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, 2008.
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, a non-accelerated filer, or a smaller reporting company. 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of August 14, 2008, BCB
Bancorp, Inc., had 4,585,761 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, 2008 and December 31, 2007 (unaudited)................ 1
Consolidated Statements of Income for the three and six months
ended June 30, 2008 and June 30, 2007 (unaudited).............. 2
Consolidated Statement of Changes in Stockholders' Equity
for the six months ended June 30, 2008 (unaudited)............. 3
Consolidated Statements of Cash Flow for the six months
ended June 30, 2008 and June 30, 2007 (unaudited).............. 4
Notes to Unaudited Consolidated Financial Statements........... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk ..................................... 17
Item 4. Controls and Procedures................................ 19
PART II. OTHER INFORMATION.............................................. 20
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENT
BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition at
June 30, 2008 and December 31, 2007
(Unaudited)
(in thousands except for share data)
At At
30-Jun-08 31-Dec-07
---------- ----------
ASSETS
------
Cash and amounts due from depository institutions $ 2,867 $ 2,970
Interest-earning deposits 6,946 8,810
---------- ----------
Total cash and cash equivalents 9,813 11,780
---------- ----------
Securities available for sale 3,725 2,056
Securities held to maturity, fair value $151,469 and $165,660
respectively 151,783 165,017
Loans held for sale 1,551 2,132
Loans receivable, net of allowance for loan losses of $4,562 and
$4,065 respectively 392,584 364,654
Premises and equipment 5,766 5,929
Federal Home Loan Bank of New York stock 5,646 5,560
Interest receivable, net 3,714 3,776
Other real estate owned 1,345 287
Deferred income taxes 1,649 1,352
Other assets 945 934
---------- ----------
Total assets $ 578,521 $ 563,477
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
-----------
Non-interest bearing deposits $ 32,372 $ 35,897
Interest bearing deposits 380,379 362,922
---------- ----------
Total deposits 412,751 398,819
Long-term Debt 114,124 114,124
Other Liabilities 2,016 2,024
---------- ----------
Total Liabilities 528,891 514,967
---------- ----------
STOCKHOLDERS' EQUITY
--------------------
Common stock, stated value $0.06
10,000,000 shares authorized; 5,148,136 and
5,078,858 shares respectively, issued 329 325
Additional paid-in capital 46,413 45,795
Treasury stock, at cost, 507,992 and 440,651 shares,
respectively (8,394) (7,385)
Retained Earnings 11,454 9,749
Accumulated other comprehensive income (loss) (172) 26
---------- ----------
Total stockholders' equity 49,630 48,510
---------- ----------
Total liabilities and stockholders' equity $ 578,521 $ 563,477
========== ==========
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, 2008 and 2007
(Unaudited)
(in thousands except for per share data)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2008 2007 2008 2007
----------------------- -----------------------
Interest income:
Loans .............................................................. $ 6,623 $ 5,876 $ 13,268 $ 11,632
Securities ......................................................... 2,281 2,063 4,620 4,107
Other interest-earning assets ...................................... 108 320 181 608
---------- ---------- ---------- ----------
Total interest income ............................................ 9,012 8,259 18,069 16,347
---------- ---------- ---------- ----------
Interest expense:
Deposits:
Demand ........................................................... 241 219 542 402
Savings and club ................................................. 339 480 699 1,000
Certificates of deposit .......................................... 2,300 2,498 4,741 4,859
---------- ---------- ---------- ----------
2,880 3,197 5,982 6,261
---------- ---------- ---------- ----------
Borrowed money ................................................... 1,262 876 2,540 1,708
---------- ---------- ---------- ----------
Total interest expense ......................................... 4,142 4,073 8,522 7,969
---------- ---------- ---------- ----------
Net interest income ................................................... 4,870 4,186 9,547 8,378
Provision for loan losses ............................................. 300 -- 550 --
---------- ---------- ---------- ----------
Net interest income after provision for loan losses ................... 4,570 4,186 8,997 8,378
---------- ---------- ---------- ----------
Non-interest income:
Fees and service charges ........................................... 147 152 305 293
Gain on sales of loans originated for sale ......................... 20 129 100 250
Other .............................................................. 6 6 16 14
---------- ---------- ---------- ----------
Total non-interest income ...................................... 173 287 421 557
---------- ---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits ..................................... 1,378 1,467 2,753 2,801
Occupancy expense of premises ...................................... 262 245 525 480
Equipment .......................................................... 504 505 1,002 938
Advertising ........................................................ 71 99 122 194
Other .............................................................. 524 407 964 787
---------- ---------- ---------- ----------
