UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2007
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-24589
BCSB BANKCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
| United States | 52-2108333 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
4111 E. Joppa Road, Suite 300, Baltimore, Maryland 21236
(Address of Principal Executive Offices)
(410) 256-5000
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x
As of June 30, 2007, the issuer had 5,915,743 shares of Common Stock issued and outstanding.
EXPLANATORY NOTE
This Form 10-Q/A for the quarter ended June 30, 2007 is being filed to correct the misclassification of cash flows from the sale of certain mortgage loans originally held for investment, which had been inappropriately classified as operating activities. In accordance with SFAS 102, “Statement of Cash Flows-Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale,” cash flows from the sale of mortgage loans originally held for investment should have been classified as investing activities rather than as operating activities.
The correction of the error described above affects the classification of these activities and the subtotals of cash flows from operating and investing activities presented in the Consolidated Statements of Cash Flows, but they do not have any impact on the total cash and cash equivalents presented therein.
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1
BCSB BANKCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2007 | September 30, 2006 | |||||||
| (unaudited) | ||||||||
| (dollars in thousands) | ||||||||
Assets | ||||||||
Cash and due from banks | $ | 8,778 | $ | 8,421 | ||||
Interest-bearing deposits in other banks | 43,185 | 2,854 | ||||||
Federal funds sold | 39,234 | 462 | ||||||
Cash and Cash Equivalents | 91,197 | 11,737 | ||||||
Interest bearing time deposits | 100 | 100 | ||||||
Investment securities, available for sale | 3,906 | 143,068 | ||||||
Investment securities, held to maturity | — | 4,496 | ||||||
Loans receivable, net | 408,032 | 463,776 | ||||||
Mortgage-backed securities, available for sale | 107,040 | 86,801 | ||||||
Mortgage-backed securities, held to maturity | — | 28,675 | ||||||
Foreclosed real estate | 94 | 94 | ||||||
Premises and equipment, net | 10,572 | 11,225 | ||||||
Federal Home Loan Bank of Atlanta stock, at cost | 2,270 | 6,972 | ||||||
Bank owned life insurance | 13,691 | 13,218 | ||||||
Goodwill and other intangible assets | 2,491 | 2,536 | ||||||
Accrued interest and other assets | 11,717 | 13,159 | ||||||
Total assets | $ | 651,110 | $ | 785,857 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities | ||||||||
Deposits: | ||||||||
Non-interest bearing | $ | 29,872 | $ | 23,406 | ||||
Interest-bearing | 536,649 | 581,439 | ||||||
Total Deposits | 566,521 | 604,845 | ||||||
Short Term Advances from the Federal Home Loan Bank of Atlanta | 10,000 | 40,000 | ||||||
Long Term Advances from the Federal Home Loan Bank of Atlanta | 10,000 | 78,473 | ||||||
Junior Subordinated Debentures | 23,197 | 23,197 | ||||||
Other liabilities | 7,553 | 5,921 | ||||||
Total liabilities | 617,271 | 752,436 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Equity | ||||||||
Common stock (par value $.01 – 13,500,000 authorized, 5,915,743 shares issued and outstanding at June 30, 2007 and 5,913,743 shares issued and outstanding at September 30, 2006) | 59 | 59 | ||||||
Additional paid-in capital | 21,503 | 21,390 | ||||||
Obligation under Rabbi Trust | 1,142 | 1,246 | ||||||
