UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2003
OR
/X/ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
4111 E. JOPPA ROAD, SUITE 300, BALTIMORE, MARYLAND 21236
--------------------------------------------------------
(Address of Principal Executive Offices)
(410) 256-5000
-----------------------------------------------
Issuer'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
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 an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
-- --
As of January 31, 2004, the issuer had 5,898,593 shares of Common Stock
issued and outstanding.
EXPLANATORY NOTE
BCSB Bankcorp, Inc. (the "Company") is amending its Form 10-Q for the
quarter ended December 31, 2003 to restate its consolidated statement of
financial condition as of December 31, 2003 and its consolidated statements of
operations for the three months ended December 31, 2003 to correct the
accounting treatment for a Bank Owned Life Insurance ("BOLI") policy. Subsequent
to the issuance of the Company's consolidated financial statements as of and for
the three months ended December 31, 2003 and the filing of its Quarterly Report
on Form 10-Q for the quarter ended December 31, 2003, the Company determined
that it had incorrectly accounted for its income tax provision related to the
BOLI policy. The effect of the restatement is to reduce the Company's income tax
provision to $53,708 for the three months ended December 31, 2003 from $91,560
previously reported, thereby increasing net income from $188,057, or $.03 basic
and diluted earnings per share, to $225,909, or $.04 basic and diluted earnings
per share. Total stockholders' equity at December 31, 2003 increases to
$44,309,111 from $44,271,259 previously reported. For purposes of this Form
10-Q/A, and in accordance with Rule 12b-15 under the Securities and Exchange Act
of 1934, as amended, the Company has amended and restated in its entirety each
item of the Company's Form 10-Q for the three months ended December 31, 2003,
which has been affected by the restatement. This Form 10-Q/A does not reflect
events occurring after the filing of the original Form 10-Q, or modify or update
those disclosures in any way, except as required to reflect the effects of this
restatement.
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 2003 (unaudited) and September 30, 2003................2
Consolidated Statements of Operations for the Three Months Ended
December 31, 2003 and 2002 (unaudited)..............................3
Consolidated Statements of Comprehensive Income
for the Three Months Ended
December 31, 2003 and 2002 (unaudited)..............................4
Consolidated Statements of Cash Flows for the Three Months Ended
December 31, 2003 and 2002 (unaudited)..............................5
Notes to Consolidated Financial Statements............................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation...................................11
PART II. OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K.....................................18
SIGNATURES....................................................................20
1
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
December 31, September 30,
2003 2003
------------------- ------------------
(Unaudited)
Assets
------
Cash $ 12,356,894 $ 11,032,415
Interest bearing deposits in other banks 5,846,539 11,288,223
Federal funds sold 1,328,564 987,636
Investment securities, held to maturity 3,003,559 2,500,000
Investment securities, available for sale 114,370,984 121,289,555
Loans receivable, net 359,341,536 365,054,645
Loans held for sale 190,000 247,600
Mortgage backed securities, held to maturity 17,694,254 18,394,439
Mortgage backed securities, available for sale 113,637,576 116,204,401
Premises and equipment, net 9,088,613 9,226,887
Federal Home Loan Bank of Atlanta stock 3,304,900 3,304,900
Accrued interest receivable 2,035,173 2,114,609
Prepaid and deferred income taxes 2,041,321 1,752,582
Bank Owned Life Insurance 11,546,602 --
Goodwill 2,294,327 2,294,327
Core deposit intangible 407,000 421,000
Other assets 1,770,429 2,084,630
