UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant To Section 13 Or 15(D) Of The Securities Exchange
Act of 1934
For the fiscal ended December 31, 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: 000-50275
BCB BANCORP, INC.
-----------------
(Exact name of registrant as specified in its charter)
New Jersey 26-0065262
------------------ ------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
104-110 Avenue C, Bayonne, New Jersey 07002
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 823-0700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.01 par value The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
YES [ ] NO [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
YES [ ] NO [X]
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.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
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
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ]
Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). YES [ ] NO [X]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, computed by reference to the last sale price
on June 30, 2008, as reported by the Nasdaq Capital Market, was approximately
$48.2 million.
As of March 9, 2009, there were issued and outstanding 5,183,731 shares of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for the 2009 Annual Meeting of Stockholders of the
Registrant (Part III).
(2) Annual Report to Stockholder (Part II and IV).
TABLE OF CONTENTS
Item Page Number
---- -----------
ITEM 1. BUSINESS ............................................... 1
ITEM 1A. RISK FACTORS ........................................... 28
ITEM 1B. UNRESOLVED STAFF COMMENTS .............................. 33
ITEM 2. PROPERTIES ............................................. 33
ITEM 3. LEGAL PROCEEDINGS ...................................... 33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .... 34
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES ............................................. 35
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA ................... 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................... 38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ............................................ 53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............ 54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE .................... 54
ITEM 9A.(T.) CONTROLS AND PROCEDURES ................................ 54
ITEM 9B. OTHER INFORMATION ...................................... 56
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE ............................................. 56
ITEM 11. EXECUTIVE COMPENSATION ................................. 56
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS ............. 56
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE .................................. 56
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES ................. 57
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ............. 57
i
This report on Form 10-K contains forward-looking statements that are
based on assumptions and may describe future plans, strategies and expectations
of BCB Bancorp, Inc. and subsidiaries. This document may include forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements, which are based on certain assumptions and describe future plans,
strategies, and expectations of the Company, are generally identified by use of
the words "anticipate," "believe," "estimate," "expect," "intend," "plan,"
"project," "seek," "strive," "try," or future or conditional verbs such as
"will," "would," "should," "could," "may," or similar expressions. Although we
believe that our plans, intentions and expectations, as reflected in these
forward-looking statements are reasonable, we can give no assurance that these
plans, intentions or expectations will be achieved or realized. By identifying
these statements for you in this manner, we are alerting you to the possibility
that our actual results and financial condition may differ, possibly materially,
from the anticipated results and financial condition indicated in these
forward-looking statements. Important factors that could cause our actual
results and financial condition to differ from those indicated in the
forward-looking statements include, among others, those discussed below and
under "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K. You
should not place undue reliance on these forward-looking statements, which
reflect our expectations only as of the date of this report. We do not assume
any obligation to revise forward-looking statements except as may be required by
law.
ii
PART I
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ITEM 1. BUSINESS BCB
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Bancorp, Inc.
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BCB Bancorp, Inc. (the "Company") is a New Jersey corporation, which on
May 1, 2003 became the holding company parent of BCB Community Bank (the
"Bank"). The Company has not engaged in any significant business activity other
than owning all of the outstanding common stock of BCB Community Bank. Our
executive office is located at 104-110 Avenue C, Bayonne, New Jersey 07002. Our
telephone number is (201) 823-0700. At December 31, 2008 we had $578.6 million
in consolidated assets, $410.5 million in deposits and $49.7 million in
consolidated stockholders' equity. The Company is subject to extensive
regulation by the Board of Governors of the Federal Reserve System.
BCB Community Bank
------------------
BCB Community Bank, formerly known as Bayonne Community Bank, was
chartered as a New Jersey bank on October 27, 2000, and we opened for business
on November 1, 2000. We changed our name from Bayonne Community Bank to BCB
Community Bank in April of 2007. We operate through three branches in Bayonne
and Hoboken, New Jersey and through our executive office located at 104-110
Avenue C, Bayonne, New Jersey 07002. Our deposit accounts are insured by the
Federal Deposit Insurance Corporation and we are a member of the Federal Home
Loan Bank System.
We are a community-oriented financial institution. Our business is to
offer FDIC-insured deposit products and to invest funds held in deposit accounts
at the Bank, together with funds generated from operations, in investment
securities and loans. We offer our customers:
o loans, including commercial and multi-family real estate
loans, one- to four-family mortgage loans, home equity loans,
construction loans, consumer loans and commercial business
loans. In recent years the primary growth in our loan
portfolio has been in loans secured by commercial real estate
and multi-family properties;
o FDIC-insured deposit products, including savings and club
accounts, non-interest bearing accounts, money market
accounts, certificates of deposit and individual retirement
accounts; and
o retail and commercial banking services including wire
transfers, money orders, traveler's checks, safe deposit
boxes, a night depository, federal payroll tax deposits, bond
coupon redemption and automated teller services.
Business Strategy
-----------------
Our business strategy is to operate as a well-capitalized, profitable and
independent community-oriented financial institution dedicated to providing
quality customer service. Managements' and the Board of Directors' extensive
knowledge of the Hudson County market differentiates us from our competitors.
Our business strategy incorporates the following elements: maintaining a
community focus, focusing on profitability, continuing our growth,
concentrating on real estate based lending, capitalizing on market dynamics,
providing attentive and personalized service and attracting highly qualified and
experienced personnel.
Maintaining a community focus. Our management and Board of Directors have
strong ties to the Bayonne community. Many members of the management team are
Bayonne natives and are active in the community through non-profit board
membership, local business development organizations, and industry associations.
In addition, our board members are well established professionals and business
people in the Bayonne area. Management and the Board are interested in making a
lasting contribution to the Bayonne community and have succeeded in attracting
deposits and loans through attentive and personalized service.
Focusing on profitability. On an operational basis, we achieved
profitability in our tenth month of operation. For the year ended December 31,
2008, our return on average equity was 7.00% and our return on average assets
was 0.60%. Our earnings per diluted share decreased from $0.93 for the year
ended December 31, 2004 to $0.74 for the year ended December 31, 2008. Although
earnings per share results have come under pressure recently, primarily as a
result of the pervasive economic downturn in both the national and local economy
as well as several one-time events, management is committed to maintaining
profitability by diversifying the products, pricing and services we offer.
Continuing our growth. We have consistently increased our assets. From
December 31, 2004 to December 31, 2008, our assets have increased from $378.3
million to $578.6 million. Over the same time period, our loan balances have
increased from $246.4 million to $406.8 million, while deposits have increased
from $337.2 million to $410.5 million. In addition, we have maintained our asset
quality ratios while growing the loan portfolio. At December 31, 2008, our
non-performing assets to total assets ratio was 0.89%.
Concentrating on real estate-based lending. A primary focus of our
business strategy is to originate loans secured by commercial and multi-family
properties. Such loans provide higher returns than loans secured by one- to
four-family real estate. As a result of our underwriting practices, including
debt service requirements for commercial real estate and multi-family loans,
management believes that such loans offer us an opportunity to obtain higher
returns.
Capitalizing on market dynamics. The consolidation of the banking industry
in Hudson County has created the need for a customer focused banking
institution. This consolidation has moved decision making away from local,
community-based banks to much larger banks headquartered outside of New Jersey.
Providing attentive and personalized service. Management believes that
providing attentive and personalized service is the key to gaining deposit and
loan relationships in Bayonne and its surrounding communities. Since we began
operations, our branches have been open seven (7) days a week.
Attracting highly experienced and qualified personnel. An important part
of our strategy is to hire bankers who have prior experience in the Hudson
County market as well as pre-existing business relationships. Our management
team has an average of 30 years of banking experience, while our lenders and
branch personnel have significant prior experience at community banks and
regional banks in Hudson County. Management believes that its knowledge of the
Hudson County market has been a critical element in the success of BCB Community
Bank.
2
Management's extensive knowledge of the local communities has allowed us to
develop and implement a highly focused and disciplined approach to lending and
has enabled the Bank to attract a high percentage of low cost deposits.
Recent Market Developments
In response to the financial crises affecting the banking system and
financial markets and going concern threats to investment banks and other
financial institutions, on October 3, 2008, the Emergency Economic Stabilization
Act of 2008 (the "EESA") was signed into law. Under the EESA, the U.S.
Department of the Treasury was given the authority to, among other things,
purchase up to $700 billion of securities and certain other financial
instruments from financial institutions for the purpose of stabilizing and
providing liquidity to the U.S. financial markets.
On October 14, 2008, the Treasury Department announced a Capital Purchase
Program under which it would acquire equity investments, usually preferred
stock, in banks and thrifts and their holding companies. In conjunction with the
purchase of preferred stock, the Treasury Department also received warrants to
purchase common stock from participating financial institutions. Participating
financial institutions also were required to adopt the Treasury Department's
standards for executive compensation and corporate governance for the period
during which the department holds equity issued under the Capital Purchase
Program. We have determined that we would not participate in the Capital
Purchase Program.
On November 21, 2008, the FDIC adopted a final rule relating to a
Temporary Liquidity Guarantee Program, which the FDIC had previously announced
as an initiative to counter the system-wide crisis in the nation's financial
sector. Under the Temporary Liquidity Guarantee Program the FDIC will (i)
guarantee, through the earlier of maturity or June 30, 2012, certain newly
issued senior unsecured debt issued by participating institutions on or after
October 14, 2008, and before June 30, 2009 and (ii) provide full FDIC deposit
insurance coverage for non-interest bearing transaction deposit accounts,
Negotiable Order of Withdrawal ("NOW") accounts paying less than 0.5% interest
per annum and certain other accounts held at participating FDIC-insured
institutions through December 31, 2009. Coverage under the Temporary Liquidity
Guarantee Program was available for the first 30 days without charge. The fee
assessment for coverage of senior unsecured debt ranges from 50 basis points to
100 basis points per annum, depending on the initial maturity of the debt. The
fee assessment for deposit insurance coverage is 10 basis points per quarter on
amounts in covered accounts exceeding $250,000. We have elected to participate
in the deposit insurance program.
The American Recovery and Reinvestment Act of 2009 ("ARRA"), more commonly
known as the economic stimulus or economic recovery package, was signed into law
on February 17, 2009, by President Obama. ARRA includes a wide variety of
programs intended to stimulate the economy and provide for extensive
infrastructure, energy, health, and education needs. In addition, ARRA imposes
certain new executive compensation and corporate expenditure limits on all
current and future TARP recipients until the recipient has repaid the Treasury,
which is now permitted under ARRA without penalty and without the need to raise
new capital, subject to the Treasury's consultation with the recipient's
appropriate regulatory agency.
For further information regarding regulatory and legislative developments
affecting our business see "Supervision and Regulation".
3
Our Market Area
---------------
We are located in the City of Bayonne and Hoboken, Hudson County, New
Jersey. The Bank's locations are easily accessible to provide convenient
services to businesses and individuals throughout our market area.
Our market area includes the City of Bayonne, Jersey City and portions of
Hoboken, New Jersey. These areas are all considered "bedroom" or "commuter"
communities to Manhattan. Our market area is well-served by a network of
arterial roadways including Route 440 and the New Jersey Turnpike.
Our market area has a high level of commercial business activity.
Businesses are concentrated in the service sector and retail trade areas. Major
employers in our market area include Bayonne Medical Center and the Bayonne
Board of Education.
Competition
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The banking business in New Jersey is extremely competitive. We compete
for deposits and loans with existing New Jersey and out-of-state financial
institutions that have longer operating histories, larger capital reserves and
more established customer bases. Our competition includes large financial
service companies and other entities in addition to traditional banking
institutions such as savings and loan associations, savings banks, commercial
banks and credit unions.
Our larger competitors have a greater ability to finance wide-ranging
advertising campaigns through their greater capital resources. Our marketing
efforts depend heavily upon referrals from officers, directors, stockholders,
selective advertising in local media and direct mail solicitations. We compete
for business principally on the basis of personal service to customers, customer
access to our officers and directors and competitive interest rates and fees.
In the financial services industry in recent years, intense market
demands, technological and regulatory changes and economic pressures have eroded
industry classifications that were once clearly defined. Banks have diversified
their services, increased rates paid on deposits and become more cost effective
as a result of competition with one another and with new types of financial
service companies, including non-banking competitors. Some of the results of
these market dynamics in the financial services industry have been a number of
new bank and non-bank competitors, increased merger activity, and increased
customer awareness of product and service differences among competitors.
4
Lending Activities
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Analysis of Loan Portfolio. Set forth below is selected data relating to
the composition of our loan portfolio by type of loan as a percentage of the
respective portfolio.
At December 31,
-----------------------------------------------------------------------------------------------------
2008 2007 2006 2005 2004
----------------- ------------------ ------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in Thousands)
Type of loans:
Real estate loans:
One- to four-family....... $ 74,039 17.94% $ 55,248 14.96% $ 43,993 13.64% $ 34,901 12.11% $ 34,855 13.98%
Construction.............. 62,483 15.14 49,984 13.53 38,882 12.06 28,743 9.98 19,209 7.70
Home equity............... 38,065 9.22 35,397 9.58 32,321 10.02 24,297 8.43 20,629 8.27
Commercial and
multi-family ........... 223,179 54.07 208,108 56.35 192,141 59.60 185,170 64.26 158,755 63.68
Commercial business......... 14,098 3.42 19,873 5.38 14,705 4.56 14,578 5.06 15,123 6.07
Consumer.................... 920 0.21 739 0.20 396 0.12 456 0.16 744 0.30
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total.................. 412,784 100.00% 369,349 100.00% 322,438 100.00% 288,145 100.00% 249,315 100.00%
-------- ======= -------- ======= -------- ======= -------- ======= -------- =======
Less:
Deferred loan fees, net..... 654 630 575 604 429
Allowance for loan losses... 5,304 4,065 3,733 3,090 2,506
-------- -------- -------- -------- --------
Total loans, net....... $406,826 $364,654 $318,130 $284,451 $246,380
======== ======== ======== ======== ========
5
Loan Maturities. The following table sets forth the contractual maturity
of our loan portfolio at December 31, 2008. The amount shown represents
outstanding principal balances. Demand loans, loans having no stated schedule of
repayments and no stated maturity and overdrafts are reported as being due in
one year or less. Variable-rate loans are shown as due at the time of repricing.
The table does not include prepayments or scheduled principal repayments.
Due after 1
Due within through Due after
1 Year 5 Years 5 Years Total
---------- ----------- --------- ---------
(In Thousands)
One- to four-family................ $ 5,845 $ 7,999 $ 60,195 $ 74,039
Construction....................... 51,048 8,750 2,685 62,483
Home equity........................ 75 5,314 32,676 38,065
Commercial and multi-family........ 28,821 38,293 156,065 223,179
Commercial business................ 1,890 8,010 4,198 14,098
Consumer........................... 487 433 -- 920
---------- ----------- --------- ---------
Total amount due................... $ 88,166 $ 68,799 $ 255,819 $ 412,784
========== =========== ========= =========
Loans with Predetermined or Floating or Adjustable Rates of Interest. The
following table sets forth the dollar amount of all loans at December 31, 2008
that are due after December 31, 2008, and have predetermined interest rates and
that have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- ---------
(In Thousands)
One- to four-family....................... $ 33,421 $ 34,773 $ 68,194
Construction.............................. 1,835 9,600 11,435
Home equity............................... 31,128 6,862 37,990
Commercial and multi-family............... 44,312 150,046 194,358
Commercial business....................... 4,058 8,150 12,208
Consumer.................................. 433 -- 433
----------- --------- ---------
Total amount due.......................... $ 115,187 $ 209,431 $ 324,618
=========== ========= =========
The Bank has strengthened certain loan underwriting criteria in an effort to
more prudently make loan facility determinations and mitigate increased
potential loan loss provisions prospectively.
Commercial and Multi-family Real Estate Loans. Our commercial and
multi-family real estate loans are secured by commercial real estate (for
example, shopping centers, medical buildings, retail offices) and multi-family
residential units, consisting of five or more units. Permanent loans on
commercial and multi-family properties are generally originated in amounts up to
75% of the appraised value of the property. Our commercial real estate loans are
secured by improved property such as office buildings, retail stores,
warehouses, church buildings and other non-residential buildings. Commercial and
multi-family real estate loans are generally made at rates that adjust above the
five year U.S. Treasury interest rate, with terms of up to 25 years, or are
balloon loans with fixed interest rates which generally mature in three to five
years with principal amortization for a period of up to 30 years. Our largest
commercial loan had a principal balance of $2.4 million at December 31, 2008,
and was secured by a mixed use property comprised of retail and office
facilities. Our largest multi-family loan had a principal balance of $4.4
million at December 31, 2008. Both loans were performing in accordance with
their terms on that date.