Retained earnings (substantially restricted) | 13,896 | 16,511 | ||||||
Accumulated other comprehensive loss (net of taxes) | (1,574 | ) | (4,354 | ) | ||||
Employee Stock Ownership Plan | (90 | ) | (227 | ) | ||||
Stock held by Rabbi Trust | (1,097 | ) | (1,204 | ) | ||||
Total stockholders’ equity | 33,839 | 33,421 | ||||||
Total liabilities and stockholders’ equity | $ | 651,110 | $ | 785,857 | ||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
2
BCSB BANKCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| For the Nine Months Ended June 30, | For the Three Months Ended June 30, | ||||||||||||||
| 2007 | 2006 | 2007 | 2006 | ||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||
Interest Income | |||||||||||||||
Interest and fees on loans | $ | 21,763 | $ | 20,992 | $ | 7,173 | $ | 7,256 | |||||||
Interest on mortgage–backed securities | 3,468 | 3,821 | 1,132 | 1,226 | |||||||||||
Interest and dividends on investment securities | 3,186 | 4,657 | 120 | 1,578 | |||||||||||
Other interest income | 1,443 | 186 | 1,231 | 119 | |||||||||||
Total interest income | 29,860 | 29,656 | 9,656 | 10,179 | |||||||||||
Interest Expense | |||||||||||||||
Interest on deposits | 15,517 | 13,260 | 5,067 | 4,782 | |||||||||||
Interest on borrowings – short term | 971 | 1,991 | 108 | 482 | |||||||||||
Interest on borrowings – long term | 1,859 | 2,065 | 180 | 850 | |||||||||||
Other interest expense – debentures | 1,538 | 1,396 | 514 | 493 | |||||||||||
Total interest expense | 19,885 | 18,712 | 5,869 | 6,607 | |||||||||||
Net interest income | 9,975 | 10,944 | 3,787 | 3,572 | |||||||||||
Provision for losses on loans | 117 | 152 | — | 20 | |||||||||||
Net interest income after provision for losses on loans | 9,858 | 10,792 | 3,787 | 3,552 | |||||||||||
Other Income | |||||||||||||||
Gain (loss) on repossessed assets | 10 | (26 | ) | 20 | (1 | ) | |||||||||
Realized loss (gain) on loans held for sale | (1,207 | ) | — | 299 | |||||||||||
Mortgage banking operations | 13 | 29 | 12 | 2 | |||||||||||
Fees on transaction accounts | 459 | 431 | 199 | 146 | |||||||||||
(Loss) gain on sale of investments and mortgage-backed Securities | (5,863 | ) | 51 | 27 | 51 | ||||||||||
Income from bank owned life insurance | 428 | 339 | 146 | 103 | |||||||||||
Other income | 327 | 341 | 105 | 99 | |||||||||||
Total other income, net | (5,833 | ) | 1,165 | 808 | 400 | ||||||||||
Non-Interest Expenses | |||||||||||||||
Salaries and related expense | 5,944 | 6,247 | 1,997 | 1,986 | |||||||||||
Occupancy expense | 1,686 | 1,597 | 565 | 527 | |||||||||||
Data processing expense | 1,088 | 1,327 | 365 | 355 | |||||||||||
Property and equipment expense | 899 | 939 | 303 | 320 | |||||||||||
Professional fees | 385 | 207 | 63 | 38 | |||||||||||
Advertising | 391 | 464 | 102 | 191 | |||||||||||
(Recovery) loss on dishonored checks | (3,353 | ) | 10,721 | — | 10,721 | ||||||||||
Telephone, postage and office supplies | 287 | 352 | 102 | 88 | |||||||||||
Debt retirement expense | 17 | — | — | — | |||||||||||
Other expenses | 820 | 759 | 252 | 219 | |||||||||||
Total non-interest expenses | 8,164 | 22,613 | 3,749 | 14,445 | |||||||||||
(Loss) Income before tax benefit | (4,139 | ) | (10,656 | ) | 846 | (10,493 | ) | ||||||||
Income tax (benefit) expense | (1,524 | ) | (3,761 | ) | 247 | (3,603 | ) | ||||||||
Net income (loss) | $ | (2,615 | ) | $ | (6,895 | ) | $ | 599 | $ | (6,890 | ) | ||||
Per Share Data: | |||||||||||||||