Total non-interest expense ..................................... 2,739 2,723 5,366 5,200
---------- ---------- ---------- ----------
Income before income tax provision .................................... 2,004 1,750 4,052 3,735
Income tax provision .................................................. 728 624 1,472 1,346
---------- ---------- ---------- ----------
Net Income ............................................................ $ 1,276 $ 1,126 $ 2,580 $ 2,389
========== ========== ========== ==========
Net Income per common share
basic ....................................................... $ 0.28 $ 0.23 $ 0.56 $ 0.48
========== ========== ========== ==========
diluted ..................................................... $ 0.27 $ 0.23 $ 0.55 $ 0.47
========== ========== ========== ==========
Weighted average number of common shares outstanding
basic ....................................................... 4,604 4,849 4,610 4,927
========== ========== ========== ==========
diluted ..................................................... 4,691 4,982 4,705 5,059
========== ========== ========== ==========
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, 2008
(Unaudited)
(in thousands except for share data)
Accumulated
Other
Additional Treasury Retained Comprehensive
Common Stock Paid-In Capital Stock Earnings Income (Loss) Total
------------ --------------- -------- -------- ------------- --------
Balance, December 31, 2007 $ 325 $ 45,795 $ (7,385) $ 9,749 $ 26 $ 48,510
Exercise of Stock Options (69,278 shares) 4 618 -- -- 622
Treasury Stock Purchases (67,341 shares) -- (1,009) -- (1,009)
Cash dividend ($0.10 per share) declared -- -- (875) (875)
Net income for the six months ended
June 30, 2008 -- -- -- 2,580 -- 2,580
Unrealized gain (loss) on securities,
available for sale, net of
deferred income tax of $133 -- -- -- -- (198) (198)
--------
Total Comprehensive income -- -- -- -- -- 2,382
------------ --------------- -------- -------- ------------- --------
Balance, June 30, 2008 $ 329 $ 46,413 $ (8,394) $ 11,454 $ (172) $ 49,630
------------ --------------- -------- -------- ------------- --------
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, 2008 and 2007
(Unaudited)
(in thousands)
Six Months Ended
June 30,
---------------------
2008 2007
---------------------
Cash flows from operating activities:
Net Income $ 2,580 $ 2,389
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation ........................................... 206 186
Amortization and accretion, net ........................ (364) (293)
Provision for loan losses .............................. 550 --
Deferred income tax ................................... (164) 86
Loans originated for sale .............................. (4,653) (14,233)
Proceeds from sale of loans originated for sale ........ 5,334 13,651
(Gain) on sale of loans originated for sale ............ (100) (250)
Decrease (Increase) in interest receivable ............. 62 (32)
(Increase) in other assets ............................ (11) (244)
Increase in accrued interest payable .................. (98) 31
Increase (Decrease) in other liabilities ............... 90 (324)
-------- --------
Net cash provided by operating activities ........ 3,432 967
-------- --------
Cash flows from investing activities:
Purchase of FHLB stock .................................... (86) (936)
Proceeds from calls of securities held to maturity ........ 68,870 --
Purchases of securities held to maturity .................. (58,606) (20,000)
Proceeds from repayments on securities held to maturity ... 3,019 1,795
Purchases of securities available for sale ................ (2,000) --
Proceeds from sale of real estate owned ................... 287 --
Net (increase) in loans receivable ........................ (29,359) (12,776)
Improvements to other real estate owned ................... (151) --
Additions to premises and equipment ....................... (43) (388)
-------- --------
Net cash (used in) investing activities ............. (18,069) (32,305)
-------- --------
Cash flows from financing activities:
Net increase in deposits .................................. 13,932 7,463
Proceeds of long-term debt ................................ -- 20,000
Purchases of treasury stock ............................... (1,009) (4,081)
Cash dividend paid ........................................ (875) (751)
Exercise of stock options ................................. 622 44
-------- --------
Net cash provided by financing activities ........... 12,670 22,675
-------- --------
Net decrease in cash and cash equivalents ....................... (1,967) (8,663)
Cash and cash equivalents-begininng ............................. 11,780 25,837
-------- --------
Cash and cash equivalents-ending ................................ $ 9,813 $ 17,174
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes ........................................... $ 1,754 $ 1,638
Interest ............................................... $ 8,620 $ 7,938
Transfer of loans to other real estate owned .............. $ 1,194 $ 1,181
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, 2008 are not necessarily indicative of the results to be expected
for the fiscal year ended December 31, 2008 or any other future interim period.
These statements should be read in conjunction with the Company's audited
consolidated financial statements and related notes for the year ended December
31, 2007, 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. The new guidance is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and for
interim periods within those fiscal years.