-------------- --------------
Total assets $ 660,258,271 $ 668,197,849
============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
- -----------
Deposits $ 555,747,735 $ 551,928,619
Advances from the Federal Home Loan Bank of Atlanta 32,217,812 32,267,861
Trust Preferred Securities 22,500,000 22,500,000
Advance payments by borrowers for taxes and insurance 855,220 854,694
Income taxes payable 148,519 193,051
Payables to disbursing agents 538,726 136,352
Accounts payable Trade Date Securities 2,000,000 13,998,307
Dividends payable 267,955 266,329
Other liabilities 1,673,193 1,284,720
-------------- --------------
Total liabilities 615,949,160 623,429,933
Commitments and contingencies
Stockholders' Equity
- --------------------
Common stock (Par value $.01 - 13,500,000 authorized,
5,898,593 and 5,885,593
shares issued and outstanding
at December 31, 2003 and September 30, 2003) 58,986 58,856
Additional paid-in capital 20,794,994 20,652,137
Obligation under Rabbi Trust 1,251,817 1,243,469
Retained earnings (substantially restricted) 25,526,194 25,556,888
Accumulated Other Comprehensive Income (net of taxes) (1,396,052) (770,874)
Employee Stock Ownership Plan (730,328) (776,060)
Stock held by Rabbi Trust (1,196,500) (1,196,500)
-------------- --------------
Total Stockholders' Equity 44,309,111 44,767,916
-------------- --------------
Total liabilities and Stockholders' Equity $ 660,258,271 $ 668,197,849
============== ==============
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
2
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
For Three Months Ended
December 31,
------------------------
2003 2002
-------- ------
Interest Income
- ---------------
Interest and fees on loans $ 5,652,851 $ 7,007,783
Interest on mortgage-backed securities 1,200,449 1,055,779
Interest and dividends on investment securities 943,341 527,281
Other interest income 13,567 91,146
------------- -----------
Total interest income 7,810,208 8,681,989
Interest Expense
- ----------------
Interest on deposits 3,371,172 3,675,763
Interest on borrowings - short term 44,203 56,975
Interest on borrowings-long term 260,527 274,773
Other interest expense 267,688 178,726
------------- -----------
Total interest expense 3,943,590 4,186,237
------------- -----------
Net interest income 3,866,618 4,495,752
Provision for losses on loans 181,773 281,998
------------- -----------
Net interest income after provision
for losses on loans 3,684,845 4,213,754
Other Income
- ------------
Gain on sale of repossessed assets 77,388 --
Gain on sale of loans 24,002 66,985
Fees and charges on loans 55,194 50,745
Fees on transaction accounts 211,184 129,290
Rental income 31,804 37,047
Gain (Loss) from sale of Investments (12,746) 25,000
Gain from sale of Mortgage Backed Securities 7,548 70,010
Income from Bank Owned Life Insurance 121,602 --
Miscellaneous income 9,585 46,677
------------- -----------
Net other income 525,561 425,754
Non-Interest Expenses
- ---------------------
Salaries and related expense 2,175,609 2,137,591
Occupancy expense 486,905 394,983
Deposit insurance premiums 52,987 49,618
Data processing expense 386,273 411,591
Property and equipment expense 301,000 310,508
Professional fees 65,103 58,176
Advertising 241,267 227,764
Telephone, postage and office supplies 146,124 154,650
Other expenses 75,521 162,900
------------- -----------
Total non-interest expenses 3,930,789 3,907,781
------------- -----------
Income before tax provision 279,617 731,727
Income tax provision 53,708 279,218
------------- -----------
Net income $ 225,909 $ 452,509
============= ===========
Basic and diluted earnings per share $ 0.04 $ 0.08
============= ===========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
3
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------------------
(UNAUDITED)
For Three Months Ended
December 31,
-------------------------------------
2003 2002
----------------- -----------------
Net Income $ 225,909 $ 452,509
Other comprehensive income, net of tax:
Unrealized net holding gains (losses) on
available-for-sale portfolios, net of tax $(393,545) and (114,474) (628,369) 185,510