Basic and diluted earnings per share | $ | (.44 | ) | $ | (1.18 | ) | $ | .10 | $ | (1.18 | ) | ||||
Dividends per share | $ | .00 | $ | .375 | $ | .00 | $ | .125 | |||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
3
BCSB BANKCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For the Nine Months Ended June 30, | ||||||||
| 2007 | 2006 | |||||||
| ( in thousands) | ||||||||
Net Loss | $ | (2,615 | ) | $ | (6,895 | ) | ||
Other comprehensive income, net of tax: | ||||||||
Unrealized net holding (losses) on | (819 | ) | (2,694 | ) | ||||
Reclassification adjustment for losses included in net income, net of tax $2,265 and $2 | 3,599 | 3 | ||||||
Comprehensive Income (Loss) | $ | 165 | $ | (9,586 | ) | |||
For the Three Months Ended June 30, | ||||||||
| 2007 | 2006 | |||||||
| ( in thousands) | ||||||||
Net Income (Loss) | $ | 599 | $ | (6,890 | ) | |||
Other comprehensive income, net of tax: | ||||||||
Unrealized net holding (losses) on | (1,253 | ) | (811 | ) | ||||
Reclassification adjustment for losses (gains) included in net income, net of tax $10 and $2 | (17 | ) | 3 | |||||
Comprehensive (Loss) | $ | (671 | ) | $ | (7,698 | ) | ||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
4
BCSB BANKCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (as restated)
For Nine Months Ended June 30, | ||||||||
| 2007 | 2006 | |||||||
| (dollars in thousands) | ||||||||
Operating Activities | ||||||||
Net loss | $ | (2,615 | ) | $ | (6,895 | ) | ||
Adjustments to reconcile net (loss) to | ||||||||
Net Cash Provided by Operating Activities | ||||||||
Loss (gain) on sale of investments and mortgage-backed securities | 5,863 | (51 | ) | |||||
Realized loss on loans held for sale` | 1,207 | — | ||||||
Amortization of deferred loan fees and cost, net | (136 | ) | (120 | ) | ||||
Provision for losses on loans | 117 | 152 | ||||||
Non-cash compensation under stock-based benefit plan | 234 | 202 | ||||||
Amortization of purchase premiums and discounts, net | 170 | 244 | ||||||
Provision for depreciation | 789 | 780 | ||||||
(Gain) loss on sale of repossessed assets | (10 | ) | 26 | |||||
Increase in cash surrender value of bank owned life insurance | (428 | ) | (339 | ) | ||||
Increase in accrued interest and other assets | (307 | ) | (3,450 | ) | ||||
Increase in other liabilities | 285 | 2,169 | ||||||
Increase in obligation under Rabbi Trust | 15 | 24 | ||||||
Net cash provided (used) by operating activities | 5,184 | (7,258 | ) | |||||
Cash Flows from Investing Activities | ||||||||
Purchase of bank owned life insurance | (44 | ) | (48 | ) | ||||
Purchase of investment securities – held to maturity | — | (3,000 | ) | |||||
Purchase of investment securities – available for sale | (802 | ) | (1,257 | ) | ||||
Proceeds from maturities of investment securities – available for sale | 15,000 | 1,500 | ||||||
Proceeds from sale of investment securities – available for sale | 126,480 | 405 | ||||||
Proceeds from maturities of investment securities – held to maturity | 3,500 | 500 | ||||||
Proceeds from sale of loans | 45,231 | — | ||||||
Net decrease (increase) in loans | 8,995 | (13,482 | ) | |||||
Purchase of mortgage-backed securities – available for sale | (84,867 | ) | — | |||||
Purchase of mortgage-backed securities – held to maturity | — | (6,704 | ) | |||||
Principal collected on mortgage-backed securities | 13,206 | 21,944 | ||||||
Proceeds from sale of mortgage-backed securities – available for sale | 77,771 | — | ||||||
Proceeds from sales of repossessed assets | 211 | 266 | ||||||