6
Loans secured by commercial and multi-family real estate are generally
larger and involve a greater degree of risk than one- to four-family residential
mortgage loans. The borrower's creditworthiness and the feasibility and cash
flow potential of the project is of primary concern in commercial and
multi-family real estate lending. Loans secured by income properties are
generally larger and involve greater risks than residential mortgage loans
because payments on loans secured by income properties are often dependent on
the successful operation or management of the properties. As a result, repayment
of such loans may be subject to a greater extent than residential real estate
loans to adverse conditions in the real estate market or the economy. We intend
to continue emphasizing the origination of loans secured by commercial real
estate and multi-family properties.
One- to Four-Family Lending. Our one- to four-family residential mortgage
loans are secured by property located in the State of New Jersey. We generally
originate one- to four-family residential mortgage loans in amounts up to 80% of
the lesser of the appraised value or selling price of the mortgaged property
without requiring mortgage insurance. We will originate loans with loan to value
ratios up to 90% provided the borrowers obtain private mortgage insurance. We
originate both fixed rate and adjustable rate loans. One- to four-family loans
may have terms of up to 30 years. The majority of one- to four-family loans we
originate for retention in our portfolio have terms no greater than 15 years. We
offer adjustable rate loans with fixed rate periods of up to five years, with
principal and interest calculated using a maximum 30-year amortization period.
We offer these loans with a fixed rate for the first five years with repricing
following every year after the initial period. Adjustable rate loans may adjust
up to 200 basis points annually and 600 basis points over the term of the loan.
We also broker for a third party lender one- to four-family residential loans,
which are primarily fixed rate loans with terms of 30 years. Our loan brokerage
activities permit us to offer customers longer-term fixed rate loans we would
not otherwise originate while providing a source of fee income. During 2008, we
brokered $6.6 million in one- to four-family loans and recognized gains of
$137,000 from the sale of such loans.
All of our one- to four-family mortgages include "due on sale" clauses,
which are provisions giving us the right to declare a loan immediately payable
if the borrower sells or otherwise transfers an interest in the property to a
third party.
Property appraisals on real estate securing our single-family residential
loans are made by state certified and licensed independent appraisers approved
by our Board of Directors. Appraisals are performed in accordance with
applicable regulations and policies. At our discretion, we obtain either title
insurance policies or attorneys' certificates of title on all first mortgage
real estate loans originated. We also require fire and casualty insurance on all
properties securing our one- to four-family loans. We also require the borrower
to obtain flood insurance where appropriate. In some instances, we charge a fee
equal to a percentage of the loan amount commonly referred to as points.
Construction Loans. We offer loans to finance the construction of various
types of commercial and residential property. We originated $15.6 million of
such loans during the year ended December 31, 2008. Construction loans to
builders generally are offered with terms of up to eighteen months and interest
rates are tied to the prime rate plus a margin. These loans
7
generally are offered as adjustable rate loans. We will originate residential
construction loans for individual borrowers and builders, provided all necessary
plans and permits are in order. Construction loan funds are disbursed as the
project progresses. At December 31, 2008, our largest construction loan was $5.0
million, of which $3.0 million was disbursed. This construction loan has been
made for the construction of residential properties. At December 31, 2008, this
loan was performing in accordance with its terms.
Construction financing is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, occupied real estate. Risk
of loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction and
development and the estimated cost (including interest) of construction. During
the construction phase, a number of factors could result in delays and cost
overruns. If the estimate of construction costs proves to be inaccurate, we may
be required to advance funds beyond the amount originally committed to permit
completion of the project. Additionally, if the estimate of value proves to be
inaccurate, we may be confronted, at or prior to the maturity of the loan, with
a project having a value which is insufficient to assure full repayment.
Home Equity Loans and Home Equity Lines of Credit. We offer home equity
loans and lines of credit that are secured by the borrower's primary residence.
Our home equity loans can be structured as loans that are disbursed in full at
closing or as lines of credit. Home equity loans and lines of credit are offered
with terms up to 15 years. Virtually all of our home equity loans are originated
with fixed rates of interest and home equity lines of credit are originated with
adjustable interest rates tied to the prime rate. Home equity loans and lines of
credit are underwritten under the same criteria that we use to underwrite one-
to four-family loans. Home equity loans and lines of credit may be underwritten
with a loan-to-value ratio of 80% when combined with the principal balance of
the existing mortgage loan. At the time we close a home equity loan or line of
credit, we file a mortgage to perfect our security interest in the underlying
collateral. At December 31, 2008, the outstanding balances of home equity loans
and lines of credit totaled $38.1 million, or 9.22% of our loan portfolio.
Commercial Business Loans. Our commercial business loans are underwritten
on the basis of the borrower's ability to service such debt from income. Our
underwriting standards for commercial business loans include a review of the
applicant's tax returns, financial statements, credit history and an assessment
of the applicant's ability to meet existing obligations and payments on the
proposed loan based on cash flow generated by the applicant's business.
Commercial business loans are generally made to small and mid-sized companies
located within the State of New Jersey. In most cases, we require collateral of
equipment, accounts receivable, inventory, chattel or other assets before making
a commercial business loan. Our largest commercial business loan at December 31,
2008 had a principal balance of $2.7 million and was secured by marketable
equity securities. We have also received personal guarantees from the borrower,
principals of the borrower and a director of BCB Bancorp, Inc. As of December
31, 2008, this loan was performing according to its terms. The Bank continues to
monitor the value of the underlying collateral of this loan on a regular basis.
Commercial business loans generally have higher rates and shorter terms
than one- to four-family residential loans, but they may also involve higher
average balances and a higher
8
risk of default since their repayment generally depends on the successful
operation of the borrower's business.
Consumer Loans. We make various types of secured and unsecured consumer
loans and loans that are collateralized by new and used automobiles. Consumer
loans generally have terms of three years to ten years.
Consumer loans are advantageous to us because of their interest rate
sensitivity, but they also involve more credit risk than residential mortgage
loans because of the higher potential for default, the nature of the collateral
and the difficulty in disposing of the collateral.
The following table shows our loan origination, purchase, sale and
repayment activities for the periods indicated.
Years Ended December 31,
--------------------------------------------------------------
2008 2007 2006 2005 2004
---------- ---------- ---------- ---------- ----------
(In Thousands)
Beginning of period ............................ $ 369,349 $ 322,438 $ 288,145 $ 249,315 $ 191,138
---------- ---------- ---------- ---------- ----------
Originations by Type:
---------------------
Real estate mortgage:
One- to four-family residential .......... 9,683 6,454 9,203 4,299 4,103
Construction ............................. 15,591 48,415 34,889 35,765 19,326
Home equity .............................. 9,699 14,512 15,821 13,998 14,212
Commercial and multi-family .............. 63,601 55,892 51,542 70,471 64,219
Commercial business ......................... 11,624 16,987 7,946 8,968 8,628
Consumer .................................... 492 215 222 203 284
---------- ---------- ---------- ---------- ----------
Total loans originated ................ 110,690 142,475 119,623 133,704 110,772
---------- ---------- ---------- ---------- ----------
Purchases:
----------
Real estate mortgage:
One- to four-family residential .......... -- -- -- -- --
Construction ............................. 113 3,726 4,870 3,645 4,289
Home equity .............................. -- -- -- -- --
Commercial and multi-family .............. -- 5,267 1,737 -- 8,450
Commercial business ......................... -- 600 400 1,000 --
Consumer .................................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total loans purchased ................. 113 9,593 7,007 4,645 12,739
---------- ---------- ---------- ---------- ----------
Sales:
------
Real estate mortgage:
One- to four-family residential .......... -- -- -- -- --
Construction ............................. 2,523 5,040 2,044 1,273 959
Home equity .............................. -- -- -- -- --
Commercial and multi-family .............. -- 1,275 3,388 -- 788
Commercial business ......................... -- -- -- -- 1,128
Consumer .................................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total loans sold ...................... 2,523 6,315 5,432 1,273 2,875
---------- ---------- ---------- ---------- ----------
Principal repayments ........................ 63,651 97,396 86,905 98,246 62,459
Transfer of loans to real estate owned ...... 1,194 1,446 -- -- --
---------- ---------- ---------- ---------- ----------
Total reductions ...................... 64,845 98,842 92,337 99,519 65,334
---------- ---------- ---------- ---------- ----------
Net increase .......................... 43,435 46,911 34,293 38,830 58,177
---------- ---------- ---------- ---------- ----------
Ending balance ........................ $ 412,784 $ 369,349 $ 322,438 $ 288,145 $ 249,315
========== ========== ========== ========== ==========
Loan Approval Authority and Underwriting. We establish various lending
limits for executive management and also maintain a loan committee. The loan
committee is comprised of the Chairman of the Board, the President, the Senior
Lending Officer and five non-employee
9
members of the Board of Directors. The President or the Senior Lending Officer,
together with one other loan officer, have authority to approve applications for
real estate loans up to $500,000, other secured loans up to $500,000 and
unsecured loans up to $25,000. The loan committee considers all applications in
excess of the above lending limits and the entire board of directors ratifies
all such loans.
Upon receipt of a completed loan application from a prospective borrower,
a credit report is ordered. Income and certain other information is verified. If
necessary, additional financial information may be requested. An appraisal is
required for the underwriting of all one- to four-family loans. We may rely on
an estimate of value of real estate performed by our Senior Lending Officer for
home equity loans or lines of credit of up to $250,000. Appraisals are processed
by state certified independent appraisers approved by the Board of Directors.
An attorney's certificate of title is required on all newly originated
real estate mortgage loans. In connection with refinancing and home equity loans
or lines of credit in amounts up to $250,000, we will obtain a record owner's
search in lieu of an attorney's certificate of title. Borrowers also must obtain
fire and casualty insurance. Flood insurance is also required on loans secured
by property that is located in a flood zone.
Loan Commitments. Written commitments are given to prospective borrowers
on all approved real estate loans. Generally, we honor commitments for up to 60
days from the date of issuance. At December 31, 2008, our outstanding loan
origination commitments totaled $5.7 million, outstanding construction loans in
progress totaled $25.7 million and undisbursed lines of credit totaled $14.8
million.
Loan Delinquencies. We send a notice of nonpayment to borrowers when their
loan becomes 15 days past due. If such payment is not received by month end, an
additional notice of nonpayment is sent to the borrower. After 60 days, if
payment is still delinquent, a notice of right to cure default is sent to the
borrower giving 30 additional days to bring the loan current before foreclosure
is commenced. If the loan continues in a delinquent status for 90 days past due
and no repayment plan is in effect, foreclosure proceedings will be initiated.
In an effort to more closely monitor the performance of our loan portfolio and
asset quality, the Bank has created various concentration of credit reports,
specifically as it relates to our construction and commercial real estate
portfolios. These reports stress test declining values in the aforementioned
portfolios up to and including a 25% value deprecation to the original appraised
value to ascertain our potential exposure.
Loans are reviewed and are placed on a non-accrual status and the accrual
of interest is discontinued when the loan becomes more than 90 days delinquent
or when, in our opinion, the collection of additional interest is doubtful.
Subsequent interest payments, if any, are either applied to the outstanding
principal balance or recorded as interest income, depending on the assessment of
the ultimate collectability of the loan. At December 31, 2008, we had $3.7
million in non-accruing loans. Our largest exposure of non-performing loans at
that date consisted of three loans, with one specific borrower with a total
principal balance of $2.0 million, collateralized by several parcels of real
estate whose total appraised value was approximately $3.2 million as of that
date. Another loan relationship consisting of three loans with one specific
borrower and a total balance of $1.1 million is also in non-accrual status. This
borrower is in
10
foreclosure and there is the prospect, upon conveyance and disposition of the
properties, that the Bank may incur a loss as the value of the properties
secured as collateral for these loans have depreciated in value.
A loan is considered impaired when it is probable the borrower will not
repay the loan according to the original contractual terms of the loan
agreement. We have determined that first mortgage loans on one- to four-family
properties and all consumer loans represent large groups of smaller-balance
homogeneous loans that are collectively evaluated for impairment. Additionally,
we have determined that an insignificant delay (less than 90 days) will not
cause a loan to be classified as impaired and a loan is not impaired during a
period of delay in payment, if we expect to collect all amounts due including
interest accrued at the contractual interest rate for the period of delay. We
independently evaluate all loans identified as impaired. We estimate credit
losses on impaired loans based on the present value of expected cash flows or
the fair value of the underlying collateral if the loan repayment is derived
from the sale or operation of such collateral. Impaired loans, or portions of
such loans, are charged off when we determine that a realized loss has occurred.
Until such time, an allowance for loan losses is maintained for estimated
losses. Cash receipts on impaired loans are applied first to accrued interest
receivable unless otherwise required by the loan terms, except when an impaired
loan is also a nonaccrual loan, in which case the portion of the receipts
related to interest is recognized as income. At December 31, 2008, we had nine
loans totaling $3.7 million which are classified as impaired and on which loan
loss allowances totaling $881,000 have been established. During 2008, interest
income of $138,000 was recognized on impaired loans.
The following table sets forth delinquencies in our loan portfolio as of
the dates indicated:
At December 31, 2008 At December 31, 2007
----------------------------------------- ---------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
------------------ -------------------- ------------------ ------------------
Number Principal Principal Number Principal Number Principal
of Balance Number Balance of Balance of Balance
Loans of Loans of Loans of Loans Loans of Loans Loans of Loans
------ --------- -------- --------- ------ --------- ------ ---------
(Dollars in Thousands)
Real estate mortgage:
---------------------
One- to four-
family residential .................... 3 $ 1,507 4 $ 1,213 -- $ -- 1 $ 319
Construction .......................... 1 360 -- -- -- -- 1 1,247
Home equity ........................... -- -- -- -- -- -- 1 149
Commercial and multi-family ........... 2 265 5 2,515 2 1,770 5 2,558
------ --------- -------- --------- ------ --------- ------ ---------
Total ................................. 6 2,132 9 3,728 2 1,770 8 4,273
Commercial business ...................... -- -- -- -- -- -- -- --
Consumer ................................. -- -- -- -- -- -- -- --
------ --------- -------- --------- ------ --------- ------ ---------
Total delinquent loans ............. 6 $ 2,132 9 $ 3,728 2 $ 1,770 8 $ 4,273
====== ========= ======== ========= ====== ========= ====== =========
Delinquent loans to total loans .......... 0.51% 0.90% 0.48% 1.16%
========= ========= ========= =========
11
At December 31, 2006 At December 31, 2005
------------------------------------------- ---------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- -------------------- ------------------ ------------------
Number Principal Principal Number Principal Number Principal
of Balance Number Balance of Balance of Balance
Loans of Loans of Loans of Loans Loans of Loans Loans of Loans
-------- --------- -------- --------- ------ --------- ------ ---------
(Dollars in Thousands)
Real estate mortgage:
---------------------
One- to four-
family residential ................. -- $ -- -- $ -- -- $ -- 1 $ 79
Construction .......................... 1 1,356 -- -- -- -- -- --
Home equity ........................... -- -- -- -- -- -- -- --
Commercial and multi-family ........... -- -- 1 307 -- -- 4 803
------ --------- -------- --------- ------ --------- ------ ---------
Total ................................. 1 1,356 1 307 -- -- 5 882
Commercial business ...................... -- -- -- -- -- -- 1 150
Consumer ................................. 1 2 1 16 -- -- -- --
------ --------- -------- --------- ------ --------- ------ ---------
Total delinquent loans ............. 2 $ 1,358 2 $ 323 -- $ -- 6 $ 1,032
====== ========= ======== ========= ====== ========= ====== =========
Delinquent loans to total loans .......... 0.42% 0.10% --% 0.36%
========= ========= ========= =========
At December 31, 2004
-------------------------------------------
60-89 Days 90 Days or More
-------------------- --------------------
Principal Principal
Number Balance Number Balance
of Loans of Loans of Loans of Loans
-------- --------- -------- ---------
(Dollars in Thousands)
Real estate mortgage:
---------------------
One- to four-
family residential ................. -- $ -- 1 $ 173
Construction .......................... -- -- -- --
Home equity ........................... 1 29 -- --
Commercial and multi-family ........... -- -- 1 313
-------- --------- -------- ---------
Total ................................. 1 29 2 486
Commercial business ...................... 1 123 3 515
Consumer ................................. -- -- 1 3
-------- --------- -------- ---------
Total delinquent loans ............ 2 $ 152 6 $ 1,004
======== ========= ======== =========
Delinquent loans to total loans .......... 0.06% 0.40%
========= =========
12
The table below sets forth the amounts and categories of non-performing
assets in the Bank's loan portfolio. Loans are placed on non-accrual status when
the collection of principal and/or interest become doubtful. For all years
presented, BCB Community Bank has had no troubled debt restructurings (which
involve forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than that of market rates). Foreclosed assets
include assets acquired in settlement of loans.
