advertising expense decreased by $3,000 to $119,000 for the six months
ended June 30, 2009 from $122,000 for the six months ended June 30, 2008. Other
non-interest expense increased by $317,000 or 32.9% to $1.28 million for the six
months ended June 30, 2009 from $964,000 for the six months ended June 30, 2008.
The increase in non-interest expense resulted primarily from the one-time
recapitalization assessment levied by the Federal Deposit Insurance Corporation
on all financial institutions. This assessment totaled $300,000 for the Company
which was required to be accrued for in the second quarter of 2009 and payable
in the third quarter of 2009. Exclusive of the aforementioned, 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.
Income tax expense decreased $163,000 or 11.1% to $1.31 million for the six
months ended June 30, 2009 from $1.47 million for the six months ended June 30,
2008 reflecting decreased pre-tax income earned during the six month time period
ended June 30, 2009. The consolidated effective income tax rate for the six
months ended June 30, 2009 was 38.3% as compared to 36.3% for the six months
ended June 30, 2008. The effective tax rate for the six months ended June 30,
2009 increased primarily as a result of an allowance that was recorded against a
state tax benefit that was deemed uncollectible as well as a higher percentage
of the Company's income being generated by the Bank and a lower percentage being
generated by the Bank's investment subsidiary.
22
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 March 31, 2009, the latest quarterly date for which
information was available. The Company anticipates that the results of its
analysis based on June 30, 2009, will be substantially similar to that set forth
below. 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 March 31, 2009. The
following sets forth the Company's NPV as of March 31, 2009.
23
NPV as a % of Assets
Change in Net Portfolio $ Change from % Changefrom ---------------------
Calculation Value PAR PAR NPV Ratio Change
----------- ----- --- --- ---------------------
+300bp $ 33,941 $ (16,496) -32.71% 6.03% -222 bps
+200bp 48,858 (1,579) -3.13 8.39 14 bps
+100bp 54,236 3,799 7.53 9.03 78 bps
PAR 50,437 -- -- 8.26 --
bp - basis points
The table above indicates that at March 31, 2009, in the event of a 100 basis
point increase in interest rates, we would experience a 7.53% 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.
24
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.
25
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.
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,
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.
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 were served with an Amended Third -Party Complaint. As they have
failed to timely answer the third party complaint, BCB has seen to it that
default has been entered against each third-party defendant.
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.
Terms of settlement are presently under consideration by the parties that, if
accepted, would settle all of Provident's claims for significantly less than
sought and would also provide a means for BCB to recoup any funds paid to
Provident in such a settlement.
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. Decreases in real estate
26
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
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 June
30, 2009 are as follows:
27
Shares Average Total Number of Maximum Number of Shares
Period Purchased Price Shares Purchased That May Yet be Purchased
------ --------- ----- ---------------- -------------------------
4/1-4/30 ---- $ ----- ----- 133,983
5/1-5/31 ---- $ ----- ----- 133,983
6/1-6/30 ---- $ ----- ----- 133,983
Total ---- $ ----- ----- 133,983
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders occurred on April 23, 2009. At this
meeting there were two items put to a vote of security holders; Election of
Directors and ratification of the Independent Auditors. The number of shares
outstanding was 5,184,320, the number of shares entitled to vote was 5,175,393
and the number of shares present at the meeting or by proxy was 4,122,807.
1. The vote with respect to the election of four directors was as
follows:
NAME FOR WITHHELD
---- --- --------
Thomas M. Coughlin 3,860,259 262,548
Joseph Lyga 3,863,490 259,317
Alexander Pasiechnik 4,044,014 78,793
Joseph Tagliareni 3,865,760 257,047
Those continuing serving directors are as follows: Robert Ballance, Judith Q.
Bielan, Joseph Brogan, James E. Collins, Mark D. Hogan, Donald Mindiak and Dr.
August Pellegrini, Jr.
2. The vote with respect to the ratification of Beard Miller Company LLP,
as Independent Auditors for the Company for the year ending December
31, 2009 was:
FOR AGAINST ABSTAIN
--- ------- -------
4,070,935 48,149 3,723
28
ITEM 5. OTHER INFORMATION
On June 30, 2009 BCB Bancorp, Inc., and Pamrapo Bancorp, Inc., jointly announced
the signing of a definitive merger agreement. Under the terms of the agreement
Pamrapo will merge with BCB Community Bank. Pamrapo shareholders will receive
1.00 shares of BCB Community Bank for each share of Pamrapo. The Board of
Directors of BCB Bancorp, Inc. will be expanded by five seats for representation
from Pamrapo. Mr. Daniel Massarelli will serve as Chairman of the combined
entity, Mr. Mark D. Hogan will serve as Vice-Chairman. Mr. Donald Mindiak will
be the President & CEO of the combined entity, Mr. Thomas Coughlin will serve as
Chief Operating Officer and Mr. Kenneth Walter will serve as Chief Financial
Officer. Both Boards of Directors have unanimously approved the merger. The
resulting company will be a bank holding company with one banking subsidiary, a
state-chartered commercial bank.
Both parties have completed due diligence paying particular attention to credit,
regulatory and legal matters. The merger is subject to certain conditions,
including the approval of the shareholders of both BCB Bancorp, Inc., and
Pamrapo Bancorp, Inc., as well as the receipt of regulatory approvals. The
merger is expected to be completed by the end of 2009.
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.
29