Investment in premises and equipment | (135 | ) | (1,688 | ) | ||||
Redemption of Federal Home Loan Bank of Atlanta Stock, net | 4,702 | 805 | ||||||
Net cash provided (used) by investing activities | 209,248 | (759 | ) | |||||
5
BCSB BANKCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| For Nine Months Ended June 30, | ||||||||
| 2007 | 2006 | |||||||
| (dollars in thousands) | ||||||||
Cash Flows from Financing Activities | ||||||||
Net (decrease) increase in deposits | $ | (38,270 | ) | $ | 21,833 | |||
Net increase in advances by borrowers for taxes and insurance | 1,294 | 1,523 | ||||||
Proceeds from Federal Home Loan Bank of Atlanta advances | 146,550 | 164,550 | ||||||
Repayment of Federal Home Loan Bank of Atlanta advances | (244,550 | ) | (183,200 | ) | ||||
Acquisition of stock for Rabbi Trust | (13 | ) | (33 | ) | ||||
Exercised stock options | 17 | 10 | ||||||
Dividends paid on common stock | — | (795 | ) | |||||
Net cash (used) provided by financing activities | (134,972 | ) | 3,888 | |||||
Increase in cash equivalents | 79,460 | (4,129 | ) | |||||
Cash and cash equivalents at beginning of period | 11,737 | 23,529 | ||||||
Cash and cash equivalents at end of period | $ | 91,197 | $ | 19,400 | ||||
Supplemental Disclosures of Cash Flows Information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 19,811 | $ | 18,258 | ||||
Income taxes | $ | — | $ | — | ||||
Supplemental Disclosures of Non-cash Investing Activity: | ||||||||
Transfer of held to maturity securities to available for sale | $ | 27,536 | $ | — | ||||
Transfer of loans to loans held for sale | $ | 46,438 | $ | — | ||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
6
BCSB BANKCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 –Principles of Consolidation
BCSB Bankcorp, Inc. (the “Company”) owns 100% of Baltimore County Savings Bank, F.S.B. and subsidiaries (the “Bank”). The Bank owns 100% of Ebenezer Road, Inc. The accompanying consolidated financial statements include the accounts and transactions of these companies on a consolidated basis since the date of acquisition. All intercompany transactions have been eliminated in the consolidated financial statements. Ebenezer Road, Inc. sells insurance products. Its operations are not material to the consolidated financial statements.
Note 2 –Basis for Financial Statement Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, (none of which were other than normal recurring accruals) necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. The financial statements of the Company are presented on a consolidated basis with those of the Bank. The results for the nine months ended June 30, 2007 are not necessarily indicative of the results of operations that may be expected for the year ending September 30, 2007. The consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes which are incorporated by reference in the Company’s Annual Report on Form 10-K for the year ended September 30, 2006.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term related to the determination of the allowance for loan losses (the “Allowance”), other-than-temporary impairment of investment securities, deferred tax assets and intangible assets.
Note 3 –Cash Flow Presentation
For purposes of the statements of cash flows, cash and cash equivalents include cash and amounts due from depository institutions, investments in federal funds, and certificates of deposit with original maturities of 90 days or less.