Reclassification adjustment for (gains) losses
included in net income, net of tax $ 2,007 and (36,256) 3,191 (58,754)
--------- ---------
Comprehensive income $(399,269) $ 579,265
========= =========
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)
-------------------------------------------------
For Three Months Ended
December 31,
----------------------------------
2003 2002
----------------- --------------
Operating Activities
- --------------------
Net Income $ 225,909 $ 452,509
Adjustments to Reconcile Net Income to Net
Cash Used by Operating Activities
---------------------------------
Accretion of discount on investments (19,899) (4,652)
Dividends on Investment Securities (264,038) (211,204)
(Gain) Loss on sale of investments 12,746 (25,000)
Loans originated for sale (2,696,000) (2,108,541)
Loans sold 2,777,602 1,923,264
Gain on sale of loans (24,002) (66,985)
Loan fees and costs deferred, net (20,339) (73,142)
Amortization of deferred loan fees and cost, net (85,054) (17,136)
Provision for losses on loans 181,773 281,998
Non-cash compensation under Stock-Based Benefit Plan 77,276 57,665
Amortization of premium on mortgage backed securities 122,976 139,569
Amortization of purchase premiums and discounts, net (31,708) (260,897)
Gain on sale of mortgaged backed securities (7,548) (70,010)
Provision for depreciation 236,385 241,983
Gain on sale of repossessed assets (77,388) --
Increase in cash surrender value of bank owned life insurance (121,602) --
Decrease in accrued interest receivable 79,436 401,271
Decrease in prepaid income taxes 102,799 187,556
Decrease in other assets 314,201 253,990
Decrease in accrued interest payable on deposits (1,688) (39,955)
Decrease in income taxes payable (44,532) (26,391)
Decrease in accounts payable Trade Date Securities (11,998,307) --
Increase in other liabilities and payables to
disbursing agents 790,847 1,033,656
Increase in obligation under Rabbi-Trust 8,348 9,725
----------- -----------
Net cash (used) provided by operating activities (10,461,807) 2,079,273
5
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
For Three Months Ended
December 31,
-----------------------------------
2003 2002
----------------- ---------------
Cash Flows from Investing Activities
- ------------------------------------
Purchase of Bank Owned Life Insurance $ (11,425,000) $ --
Purchases of investment securities - available for sale (4,003,125) (24,080,065)
Proceeds from maturities of investment securities - available for sale 5,500,000 5,500,000
Proceeds from sale of investment securities - available for sale 4,987,254 1,025,000
Purchases of investment securities - held to maturity (1,003,750) --
Proceeds from maturities of investment securities - held to maturity 500,000 1,000,000
Longer term loans originated (15,411,981) (16,507,135)
Principal collected on longer term loans 18,252,362 21,516,122
Net increase (decrease) in short-term loans 2,694,447 (2,560,117)
Principal collected on mortgage backed securities - available for sale 5,685,136 6,548,288
Purchase of mortgage backed securities - available for sale (4,985,327) (16,322,869)
Proceeds from sale of mortgaged backed securities - available for sale 1,447,365 6,782,470
Purchase of mortgage backed securities - held to maturity (1,095,533) --
Principal collected on mortgage backed securities - held to maturity 1,782,374 4,606,048
Proceeds from sale of repossessed assets 77,388 --
Investment in premises and equipment (98,111) (144,873)
Purchase of Federal Home Loan Bank of Atlanta stock -- 266,305
------------- -------------
Net cash provided (used) by investing activities 2,903,499 (12,370,826)
Cash Flows from Financing Activities
- ------------------------------------
Decrease in checks written in excess of bank balance -- (390,799)
Net increase in demand deposits, money market, passbook
accounts and advances by borrowers for taxes and
insurance 5,303,275 6,057,205
Net (decrease) increase in certificates of deposit (1,377,710) 5,905,436
Increase in Federal Home Loan Bank of Atlanta advances 29,800,000 --
Repayment of Federal Home Loan Bank of Atlanta advances (29,800,000) --