At December 31,
-----------------------------------------------
2008 2007 2006 2005 2004
------- ------- ------- ------- -------
(Dollars in Thousands)
Non-accruing loans:
-------------------
One- to four-family residential ............... $ 1,213 $ 319 $ -- $ -- $ 173
Construction .................................. -- 1,247 -- -- --
Home equity ................................... -- 149 -- -- --
Commercial and multi-family ................... 2,515 2,039 307 637 313
Commercial business ........................... -- -- -- 150 67
Consumer ...................................... -- -- 16 -- --
------- ------- ------- ------- -------
Total ...................................... 3,728 3,754 323 787 553
------- ------- ------- ------- -------
Accruing loans delinquent more than 90 days:
--------------------------------------------
One- to four-family residential ............... -- -- -- -- --
Construction .................................. -- -- -- -- --
Home equity ................................... -- -- -- -- --
Commercial and multi-family ................... -- 519 -- 166 --
Commercial business ........................... -- -- -- -- 448
Consumer ...................................... -- -- -- 79 3
------- ------- ------- ------- -------
Total ...................................... -- 519 -- 245 451
------- ------- ------- ------- -------
Total non-performing loans ....................... 3,728 4,273 323 1,032 1,004
Foreclosed assets ................................ 1,435 287 -- -- 6
------- ------- ------- ------- -------
Total non-performing assets ...................... $ 5,163 $ 4,560 $ 323 $ 1,032 $ 1,010
======= ======= ======= ======= =======
Total non-performing assets as a percentage
of total assets ............................... 0.89% 0.81% 0.06% 0.22% 0.27%
======= ======= ======= ======= =======
Total non-performing loans as a percentage
of total loans ................................ 0.90% 1.16% 0.10% 0.36% 0.40%
======= ======= ======= ======= =======
For the year ended December 31, 2008, gross interest income which would
have been recorded had our non-accruing loans been current in accordance with
their original terms amounted to $289,000. We received and recorded $138,000 in
interest income for such loans for the year ended December 31, 2008.
Classified Assets. Our policies provide for a classification system for
problem assets. Under this classification system, problem assets are classified
as "substandard," "doubtful," "loss" or "special mention." An asset is
considered substandard if it is inadequately protected by its current net worth
and paying capacity of the borrower or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that "some loss" will be sustained if the deficiencies are not corrected. Assets
classified as doubtful have all the weaknesses inherent in those classified
substandard with the added characteristic that the weakness present makes
"collection or liquidation in full" on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as loss are those considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss reserve is
not warranted, and the loan is charged-off. Assets may be designated special
mention because of potential weaknesses that do not currently warrant
classification in one of the aforementioned categories.
13
When we classify problem assets, we may establish general allowances for
loan losses in an amount deemed prudent by management. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. A portion of general loss
allowances established to cover possible losses related to assets classified as
substandard or doubtful may be included in determining our regulatory capital.
Specific valuation allowances for loan losses generally do not qualify as
regulatory capital. At December 31, 2008, we had $12,000 in assets classified as
doubtful, $3.4 million in assets classified as substandard, all of which were
also classified as impaired and $3.0 million in assets classified as special
mention, of which $341,000 was classified as impaired. The loans classified as
substandard represent primarily commercial loans secured either by residential
real estate, commercial real estate or heavy equipment.
Allowances for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses that may be incurred
in our loan portfolio. The evaluation, including a review of all loans on which
full collectability of interest and principal may not be reasonably assured,
considers: (1) the risk characteristics of the loan portfolio; (2) current
economic conditions; (3) actual losses previously experienced; (4) the level of
loan growth; and (5) the existing level of reserves for loan losses that are
possible and estimable.
We monitor our allowance for loan losses and make additions to the
allowance as economic conditions dictate. Although we maintain our allowance for
loan losses at a level that we consider adequate for the inherent risk of loss
in our loan portfolio, future losses could exceed estimated amounts and
additional provisions for loan losses could be required. In addition, our
determination of the amount of the allowance for loan losses is subject to
review by the New Jersey Department of Banking and Insurance and the FDIC, as
part of their examination process. After a review of the information available,
our regulators might require the establishment of an additional allowance. Any
increase in the loan loss allowance required by regulators would have a negative
impact on our earnings.
14
The following table sets forth an analysis of the Bank's allowance for
loan losses.
Years Ended December 31,
--------------------------------------------------------------
2008 2007 2006 2005 2004
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
Balance at beginning of period................. $ 4,065 $ 3,733 $ 3,090 $ 2,506 $ 2,113
---------- ---------- ---------- ---------- ----------
Charge-offs:
------------
One- to four-family residential............. -- -- -- -- --
Construction................................ 90 270 -- -- --
Home equity................................. -- -- -- -- --
Commercial and multi-family................. -- -- -- -- --
Commercial business......................... 3 -- 66 522 332
Consumer.................................... 8 15 1 24 --
---------- ---------- ---------- ---------- ----------
Total charge-offs.............................. 101 285 67 546 332
---------- ---------- ---------- ---------- ----------
Recoveries..................................... 40 17 85 12 35
Net charge-offs (recoveries)................... 61 268 (18) 534 297
Provisions charged to operations............... 1,300 600 625 1,118 690
---------- ---------- ========== ---------- ==========
Ending balance................................. $ 5,304 $ 4,065 $ 3,733 $ 3,090 $ 2,506
========== ---------- ========== ---------- ==========
Ratio of non-performing assets to total assets
at the end of period........................ 0.89% 0.81% 0.06% 0.22% 0.27%
========== ========== ========== ========== ==========
Allowance for loan losses as a percent of total
loans outstanding........................... 1.28% 1.10% 1.16% 1.07% 1.01%
========== ========== ========== ========== ==========
Ratio of net charge-offs (recoveries) during
the period to average loans outstanding
during the period........................... 0.02% 0.09% (0.01)% 0.19% 0.13%
========== ========== ========== ========== ==========
Ratio of net charge-offs (recoveries) during
the period to non-performing loans.......... 1.64% 6.27% (5.57)% 51.74% 29.58%
========== ========== ========== ========== ==========
15
Allocation of the Allowance for Loan Losses. The following table
illustrates the allocation of the allowance for loan losses for each category of
loan. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict our
use of the allowance to absorb losses in other loan categories.
At December 31,
-------------------------------------------------------------------------------------------------------
2008 2007 2006 2005 2004
------------------- ------------------- ------------------- ------------------- -------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
each each each each each
Category in Category in Category in Category in Category in
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
Type of loan:
One- to four-family.... $ 688 17.94% $ 221 14.96% $ 69 13.64% $ 76 12.11% $ 78 13.98%
Construction........... 941 15.14 885 13.53 1,068 12.06 329 9.98 217 7.70
Home equity............ 167 9.22 172 9.58 126 10.02 91 8.43 82 8.27
Commercial and multi-
family............... 3,175 54.07 2,476 56.35 2,285 59.60 2,180 64.26 1,669 63.68
Commercial business.... 216 3.42 262 5.38 168 4.56 401 5.06 444 6.07
Consumer............... 117 0.21 49 0.20 17 0.12 13 0.16 16 0.30
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total................ $5,304 100.00% $4,065 100.00% $3,733 100.00% $3,090 100.00% $2,506 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
16
Investment Activities
---------------------
Investment Securities. We are required under federal regulations to
maintain a minimum amount of liquid assets that may be invested in specified
short-term securities and certain other investments. The level of liquid assets
varies depending upon several factors, including: (i) the yields on investment
alternatives, (ii) our judgment as to the attractiveness of the yields then
available in relation to other opportunities, (iii) expectation of future yield
levels, and (iv) our projections as to the short-term demand for funds to be
used in loan origination and other activities. Investment securities, including
mortgage-backed securities, are classified at the time of purchase, based upon
management's intentions and abilities, as securities held-to-maturity or
securities available for sale. Debt securities acquired with the intent and
ability to hold to maturity are classified as held-to-maturity and are stated at
cost and adjusted for amortization of premium and accretion of discount, which
are computed using the level yield method and recognized as adjustments of
interest income. All other debt and equity securities are classified as
available for sale to serve principally as a source of liquidity. During 2008,
the Bank recorded an other than temporary impairment (OTTI) charge of $2.9
million on a $3.0 million investment in Federal National Mortgage Association
(FNMA) preferred stock. This OTTI charge resulted from a significant decline in
the market value of these securities following the announcement by the Federal
Housing Finance Agency (FHFA) that FNMA would be placed in conservatorship.
Additionally, the FHFA eliminated the payment of dividends on common and
preferred stock and assumed the powers of the Board and management of FNMA.
Based on these factors, the Company evaluated the impairment as other than
temporary.
Current regulatory and accounting guidelines regarding investment
securities require us to categorize securities as held-to-maturity, available
for sale or trading. As of December 31, 2008, we had $141.3 million of
securities classified as held-to-maturity, $888,000 in securities classified as
available for sale, and no securities classified as trading. Securities
classified as available for sale are reported for financial reporting purposes
at the fair value with net changes in the fair value from period to period
included as a separate component of stockholders' equity, net of income taxes.
At December 31, 2008, our securities classified as held-to-maturity had a fair
value of $141.1 million. Changes in the fair value of securities classified as
held-to-maturity do not affect our income. Management has the intent and we have
the ability to hold securities classified as held-to-maturity. During the year
ended December 31, 2008, we had no securities sales.
At December 31, 2008, our investment policy allowed investments in
instruments such as: (i) U.S. Treasury obligations; (ii) U.S. federal agency or
federally sponsored agency obligations; (iii) mortgage-backed securities; and
(iv) certificates of deposit. The Board of Directors may authorize additional
investments. At December 31, 2008, our U.S. Government agency securities totaled
$98.6 million, all of which were classified as held-to-maturity and which
primarily consisted of callable securities issued by government sponsored
enterprises.
As a source of liquidity and to supplement our lending activities, we have
invested in residential mortgage-backed securities. Mortgage-backed securities
generally yield less than the loans that underlie such securities because of the
cost of payment guarantees or credit enhancements that reduce credit risk.
Mortgage-backed securities can serve as collateral for borrowings and, through
repayments, as a source of liquidity. Mortgage-backed securities
17
represent a participation interest in a pool of single-family or other type of
mortgages. Principal and interest payments are passed from the mortgage
originators, through intermediaries (generally government-sponsored enterprises)
that pool and repackage the participation interests in the form of securities,
to investors, like us. The government-sponsored enterprises guarantee the
payment of principal and interest to investors and include Freddie Mac, Ginnie
Mae, and Fannie Mae.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgage loans that have interest
rates that are within a set range and have varying maturities. The underlying
pool of mortgages can be composed of either fixed rate or adjustable rate
mortgage loans. Mortgage-backed securities are generally referred to as mortgage
participation certificates or pass-through certificates. The interest rate risk
characteristics of the underlying pool of mortgages (i.e., fixed rate or
adjustable rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Expected maturities will differ from contractual
maturities due to scheduled repayments and because borrowers may have the right
to call or prepay obligations with or without prepayment penalties.
Securities Portfolio. The following table sets forth the carrying value of
our securities portfolio and Federal funds at the dates indicated.
At December 31,
---------------------------------
2008 2007 2006
--------- --------- ---------
(In Thousands)
Securities available for sale:
Equity securities........................ $ 888 $ 2,056 $ --
--------- --------- ---------
Securities held to maturity:
U.S. Government and Agency securities.... 98,607 130,156 122,594
Mortgage-backed securities............... 42,673 34,861 26,078
--------- --------- ---------
Total securities held to maturity...... 141,280 165,017 148,672
Money market funds......................... -- 3,500 17,500
FHLB stock................................. 5,736 5,560 3,724
--------- --------- ---------
Total investment securities.............. $ 147,904 $ 176,133 $ 169,896
========= ========= =========
18
The following table shows our securities held-to-maturity purchase, sale
and repayment activities for the periods indicated.
Years Ended December 31,
---------------------------------
2008 2007 2006
--------- --------- ---------
(In Thousands)
Purchases:
Fixed-rate.............................. $ 60,606 $ 37,338 $ 37,500
--------- --------- ---------
Total purchases....................... $ 60,606 $ 37,338 $ 37,500
--------- --------- ---------
Sales:
Fixed-rate.............................. $ -- $ -- $ --
--------- --------- ---------
Total sales........................... $ -- $ -- $ --
--------- --------- ---------
Principal Repayments:
Repayment of principal.................. $ 84,400 $ 21,010 $ 28,845
--------- --------- ---------
Increase in other items, net............ (58) 17 15
--------- --------- --------
Net increases......................... $ (23,850) $ 16,345 $ 8,670
========= ========= =========
19
Maturities of Securities Portfolio. The following table sets forth
information regarding the scheduled maturities, carrying values, estimated
market values, and weighted average yields for the Bank's debt securities at
December 31, 2008 by contractual maturity. The following table does not take
into consideration the effects of scheduled repayments or the effects of
possible prepayments.
As of December 31, 2008
---------------------------------------------------------------------------------------------------------
More than More than five to Total debt investment
Within one year One to five years ten years More than ten years securities
----------------- ----------------- ----------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Fair Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Value Yield
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------- -------
(Dollars in Thousands)
U.S. government agency
securities............ $ -- --% $ 6,315 4.68% $ 6,000 5.31% $ 86,292 6.01% $ 99,187 $ 98,607 5.89%
Mortgage-backed
securities............ -- -- 88 6.00 2,336 5.25 40,249 5.26 41,393 42,673 5.26
-------- -------- -------- -------- ------------------
Total debt investment
securities.......... $ -- --% $ 6,403 4.70% $ 8,336 5.29% $126,541 5.77% $140,580 $141,280 5.70%
======== ======== ======== ======== ======== ========
20
Sources of Funds
----------------
Our major external source of funds for lending and other investment
purposes are deposits. Funds are also derived from the receipt of payments on
loans, prepayment of loans, maturities of investment securities and
mortgage-backed securities and borrowings. Scheduled loan principal repayments
are a relatively stable source of funds, while deposit inflows and outflows and
loan prepayments are significantly influenced by general interest rates and
market conditions.
Deposits. Consumer and commercial deposits are attracted principally from
within our primary market area through the offering of a selection of deposit
instruments including demand, NOW, savings and club accounts, money market
accounts, and term certificate accounts. Deposit account terms vary according to
the minimum balance required, the time period the funds must remain on deposit,
and the interest rate.
The interest rates paid by us on deposits are set at the direction of our
senior management. Interest rates are determined based on our liquidity
requirements, interest rates paid by our competitors, our growth goals, and
applicable regulatory restrictions and requirements. At December 31, 2008, we
had no brokered deposits.
Deposit Accounts. The following table sets forth the dollar amount of
deposits in the various types of deposit programs we offered as of the dates
indicated.
December 31,
------------------------------------------------------------------
2008 2007 2006
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Rate(1) Amount Rate(1) Amount Rate(1) Amount
-------- --------- -------- --------- -------- ---------
(Dollars in Thousands)
Demand ........................ --% $ 30,561 --% $ 35,897 --% $ 35,275
NOW ........................... 1.25 25,843 1.40 20,260 1.41 21,007
Money market .................. 2.79 19,539 4.14 27,697 3.70 8,022
Savings and club accounts ..... 1.36 99,586 1.71 100,441 1.91 117,617
Certificates of deposit ....... 4.13 234,974 4.82 214,524 4.28 200,826
--------- --------- ---------
Total ...................... 2.84% $ 410,503 3.30% $ 398,819 2.99% $ 382,747
========= ========= =========
----------
(1) Represents the average rate paid during the year.
The following table sets forth our deposit flows during the periods
indicated.
Years Ended December 31,
----------------------------------
2008 2007 2006
--------- --------- ----------
(Dollars in Thousands)
Beginning of period ....................... $ 398,819 $ 382,747 $ 362,851
--------- --------- ---------
Net deposits .............................. 107 3,135 9,241
Interest credited on deposit accounts ..... 11,577 12,937 10,655
--------- --------- ---------
Total increase in deposit accounts ..... 11,684 16,072 19,896
--------- --------- ---------
Ending balance ............................ $ 410,503 $ 398,819 $ 382,747
========= ========= =========
Percent increase .......................... 2.93% 4.20% 5.48%
21
Jumbo Certificates of Deposit. As of December 31, 2008, the aggregate
amount of outstanding certificates of deposit in amounts greater than or equal
to $100,000 was approximately $118.4 million. The following table indicates the
amount of our certificates of deposit of $100,000 or more by time remaining
until maturity.
At December 31, 2008
---------------------
Maturity Period (In Thousands)
---------------
Within three months ................ $ 40,931
Three through twelve months ........ 50,533
Over twelve months ................. 26,903
----------
Total .............................. $ 118,367
==========
The following table presents, by rate category, our certificate of deposit
accounts as of the dates indicated.
At December 31,
---------------------------------------------------------------------
2008 2007 2006
------------------- ----------------------- ---------------------
Amount Percent Amount Percent Amount Percent
--------- ------- ---------- ---------- --------- ---------
(Dollars in Thousands)
Certificate of deposit rates:
1.00% - 1.99%................... $ 245 0.10% $ 929 0.43% $ 1,539 0.76%
2.00% - 2.99%.................. 42,847 18.23 698 0.33 1,511 0.75
3.00% - 3.99%.................. 107,017 45.54 41,048 19.14 27,595 13.74
4.00% - 4.99%.................. 74,084 31.53 64,688 30.15 89,740 44.69
5.00% - 5.99%.................. 10,781 4.60 107,161 49.95 80,441 40.06
--------- ------- ---------- ---------- --------- ---------
Total....................... $ 234,974 100.00% $ 214,524 100.00% $ 200,826 100.00%
========= ======= ========== ========== ========= =========
The following table presents, by rate category, the remaining period to
maturity of certificate of deposit accounts outstanding as of December 31, 2008.