7
BCSB BANKCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 4 –Earnings Per Share
Basic per share amounts are based on the weighted average shares of common stock outstanding. Diluted earnings per share assume the conversion, exercise or issuance of all potential common stock instruments such as options, unless the effect is to reduce a loss or increase earnings per share. No adjustments were made to net income (numerator) for all periods presented. As of June 30, 2007 39,864 shares were excluded from the diluted earnings per shares calculations as they were anti-dilutive. The basic and diluted weighted average shares outstanding for the nine and three months ended June 30, 2007 and 2006 are as follows:
| For the Nine Months Ended June 30, | ||||||||||||||||||||
| 2007 | 2006 | |||||||||||||||||||
| (in thousands except per share data) | ||||||||||||||||||||
| Income (Loss) | Shares | Per Share | Income (Loss) | Shares | Per Share | |||||||||||||||
Basic EPS | ||||||||||||||||||||
(Loss) Income available to shareholders | $ | (2,615 | ) | 5,901 | $ | (.44 | ) | $ | (6,895 | ) | 5,851 | $ | (1.18 | ) | ||||||
Diluted EPS | ||||||||||||||||||||
Effect of dilutive shares | — | — | — | — | — | — | ||||||||||||||
(Loss) Income available to shareholders plus assumed conversions | $ | (2,615 | ) | 5,901 | $ | (.44 | ) | $ | (6,895 | ) | 5,851 | $ | (1.18 | ) | ||||||
| For the Three Months June 30, | ||||||||||||||||||||
| 2007 | 2006 | |||||||||||||||||||
| (in thousands except per share data) | ||||||||||||||||||||
| Income (Loss) | Shares | Per Share | Income | Shares | Per Share | |||||||||||||||
Basic EPS | ||||||||||||||||||||
(Loss) Income available to shareholders | $ | 599 | 5,884 | $ | .10 | $ | (6,890 | ) | 5,857 | $ | (1.18 | ) | ||||||||
Diluted EPS | ||||||||||||||||||||
Effect of dilutive shares | — | 28 | .10 | — | — | — | ||||||||||||||
Income available to shareholders plus assumed conversions | $ | 599 | 5,912 | $ | .10 | $ | (6,890 | ) | 5,857 | $ | (1.18 | ) | ||||||||
8
BCSB BANKCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 5 –Regulatory Capital
The following table sets forth the Bank’s capital position at June 30, 2007.
| Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||
| Actual Amount | % of Assets | Required Amount | % of Assets | Required Amount | % of Assets | |||||||||||||
| (Unaudited)(dollars in thousands) | ||||||||||||||||||
Tangible (1) | $ | 46,957 | 7.32 | % | $ | 9,622 | 1.50 | % | $ | N/A | N/A | % | ||||||
Tier I capital (2) | 46,957 | 12.16 | N/A | N/A | 23,170 | 6.00 | ||||||||||||
Core (1) | 46,957 | 7.32 | 25,658 | 4.00 | 32,072 | 5.00 | ||||||||||||
Risk-weighted (2) | 48,978 | 12.68 | 30,894 | 8.00 | 38,617 | 10.00 | ||||||||||||
| (1) | To adjust total assets |
| (2) | To risk-weighted assets |
Note 6 –Stock Option Plans
As of June 30, 2007 and 2006, the Company had four stock-based employee compensation plans, which are more fully described in the 2006 Annual Report. Prior to fiscal 2006, the Company applied the intrinsic value method as outlined in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations in accounting for stock options and share units granted under these programs. Under the intrinsic value method, no compensation expense was recognized if the exercise price of the Company’s employee stock options equaled the market price of the underlying stock on the date of the grant. Accordingly, no compensation cost was recognized in the accompanying consolidated statements of operations prior to fiscal year 2006 on stock options granted to employees, since all options granted under the Company’s share incentive programs had an exercise price equal to the market value of the underlying common stock on the date of grant.
Effective October 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”). This statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and supersedes APB No. 25. SFAS No. 123(R) requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. This statement was adopted using the modified prospective method of application, which requires the Company to recognize compensation expense on a prospective basis. Therefore, prior period financial statements have not been restated. Under this method, in addition to reflecting compensation expense for new share-based awards, expense is also recognized to reflect the remaining service period of awards that had been included in pro-forma disclosures in prior periods. SFAS No. 123(R) also requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows. This resulted in $17,249 and $24,000 of compensation expense to be recorded during the nine months ended June 30, 2007 and 2006 respectively. Compensation expense of $7,389 and $8,000 was recorded during the quarters ended June 30, 2007 and 2006 respectively.
At June 30, 2007, there were 36,250 shares under option with an exercise price of $8.00 and a weighted average contractual life of 2 years, 75,250 shares with an exercise price of $11.375 and a weighted average remaining life of 5 years and 20,000 shares with an exercise price of $14.97 and a contractual life of 9.3 years that vest ratably over five years. The total exercisable shares of 111,500 have a weighted average remaining life of 4 years, and an aggregate intrinsic value of $54,000 at June 30, 2007.