Exercised Stock Options 111,443 --
Increase in Dividends Payable 1,626 --
Dividends paid on stock (256,603) (264,891)
------------- -------------
Net cash provided by financing activities 3,782,031 11,306,951
------------- -------------
Decrease (increase) in cash and cash equivalents (3,776,277) 1,015,398
Cash and cash equivalents at beginning of period 23,208,274 25,703,327
------------- -------------
Cash and cash equivalents at end of period $ 19,431,997 $ 26,718,725
============= =============
6
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
Baltimore, Maryland
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
December 31,
-------------------------------------
2003 2002
----------------- -----------------
The following is a summary of cash and cash equivalents:
Cash $ 12,356,894 $ 9,774,030
Interest bearing deposits in other banks 5,846,539 10,948,650
Federal funds sold 1,328,564 6,096,045
------------- -------------
Balance of cash items reflected on Statement of
Financial Condition 19,431,997 26,818,725
Less - certificate of deposit with an original maturity of
more than ninety days 100,000 100,000
------------- -------------
Cash and cash equivalents reflected on the
Statement of Cash Flows $ 19,431,997 $ 26,718,725
============= =============
Supplemental Disclosures of Cash Flows Information:
Cash paid during the period for:
Interest $ 3,932,594 $ 4,210,016
============= =============
Income taxes $ 87,000 $ 50,000
============= =============
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
7
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 BCSB Bankcorp Capital
Trust I, BCSB Bankcorp Capital Trust II and Baltimore County Savings
Bank, F.S.B. and subsidiaries (the "Bank") and also invests in federal
funds sold, interest-bearing deposits in other banks and U.S. Agency
bonds. The Bank owns 100% of Baltimore County Service Corporation and
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. It's
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 three
months ended December 31, 2003 are not necessarily indicative of the
results of operations that may be expected for the year ending
September 30, 2004. 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, 2003.
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.
8
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. The basic and diluted weighted
average shares outstanding for the three months ended December 31,
2003 and 2002 is as follows:
For the Three Months Ended December 31, 2003
-----------------------------------------------
Income Shares Per Share
Basic EPS (Numerator) (Denominator) Amount
--------- ----------- ------------- ---------
Income available to common stockholders $ 225,909 5,778,442 $ 0.04
Effect of dilutive shares -- 54,059 --
----------- ---------- ---------
Diluted EPS
-----------
Income available to common stockholders
plus assumed conversions $ 225,909 5,832,501 $ 0.04
=========== ========== =========
For the Three Months Ended December 31, 2002
---------------------------------------------
Income Shares Per Share
Basic EPS (Numerator) (Denominator) Amount
--------- ----------- ------------- ---------
Income available to common stockholders $ 452,509 5,718,212 $ 0.08
Effect of dilutive shares -- 33,792 --
----------- ---------- ---------
Diluted EPS
-----------
Income available to common stockholders
plus assumed conversions $ 452,509 5,752,004 $ 0.08
=========== ========== =========
9
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 December 31,
2003.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
------------------------ ----------------------- ------------------------
Actual % of Required % of Required % of
Amount Assets Amount Assets Amount Assets
------ ------ -------- ------ -------- ------
(unaudited)
Tangible (1) $ 52,625,111 8.10% $ 9,746,463 1.50% N/A N/A
Tier 1 capital (2) 52,625,111 15.45 N/A N/A 20,431,373 6.00%
Core (1) 52,625,111 8.10 25,990,567 4.00 32,488,208 5.00
Risk-weighted (2) 54,709,591 16.07 27,241,830 8.00 34,052,288 10.00
- ------------
(1) To adjusted total assets.
(2) To risk-weighted assets.