The primary effect of Statement No. 157 on the Company was to expand the
required disclosures pertaining to the methods used to determine fair values.
5
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.
For assets measured at fair value on a recurring basis, the fair value
measurements by level within the fair value hierarchy used at June 30, 2008 are
as follows, (in thousands):
(Level 1) (Level 2)
Quoted Prices in Significant (Level 3)
Active Markets Other Significant
June 30, for Identical Observable Unobservable
Description 2008 Assets Inputs Inputs
----------------------------------------------------------------------------------------
Securities available for sale $ 3,725 $ 3,725 $ -- $ --
----------------------------------------------------------------------------------------
Total $ 3,725 $ 3,725
The fair value for the securities illustrated in the aforementioned table were
obtained through a primary broker/dealer from readily available price quotes as
of June 30, 2008.
New Accounting Pronouncements
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." Statement No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. Statement No. 159 is
effective for our Company January 1, 2008. The adoption of Statement No. 159 had
no impact on our consolidated financial statements.
6
In March 2007, the FASB ratified Emerging Issues Task Force ("EITF") Issue No.
06-10 "Accounting for Collateral Assignment Split-Dollar Life Insurance
Agreements" (EITF 06-10"). EITF 06-10 provides guidance for determining a
liability for postretirement benefit obligation as well as recognition and
measurement of the associated asset on the basis of the terms of the collateral
assignment agreement. EITF 06-10 is effective for fiscal years beginning after
December 15, 2007. The application of EITF 06-10 had no impact on the
consolidated financial statements.
In June 2007, the EITF reached a consensus on Issue No. 06-11, "Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards" ("EITF 06-11").
EITF 06-11 states that an entity should recognize a realized tax benefit
associated with dividends on nonvested equity shares, nonvested equity share
units and outstanding equity share options charged to retained earnings as an
increase in additional paid in capital. The amount recognized in additional paid
in capital should be included in the pool of excess tax benefits available to
absorb potential future tax deficiencies on share-based payment awards. EITF
06-11 should be applied prospectively to income tax benefits of dividends on
equity-classified share-based payment awards that are declared in fiscal years
beginning after December 15, 2007. The application of EITF 06-11 had no impact
on the consolidated financial statements.
FASB Statement No. 160 "Noncontrolling Interests in Consolidated Financial
Statements--an amendment of ARB No. 51" was issued in December of 2007. This
Statement establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. The
guidance will become effective as of the beginning of a company's fiscal year
beginning after December 15, 2008. The Company believes that this new
pronouncement will not have a material impact on its consolidated financial
statements.
Staff Accounting Bulletin ("SAB") No. 109, "Written Loan Commitments Recorded at
Fair Value Through Earnings" expresses the views of the staff regarding written
loan commitments that are accounted for at fair value through earnings under
generally accepted accounting principles. To make the staff's views consistent
with current authoritative accounting guidance, the SAB revises and rescinds
portions of SAB No. 105, "Application of Accounting Principles to Loan
Commitments." Specifically, the SAB revises the SEC staff's views on
incorporating expected net future cash flows related to loan servicing
activities in the fair value measurement of a written loan commitment. The SAB
retains the staff's views on incorporating expected net future cash flows
related to internally-developed intangible assets in the fair value measurement
of a written loan commitment. The staff expects registrants to apply the views
in Question 1 of SAB No. 109 on a prospective basis to derivative loan
commitments issued or modified in fiscal quarters beginning after December 15,
2007. The application of SAB 109 had no impact on the consolidated financial
statements.
SAB No. 110 amends and replaces Question 6 of Section D.2 of Topic 14,
"Share-Based Payment," of the Staff Accounting Bulletin series. Question 6 of
Section D.2 of Topic 14 expresses the views of the staff regarding the use of
the "simplified" method in developing an estimate of expected term of "plain
vanilla" share options and allows usage of the "simplified" method for share
option grants prior to December 31, 2007. SAB No. 110 allows public companies
which do not have historically sufficient experience to provide a reasonable
estimate
7
to continue use of the "simplified" method for estimating the expected term of
"plain vanilla" share option grants after December 31, 2007. SAB No. 110 is
effective January 1, 2008. The Company uses the "simplified" method as permitted
under SAB No. 110.
In February 2008, the FASB issued FASB Staff Position ("FSP") 157-2, "Effective
Date of FASB Statement No. 157," that permits a one-year deferral in applying
the measurement provisions of Statement No. 157 to non-financial assets and
non-financial liabilities (non-financial items) that are not recognized or
disclosed at fair value in an entity's financial statements on a recurring basis
(at least annually). Therefore, if the change in fair value of a non-financial
item is not required to be recognized or disclosed in the financial statements
on an annual basis or more frequently, the effective date of application of
Statement No. 157 to that item is deferred until fiscal years beginning after
November 15, 2008 and interim periods within those fiscal years. This deferral
does not apply, however, to an entity that applied Statement No. 157 in interim
or annual financial statements prior to the issuance of FSP 157-2. The Company
is currently evaluating the potential impact, if any, of the adoption of FSP
157-2 on its consolidated financial statements.