9
BCSB BANKCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents the activity related to options under all plans for the nine months ended June 30, 2007.
| Shares | Weighted Average Exercise Price | |||||
Outstanding at September 30, 2006 | 113,500 | $ | 10.30 | |||
Options exercised | (2,000 | ) | 11.38 | |||
Granted | 20,000 | 14.97 | ||||
Outstanding at June 30, 2007 | 131,500 | $ | 10.99 | |||
Exercisable at June 30, 2007 | 111,500 | $ | 10.28 | |||
The weighted average fair values of our option grants for the nine months ended June 30, 2007 and 2006 were $148,000 and $0 respectively, on the dates of grants. No options were granted during fiscal year 2006 or 2005. The fair values of our options granted were calculated using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions for the nine months ended June 30, 2007 and 2006:
| 2007 | |||
Dividend Yield | $ | 0 | |
Expected volatility | 29.95 | ||
Risk-free interest rate | 4.64 | ||
Expected lives | 10.0 years | ||
10
BCSB BANKCORP, INC. AND SUBSIDIARIES
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 –Recent Accounting Pronouncements
In February 2006, The FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140.” This statement amends Statements No. 133 and 140 by: permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; clarifying which interest-only strips and principal-only strips are not subject to the requirements of Statement No. 133; establishing a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; clarifying that concentrations of credit risk in the form of subordination are not embedded derivatives; and amending Statement No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The statement is effective for fiscal years beginning after September 15, 2006. The adoption of this standard did not have a material impact on our financial condition, results of operations or liquidity.
In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140.” This statement amends Statement No. 140 with respect to the accounting for separately recognized servicing assets and servicing liabilities. It requires an entity to recognize a servicing asset or servicing liability each time an obligation is undertaken to service a financial asset by entering into a servicing contract in certain situations and requires all separately recognized servicing assets and liabilities to be initially measured at fair value, if practicable. The statement permits the choice between the “amortization method” and the “fair value measurement method” for the subsequent measurement of the servicing assets or liabilities and allows for a one-time reclassification of available-for-sale securities to trading securities at initial adoption. The statement also requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. The statement is effective for fiscal years beginning after September 30, 2006. The adoption of this standard did not have a material impact on our financial condition, results of operations or liquidity.
In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement 109”, which provides guidance on the measurement, recognition, and disclosure of tax positions taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, and disclosure. FIN 48 prescribes that a tax position should only be recognized if it is more-likely-than-not that the position will be sustained upon examination by the appropriate taxing authority. A tax position that meets this threshold is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The cumulative effect of applying FIN 48 is to be reported as an adjustment to the beginning balance of retained earnings in the period of adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is assessing the impact, if any, that the adoption may have on its financial statements.
In September 2006, the FASB ratified the consensus reached by the EITF on Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” EITF 06-4 requires the recognition of a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to postretirement periods as defined in SFAS No. 106, “ Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The EITF reached a consensus that Bank Owned Life Insurance policies purchased for this purpose do not effectively settle the entity’s obligation to the employee in this regard and thus the entity must record compensation cost and a related liability. Entities should recognize the effects of applying this Issue through either, (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings or to other components of equity or net assets in the balance sheet as of the beginning of the year of adoption, or (b) a change in accounting principle through retrospective application to all prior periods. Management is currently evaluating the impact of adopting this Issue on the Company’s financial statements. This Issue is effective for fiscal years beginning after December 15, 2007.
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In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS 157 establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. While the Statement applies under other accounting pronouncements that require or permit fair value measurements, it does not require any new fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In addition, the Statement establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Lastly, SFAS No. 157 requires additional disclosures for each interim and annual period separately for each major category of assets and liabilities. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management does not expect the adoption of this Statement to have a material impact on the Company’s consolidated financial statements.