Maturity Date
----------------------------------------------------------
1 Year Over 1 Over 2 Over
or Less to 2 Years to 3 Years 3 Years Total
-------- ---------- ---------- --------- ---------
(In Thousands)
Interest rate:
1.00% - 1.99%............................. $ 245 $ -- $ -- $ -- $ 245
2.00% - 2.99%............................. 42,555 242 -- 50 42,847
3.00% - 3.99%............................. 93,747 1,766 3,387 8,117 107,017
4.00%-4.99%............................... 42,650 27,394 3,922 118 74,084
5.00%-5.99%............................... 8,915 1,779 87 -- 10,781
-------- ---------- ---------- --------- ---------
Total.................................. $188,112 $ 31,181 $ 7,396 $ 8,285 $ 234,974
======== ========== ========== ========= =========
Borrowings. Our advances from the FHLB of New York are secured by a pledge
of our stock in the FHLB of New York and investment securities. Each FHLB credit
program has its own interest rate, which may be fixed or adjustable, and range
of maturities. If the need arises, we may also access the Federal Reserve Bank
discount window to supplement our supply of funds that we can loan and to meet
deposit withdrawal requirements. During the year ended December 31, 2008 we
utilized short term borrowings in the form of an overnight line of credit with
the FHLB of New York and during the year ended December 31, 2007, we had no
short-term borrowings. Our maximum short-term borrowings outstanding during 2008
was $24.0 million. At December 31, 2008, we had the ability to borrow
approximately $113.1 million under our credit facilities with the FHLB of New
York.
22
The following table sets forth information concerning balances and
interest rates on our short-term borrowings at the dates and for the periods
indicated.
At or For the Years Ended December 31,
--------------------------------------
2008 2007 2006
-------------- ------- ---------
(Dollars in Thousands)
Balance at end of period............. $ 2,000 $ -- $ --
Average balance during period........ $ 4,796 $ -- $ 705
Maximum outstanding at any
month end ........................ $ 20,500 $ -- $ 1,000
Weighted average interest rate at
end of period .................... 0.44% -- --
Average interest rate during
period ........................... 1.23% -- 4.93%
Employees
---------
At December 31, 2008, we had 66 full-time and 27 part-time employees. None
of our employees is represented by a collective bargaining group. We believe
that our relationship with our employees is good.
Subsidiaries
------------
We have one non-bank subsidiary. BCB Holding Company Investment Corp. was
established in 2004 for the purpose of holding and investing in securities. Only
securities authorized to be purchased by BCB Community Bank are held by BCB
Holding Company Investment Corp. At December 31, 2008, this company held $130.3
million in securities.
Supervision and Regulation
--------------------------
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended to protect
depositors, not shareholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in the applicable law or regulation may have a material effect on the business
and prospects of the Company and the Bank.
Bank Holding Company Regulation. As a bank holding company registered
under the Bank Holding Company Act of 1956, as amended, the Company is subject
to the regulation and supervision applicable to bank holding companies by the
Board of Governors of the Federal Reserve System. The Company is required to
file with the Federal Reserve annual reports and other information regarding its
business operations and those of its subsidiaries.
The Bank Holding Company Act requires, among other things, the prior
approval of the Federal Reserve in any case where a bank holding company
proposes to (i) acquire all or substantially all of the assets of any other
bank, (ii) acquire direct or indirect ownership or control of more than 5% of
the outstanding voting stock of any bank (unless it owns a majority of such
company's voting shares) or (iii) merge or consolidate with any other bank
holding company. The Federal Reserve will not approve any acquisition, merger,
or consolidation that would have a substantially anti-competitive effect, unless
the anti-competitive impact of the proposed transaction is clearly outweighed by
a greater public interest in meeting the convenience and needs of the community
to be served. The Federal Reserve also considers
23
capital adequacy and other financial and managerial resources and future
prospects of the companies and the banks concerned, together with the
convenience and needs of the community to be served, when reviewing acquisitions
or mergers.
The Bank Holding Company Act generally prohibits a bank holding company,
with certain limited exceptions, from (i) acquiring or retaining direct or
indirect ownership or control of more than 5% of the outstanding voting stock of
any company which is not a bank or bank holding company, or (ii) engaging
directly or indirectly in activities other than those of banking, managing or
controlling banks, or performing services for its subsidiaries, unless such
non-banking business is determined by the Federal Reserve to be so closely
related to banking or managing or controlling banks as to be properly incident
thereto.
The Bank Holding Company Act has been amended to permit bank holding
companies and banks, which meet certain capital, management and Community
Reinvestment Act standards, to engage in a broader range of non-banking
activities. In addition, bank holding companies which elect to become financial
holding companies may engage in certain banking and non-banking activities
without prior Federal Reserve approval. At this time, the Company has elected
not to become a financial holding company, as it does not engage in any
activities not permissible for banks.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution is in danger of default. Under a policy of the Federal Reserve with
respect to bank holding company operations, a bank holding company is required
to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. The Federal Reserve
also has the authority under the Bank Holding Company Act to require a bank
holding company to terminate any activity or to relinquish control of a non-bank
subsidiary upon the Federal Reserve's determination that such activity or
control constitutes a serious risk to the financial soundness and stability of
any bank subsidiary of the bank holding company.
Capital Adequacy Guidelines for Bank Holding Companies. The Federal
Reserve has adopted risk-based capital guidelines for bank holding companies.
The risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The Company is subject to regulatory capital requirements and guidelines
imposed by the Federal Reserve, which are substantially similar to those imposed
by the FDIC on depository institutions within their jurisdictions. At December
31, 2008, BCB Bancorp, Inc., was considered to be a well capitalized Bank
Holding Company.
24
The Federal Reserve may set higher capital requirements for holding
companies whose circumstances warrant it. For example, holding companies
experiencing internal growth or making acquisitions are expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.
From time to time, the Federal Reserve Board and the other federal bank
regulatory agencies propose changes to, and issue interpretations of, risk-based
capital guidelines and related reporting instructions. Such changes or
interpretations could, if implemented in the future, affect the Company's
capital ratios and risk-adjusted assets.
Bank Regulation. As a New Jersey-chartered commercial bank, the Bank is
subject to the regulation, supervision, and examination of the New Jersey
Department of Banking and Insurance. As an FDIC-insured institution, we are
subject to the regulation, supervision and examination of the FDIC, an agency of
the federal government. The regulations of the FDIC and the New Jersey
Department of Banking and Insurance impact virtually all of our activities,
including the minimum level of capital we must maintain, our ability to pay
dividends, our ability to expand through new branches or acquisitions and
various other matters.
Insurance of Deposit Accounts. Our deposit accounts are insured by the
Federal Deposit Insurance Corporation, generally up to a maximum of $250,000 per
separately insured depositor, pursuant to the Federal Deposit Insurance
Corporation's recently announced increase in deposit insurance available which
will remain effective until December 31, 2009. Congress has recently proposed
legislation to make this increased deposit insurance limit permanent. Our
deposits are subject to Federal Deposit Insurance Corporation deposit insurance
assessments. The Federal Deposit Insurance Corporation has adopted a risk-based
system for determining deposit insurance assessments.
On December 22, 2008, the FDIC published a final rule that raises the
current deposit insurance assessment rates uniformly for all institutions by 7
basis points (to a range from 12 to 50 basis points) effective for the first
quarter of 2009. On February 27, 2009, the FDIC also issued a final rule that
revises the way the FDIC calculates federal deposit insurance assessment rates
beginning in the second quarter of 2009. Under the new rule, the FDIC will first
establish an institution's initial base assessment rate. This initial base
assessment rate will range, depending on the risk category of the institution,
from 12 to 45 basis points. The FDIC will then adjust the initial base
assessment (higher or lower) to obtain the total base assessment rate. The
adjustments to the initial base assessment rate will be based upon an
institution's levels of unsecured debt, secured liabilities, and brokered
deposits. The total base assessment rate will range from 7 to 77.5 basis points
of the institution's deposits. Additionally, the FDIC issued an interim rule
that would impose a special 20 basis points assessment on June 30, 2009, which
would be collected on September 30, 2009. However, the FDIC has indicated a
willingness to decrease the special assessment under certain circumstances
concerning the overall financial health of the insurance fund. Special
assessments of 10 and 20 basis points would result in additional expense of
approximately $450,000 to $900,000, respectively. The interim rule also allows
for additional special assessments.
Insurance of deposits may be terminated by the FDIC upon finding that an
institution has engaged in unsafe or unsound practices, is in an unsafe
condition to continue operations or has
25
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC. We do not know of any practice, condition or violation that might lead to
termination of deposit insurance.
In addition to the Federal Deposit Insurance Corporation assessments, the
Financing Corporation ("FICO") is authorized to impose and collect, with the
approval of the Federal Deposit Insurance Corporation, assessments for
anticipated payments, issuance costs and custodial fees on bonds issued by the
FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance
Corporation. The bonds issued by the FICO are due to mature in 2017 through
2019. For the quarter ended September 30, 2008, the annualized FICO assessment
was equal to 1.12 basis points for each $100 in domestic deposits maintained at
an institution.
On October 14, 2008, the FDIC announced a new program - the Temporary
Liquidity Guarantee Program ("TLGP"). This program has two components. One
guarantees newly issued senior unsecured debt of the participating
organizations, up to certain limits established for each institution, issued
between October 14, 2008 and June 30, 2009. The FDIC will pay the unpaid
principal and interest on an FDIC-guaranteed debt instrument upon the uncured
failure of the participating entity to make a timely payment of principal or
interest in accordance with the terms of the instrument. The guarantee will
remain in effect until June 30, 2012. On February 27, 2009, the FDIC issued an
interim rule allowing participants to apply to have the FDIC guarantee newly
issued senior unsecured debt that mandatorily converts into common shares on a
specified date that is on or before June 30, 2012. In return for the FDIC's
guarantee, participating institutions will pay the FDIC a fee based on the
amount and maturity of the debt. The Company has opted not to participate in
this component of the TLGP. The other component of the program provides full
FDIC insurance coverage for non-interest bearing transaction deposit accounts,
regardless of dollar amount, until December 31, 2009. An annualized 10 basis
point assessment on balances in noninterest-bearing transaction accounts that
exceed the existing deposit insurance limit of $250,000 will be assessed on a
quarterly basis to insured depository institutions participating in this
component of the TLGP. The Company has chosen to participate in this component
of the TLGP. The additional expense related to this coverage is not expected to
be significant for the Bank.
Capital Adequacy Guidelines. The FDIC has promulgated risk-based capital
rules, which are designed to make regulatory capital requirements more sensitive
to differences in risk profile among banks, to account for off-balance sheet
exposure, and to minimize disincentives for holding liquid assets. Under these
rules, assets and off-balance sheet items are assigned to broad risk categories,
each with appropriate weights. The resulting capital ratios represent capital as
a percentage of total risk-weighted assets and off-balance sheet items. These
rules are substantially similar to the Federal Reserve rules discussed above.
In addition to the risk-based capital rules, the FDIC has adopted a
minimum Tier 1 capital (leverage) ratio. This measurement is substantially
similar to the Federal Reserve leverage capital measurement discussed above. At
December 31, 2008, the Bank's ratio of total capital to risk-weighted assets was
14.63%. Our Tier 1 capital to risk-weighted assets was 13.38%, and our Tier 1
capital to average assets was 9.22%.
Dividends. The Bank may pay dividends as declared from time to time by the
Board of Directors out of funds legally available, subject to certain
restrictions. Under the New Jersey
26
Banking Act of 1948, as amended, the Bank may not pay a cash dividend unless,
following the payment, the Bank's capital stock will be unimpaired and the Bank
will have a surplus of no less than 50% of the Bank capital stock or, if not,
the payment of the dividend will not reduce the surplus. In addition, the Bank
cannot pay dividends in amounts that would reduce the Bank's capital below
regulatory imposed minimums.
The USA PATRIOT Act
-------------------
In response to the terrorist events of September 11, 2001, the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, was signed into law on
October 26, 2001. The USA PATRIOT Act gave the federal government new powers to
address terrorist threats through enhanced domestic security measures, expanded
surveillance powers, increased information sharing and broadened anti-money
laundering requirements. For years, financial institutions such as the Bank have
been subject to federal anti-money laundering obligations. As such, the Bank
does not believe the USA PATRIOT Act will have a material impact on its
operations.
Sarbanes-Oxley Act of 2002
--------------------------
The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), contains a broad range
of legislative reforms intended to address corporate and accounting fraud. In
addition to the establishment of a new accounting oversight board that will
enforce auditing, quality control and independence standards and will be funded
by fees from all publicly traded companies, Sarbanes-Oxley places certain
restrictions on the scope of services that may be provided by accounting firms
to their public company audit clients. Any non-audit services being provided to
a public company audit client will require preapproval by the company's audit
committee. In addition, Sarbanes-Oxley makes certain changes to the requirements
for audit partner rotation after a period of time. Sarbanes-Oxley requires chief
executive officers and chief financial officers, or their equivalent, to certify
to the accuracy of periodic reports filed with the Securities and Exchange
Commission, subject to civil and criminal penalties if they knowingly or
willingly violate this certification requirement. The Company's Chief Executive
Officer and Principal Accounting Officer have signed certifications to this Form
10-K as required by Sarbanes-Oxley. In addition, under Sarbanes-Oxley, counsel
will be required to report evidence of a material violation of the securities
laws or a breach of fiduciary duty by a company to its chief executive officer
or its chief legal officer, and, if such officer does not appropriately respond,
to report such evidence to the audit committee or other similar committee of the
board of directors or the board itself.
Under Sarbanes-Oxley, longer prison terms will apply to corporate
executives who violate federal securities laws; the period during which certain
types of suits can be brought against a company or its officers is extended; and
bonuses issued to top executives prior to restatement of a company's financial
statements are now subject to disgorgement if such restatement was due to
corporate misconduct. Executives are also prohibited from trading the company's
securities during retirement plan "blackout" periods, and loans to company
executives (other than loans by financial institutions permitted by federal
rules and regulations) are restricted. In addition, a provision directs that
civil penalties levied by the Securities and Exchange Commission as a result of
any judicial or administrative action under Sarbanes-Oxley
27
be deposited to a fund for the benefit of harmed investors. The Federal Accounts
for Investor Restitution provision also requires the Securities and Exchange
Commission to develop methods of improving collection rates. The legislation
accelerates the time frame for disclosures by public companies, as they must
immediately disclose any material changes in their financial condition or
operations. Directors and executive officers must also provide information for
most changes in ownership in a company's securities within two business days of
the change.
Sarbanes-Oxley also increases the oversight of, and codifies certain
requirements relating to, audit committees of public companies and how they
interact with the company's "registered public accounting firm." Audit Committee
members must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose whether at least one member of the committee is a "financial expert"
(as such term is defined by the Securities and Exchange Commission) and if not,
why not. Under Sarbanes-Oxley, a company's registered public accounting firm is
prohibited from performing statutorily mandated audit services for a company if
such company's chief executive officer, chief financial officer, comptroller,
chief accounting officer or any person serving in equivalent positions had been
employed by such firm and participated in the audit of such company during the
one-year period preceding the audit initiation date. Sarbanes-Oxley also
prohibits any officer or director of a company or any other person acting under
their direction from taking any action to fraudulently influence, coerce,
manipulate or mislead any independent accountant engaged in the audit of the
company's financial statements for the purpose of rendering the financial
statements materially misleading. Sarbanes-Oxley also requires the Securities
and Exchange Commission to prescribe rules requiring inclusion of any internal
control report and assessment by management in the annual report to
shareholders. Sarbanes-Oxley requires the company's registered public accounting
firm that issues the audit report to attest to and report on management's
assessment of the company's internal controls.
Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to
conduct a comprehensive review and assessment of the adequacy of our existing
financial systems and controls. For the year ending December 31, 2009, we expect
that our auditors will have to audit our internal control over financial
reporting.
AVAILABILITY OF ANNUAL REPORT
Our Annual Report is available on our website, www.bcbbancorp.com. We will
also provide our Annual Report on Form 10-K free of charge to shareholders who
write to the Corporate Secretary at 104-110 Avenue C, Bayonne, New Jersey 07002.
ITEM 1A. RISK FACTORS
----------------------
Our loan portfolio consists of a high percentage of loans secured by commercial
real estate and multi-family real estate. These loans are riskier than loans
secured by one- to four-family properties.