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 is currently evaluating
the potential impact the new pronouncement will have on its consolidated
financial statements.
In June 2008, the FASB issued 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 Company is currently evaluating the potential impact the
new pronouncement will have on its consolidated financial statements.
8
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
Total assets increased by $15.0 million or 2.7% to $578.5 million at June 30,
2008 from $563.5 million at December 31, 2007. 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 half of 2008 the Company decreased its interest earning deposits to
fund loan growth which in turn provided a higher yield to our interest earning
assets as yields obtained through our loan originations were higher than money
market instruments. Asset growth stabilized as management is concentrating on
controlled growth and maintaining adequate liquidity in the anticipation of
funding outstanding loan commitments. The composition of the Bank's assets has
shifted more to loans reflecting management's desire to obtain higher yields
from loan products than are obtainable from other types of investments. We
intend to continue to grow at a measured pace consistent with our capital levels
and as business opportunities permit.
Total cash and cash equivalents decreased by $2.0 million or 16.9% to $9.8
million at June 30, 2008 from $11.8 million at December 31, 2007. Investment
securities classified as held-to-maturity decreased by $13.2 million or 8.0% to
$151.8 million at June 30, 2008 from $165.0 million at December 31, 2007. This
decrease was primarily attributable to call options exercised on $68.9 million
of callable agency securities during the six months ended June 30, 2008, and
$3.0 million of repayments and prepayments in the mortgage backed security
portfolio, partially offset by the reinvestment of $58.6 million of proceeds
back into the investment portfolio. The balance of the proceeds were used for
the origination of loans.
Loans receivable increased by $27.9 million or 7.7% to $392.6 million at June
30, 2008 from $364.7 million at December 31, 2007. The increase resulted
primarily from a $20.2 million increase in real estate mortgages comprising
residential, commercial, construction and participation loans with other
financial institutions, net of amortization, and an $8.2 million increase in
commercial loans comprising business loans and commercial lines of credit, net
of amortization, partially offset by a $133,000 decrease in consumer loans, net
of amortization. The balance in the loan pipeline as of June 30, 2008 stood at
$46.4 million. At June 30, 2008 the allowance for loan losses was $4.6 million
or 280.39% of non-performing assets.
Deposits increased by $14.0 million or 3.5% to $412.8 million at June 30, 2008
from $398.8 million at December 31, 2007. The increase resulted primarily from
an increase of $9.8 million in time deposit accounts, a $1.5 million increase in
transaction accounts and a $2.6 million increase in savings and club accounts.
During the six months ended June 30, 2008, the Federal Open Market Committee,
(FOMC) has embarked on a philosophy
9
of decreasing short term interest rates at a rapid rate in an effort to lessen
the impact of a possible recession in the American economy. This has resulted in
a normalization of the yield curve helping decrease short term time deposit
account yields.
The balance of borrowed money remained constant at $114.1 million during the six
months ended June 30, 2008. 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 to $49.6 million at June 30, 2008
from $48.5 million at December 31, 2007. The increase in stockholders' equity is
primarily attributable to net income of the Company for the six months ended
June 30, 2008 of $2.6 million and $622,000 from 69,278 shares issued from stock
option exercises, partially offset by $1.0 million paid to repurchase 67,431
shares of common stock, the payment of two quarterly cash dividends totaling
$875,000 representing a $0.09/share payment during the quarter ended March 31,
2008, and a $0.10/share payment during the quarter ended June 30, 2008 and a
$198,000 decrease in the market value of our available-for-sale securities
portfolio, net of tax. At June 30, 2008 the Bank's Tier 1, Tier 1 Risk-Based and
Total Risk Based Capital Ratios were 9.12%, 13.25% and 14.40% respectively.
Results of Operations
Three Months
Net income increased by $150,000 or 13.3% to $1.28 million for the three months
ended June 30, 2008 from $1.13 million for the three months ended June 30, 2007.