In September 2006, the Securities and Exchange Commission (the “SEC”) released Staff Accounting Bulletin No. 108 (“SAB 108”), which provides detail in the quantification and correction of financial statement misstatements. SAB 108 specifies that companies should apply a combination of the “rollover” and “iron curtain” methodologies when making determinations of materiality. The rollover method quantifies a misstatement based on the amount of the error originating in the current year income statement. The iron curtain approach quantifies misstatements based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year, regardless of the year(s) of origination. SAB 108 instructs companies to quantify the misstatement under both methodologies and if either method results in the determination of a material error, then the company must adjust its financial statements to correct the error. SAB 108 also reminds preparers that a change from an accounting principle that is not generally accepted to a principle that is generally accepted is a correction of an error. The Bulletin is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. Management does not expect the adoption of this Bulletin to have a material impact on the Company’s consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities”. This statement permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This pronouncement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is evaluating the impact of this new standard, but currently believes that adoption will not have a material impact on its financial position or results of operations.
Note 8 –Guarantees
The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company has $796,000 of standby letters of credit as of June 30, 2007. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment required under the corresponding guarantees. The current amount of the liability as of June 30, 2007 for guarantees under standby letters of credit issued is not considered to be material.
Note 9 –Balance Sheet Restructuring
During the nine months ended June 30, 2007, the Company restructured its balance sheet. The Company sold approximately $169.1 million of investments and mortgage-backed securities, $31.9 million in mutual funds and $46.4 million in fixed rate single family mortgage loans. The Company used a portion of the proceeds from these sales to prepay $98.5 million of Federal Home Loan Bank advances with an average cost of 4.97%. During the nine months ended June 30, 2007, the Company transferred $27.5 million of securities that were previously classified as held to maturity to the available for sale classification. Accordingly, the Company has reclassified all remaining securities as available for sale. The Company accounts for security transactions based upon the trade date.
Note 10 –Reclassification
Certain prior period amounts have been reclassified to conform to the current period’s presentation.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures as required under Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. At June 30, 2007, the Company’s management, with the participation of the Chief Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Principal Financial Officer initially concluded that the Company’s disclosure controls and procedures were effective. As a result of the restatement described in the Explanatory Note, management has since concluded that the Company did not maintain effective controls to ensure the appropriate classification of cash flows from the sale of certain mortgage loans originally held for investment. This control deficiency resulted in the restatement of the Company’s Consolidated Statement of Cash Flows for the nine months ended June 30, 2007. Solely because of this material weakness, management restates its assessment for that period, and concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2007.
The reclassification only affects the subtotals of cash flows from operating activities and investing activities and does not affect the total cash and cash equivalents for the periods presented. The restatement does not affect the Company’s Consolidated Statements of Financial Condition, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income or its Consolidated Statement of Changes in Stockholders’ Equity and is only a reclassification within the Consolidated Statement of Cash Flows for the affected period. Accordingly, the Company’s historical revenues, net income, earnings per share, total assets and regulatory capital remain unchanged.
Changes in Internal Control over Financial Reporting
As previously reported, there have been no changes during the three months ended June 30, 2007 in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities and Exchange Commission Rule 13a-15 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Subsequently, the Company has taken action to strengthen the internal reporting regarding the classification of cash flows activities, including the sale of certain mortgage loans originally held for investment, to ensure compliance with the appropriate accounting guidance.
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| Item 6. | Exhibits |
The following exhibits are filed herewith:
Exhibit Number | Title | |
| 31.1 | Rule 13a-14(a) Certification of Chief Executive Officer | |
| 31.2 | Rule 13a-14(a) Certification of Chief Financial Officer | |
| 32 | Section 1350 Certifications | |
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BCSB BANKCORP, INC. | ||||||
| Date: August 28, 2007 | /s/ Joseph J. Bouffard | |||||
Joseph J. Bouffard President (Principal Executive Officer) | ||||||
| Date: August 28, 2007 | /s/ Bonnie M. Klein | |||||
Bonnie M. Klein Senior Vice President and Treasurer (Principal Financial and Accounting Officer) | ||||||