At December 31, 2008, $223.2 million, or 54.1% of our loan portfolio
consisted of commercial and multi-family real estate loans. We intend to
continue to emphasize the origination of these types of loans. These loans
generally expose a lender to greater risk of
28
nonpayment and loss than one- to four-family residential mortgage loans because
repayment of the loans often depends on the successful operation and income
stream of the borrower's business. Such loans typically involve larger loan
balances to single borrowers or groups of related borrowers compared to one- to
four-family residential mortgage loans. Consequently, an adverse development
with respect to one loan or one credit relationship can expose us to a
significantly greater risk of loss compared to an adverse development with
respect to a one- to four-family residential mortgage loan.
We may not be able to successfully maintain and manage our growth.
Since December 31, 2004, our assets have grown at a compound annual growth
rate of 11.2%, our loan balances have grown at a compound annual growth rate of
13.4% and our deposits have grown at a compound annual growth rate of 5.0%. Our
ability to continue to grow depends, in part, upon our ability to expand our
market presence, successfully attract core deposits, and identify attractive
commercial lending opportunities.
We cannot be certain as to our ability to manage increased levels of
assets and liabilities. We may be required to make additional investments in
equipment and personnel to manage higher asset levels and loans balances, which
may adversely impact our efficiency ratio, earnings and shareholder returns.
If our allowance for loan losses is not sufficient to cover actual loan losses,
our earnings could decrease.
Our loan customers may not repay their loans according to the terms of
their loans, and the collateral securing the payment of their loans may be
insufficient to assure repayment. We may experience significant credit losses,
which could have a material adverse effect on our operating results. We make
various assumptions and judgments about the collectability of our loan
portfolio, including the creditworthiness of our borrowers and the value of the
real estate and other assets serving as collateral for the repayment of many of
our loans. In determining the amount of the allowance for loan losses, we review
our loans and our loss and delinquency experience, and we evaluate economic
conditions. If our assumptions prove to be incorrect, our allowance for loan
losses may not cover losses in our loan portfolio at the date of the financial
statements. Material additions to our allowance would materially decrease our
net income. At December 31, 2008, our allowance for loan losses totaled $5.3
million, representing 1.28% of total loans.
While we have only been operating for seven years, we have experienced
significant growth in our loan portfolio, particularly our loans secured by
commercial real estate. Although we believe we have underwriting standards to
manage normal lending risks, and although we had $5.2 million, or 0.89% of total
assets consisting of non-performing assets at December 31, 2008, it is difficult
to assess the future performance of our loan portfolio due to the relatively
recent origination of many of these loans. We can give you no assurance that our
non-performing loans will not increase or that our non-performing or delinquent
loans will not adversely affect our future performance.
29
In addition, federal and state regulators periodically review our
allowance for loan losses and may require us to increase our allowance for loan
losses or recognize further loan charge-offs. Any increase in our allowance for
loan losses or loan charge-offs as required by these regulatory agencies could
have a material adverse effect on our results of operations and financial
condition.
We depend primarily on net interest income for our earnings rather than fee
income.
Net interest income is the most significant component of our operating
income. We do not rely on traditional sources of fee income utilized by some
community banks, such as fees from sales of insurance, securities or investment
advisory products or services. For the years ended December 31, 2008 and 2007,
our net interest income was $20.0 million and $17.2 million, respectively. The
amount of our net interest income is influenced by the overall interest rate
environment, competition, and the amount of interest-earning assets relative to
the amount of interest-bearing liabilities. In the event that one or more of
these factors were to result in a decrease in our net interest income, we do not
have significant sources of fee income to make up for decreases in net interest
income.
If Our Investment in the Federal Home Loan Bank of New York is Classified as
Other-Than-Temporarily Impaired or as Permanently Impaired, Our Earnings and
Stockholders' Equity Could Decrease
We own common stock of the Federal Home Loan Bank of New York (FHLB-NY).
We hold the FHLB-NY common stock to qualify for membership in the Federal Home
Loan Bank System and to be eligible to borrow funds under the FHLB-NY's advance
program. The aggregate cost and fair value of our FHLB-NY common stock as of
December 31, 2008 was $5.7 million based on its par value. There is no market
for our FHLB-NY common stock.
Recent published reports indicate that certain member banks of the Federal
Home Loan Bank System may be subject to accounting rules and asset quality risks
that could result in materially lower regulatory capital levels. In an extreme
situation, it is possible that the capitalization of a Federal Home Loan Bank,
including the FHLB-NY, could be substantially diminished or reduced to zero.
Consequently, we believe that there is a risk that our investment in FHLB-NY
common stock could be deemed other-than-temporarily impaired at some time in the
future, and if this occurs, it would cause our earnings and stockholders' equity
to decrease by the after-tax amount of the impairment charge.
Fluctuations in interest rates could reduce our profitability.
We realize income primarily from the difference between the interest we
earn on loans and investments and the interest we pay on deposits and
borrowings. The interest rates on our assets and liabilities respond differently
to changes in market interest rates, which means our interest-bearing
liabilities may be more sensitive to changes in market interest rates than our
interest-earning assets, or vice versa. In either event, if market interest
rates change, this "gap" between the amount of interest-earning assets and
interest-bearing liabilities that reprice in
30
response to these interest rate changes may work against us, and our earnings
may be negatively affected.
We are unable to predict fluctuations in market interest rates, which are
affected by, among other factors, changes in the following:
o inflation rates;
o business activity levels;
o money supply; and
o domestic and foreign financial markets.
The value of our investment portfolio and the composition of our deposit
base are influenced by prevailing market conditions and interest rates. Our
asset-liability management strategy, which is designed to mitigate the risk to
us from changes in market interest rates, may not prevent changes in interest
rates or securities market downturns from reducing deposit outflow or from
having a material adverse effect on our results of operations, our financial
condition or the value of our investments.
Adverse events in New Jersey, where our business is concentrated, could
adversely affect our results and future growth.
Our business, the location of our branches and the real estate
collateralizing our real estate loans are concentrated in New Jersey. As a
result, we are exposed to geographic risks. The occurrence of an economic
downturn in New Jersey, or adverse changes in laws or regulations in New Jersey
could impact the credit quality of our assets, the business of our customers and
our ability to expand our business.
Our success significantly depends upon the growth in population, income
levels, deposits and housing in our market area. If the communities in which we
operate do not grow or if prevailing economic conditions locally or nationally
are unfavorable, our business may be negatively affected. In addition, the
economies of the communities in which we operate are substantially dependent on
the growth of the economy in the State of New Jersey. To the extent that
economic conditions in New Jersey are unfavorable or do not continue to grow as
projected, the economy in our market area would be adversely affected. Moreover,
we cannot give any assurance that we will benefit from any market growth or
favorable economic conditions in our market area if they do occur.
In addition, the market value of the real estate securing loans as
collateral could be adversely affected by unfavorable changes in market and
economic conditions. As of December 31, 2008, approximately 96.4% of our total
loans were secured by real estate. Adverse developments affecting commerce or
real estate values in the local economies in our primary market areas could
increase the credit risk associated with our loan portfolio. In addition,
substantially all of our loans are to individuals and businesses in New Jersey.
Our business
31
customers may not have customer bases that are as diverse as businesses serving
regional or national markets. Consequently, any decline in the economy of our
market area could have an adverse impact on our revenues and financial
condition. In particular, we may experience increased loan delinquencies, which
could result in a higher provision for loan losses and increased charge-offs.
Any sustained period of increased non-payment, delinquencies, foreclosures or
losses caused by adverse market or economic conditions in our market area could
adversely affect the value of our assets, revenues, results of operations and
financial condition.
We operate in a highly regulated environment and may be adversely affected by
changes in federal, state and local laws and regulations.
We are subject to extensive regulation, supervision and examination by
federal and state banking authorities. Any change in applicable regulations or
federal, state or local legislation could have a substantial impact on us and
our operations. Additional legislation and regulations that could significantly
affect our powers, authority and operations may be enacted or adopted in the
future, which could have a material adverse effect on our financial condition
and results of operations. Further, regulators have significant discretion and
authority to prevent or remedy unsafe or unsound practices or violations of laws
by banks and bank holding companies in the performance of their supervisory and
enforcement duties. The exercise of regulatory authority may have a negative
impact on our results of operations and financial condition.
Like other bank holding companies and financial institutions, we must
comply with significant anti-money laundering and anti-terrorism laws. Under
these laws, we are required, among other things, to enforce a customer
identification program and file currency transaction and suspicious activity
reports with the federal government. Government agencies have substantial
discretion to impose significant monetary penalties on institutions which fail
to comply with these laws or make required reports. Because we operate our
business in the highly urbanized greater Newark/New York City metropolitan area,
we may be at greater risk of scrutiny by government regulators for compliance
with these laws.
Our expenses will increase as a result of increases in FDIC insurance premiums.
The Federal Deposit Insurance Corporation imposes an assessment against
institutions for deposit insurance. This assessment is based on the risk
category of the institution and ranges from 5 to 43 basis points of the
institution's deposits. Federal law requires that the designated reserve ratio
for the deposit insurance fund be established by the FDIC at 1.15% to 1.50% of
estimated insured deposits. If this reserve ratio drops below 1.15% or the FDIC
expects that it to do so within six months, the FDIC must, within 90 days,
establish and implement a plan to restore the designated reserve ratio to 1.15%
of estimated insured deposits within five years (absent extraordinary
circumstances).
Recent bank failures coupled with deteriorating economic conditions have
significantly reduced the deposit insurance fund's reserve ratio. As of June 30,
2008, the designated reserve ratio was 1.01% of estimated insured deposits at
March 31, 2008. As a result of this reduced reserve ratio, on October 16, 2008,
the FDIC published a proposed rule that would restore the reserve ratios to its
required level. The proposed rule would raise the current deposit insurance
32
assessment rates uniformly for all institutions by 7 basis points (to a range
from 12 to 50 basis points) for the first quarter of 2009. The proposed rule
would also alter the way the FDIC calculates federal deposit insurance
assessment rates beginning in the second quarter of 2009 and thereafter.
On December 22, 2008, the FDIC published a final rule that raises the
current deposit insurance assessment rates uniformly for all institutions by 7
basis points (to a range from 12 to 50 basis points) effective for the first
quarter of 2009. On February 27, 2009, the FDIC also issued a final rule that
revises the way the FDIC calculates federal deposit insurance assessment rates
beginning in the second quarter of 2009. Under the new rule, the total base
assessment rate will range from 7 to 77.5 basis points of the institution's
deposits, depending on the risk category of the institution and the
institution's levels of unsecured debt, secured liabilities, and brokered
deposits. Additionally, the FDIC issued an interim rule that would impose a
special 20 basis points assessment on June 30, 2009, which would be collected on
September 30, 2009. However, the FDIC has indicated a willingness to decrease
the special assessment to 10 basis points under certain circumstances concerning
the overall financial health of the insurance fund. Special assessments of 10
and 20 basis points would result in additional expense of approximately $450,000
to $900,000, respectively. The interim rule also allows for additional special
assessments.
In addition, the Emergency Economic Stabilization Act of 2008 (EESA)
temporarily increased the limit on FDIC insurance coverage for deposits to
$250,000 through December 31, 2009, and the FDIC took action to provide coverage
for newly-issued senior unsecured debt and non-interest bearing transaction and
certain NOW accounts in excess of the $250,000 limit, for which institutions
will be assessed additional premiums. These actions will significantly increase
our non-interest expense in 2009 and in future years as long as the increased
premiums are in place.
ITEM 1B. UNRESOLVED STAFF COMMENTS
-----------------------------------
None.
ITEM 2. PROPERTIES
--------------------
At December 31, 2008, we conducted our business from our executive office
located at 104-110 Avenue C, Bayonne, New Jersey, and our three branch offices,
which are located in Bayonne and Hoboken. The aggregate book value of our
premises and equipment was $5.6 million at December 31, 2008. We own our
executive office facility and lease our three branch offices.
ITEM 3. LEGAL PROCEEDINGS
---------------------------
We are involved, from time to time, as plaintiff or defendant in various
legal actions arising in the normal course of its business. At December 31,
2008, we were not involved in any material legal proceedings the outcome of
which would have a material adverse affect on our financial condition or results
of operations.
33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------------------------------------------------------------
No matters were submitted to a vote of stockholders during the fourth
quarter of the year under report.
34
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------
AND ISSUER PURCHASES OF EQUITY SECURITIES
-----------------------------------------
BCB Bancorp, Inc.'s common stock trades on the Nasdaq Global Market under
the symbol "BCBP." In order to list common stock on the Nasdaq Global Market,
the presence of at least three registered and active market makers is required
and BCB Bancorp, Inc. has at least three market makers.
The following table sets forth the high and low closing prices for BCB
Bancorp, Inc. common stock for the periods indicated. As of December 31, 2008,
there were 4,649,691 shares of BCB Bancorp, Inc. common stock outstanding. At
December 31, 2008, BCB Bancorp, Inc. had approximately 1,500 stockholders of
record.
Cash Dividend
Fiscal 2008 High Low Declared
-------------------------------------------------------------------------------
Quarter Ended December 31, 2008....... $ 13.25 $ 9.98 $ 0.12
Quarter Ended September 30, 2008...... 14.87 12.61 0.10
Quarter Ended June 30, 2008........... 14.86 13.25 0.10
Quarter Ended March 31, 2008.......... 15.67 13.00 0.09
Cash Dividend
Fiscal 2007 High Low Declared
-------------------------------------------------------------------------------
Quarter Ended December 31, 2007....... $ 16.70 $ 14.80 $ 0.09
Quarter Ended September 30, 2007...... 16.50 15.06 0.08
Quarter Ended June 30, 2007........... 18.38 16.24 0.08
Quarter Ended March 31, 2007.......... 17.87 16.16 0.07
Please see "Item 1. Business--Bank Regulation--Dividends" for a discussion
of restrictions on the ability of the Bank to pay the Company dividends.
Compensation Plans
Set forth below is information as of December 31, 2008 regarding equity
compensation plans that have been approved by shareholders. The Company has no
equity based benefit plans that were not approved by shareholders.
=============================================================================================================
Number of securities to be
issued upon exercise of Number of securities
outstanding options and Weighted average remaining available for
Plan rights Exercise price(2) issuance under plan
-------------------------------------------------------------------------------------------------------------
Equity compensation plans approved 295,339(1) $ 10.19
by shareholders................ -0-
-------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by shareholders....... -- -- -0-
-------------------------------------------------------------------------------------------------------------
Total.......................... 295,339 $ 10.19 -0-
=============================================================================================================
----------
(1) Consists of options to purchase (i) 88,488 shares of common stock under
the 2002 Stock Option Plan and (ii) 206,851 shares of common stock under
the 2003 Stock Option Plan.
(2) The weighted average exercise price reflects the exercise prices ranging
from $9.34 to $15.65 per share for options granted under the 2003 Stock
Option Plan and ranging from $5.29 to $15.65 per share for options under
the 2002 Stock Option Plan.
35
Stock Performance Graph
Set forth hereunder is a stock performance graph comparing (a) the
cumulative total return on the common stock for the period beginning with the
closing sales price on May 1, 2004 through December 31, 2008, (b) the cumulative
total return on all publicly traded commercial bank stocks over such period, and
(c) the cumulative total return of Nasdaq Market Index over such period.
Cumulative return assumes the reinvestment of dividends, and is expressed in
dollars based on an assumed investment of $100.
--------------------------------------------------------------------------------
BCB BANCORP, INC.
--------------------------------------------------------------------------------
Total Return Performance
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Period Ending
----------------------------------------------------------
Index 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08
--------------------------------------------------------------------------------
BCB Bancorp, Inc. 100.00 108.81 110.80 121.40 114.82 79.08
NASDAQ Composite 100.00 108.59 110.08 120.56 132.39 78.72
SNL Bank 100.00 112.06 113.59 132.87 103.25 58.91
36
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. Set forth
below is information regarding purchases of our common stock made by or on
behalf of the Company during the fourth quarter of 2008.
========================================================================================================================
Total number of shares
purchased as part of a Number of shares
Total number of shares Average price per publicly announced remaining to be purchased
Period purchased share paid program under program
------------------------------------------------------------------------------------------------------------------------
October 1-31 ......... -- $ -- -- 162,186
------------------------------------------------------------------------------------------------------------------------
November 1-30 ........ 7,925 10.22 7,925 154,261
------------------------------------------------------------------------------------------------------------------------
December 1-31 ........ 17,763 11.50 25,688 136,498
------------------------------------------------------------------------------------------------------------------------
Total ................ 25,688 $ 11.11 -- --
========================================================================================================================
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
---------------------------------------------
The following tables set forth selected consolidated historical financial
and other data of BCB Bancorp, Inc. at and for the years ended December 31,
2008, 2007, 2006, 2005 and 2004. The information is derived in part from, and
should be read together with, the audited Consolidated Financial Statements and
Notes thereto of BCB Bancorp, Inc. Per share data has been adjusted for all
periods to reflect the common stock dividends paid by the Company.