The increase in net income was due to an increase in net interest income,
partially offset by increases in the provision for loan losses, non-interest
expense and income taxes and a decrease in non-interest income. Net interest
income increased by $684,000 or 16.3% to $4.9 million for the three months ended
June 30, 2008 from $4.2 million for the three months ended June 30, 2007. This
increase in net interest income resulted primarily from an increase of $55.5
million or 10.9% in the average balance of interest earning assets to $562.6
million for the three months ended June 30, 2008 from $507.1 million for the
three months ended June 30, 2007, partially offset by a decrease in the average
yield on interest earning assets to 6.41% for the three months ended June 30,
2008 from 6.52% for the three months ended June 30, 2007. The average balance of
interest bearing liabilities increased by $55.7 million or 12.9% to $488.2
million for the three months ended June 30, 2008 from $432.5 million for the
three months ended June 30, 2007 and the average cost of interest bearing
liabilities decreased by thirty-eight basis points to 3.39% for the three months
ended June 30, 2008 from 3.77% for the three months ended June 30, 2007. As a
consequence, our net interest margin increased to 3.46% for the three months
ended June 30, 2008 from 3.30% for the three months ended June 30, 2007.
Interest income on loans receivable increased by $747,000 or 12.7% to $6.6
million for the three months ended June 30, 2008 from $5.9 million for the three
months ended June 30, 2007. The increase was primarily attributable to an
increase in the balance of average
10
loans receivable of $59.0 million or 18.1% to $385.5 million for the three
months ended June 30, 2008 from $326.5 million for the three months ended June
30, 2007, partially offset by a decrease in the average yield on loans
receivable to 6.87% for the three months ended June 30, 2008 from 7.20% for the
three months ended June 30, 2007. 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 increased by $218,000 or 10.6% to $2.3 million for
the three months ended June 30, 2008 from $2.1 million for the three months
ended June 30, 2007. This increase was primarily due to an increase in the
average balance of securities held-to-maturity of $4.7 million or 3.1% to $157.9
million for the three months ended June 30, 2008 from $153.2 million for the
three months ended June 30, 2007, and an increase in the average yield on
securities held-to-maturity to 5.78% for the three months ended June 30, 2008
from 5.39% for the three months ended June 30, 2007. The increase in the average
balance reflects management's philosophy to deploy funds in investments, absent
an opportunity to originate higher yielding loans, in an effort to achieve
higher returns.
Interest income on other interest-earning assets decreased by $212,000 or 66.3%
to $108,000 for the three months ended June 30, 2008 from $320,000 for the three
months ended June 30, 2007. This decrease was primarily due to a $8.0 million
decrease in the average balance of other interest-earning assets to $19.3
million for the three months ended June 30, 2008 from $27.3 million for the
three months ended June 30, 2007 and a decrease in the average yield on other
interest-earning assets to 2.24% for the three months ended June 30, 2008 from
4.69% for the three months ended June 30, 2007. The decrease in the average
yield reflects the lower short-term interest rate environment for overnight
deposits during the three months ended June 30, 2008 as compared to the three
months ended June 30, 2007. The decrease in the average balance primarily
reflects management's philosophy to deploy funds into loans in an effort to
achieve higher returns.
Total interest expense increased by $69,000 or 1.7% to $4.14 million for the
three months ended June 30, 2008 from $4.07 million for the three months ended
June 30, 2007. The increase resulted primarily from an increase in the balance
of average interest bearing liabilities of $55.7 million or 12.9% to $488.2
million for the three months ended June 30, 2008 from $432.5 million for the
three months ended June 30, 2007, partially offset by a decrease in the average
cost of interest bearing liabilities to 3.39% for the three months ended June
30, 2008 from 3.77% for the three months ended June 30, 2007. The decrease in
the average cost reflects the Company's reaction to the lower short term
interest rate environment brought on by the easing bias of the Federal Reserve's
philosophy and our ability to reduce our pricing on a select number of retail
deposit products.
11
The provision for loan losses totaled $300,000 for the three months ended June
30, 2008. The Company did not record a loan loss provision for the three months
ended June 30, 2007. 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, 2008, the Bank experienced $4,000 in net recoveries,
(consisting of $7,000 in recoveries and $3,000 in charge-offs). During the three
months ended June 30, 2007, the Bank experienced $217,000 in net charge-offs
(consisting of $220,000 in charge-offs and $3,000 in recoveries), primarily as a
result of the repossession of a loan to facilitate the construction of
approximately ten residential units done in participation with another financial
institution. The Bank had non-performing loans totaling $282,000 or 0.07% of
gross loans at June 30, 2008, $1.7 million or 0.45% of gross loans at March 31,
2008 and $2.0 million or 0.59% of gross loans at June 30, 2007. The allowance
for loan losses was $4.6 million or 1.15% of gross loans at June 30, 2008, $4.3
million or 1.12% of gross loans at March 31, 2008 and $3.5 million or 1.05% of
gross loans at June 30, 2007. 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, 2008, March
31, 2008 and June 30, 2007.