Selected financial condition data at December 31,
--------------------------------------------------------------
2008 2007 2006 2005 2004
---------- ---------- ---------- ---------- ----------
(In Thousands)
Total assets ....................... $ 578,624 $ 563,477 $ 510,835 $ 466,242 $ 378,289
Cash and cash equivalents .......... 6,761 11,780 25,837 25,147 4,534
Securities, held to maturity ....... 141,280 165,017 148,672 140,002 117,036
Loans receivable ................... 406,826 364,654 318,130 284,451 246,380
Deposits ........................... 410,503 398,819 382,747 362,851 337,243
Borrowings ......................... 116,124 114,124 74,124 54,124 14,124
Stockholders' equity ............... 49,715 48,510 51,963 47,847 26,036
Selected operating data for the year ended December 31,
--------------------------------------------------------------
2008 2007 2006 2005 2004
---------- ---------- ---------- ---------- ----------
(In thousands, except for per share amounts)
Net interest income ................ $ 19,960 $ 17,173 $ 17,784 $ 15,883 $ 13,755
Provision for loan losses .......... 1,300 600 625 1,118 690
Non-interest income (loss) ......... (2,054) 1,092 1,260 915 623
Non-interest expense ............... 11,314 10,718 9,632 8,206 7,661
Income tax ......................... 1,820 2,509 3,220 2,745 2,408
---------- ---------- ---------- ---------- ----------
Net income ......................... $ 3,472 $ 4,438 $ 5,567 $ 4,729 $ 3,619
========== ========== ========== ========== ==========
Net income per share:
Basic ........................... $ 0.75 $ 0.92 $ 1.11 $ 1.25 $ 0.97
---------- ---------- ---------- ---------- ----------
Diluted ......................... $ 0.74 $ 0.90 $ 1.08 $ 1.20 $ 0.93
---------- ---------- ---------- ---------- ----------
Dividends declared per share ....... $ 0.41 $ 0.32 $ 0.30 $ -- $ --
---------- ---------- ---------- ---------- ----------
37
At or for the Years Ended December 31,
------------------------------------------------
2008 2007 2006 2005 2004
------ ------ -------- ------ ------
Selected Financial Ratios and Other Data:
Return on average assets (ratio of net
income to average total assets)........... 0.60% 0.83% 1.13% 1.14% 1.01%
Return on average stockholders' equity
(ratio of net income to average
stockholders' equity)..................... 7.00 8.86 11.12 16.00 15.45
Non-interest income (loss) to average
assets.................................... (0.36) 0.20 0.26 0.21 0.17
Non-interest expense to average assets...... 1.97 1.99 1.96 1.98 2.15
Net interest rate spread during the period.. 3.09 2.71 3.19 3.69 3.73
Net interest margin (net interest income
to average interest earning assets)....... 3.54 3.26 3.69 3.98 3.96
Ratio of average interest-earning assets
to average interest-bearing liabilities... 115.05 116.94 118.09 112.33 111.63
Cash dividend payout ratio.................. 54.67 34.78 26.98 -- --
Asset Quality Ratios:
Non-performing loans to total loans at
end of period............................. 0.90 1.16 0.10 0.36 0.40
Allowance for loan losses to
non-performing loans at end of period..... 142.27 95.13 1,155.73 299.42 249.60
Allowance for loan losses to total loans
at end of period.......................... 1.28 1.10 1.16 1.07 1.01
Capital Ratios:
Stockholders' equity to total assets at
end of period............................. 8.59 8.61 10.17 10.26 6.88
Average stockholders' equity to average
total assets.............................. 8.61 9.32 10.19 7.14 6.57
Tier 1 capital to average assets............ 9.22 8.81 10.91 7.75 7.75
Tier 1 capital to risk weighted assets...... 13.38 13.05 15.36 11.59 11.84
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
General
-------
This discussion, and other written material, and statements management may
make, may contain certain forward-looking statements regarding the Company's
prospective performance and strategies within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The Company intends such forward-looking statements to
be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, and is
including this statement for purposes of said safe harbor provisions.
Forward-looking information is inherently subject to risks and
uncertainties, and actual results could differ materially from those currently
anticipated due to a number of factors, which include, but are not limited to,
factors discussed in the Company's Annual Report on Form 10-K and in other
documents filed by the Company with the Securities and Exchange Commission.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally
identified by the use of the words "plan," "believe," "expect," "intend,"
"anticipate," "estimate," "project," "may," "will," "should," "could,"
"predicts," "forecasts," "potential," or "continue" or similar terms or the
38
negative of these terms. The Company's ability to predict results or the actual
effects of its plans or strategies is inherently uncertain. Accordingly, actual
results may differ materially from anticipated results.
Factors that could have a material adverse effect on the operations of the
Company and its subsidiaries include, but are not limited to, changes in market
interest rates, general economic conditions, legislation, and regulation;
changes in monetary and fiscal policies of the United States Government,
including policies of the United States Treasury and Federal Reserve Board;
changes in the quality or composition of the loan or investment portfolios;
changes in deposit flows, competition, and demand for financial services, loans,
deposits and investment products in the Company's local markets; changes in
accounting principles and guidelines; war or terrorist activities; and other
economic, competitive, governmental, regulatory, geopolitical and technological
factors affecting the Company's operations, pricing and services.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this discussion. Although the
Company believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance or achievements. Except as required by applicable law
or regulation, the Company undertakes no obligation to update these
forward-looking statements to reflect events or circumstances that occur after
the date on which such statements were made.
Critical Accounting Policies
----------------------------
Critical accounting policies are those accounting policies that can have a
significant impact on the Company's financial position and results of operations
that require the use of complex and subjective estimates based upon past
experiences and management's judgment. Because of the uncertainty inherent in
such estimates, actual results may differ from these estimates. Below are those
policies applied in preparing the Company's consolidated financial statements
that management believes are the most dependent on the application of estimates
and assumptions. For additional accounting policies, see Note 2 of "Notes to
Consolidated Financial Statements."
Allowance for Loan Losses
Loans receivable are presented net of an allowance for loan losses. In
determining the appropriate level of the allowance, management considers a
combination of factors, such as economic and industry trends, real estate market
conditions, size and type of loans in portfolio, nature and value of collateral
held, borrowers' financial strength and credit ratings, and prepayment and
default history. The calculation of the appropriate allowance for loan losses
requires a substantial amount of judgment regarding the impact of the
aforementioned factors, as well as other factors, on the ultimate realization of
loans receivable.
Other-than-Temporary Impairment of Securities
We evaluate on a quarterly basis whether any securities are
other-than-temporarily impaired. In making this determination, we consider the
extent and duration of the impairment, the nature and financial health of the
issuer and our ability and intent to hold securities for a
39
period sufficient to allow for any anticipated recovery in market value. Other
considerations include a review of the credit quality of the issuer and the
existence of a guarantee or insurance, if applicable to the security. If a
security is determined to be other-than-temporarily impaired, we record an
impairment loss as a charge to income for the period in which the impairment
loss is determined to exist, resulting in a reduction to our earnings for that
period.
Financial Condition
-------------------
Comparison at December 31, 2008 and at December 31, 2007
Since we commenced operations in 2000 we have sought to grow our assets
and deposit base consistent with our capital requirements. We offer competitive
loan and deposit products and seek to distinguish ourselves from our competitors
through our service and availability. Total assets increased by $15.1 million or
2.7% to $578.6 million at December 31, 2008 from $563.5 million at December 31,
2007 as the Company continued to grow the Bank's balance sheet with loans funded
primarily through growth in the Bank's deposit base and the utilization of
wholesale funding sources, specifically Federal Home Loan Bank advances.
Total cash and cash equivalents decreased by $5.0 million or 42.4% to $6.8
million at December 31, 2008 from $11.8 million at December 31, 2007 reflecting
management's decision, with money market rates at historically low levels, to
deploy those liquid assets into loans in an effort to achieve higher returns.
Securities held-to-maturity decreased by $23.7 million or 14.4% to $141.3
million at December 31, 2008 from $165.0 million at December 31, 2007. The
decrease was primarily attributable to call options exercised on $78.9 million
of callable agency securities and $5.5 million of repayments and prepayments in
the mortgage backed securities portfolio during the year ended December 31,
2008, partially offset by purchases of $47.3 million of callable agency
securities and $13.3 million in the mortgage backed securities.
Loans receivable increased by $42.1 million or 11.5% to $406.8 million at
December 31, 2008 from $364.7 million at December 31, 2007. The increase
resulted primarily from a $46.4 million increase in real estate mortgages
comprising residential, commercial, construction and participation loans with
other financial institutions, net of amortization, and a $2.8 million increase
in consumer loans, net of amortization, partially offset by a $5.8 million
decrease in commercial loans comprising business loans and commercial lines of
credit, net of amortization, and a $1.2 million increase in the allowance for
loan losses. At December 31, 2008, the allowance for loan losses was $5.3
million or 1.28% of loans receivable. The growth in loans receivable was
primarily attributable to competitive pricing in a lower than historically
normal interest rate environment.
Deposit liabilities increased by $11.7 million or 2.9% to $410.5 million
at December 31, 2008 from $398.8 million at December 31, 2007. The increase
resulted primarily from an increase of $20.5 million or 9.6% in time deposits to
$235.0 million from $214.5 million, partially offset by a decrease of $8.0
million or 9.5% in demand deposits to $75.9 million from $83.9 million and a
decrease of $855,000 or 0.9% in savings and club accounts to $99.6 million from
$100.4 million. The decrease in demand, savings and club account balances
resulted primarily from internal disintermediation brought on by an increasingly
competitive local market
40
for deposit growth. The Bank has been able to achieve overall growth in deposits
through competitive pricing on select deposit products.
Total borrowed money increased by $2.0 million or 1.8% to $116.1 million
at December 31, 2008 from $114.1 million at December 31, 2007. The increase in
borrowings reflects the use of Federal Home Loan Bank advances to augment
deposits as the Bank's funding source for originating loans.
Total stockholders' equity increased by $1.2 million or 2.5% to $49.7
million at December 31, 2008 from $48.5 million at December 31, 2007. The
increase in stockholders' equity primarily reflects net income of $3.5 million
for the year ended December 31, 2008 and the exercise of stock options during
the year to purchase 104,873 shares of the Company's common stock for a total of
approximately $925,000, partially offset by the repurchase of 93,029 shares of
the Company's common stock through the stock repurchase plans in place at a cost
during the year of $1.3 million and cash dividends paid through the year
totaling $1.9 million. At December 31, 2008 the Bank's Tier 1 leverage, Tier 1
risk-based and Total risk-based capital ratios were 9.22%, 13.38%, and 14.63%
respectively.
Analysis of Net Interest Income
-------------------------------
Net interest income is the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
Net interest income depends on the relative amounts of interest-earning assets
and interest-bearing liabilities and the interest rates earned or paid on them,
respectively.
41
The following tables set forth balance sheets, average yields and costs,
and certain other information for the periods indicated. All average balances
are daily average balances. The yields set forth below include the effect of
deferred fees, discounts and premiums, which are included in interest income.
At December 31, 2008 The year ended December 31, 2008 The year ended December 31, 2007
-------------------- -------------------------------- ---------------------------------
Actual Average Average
Actual Yield/ Average Interest Yield/ Average Interest Yield/
Balance Cost Balance earned/paid Cost (5) Balance earned/paid Cost (5)
---------- ------ -------- ----------- -------- ------- ----------- --------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) ............... $ 413,552 7.09% $ 393,198 $ 27,248 6.96% $ 339,057 $ 24,365 7.19%
Investment securities(2) ........... 147,904 5.55 161,281 9,185 5.70 161,707 8,843 5.47
Interest-earning deposits .......... 3,266 0.06 10,034 190 1.89 26,010 1,182 4.54
---------- --------- ----------- --------- -----------
Total interest-earning assets ..... 564,722 6.65% 564,513 36,623 6.49% 526,774 34,390 6.53%
---------- --------- ----------- --------- -----------
Interest-earning liabilities:
Interest-bearing demand deposits ... $ 25,843 1.25% $ 23,930 $ 300 1.25% $ 21,076 $ 294 1.40%
Money market deposits .............. 19,539 2.43 26,697 746 2.79 17,212 712 4.14
Savings deposits ................... 99,586 1.32 100,754 1,370 1.36 108,921 1,866 1.71
Certificates of deposit ............ 234,974 3.87 220,375 9,106 4.13 209,828 10,109 4.82
Borrowings ......................... 116,124 4.28 118,920 5,141 4.32 93,412 4,236 4.54
---------- --------- ----------- --------- -----------
Total interest-bearing
liabilities .................... 496,066 3.27% 490,676 16,663 3.40% 450,449 17,217 3.82%
---------- --------- ----------- --------- -----------
Net interest income .................. $ 19,960 $ 17,173
=========== ===========
Interest rate spread(3) .............. 3.38% 3.09% 2.71%
====== ======== ========
Net interest margin(4) ............... 3.54% 3.26%
======== ========
Ratio of interest-earning assets
to interest-bearing liabilities .... 113.84% 115.05% 116.94%
========== ========= =========
----------
(1) Excludes allowance for loan losses.
(2) Includes Federal Home Loan Bank of New York stock.
(3) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(5) Average yields are computed using annualized interest income and expense
for the periods.
42
The year ended December 31, 2006
------------------------------------
Average
Average Interest Yield/Cost
Balance earned/paid (5)
--------- ----------- ----------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) .............. $ 315,493 $ 22,770 7.22%
Investment securities(2) .......... 153,628 8,046 5.24
Interest-earning deposits ......... 12,569 445 3.54
--------- -----------
Total interest-earning assets .. 481,690 31,261 6.49%
--------- -----------
Interest-earning liabilities:
Interest-bearing demand deposits .. $ 21,397 302 1.41%
Money market deposits ............. 3,353 124 3.70
Savings deposits .................. 137,046 2,611 1.91
Certificates of deposit ........... 182,340 7,807 4.28
Borrowings ........................ 63,775 2,633 4.13
--------- -----------
Total interest-bearing
liabilities .................. 407,911 13,477 3.30%
--------- -----------
Net interest income .................. $ 17,784
===========
Interest rate spread(3) .............. 3.19%
==========
Net interest margin(4) ............... 3.69%
==========
Ratio of average interest-earning
assets to average interest-bearing
liabilities ....................... 118.09%
=========
----------
(1) Excludes allowance for loan losses.
(2) Includes Federal Home Loan Bank of New York stock.
(3) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(5) Average yields are computed using annualized interest income and expense
for the periods.
43
Rate/Volume Analysis
--------------------
The table below sets forth certain information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in average volume
(changes in average volume multiplied by old rate); (ii) changes in rate (change
in rate multiplied by old average volume); (iii) changes due to combined changes
in rate and volume; and (iv) the net change.
Years Ended December 31,
----------------------------------------------------------------------------------------
2008 vs. 2007 2007 vs. 2006
----------------------------- ---------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Due to
----------------------------- Total --------------------------- Total
Rate/ Increase Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
------- -------- ------ ---------- ------- ------ ------ ----------
(In Thousands)
Interest income:
Loans receivable .................... $ 3,891 $ (869) $ (139) $ 2,883 $ 1,701 $ (98) $ (8) $ 1,595
Investment securities ............... (23) 366 (1) 342 423 355 19 797
Interest-earning deposits with other
banks ............................ (726) (689) 423 (992) 476 126 135 737
------- -------- ------ ---------- ------- ------ ------ ----------
Total interest-earning assets ....... 3,142 (1,192) 283 2,233 2,600 383 146 3,129
------- -------- ------ ---------- ------- ------ ------ ----------
Interest expense:
Interest-bearing demand accounts .... 40 (30) (4) 6 (4) (4) -- (8)
Money market ........................ 392 (231) (127) 34 512 15 61 588
Savings and club .................... (140) (385) 29 (496) (536) (263) 54 (745)
Certificates of Deposits ............ 508 (1,439) (72) (1,003) 1,177 978 147 2,302
Borrowed funds ...................... 1,157 (198) (54) 905 1,224 259 120 1,603
------- -------- ------ ---------- ------- ------ ------ ----------
Total interest-bearing liabilities .. 1,957 (2,283) (228) (554) 2,373 985 382 3,740
------- -------- ------ ---------- ------- ------ ------ ----------
Change in net interest income .......... $ 1,185 $ 1,091 $ 511 $ 2,787 $ 227 $ (602) $ (236) $ (611)
======= ======== ====== ========== ======= ====== ====== ==========
Results of Operations for the Years Ended December 31, 2008 and 2007
Net income decreased by $970,000 or 21.8% to $3.47 million for the year
ended December 31, 2008 from $4.44 million for the year ended December 31, 2007.
The decrease in net income resulted primarily from a decrease in non-interest
income and increases in the provision for loan losses and non-interest expense,
partially offset by an increase in net interest income and a decrease in income
taxes. Net interest income increased by $2.8 million or 16.3% to $20.0 million
for the year ended December 31, 2008 from $17.2 million for the year ended
December 31, 2007. The increase in net interest income resulted primarily from
an increase of $37.7 million or 7.2% in the average balance of interest earning
assets to $564.5 million for the year ended December 31, 2008 from $526.8
million for the year ended December 31, 2007 offset by a decrease in the average
yield on interest earning assets to 6.49% for the year ended December 31, 2008
from 6.53% for the year ended December 31, 2007. The average balance of interest
bearing liabilities increased by $40.3 million or 8.9% to $490.7 million at
December 31, 2008 from $450.4 million at December 31, 2007 while the average
cost of interest bearing liabilities decreased to 3.40% for the year ended
December 31, 2008 from 3.82% for the year ended December 31, 2007. As a result
of the aforementioned, our net interest margin increased to 3.54% for the year
ended December 31, 2008 from 3.26% for the year ended December 31, 2007.
44
The decrease in non-interest income resulted primarily from an other than
temporary impairment (OTTI) charge of $2.9 million on a $3.0 million investment
in Federal National Mortgage Association (FNMA) preferred stock. The increase in
non-interest expense reflected a change to income resulting from the discovery
of a deposit fraud scheme by a commercial client of the Bank. The Bank recorded
a $560,000 loss in other non-interest expense related to this incident. The Bank
and Company anticipate that any future recoveries may partially offset this
loss; however there can be no assurance of the level or probability of any
recovery. The Bank and the Company have notified its insurance carriers.
Interest income on loans receivable increased by $2.8 million or 11.5% to
$27.2 million for the year ended December 31, 2008 from $24.4 million for the
year ended December 31, 2007. The increase was primarily due to an increase in
average loans receivable of $52.6 million or 15.5% to $393.2 million for the
year ended December 31, 2008 from $339.1 million for the year ended December 31,
2007, partially offset by a decrease in the average yield on loans receivable to
6.96% for the year ended December 31, 2008 from 7.19% for the year ended
December 31, 2007. The increase in the average balance of loans reflects
management's philosophy of deploying 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 for commercial and
construction loans as well as the effect of the actions taken by the Federal
Open Market Committee to reduce interest rates during 2008.
Interest income on securities increased by $342,000 or 3.9% to $9.2
million for the year ended December 31, 2008 from $8.8 million for the year
ended December 31, 2007. The increase was primarily attributable to an increase
in the average yield on securities to 5.70% for the year ended December 31, 2008
from 5.47% for the year ended December 31, 2007, partially offset by a slight
decrease in the average balance of securities of $426,000 or 0.3% to $161.3
million for the year ended December 31, 2008 from $161.7 million for the year
ended December 31, 2007. The decrease in average balances reflects the issuing
agencies decision to exercise their call options on a select number of
securities which resulted in decreases to the investment portfolio. The increase
in average yield reflects the fact that the exercise of call options discussed
above occurred on seasoned securities whose yield was less than those securities
remaining in the investment portfolio.
Interest income on other interest-earning assets consisting primarily of
federal funds sold decreased by $992,000 or 83.9% to $190,000 for the year ended
December 31, 2008 from $1.2 million for the year ended December 31, 2007. This
decrease was primarily due to an decrease in the average balance of other
interest-earning assets of $16.0 million or 61.5% to $10.0 million for the year
ended December 31, 2008 from $26.0 million for the year ended December 31, 2007
and a decrease in the average yield on other interest-earning assets to 1.89%
for the year ended December 31, 2008 from 4.54% for the year ended December 31,
2007. As a result of the lower interest rate environment for overnight deposits
during the year ended December 31, 2008, a decrease in the average balance
resulted, as management deployed funds into loans in an effort to achieve higher
returns.
45
Total interest expense decreased by $554,000 or 3.2% to $16.7 million for
the year ended December 31, 2008 from $17.2 million for the year ended December
31, 2007. This decrease resulted primarily from a decrease in the average cost
of interest bearing liabilities to 3.40% for the year ended December 31, 2008
from 3.82% for the year ended December 31, 2007, partially offset by an increase
in the balance of total interest bearing deposit liabilities of $14.8 million or
4.1% to $371.8 million for the year ended December 31, 2008 from $357.0 million
for the year ended December 31, 2007, and an increase in the balance of average
borrowings of $25.5 million or 27.3% to $118.9 million for the year ended
December 31, 2008, from $93.4 million for the year ended December 31, 2007.
The provision for loan losses totaled $1.3 million and $600,000 for the
years ended December 31, 2008 and 2007, respectively. The provision for loan
losses is established based upon management's review of the Bank's loans and
consideration of a variety of factors including, but not limited to, (1) the
risk characteristics of the loan portfolio, (2) current economic conditions, (3)
actual losses previously experienced, (4) the significant level of loan growth
and (5) the existing level of reserves for loan losses that are possible and
estimable. During 2008, the Bank experienced $61,000 in net charge-offs
(consisting of $101,000 in charge-offs and $40,000 in recoveries). During 2007,
the Bank experienced $268,000 in net charge-offs (consisting of $285,000 in
charge-offs and $17,000 in recoveries). The Bank had non-accrual loans totaling
$3.7 million at December 31, 2008 and $3.8 million at December 31, 2007. The
allowance for loan losses stood at $5.3 million or 1.28% of gross total loans at
December 31, 2008 as compared to $4.1 million or 1.10% of gross total loans at
December 31, 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 loses 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 both December 31, 2008 and 2007.
Total non-interest income decreased by $3.2 million to a loss of $2.1
million for the year ended December 31, 2008 from income of $1.1 million for the
year ended December 31, 2007. The decrease in non-interest income resulted
primarily from an other than temporary impairment (OTTI) charge of $2.9 million
on a $3.0 million investment in Federal National Mortgage Association (FNMA)
preferred stock as well as a $283,000 decrease in gain on sales of loans
originated for sale, to $137,000 for the year ended December 31, 2008 from
$420,000 for the year ended December 31, 2007, and a $12,000 decrease in gain on
sale of real estate owned, partially offset by a $64,000 or 9.7% increase in
fees, service charges and other income to $723,000 for the year ended December
31, 2008 from $659,000 for the year ended December 31, 2007. The decrease in
gain on sale of loans originated for sale reflects the softening one-to
four-family residential real estate market during 2008.
Total non-interest expense increased by $596,000 or 5.6% to $11.3 million
for the year ended December 31, 2008 from $10.7 million for the year ended
December 31, 2007. The
46
increase in non-interest expense resulted primarily from the discovery of a
deposit fraud scheme by a commercial client of the Bank during 2008. The Bank
recorded a $560,000 loss related to this incident. The Bank and Company
anticipate that future recoveries may partially offset this loss; however there
can be no assurance of the level or probability of any recovery. The Bank and
the Company have notified its insurance carrier. Salaries and employee benefits
expense decreased by $207,000 or 3.6% to $5.5 million for the year ended
December 31, 2008 from $5.7 million for the year ended December 31, 2007. This
decrease resulted from a decrease in full time equivalent employees to
eighty-five (85) at December 31, 2008 from ninety-three (93) at December 31,
2007 and from eighty-seven (87) at December 31, 2006. Occupancy expense
increased by $59,000 or 5.9% to $1.1 million for the year ended December 31,
2008 from $1.0 million for the year ended December 31, 2007. Equipment expense
increased by $113,000 or 5.9% to $2.0 million for the year ended December 31,
2008 from $1.9 million for the year ended December 31, 2007. The primary
component of this expense item is data service provider expense which increases
with the growth of the Bank's assets. Advertising expense decreased by $85,000
or 26.1% to $241,000 for the year ended December 31, 2008 from $326,000 for the
year ended December 31, 2007. Other non-interest expense increased by $156,000
or 8.7% to $1.9 million for the year ended December 31, 2008 from $1.8 million
for the year ended December 31, 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 decreased $689,000 or 27.5% to $1.8 million for the
year ended December 31, 2008 from $2.5 million for the year ended December 31,
2007 reflecting decreased pre-tax income earned during 2008. The consolidated
effective income tax rate for the year ended December 31, 2008 was 34.4% and for
the year ended December 31, 2007 was 36.1%.
Results of Operations for the Years Ended December 31, 2007 and 2006
Net income decreased by $1.13 million or 20.3% to $4.44 million for the
year ended December 31, 2007 from $5.57 million for the year ended December 31,
2006. The decrease in net income resulted primarily from decreases in net
interest income and non-interest income and an increase in non-interest expense,
partially offset by decreases in the provision for loan losses, and income
taxes. Net interest income decreased by $611,000 or 3.4% to $17.2 million for
the year ended December 31, 2007 from $17.8 million for the year ended December
31, 2006. This decrease in net interest income resulted primarily from an
increase of $42.6 million or 10.4% in the average balance of interest-bearing
liabilities to $450.5 million for the year ended December 31, 2008 from $407.9
million for the year ended December 31, 2006 and an increase in the cost of
interest-bearing liabilities to 3.82% for the year ended December 31, 2008 from
3.30% for the year ended December 31, 2006. The average balance of
interest-earning assets increased by $45.1 million or 9.4% to $526.8 million at
December 31, 2008 from $481.7 million at December 31, 2006 while the yield on
interest-earning assets increased slightly to 6.53% for the year ended December
31, 2008 from 6.49% for the year ended December 31, 2006. As a consequence of
the
47
aforementioned, our net interest margin decreased to 3.26% for the year ended
December 31, 2008 from 3.69% for the year ended December 31, 2006.
Interest income on loans receivable increased by $1.6 million or 7.0% to
$24.4 million for the year ended December 31, 2007 from $22.8 million for the
year ended December 31, 2006. The increase was primarily due to an increase in
average loans receivable of $23.6 million or 7.5% to $339.1 million for the year
ended December 31, 2008 from $315.5 million for the year ended December 31,
2006, partially offset by a slight decrease in the average yield on loans
receivable to 7.19% for the year ended December 31, 2007 from 7.22% for the year
ended December 31, 2006. The increase in the average balance of loans reflects
management's philosophy of deploying 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 for commercial and
construction loans as well as the effect of the actions taken by the Federal
Open Market Committee to reduce interest rates during the latter half of 2007.
Interest income on securities increased by $797,000 or 9.9% to $8.8
million for the year ended December 31, 2007 from $8.0 million for the year
ended December 31, 2006. The increase was primarily attributable to an increase
in the average balance of securities of $8.1 million or 5.3% to $161.7 million
for the year ended December 31, 2007 from $153.6 million for the year ended
December 31, 2006, and an increase in the average yield on securities to 5.47%
for the year ended December 31, 2007 from 5.24% for the year ended December 31,
2006. The increase in average balances 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 consisting primarily of
federal funds sold increased by $737,000 or 165.6% to $1.2 million for the year
ended December 31, 2007 from $445,000 for the year ended December 31, 2006. This
increase was primarily due to an increase in the average balance of other
interest-earning assets of $13.4 million or 106.3% to $26.0 million for the year
ended December 31, 2007 from $12.6 million for the year ended December 31, 2006
and an increase in the average yield on other interest-earning assets to 4.54%
for the year ended December 31, 2007 from 3.54% for the year ended December 31,
2006. During 2007, as short term interest rates remained elevated and the yield
curve remained inverted through the majority of the year, increased balances in
cash and cash equivalent accounts, in the absence of higher yielding loan
product, provided a competitive yield while affording management the latitude to
research more profitable investment opportunities.
Total interest expense increased by $3.7 million or 27.4% to $17.2 million
for the year ended December 31, 2007 from $13.5 million for the year ended
December 31, 2006. This increase resulted from an increase in the average
balance of total interest-bearing deposit liabilities of $12.9 million or 3.7%
to $357.0 million for the year ended December 31, 2007 from $344.1 million for
the year ended December 31, 2006, and an increase of $29.6 million or 46.4% in
average borrowings to $93.4 million for the year ended December 31, 2007, from
$63.8 million for the year ended December 31, 2006, as well as an increase in
the average cost of interest-bearing liabilities to 3.82% for the year ended
December 31, 2007 from 3.30% for the year ended December 31, 2006.
48
The provision for loan losses totaled $600,000 and $625,000 for the years
ended December 31, 2007 and 2006, respectively. The provision for loan losses is
established based upon management's review of the Bank's loans and consideration
of a variety of factors including, but not limited to, (1) the risk
characteristics of the loan portfolio, (2) current economic conditions, (3)
actual losses previously experienced, (4) the significant level of loan growth
and (5) the existing level of reserves for loan losses that are probable and
estimable. During 2007, the Bank experienced $268,000 in net charge-offs
(consisting of $285,000 in charge-offs and $17,000 in recoveries). During 2006,
the Bank experienced $18,000 in net recoveries (consisting of $85,000 in
recoveries and $67,000 in charge-offs). The Bank had non-accrual loans totaling
$3.8 million at December 31, 2007 and $323,000 at December 31, 2006. The
allowance for loan losses stood at $4.1 million or 1.10% of gross total loans at
December 31, 2007 as compared to $3.7 million or 1.16% of gross total loans at
December 31, 2006. The amount of the allowance is based on estimates and the
ultimate losses may vary from such estimates. Management assesses the allowance
for loan losses on a quarterly basis and makes provisions for loan losses as
necessary in order to maintain the adequacy of the allowance. While management
uses available information to recognize loses 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 both December 31, 2007 and 2006.
Total non-interest income decreased by $168,000 or 13.3% to $1.1 million
for the year ended December 31, 2007 from $1.3 million for the year ended
December 31, 2006. The decrease in non-interest income resulted primarily from a
$215,000 decrease in gain on sales of loans originated for sale, to $420,000 for
the year ended December 31, 2007 from $635,000 for the year ended December 31,
2006, partially offset by a $34,000 increase in fees, service charges and other
income to $659,000 for the year ended December 31, 2007 from $625,000 for the
year ended December 31, 2006 and a $13,000 increase in gain on sale of
non-performing loans. The decrease in gain on sale of loans originated for sale
reflects the softening one-to four-family residential real estate market during
the year 2007.
Total non-interest expense increased by $1.1 million or 11.5% to $10.7
million for the year ended December 31, 2007 from $9.6 million for the year
ended December 31, 2006. The increase in 2007 was primarily due to an increase
of $489,000 or 9.4% in salaries and employee benefits expense to $5.7 million
for the year ended December 31, 2007 from $5.2 million for the year ended
December 31, 2006 as the Bank increased staffing levels and compensation in an
effort to service its growing customer base. Full time equivalent employees
increased to ninety-three (93) at December 31, 2007 from eighty-seven (87) at
December 31, 2006 and eighty-two (82) at December 31, 2005. Occupancy expense
increased by $100,000 or 11.1% to $1.0 million for the year ended December 31,
2007 from $900,000 for the year ended December 31, 2006. Equipment expense
increased by $172,000 or 9.9% to $1.9 million for the year ended December 31,
2007 from $1.7 million for the year ended December 31, 2006. The primary
component of this expense item is data service provider expense which increases
with the growth of the Bank's assets. Advertising expense remained relatively
stable at $326,000 for the year ended December 31, 2007 as compared to $329,000
for the year ended December 31, 2006. Other non-interest
49
expense increased by $328,000 or 22.5% to $1.8 million for the year ended
December 31, 2007 from $1.5 million for the year ended December 31, 2006. The
increase in other non-interest expense is primarily attributable to increases in
expenses commensurate with a growing franchise. Other non-interest expense is
comprised of directors' fees, stationary, forms and printing, professional fees,
legal fees, check printing, correspondent bank fees, telephone and
communication, shareholder relations and other fees and expenses.
Income tax expense decreased $711,000 or 22.1% to $2.5 million for the
year ended December 31, 2007 from $3.2 million for the year ended December 31,
2006 reflecting decreased pre-tax income earned during 2007. The consolidated
effective income tax rate for the year ended December 31, 2007 was 36.1% and for
the year ended December 31, 2006 was 36.6%.
Liquidity and Capital Resources
-------------------------------
Our funding sources include income from operations, deposits and
borrowings and principal payments on loans and investment securities. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit outflows and mortgage prepayments are greatly
influenced by the general level of interest rates, economic conditions and
competition.
Our primary investing activities are the origination of commercial and
multi-family real estate loans, one- to four-family mortgage loans,
construction, commercial business and consumer loans, as well as the purchase of
mortgage-backed and other investment securities. During 2008 loan originations
totaled $110.7 million compared to $142.5 million and $119.6 million for 2007
and 2006, respectively. The continued strength of loan originations reflects
management's efforts to increase our total assets, the continued focus on
increasing commercial and multi-family lending operations and the refinance
market in 2008.
During 2008, cash flow provided by the calls, maturities and principal
repayments and prepayments received on securities held-to-maturity amounted to
$84.4 million compared to $21.0 million and $28.8 million in 2007 and 2006.
Deposit growth provided $11.7 million, $16.1 million and $19.9 million of
funding to facilitate asset growth for the years ending December 31, 2008, 2007
and 2006, respectively. Borrowings increased $2.0 million in 2008 with
additional short-term borrowings of $24.0 million and repayments of $22.0
million through the FHLB.