Total non-interest income decreased by $114,000 or 39.7% to $173,000 for the
three months ended June 30, 2008 from $287,000 for the three months ended June
30, 2007. The decrease in non-interest income resulted primarily from a $109,000
decrease in gain on sales of loans originated for sale to $20,000 for the three
months ended June 30, 2008 from $129,000 for the three months ended June 30,
2007, and a $5,000 decrease in general fees and service charges to $153,000 for
the three months ended June 30, 2008 from $158,000 for the three months ended
June 30, 2007. 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 June 30, 2008. During the three months ended June 30,
2008, the Company made a decision to eliminate our Retail Mortgage Division as a
separate division, due to a weakening in the one- to four-family residential
real estate market, it was decided that this division's operation, on an
on-going basis, were determined to be cost prohibitive.
Total non-interest expense increased by $16,000 or 1.0% to $2.74 million for the
three months ended June 30, 2008 from $2.72 million for the three months ended
June 30,
12
2007. Salaries and employee benefits expense decreased by $89,000 or 6.1% to
$1.38 million for the three months ended June 30, 2008 from $1.47 million for
the three months ended June 30, 2007. This decrease was primarily attributable
to a decrease in the number of full time equivalent employees to 84 for the
three months ended June 30, 2008 from 101 for the three months ended June 30,
2007, partially offset by salary increases in conjunction with annual reviews.
Equipment expense remained relatively unchanged at $504,000 for the three months
ended June 30, 2008 from $505,000 for the three months ended June 30, 2007. The
primary component of this expense item is data service provider expense.
Occupancy expense, advertising and other non-interest expense increased by an
aggregate of $106,000 or 14.1% to $857,000 for the three months ended June 30,
2008 from $751,000 for the three months ended June 30, 2007. The increase in
occupancy, advertising and other non-interest expense is primarily attributable
to increases in expenses commensurate with a growing franchise. Other
non-interest expense is comprised of directors' fees, stationary, forms and
printing, professional fees, legal fees, check printing, correspondent bank
fees, telephone and communication, shareholder relations and other fees and
expenses.
Income tax expense increased $104,000 to $728,000 for the three months ended
June 30, 2008 from $624,000 for the three months ended June 30, 2007 reflecting
increased pre-tax income earned during the three month time period ended June
30, 2008. The consolidated effective income tax rate for the three months ended
June 30, 2008 was 36.3% as compared to 35.7% for the three months ended June 30,
2007.
Six Months of Operations
Net income increased by $191,000 or 8.0% to $2.6 million for the six months
ended June 30, 2008 from $2.4 million for the six months ended June 30, 2007.
The increase in net income was due to an increase in net interest income,
partially offset by increases in the provision for loan losses, non-interest
expense and income taxes and a decrease in non-interest income. Net interest
income increased by $1.17 million or 14.0% to $9.55 million for the six months
ended June 30, 2008 from $8.38 million for the six months ended June 30, 2007.
This increase in net interest income resulted primarily from an increase of
$52.7 million or 10.5% in the average balance of interest earning assets to
$556.3 million for the six months ended June 30, 2008 from $503.6 million for
the six months ended June 30, 2007 while the average yield on interest earning
assets increased slightly to 6.50% for the six months ended June 30, 2008, from
6.49% for the six months ended June 30, 2007. The average balance of interest
bearing liabilities increased by $55.1 million or 12.9% to $482.7 million for
the six months ended June 30, 2008 from $427.6 million for the six months ended
June 30, 2007, while the average cost of interest bearing liabilities decreased
to 3.53% for the six months ended June 30, 2008 from 3.73% for the six months
ended June 30, 2007. As a consequence, our net interest margin increased to
3.43% for the six months ended June 30, 2008 from 3.33% for the six months ended
June 30, 2007.
Interest income on loans receivable increased by $1.64 million or 14.1% to
$13.27 million for the six months ended June 30, 2008 from $11.63 million for
the six months
13
ended June 30, 2007. The increase was primarily attributable to an increase in
the balance of average loans receivable of $55.9 million or 17.2% to $380.6
million for the six months ended June 30, 2008 from $324.7 million for the six
months ended June 30, 2007, partially offset by a decrease in the average yield
on loans receivable to 6.97% for the six months ended June 30, 2008 from 7.17%
for the six months ended June 30, 2007. 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 increased by $513,000 or 12.5% to $4.6 million for
the six months ended June 30, 2008 from $4.1 million for the six months ended
June 30, 2007. The increase was primarily due to an increase in the average
balance of securities of $7.8 million or 5.1% to $160.4 million for the six
months ended June 30, 2008 from $152.6 million for the six months ended June 30,
2007 and an increase in the average yield on securities to 5.76% for the six
months ended June 30, 2008 from 5.38% for the six months ended June 30, 2007.