Loan Commitments. In the ordinary course of business the Bank extends
commitments to originate residential and commercial loans and other consumer
loans. Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since the Bank does not expect all of the
commitments to be funded, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. Collateral may be obtained based upon
management's assessment of the customers' creditworthiness. Commitments to
extend credit may be written on a fixed rate basis exposing the Bank to interest
rate risk given the possibility that market rates may change between the
commitment date and the actual extension of credit. The Bank had outstanding
commitments to
50
originate and fund loans of approximately $46.1 million and $57.4 million at
December 31, 2008 and 2007, respectively.
The following tables sets forth our contractual obligations and commercial
commitments at December 31, 2008.
Payments due by period
Less than 1 1-3 More than 3-5 More than 5
Contractual obligations Total Year Years Years Years
--------- ----------- -------- ------------- -----------
(In Thousands)
Borrowed money ................ $ 116,124 $ 2,000 $ -- $ -- $ 114,124
Lease obligations ............. 4,297 425 610 402 2,860
Certificates of deposit ....... 234,974 188,112 38,577 8,235 50
--------- ----------- -------- ------------- -----------
Total ......................... $ 355,395 $ 190,537 $ 39,187 $ 8,637 $ 117,034
========= =========== ======== ============= ===========
Recent Accounting Pronouncements
--------------------------------
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement No. 160 "Noncontrolling Interests in Consolidated Financial
Statements--an amendment of ARB No. 51". 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.
In May 2008, the FASB issued Statement No. 162, "The Hierarchy of
Generally Accepted Accounting Principles." This Statement identifies the sources
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements. This Statement is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles." The Company believes that this new
pronouncement will not have a material impact on its consolidated financial
statements.
In June 2008, the FASB issued FASB 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 Company does
not expect that EITF 03-6-1 will have an impact on its consolidated financial
statements.
In November 2008, the SEC released a proposed roadmap regarding the
potential use by U.S. issuers 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
51
as early as 2014. The SEC will make a determination in 2011 regarding the
mandatory adoption of IFRS. The Company is currently assessing the impact that
this potential change would have on its consolidated financial statements, and
it will continue to monitor the development of the potential implementation of
IFRS.
In November 2008, the FASB ratified Emerging Issues Task Force ("EITF")
Issue No. 08-6, "Equity Method Investment Accounting Considerations". EITF 08-6
clarifies the accounting for certain transactions and impairment considerations
involving equity method investments. EITF 08-6 is effective for fiscal years
beginning after December 15, 2008, with early adoption prohibited. The Company
does not expect that EITF 08-6 will have an impact on its consolidated financial
statements.
In November 2008, the FASB ratified EITF Issue No. 08-7, "Accounting for
Defensive Intangible Assets". EITF 08-7 clarifies the accounting for certain
separately identifiable intangible assets which an acquirer does not intend to
actively use but intends to hold to prevent its competitors from obtaining
access to them. EITF 08-7 requires an acquirer in a business combination to
account for a defensive intangible asset as a separate unit of accounting which
should be amortized to expense over the period the asset diminishes in value.
EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with
early adoption prohibited. This new pronouncement will impact the Company's
accounting for any defensive intangible assets acquired in a business
combination completed beginning January 1, 2009.
In December 2008, the FASB issued FSP SFAS 140-4 and FASB Interpretation
("FIN") 46(R)-8, "Disclosures by Public Entities (Enterprises) about Transfers
of Financial Assets and Interests in Variable Interest Entities". FSP SFAS 140-4
and FIN 46(R)-8 amends FASB SFAS 140 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", to require public entities
to provide additional disclosures about transfers of financial assets. It also
amends FIN 46(R), "Consolidation of Variable Interest Entities", to require
public enterprises, including sponsors that have a variable interest in a
variable interest entity, to provide additional disclosures about their
involvement with variable interest entities. Additionally, this FSP requires
certain disclosures to be provided by a public enterprise that is (a) a sponsor
of a qualifying special purpose entity ("SPE") that holds a variable interest in
the qualifying SPE but was not the transferor of financial assets to the
qualifying SPE and (b) a servicer of a qualifying SPE that holds a significant
variable interest in the qualifying SPE but was not the transferor of financial
assets to the qualifying SPE. The disclosures required by FSP SFAS 140-4 and FIN
46(R)-8 are intended to provide greater transparency to financial statement
users about a transferor's continuing involvement with transferred financial
assets and an enterprise's involvement with variable interest entities and
qualifying SPEs. FSP SFAS 140-4 and FIN 46(R) is effective for reporting periods
(annual or interim) ending after December 15, 2008. The adoption of this
pronouncement did not have a material impact on our consolidated financial
statements.
In January 2009, the FASB issued FSP EITF 99-20-1, "Amendments to the
Impairment of Guidance of EITF Issue No. 99-20". FSP EITF 99-20-1 amends the
impairment guidance in EITF Issue No. 99-20, "Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized
52
Financial Assets", to achieve more consistent determination of whether an
other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and
emphasizes the objective of an other-than-temporary impairment assessment and
the related disclosure requirements in SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", and other related guidance. FSP EITF
99-20-1 is effective for interim and annual reporting periods ending after
December 15, 2008, and shall be applied prospectively. Retrospective application
to a prior interim or annual reporting period is not permitted. The adoption of
EITF 99-20-1 did not have a material impact on our consolidated financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------- ----------------------------------------------------------
Management of Market Risk
-------------------------
Qualitative Analysis. 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.
Quantitative Analysis. The following table presents the Company's net
portfolio value ("NPV"). These calculations were based upon assumptions believed
to be fundamentally sound, although they may vary from assumptions utilized by
other financial institutions. The information set forth below is based on data
that included all financial instruments as of December 31, 2008. Assumptions
have been made by the Company relating to interest rates, loan prepayment rates,
core deposit duration, and the market values of certain assets and liabilities
under the various interest rate scenarios. Actual maturity dates were used for
fixed rate loans and certificate accounts. Investment securities were scheduled
at either the maturity date or the next scheduled call date based upon
management's judgment of whether the particular security would be called in the
current interest rate environment and under assumed interest rate scenarios.
Variable rate loans were scheduled as of their next scheduled interest rate
repricing date. Additional assumptions made in the preparation of the NPV table
include prepayment rates on loans and mortgage-backed securities, core deposits
without stated maturity dates were scheduled with an assumed term of 48 months,
and money market and 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 100 to 300 basis points
has
53
been excluded since it would not be meaningful, in the interest rate environment
as of December 31, 2008. The following sets forth the Company's NPV as of
December 31, 2008.
NPV as a % of Assets
Change in Net Portfolio $ Change from % Change from --------------------
calculation Value PAR PAR NPV Ratio Change
----------- ------------- ------------- -------------- --------- --------
+300bp $ 33,632 $ (34,528) -50.66% 6.21% (528)bp
+200bp 59,526 (8,634) -12.67 10.61 (88)bp
+100bp 70,348 2,188 3.21 12.07 58 bp
PAR 68,160 -- -- 11.49 --
-100bp -- -- -- -- --
-200bp -- -- -- -- --
-300bp -- -- -- -- --
----------
bp-basis points
The table above indicates that at December 31, 2008, in the event of a 100
basis point increase in interest rates, we would experience a 3.21% increase in
NPV.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in NPV require making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV table
presented assumes that the composition of our interest-sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured and assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration or
repricing of specific assets and liabilities. Accordingly, although the NPV
table provides an indication of our interest rate risk exposure at a particular
point in time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes in market interest rates on our net
interest income, and will differ from actual results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------------------
The financial statements identified in Item 15(a)(1) hereof are included
as Exhibit 13 and are incorporated hereunder.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
ITEM 9A.(T) CONTROLS AND PROCEDURES
-----------------------------------
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our Chief Executive Officer, Chief Financial Officer and Principal
Accounting Officer, we evaluated the effectiveness of the design and operation
of our 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 fiscal year (the
"Evaluation Date"). Based upon that evaluation, the Chief Executive Officer,
Chief Financial Officer and Principal Accounting Officer concluded that, as of
the Evaluation Date, our
54
disclosure controls and procedures were effective in timely alerting them to the
material information relating to us (or our consolidated subsidiaries) required
to be included in our periodic SEC filings.
(b) Management's Annual Report on Internal Control over Financial
Reporting
Management of BCB Bancorp, Inc., and subsidiaries (the "Company") is
responsible for establishing and maintaining adequate internal control over
financial reporting. The Company's system of internal control is designed under
the supervision of management, including our Chief Executive Officer and Chief
Operating Officer, to provide reasonable assurance regarding the reliability of
our financial reporting and the preparation of the Company's financial
statements for external reporting purposes in accordance with U.S. generally
accepted accounting principles ("GAAP").
Our internal control over financial reporting includes policies and
procedures that pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and dispositions of assets;
provide reasonable assurances that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and that
receipts and expenditures are made only in accordance with the authorization of
management and the Board of Directors; and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company's assets that could have a material effect on our
financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections on any evaluation
of effectiveness to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions or that the degree of
compliance with policies and procedures may deteriorate.
As of December 31, 2008, management assessed the effectiveness of the
Company's internal control over financial reporting based upon the framework
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based upon its
assessment, management believes that the Company's internal control over
financial reporting as of December 31, 2008 is effective using these criteria.
This annual report does not include an attestation report of the company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the company to provide only management's
report in this annual report.
(c) Changes in Internal Controls over Financial Reporting.
There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that has
materially affected or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
See the Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
55
ITEM 9B. OTHER INFORMATION
-----------------------------
None.
PART III
--------
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
------------------------------------------------------------------
The Company has adopted a Code of Ethics that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions. The Code of
Ethics is available for free by writing to: President and Chief Executive
Officer, BCB Bancorp, Inc., 104-110 Avenue C, Bayonne, New Jersey 07002. The
Code of Ethics is filed as an exhibit to this Form 10-K.
The "Proposal I--Election of Directors" section of the Company's
definitive Proxy Statement for the Company's 2009 Annual Meeting of Stockholders
(the "2009 Proxy Statement") is incorporated herein by reference in response to
the disclosure requirements of Items 401, 405, 406, 407(d)(4) and 407(d)(5) of
Regulation S-K.
The information concerning directors and executive officers of the Company
under the caption "Proposal I-Election of Directors" and information under the
captions "Section 16(a) Beneficial Ownership Compliance" and "The Audit
Committee" of the 2009 Proxy Statement is incorporated herein by reference.
There have been no changes during the last year in the procedures by which
security holders may recommend nominees to the Company's board of directors.
ITEM 11. EXECUTIVE COMPENSATION
----------------------------------
The "Executive Compensation" section of the Company's 2009 Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
-------- ------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------
The "Proposal I--Election of Directors" section of the Company's 2009
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
-------- ------------------------------------------------------------
INDEPENDENCE
------------------------------------------------------------
The "Transactions with Certain Related Persons" section and "Proposal
I-Election of Directors--Board Independence" of the Company's 2009 Proxy
Statement is incorporated herein by reference.
56
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
--------------------------------------------------
Information required by Item 14 is incorporated by reference to the
Company's Proxy Statement for the 2009 Annual Meeting of Stockholders, "Proposal
II-Ratification of the Appointment of Independent Auditors--Fees Paid to Beard
Miller Company LLP."
PART IV
-------
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
------------------------------------------------------
(a)(1) Financial Statements
--------------------
The exhibits and financial statement schedules filed as a part of this
Form 10-K are as follows:
(A) Report of Independent Registered Public Accounting Firm
(B) Consolidated Statements of Financial Condition as of December
31, 2008 and 2007
(C) Consolidated Statements of Income for each of the Years in the
Three-Year period ended December 31, 2008
(D) Consolidated Statements of Changes in Stockholders' Equity for
each of the Years in the Three-Year period ended December 31,
2008
(E) Consolidated Statements of Cash Flows for each of the Years in
the Three-Year period ended December 31, 2008
(F) Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
-----------------------------
All schedules are omitted because they are not required or applicable, or
the required information is shown in the consolidated statements or the notes
thereto.
(b) Exhibits
--------
3.1 Certificate of Incorporation of BCB Bancorp, Inc.****
3.2 Bylaws of BCB Bancorp, Inc.**
3.3 Specimen Stock Certificate*
10.1 BCB Community Bank 2002 Stock Option Plan***
10.2 BCB Community Bank 2003 Stock Option Plan***
10.3 2005 Director Deferred Compensation Plan****
57
10.4 Change in Control Agreement with Donald Mindiak*******
10.5 Change in Control Agreement with James E. Collins*******
10.6 Change in Control Agreement with Thomas M. Coughlin*******
10.7 Executive Agreement with Donald Mindiak*******
10.8 Executive Agreement with James E. Collins*******
10.9 Executive Agreement with Thomas M. Coughlin*******
10.10 Amendment to 2002 and 2003 Stock Option Plans******
13 Consolidated Financial Statements
14 Code of Ethics***
21 Subsidiaries of the Company****
23 Accountant's Consent to incorporate consolidated financial
statements in Form S-8
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Accounting Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Principal
Accounting Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
----------
* Incorporated by reference to the Form 8-K-12g3 filed with the Securities
and Exchange Commission on May 1, 2003.
** Incorporated by reference to the Form 8-K filed with the Securities and
Exchange Commission on October 12, 2007.
*** Incorporated by reference to the Annual Report on Form 10-K for the year
ended December 31, 2004.
**** Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended, (Commission File Number 333-128214) originally
filed with the Securities and Exchange Commission on September 9, 2005.
58
***** Incorporated by reference to Exhibit 10.10 to the Current Report on Form
8-K filed with the Securities and Exchange Commission on November 10,
2005.
****** Incorporated by reference to the Annual Report on Form 10-K for the year
ended December 31, 2005.
******* Incorporated by reference to Exhibit 10.4, 10.5, 10.6, 10.7, 10.8 and
10.9 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 15, 2008.
59
Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BCB BANCORP, INC.
Date: March 27, 2009 By: /s/ Donald Mindiak
------------------------------------
Donald Mindiak
President, Chief Executive Officer
and Chief Financial Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Donald Mindiak President, Chief Executive March 27, 2009
--------------------------- Officer, Chief Financial Officer
Donald Mindiak and Director (Principal Executive Officer)
/s/ Thomas M. Coughlin Vice President, Chief Operating March 27, 2009
--------------------------- Officer (Principal Accounting
Thomas M. Coughlin Officer) and Director
/s/ Mark D. Hogan Chairman of the Board March 27, 2009
---------------------------
Mark D. Hogan
/s/ Robert Ballance Director March 27, 2009
---------------------------
Robert Ballance
/s/ Judith Q. Bielan Director March 27, 2009
---------------------------
Judith Q. Bielan
/s/ Joseph J. Brogan Director March 27, 2009
---------------------------
Joseph J. Brogan
/s/ James E. Collins Director March 27, 2009
---------------------------
James E. Collins
/s/ Joseph Lyga Director March 27, 2009
---------------------------
Joseph Lyga
/s/ Alexander Pasiechnik Director March 27, 2009
---------------------------
Alexander Pasiechnik
/s/ August Pellegrini, Jr. Director March 27, 2009
---------------------------
August Pellegrini, Jr.
/s/ Joseph Tagliareni Director March 27, 2009
---------------------------
Joseph Tagliareni
EXHIBIT INDEX
-------------
3.1 Certificate of Incorporation of BCB Bancorp, Inc.****
3.2 Bylaws of BCB Bancorp, Inc.**
3.3 Specimen Stock Certificate*
10.1 BCB Community Bank 2002 Stock Option Plan***
10.2 BCB Community Bank 2003 Stock Option Plan***
10.3 2005 Director Deferred Compensation Plan****
10.4 Change in Control Agreement with Donald Mindiak*******
10.5 Change in Control Agreement with James E. Collins*******
10.6 Change in Control Agreement with Thomas M. Coughlin*******
10.7 Executive Agreement with Donald Mindiak*******
10.8 Executive Agreement with James E. Collins*******
10.9 Executive Agreement with Thomas M. Coughlin*******
10.10 Amendment to 2002 and 2003 Stock Option Plans******
13 Consolidated Financial Statements
14 Code of Ethics***
21 Subsidiaries of the Company****
23 Consent of Independent Registered Public Accounting Firm
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Accounting Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Principal Accounting
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
----------
* Incorporated by reference to the Form 8k-12g3 filed with the Securities
and Exchange Commission on May 1, 2003.
** Incorporated by reference to the Form 8-K filed with the Securities and
Exchange Commission on October 12, 2007.
*** Incorporated by reference to the Annual Report on Form 10-K for the year
ended December 31, 2004.
**** Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended, (Commission File Number 333-128214) originally
filed with the Securities and Exchange Commission on September 9, 2005.
***** Incorporated by reference to Exhibit 10.10 to the Current Report on Form
8-K filed with the Securities and Exchange Commission on November 10,
2005.
****** Incorporated by reference to the Annual Report on Form 10-K for the year
ended December 31, 2005.
******* Incorporated by reference to Exhibit 10.4, 10.5, 10.6, 10.7, 10.8 and
10.9 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 15, 2008.