The increase in average balance reflects management's philosophy to deploy funds
in investments absent the opportunity to invest in higher yielding loans in an
effort to achieve higher returns. The increase in average yield reflects the
higher long term interest rate environment during the six months ended June 30,
2008.
Interest income on other interest-earning assets decreased by $427,000 or 70.2%
to $181,000 for the six months ended June 30, 2008 from $608,000 for the six
months ended June 30, 2007. This decrease was primarily due to a decrease of
$11.0 million or 41.8% in the average balance of other interest-earning assets
to $15.3 million for the six months ended June 30, 2008 from $26.3 million for
the six months ended June 30, 2007 and a decrease in the average yield on other
interest-earning assets to 2.36% for the six months ended June 30, 2008 from
4.62% for the six months ended June 30, 2007. The decrease in the average yield
reflects the lower short-term interest rate environment for overnight deposits
in 2008 as compared to 2007. The decrease in the average balance primarily
reflects management's philosophy to deploy funds in higher yielding instruments,
specifically commercial real estate loans, in an effort to achieve higher
returns.
Total interest expense increased by $553,000 or 6.9% to $8.5 million for the six
months ended June 30, 2008 from $8.0 million for the six months ended June 30,
2007. The increase resulted primarily from an increase in the balance of average
interest bearing liabilities of $55.1 million or 12.9% to $482.7 million for the
six months ended June 30, 2008 from $427.6 million for the six months ended June
30, 2007, partially offset by a decrease in the average cost of interest bearing
liabilities to 3.53% for the six months ended June 30, 2008 from 3.73% for the
six months ended June 30, 2007.
The provision for loan losses totaled $550,000 for the six months ended June 30,
2008. The Company did not record a loan loss provision for the six months ended
June 30, 2007. 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)
14
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, 2008, the Bank experienced
$53,000 in net charge-offs (consisting of $93,000 in charge-offs and $40,000 in
recoveries). During the six months ended June 30, 2007, the Bank experienced
$214,000 in net charge-offs (consisting of $222,000 in charge-offs and $8,000 in
recoveries), primarily as a result of the repossession of a loan to facilitate
the construction of approximately ten residential units done in participation
with another financial institution. The Bank had non-performing loans totaling
$282,000 or 0.07% of gross loans at June 30, 2008, $4.3 million or 1.16% of
gross loans at December 31, 2007 and $2.0 million or 0.59% of gross loans at
June 30, 2007. The allowance for loan losses was $4.6 million or 1.15% of gross
loans at June 30, 2008, $4.1 million or 1.10% of gross loans at December 31,
2007 and $3.5 million or 1.06% of gross loans at June 30, 2007. 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, 2008, December 31, 2007 and June 30, 2007.
Total non-interest income decreased by $136,000 or 24.4% to $421,000 for the six
months ended June 30, 2008 from $557,000 for the six months ended June 30, 2007.
The decrease in non-interest income resulted primarily from an $150,000 decrease
in gain on sales of loans originated for sale to $100,000 for the six months
ended June 30, 2008 from $250,000 for the six months ended June 30, 2007,
partially offset by a $14,000 increase in general fees, service charges and
other income to $321,000 for the six months ended June 30, 2008 from $307,000
for the six months ended June 30, 2007. The decrease in gain on sale of loans
originated for sale reflects the softening one- to four-family residential real
estate market during the six months ended June 30, 2008. During the six months
ended June 30, 2008, the Company made a decision to eliminate our Retail
Mortgage Division as a separate division, due to a weakening softening in the
one- to four-family residential real estate market, it was decided that this
division's operation, on an on-going basis, was determined to be cost
prohibitive.
Total non-interest expense increased by $166,000 or 3.2% to $5.4 million for the
six months ended June 30, 2008 from $5.2 million for the six months ended June
30, 2007. Salaries and employee benefits expense decreased by $48,000 or 1.7% to
$2.75 million for the six months ended June 30, 2008 from $2.80 million for the
six months ended June 30, 2007. This decrease was primarily attributable to a
decrease in the number of full time equivalent employees to 84 for the six
months ended June 30, 2008 from 101 for the six months ended June 30, 2007,
partially offset by annual salary increases in conjunction
15
with annual reviews. Equipment expense increased by $64,000 or 6.8% to $1.0
million for the six months ended June 30, 2008 from $938,000 for the six months
ended June 30, 2007. 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 $45,000 or 9.4% to $525,000 for the six months ended June
30, 2008 from $480,000 for the six months ended June 30, 2007. Advertising
expense decreased by $72,000 to $122,000 for the six months ended June 30, 2008
from $194,000 for the six months ended June 30, 2007. Other non-interest expense
increased by $177,000 to $964,000 for the six months ended June 30, 2008 from
$787,000 for the six months ended June 30, 2007. The increase in other
non-interest expense is primarily attributable to increases in expenses
commensurate with a growing franchise. Other non-interest expense is comprised
of directors' fees, stationary, forms and printing, professional fees, legal
fees, check printing, correspondent bank fees, telephone and communication,
shareholder relations and other fees and expenses.
Income tax expense increased $126,000 or 9.4% to $1.47 million for the six
months ended June 30, 2008 from $1.35 million for the six months ended June 30,
2007 reflecting increased pre-tax income earned during the six month time period
ended June 30, 2008. The consolidated effective income tax rate for the six
months ended June 30, 2008 was 36.3% as compared to 36.0% for the six months
ended June 30, 2007.
16
Item 3. Quantitative and Qualitative Analysis of Market Risk
Management of Market Risk
General. The majority of our assets and liabilities are monetary in nature.
Consequently, one of our most significant forms of market risk is interest rate
risk. Our assets, consisting primarily of mortgage loans, have longer maturities
than our liabilities, consisting primarily of deposits. As a result, a principal
part of our business strategy is to manage interest rate risk and reduce the
exposure of our net interest income to changes in market interest rates.
Accordingly, our Board of Directors has established an Asset/Liability Committee
which is responsible for evaluating the interest rate risk inherent in our
assets and liabilities, for determining the level of risk that is appropriate
given our business strategy, operating environment, capital, liquidity and
performance objectives, and for managing this risk consistent with the
guidelines approved by the Board of Directors. Senior management monitors the
level of interest rate risk on a regular basis and the Asset/Liability
Committee, which consists of senior management and outside directors operating
under a policy adopted by the Board of Directors, meets as needed to review our
asset/liability policies and interest rate risk position.
The following table presents the Company's net portfolio value ("NPV"). These
calculations were based upon assumptions believed to be fundamentally sound,
although they may vary from assumptions utilized by other financial
institutions. The information set forth below is based on data that included all
financial instruments as of June 30, 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 noninterest bearing accounts were scheduled with an assumed
term of 24 months. The NPV at "PAR" represents the difference between the
Company's estimated value of assets and estimated value of liabilities assuming
no change in interest rates. The NPV for a decrease of 300 basis points has been
excluded since it would not be meaningful, in the interest rate environment as
of June 30, 2008. The following sets forth the Company's NPV as of June 30,
2008.
NPV as a % of Assets
Change in Net Portfolio $ Change from % Change from --------------------
Calculation Value PAR PAR NPV Ratio Change
----------- ------------- ------------- ------------- --------------------
+300bp $ 20,388 $ (30,075) -59.60% 3.88% -483 bps
+200bp 34,022 (16,441) -32.58 6.28 -243 bps
+100bp 44,367 (6,096) -12.08 7.92 -79 bps
PAR 50,463 -- -- 8.71 -- bps
-100bp 46,781 (3,682) -7.30 7.93 -78 bps
-200bp 40,622 (9,841) -19.50 6.78 -193 bps
bp - basis points
17
The table above indicates that at June 30, 2008, in the event of a 100 basis
point decrease in interest rates, we would experience a 7.30% decrease in NPV.
In the event of a 100 basis point increase in interest rates, we would
experience a 12.08% decrease 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.
18
ITEM 4.
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.
19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1.A. RISK FACTORS
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
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.
20
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.
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 during the last three months are
as follows:
Shares Average Total Number of Maximum Number of Shares
Period Purchased Price Shares Purchased That May Yet be Purchased
------ --------- ------- ---------------- -------------------------
4/1-4/30 8,427 $ 14.73 8,427 168,654
5/1-5/31 6,468 $ 14.06 14,895 162,186
6/1-6/30 -- $ -- -- 162,186
Total 14,895 $ 14.44 -- --
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders occurred on April 24, 2008. 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 5,078,858, the number of shares entitled to vote was 4,577,609
and the number of shares present at the meeting or by proxy was 4,115,943.
1. The vote with respect to the election of three directors was as
follows:
NAME FOR WITHHELD
------ --------- ----------
Robert Ballance 4,105,763 10,180
Joseph Brogan 4,106,919 9,024
Donald Mindiak 4,108,931 7,012
August Pellegrini, Jr. 4,102,049 13,894
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, 2008 was:
FOR AGAINST ABSTAIN
----- --------- ---------
4,070,363 4,362 6,495
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.
22