Note 6 - Stock Option Plan
-----------------
Stock-Based Employee Compensation- At December 31, 2003 and 2002 the
company has four stock-based employee compensation plans, which are
described more fully in the 2003 Annual Report. The company accounts
for those plans under the recognition and measurement principles of
APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. No compensation cost is reflected in income
for the granted options as all granted options had an exercise price
equal to the market value of the underlying common stock on the date
of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value
recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
For the three months ended December 31,
2003 2002
---- ----
Net Income, as reported $ 225,909 $ 452,509
Add: Stock-based Compensation
Included in the determination of
Net income as reported, net of tax 62,023 53,670
Deduct: Total stock-based compensation
Expense determined under fair value
Method for all awards, net of tax (75,221) (58,642)
------- -------
Pro forma net income $ 212,711 $ 447,537
======= =======
Earnings per share:
Basic-as reported $ .04 $ .08
=== ===
Basic-pro forma .04 .08
=== ===
Diluted-as reported .04 .08
=== ===
Diluted-proforma .04 .08
=== ===
10
Note 7 - Recent Accounting Pronouncements
--------------------------------
In January 2003, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No 46, "Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51." FIN 46 was revised in
December 2003. This interpretation provides new guidance for the
consolidation of variable interest entities (VIE) and requires such
entities to be consolidated by their primary beneficiaries if the
entities do not effectively disperse risk among the parties involved.
The interpretation also adds disclosure requirements for investors
that are involved with unconsolidated VIEs. FIN 46 will require
deconsolidation of BCSB Capital Trust I and BCSB Capital Trust II. The
deconsolidation will not have a material effect on the Company's
financial position, results of operation. or the bank's capital
position. FIN 46 will be effective, for periods starting after March
15, 2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company was formed by the Bank to become the holding company of the
Bank following the Bank's reorganization to the mutual holding company form of
organization (the "Reorganization"). The Reorganization was consummated on July
8, 1998.
The Company's net income is dependent primarily on its net interest income,
which is the difference between interest income earned on its loan, investment
securities and mortgage-backed securities portfolio and interest paid on
interest-bearing liabilities. Net interest income is determined by (i) the
difference between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities. The
Company's interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows. To a lesser extent, the Company's net income also is affected by the
level of other income, which primarily consists of fees and charges, and levels
of non-interest expenses such as salaries and related expenses.
The operations of the Company are significantly affected by prevailing
economic conditions, competition and the monetary, fiscal and regulatory
policies of governmental agencies. Lending activities are influenced by the
demand for and supply of housing, competition among lenders, the level of
interest rates and the availability of funds. Deposit flows and costs of funds
are influenced by prevailing market rates of interest, primarily on competing
investments, account maturities and the levels of personal income and savings in
the Company's market area.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are set forth in Note 1 of
the consolidated financial statements as of September 30, 2003 which was filed
on Form 10-K. Of these significant accounting policies, the Company considers
its policy regarding the allowance for loan losses to be its most critical
accounting policy, because it requires management's most subjective and complex
judgments. In addition, changes in economic conditions can have a significant
impact on the allowance for loan losses and therefore the provision for loan
losses and results of operations. The Company has developed appropriate policies
and procedures for assessing the adequacy of the allowance for loan losses,
recognizing that this process requires a number of assumptions and estimates
with respect to its loan portfolio. The Company's assessments may be impacted in
future periods by changes in economic conditions, the impact of regulatory
examinations, and the discovery of information with respect to borrowers that is
not known to management at the time of the issuance of the consolidated
financial statements. The Company adopted the disclosure only provision of FASB
123 see note 6 to the consolidated financial statements. They do not expect to
expense the fair market value of stock options until required by accounting
principles generally accepted in the United States of America.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q, the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the
11
date made. The Company wishes to advise readers that the factors listed above
could affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2003 AND SEPTEMBER 30, 2003
During the three months ended December 31, 2003, the Company's assets
decreased by $7.9 million, or 1.2% from $668.2 million at September 30, 2003 to
$660.3 million at December 31, 2003. Loans receivable, net decreased by $5.7
million, or 1.6%, from $365.0 million at September 30, 2003 to $359.3 million at
December 31, 2003. The Company's mortgage-backed securities available for sale
decreased by $2.6 million, or 2.2%, from $116.2 million at September 30, 2003 to
$113.6 million at December 31, 2003. The Company's mortgage-backed securities
held to maturity decreased by $700,000 or 3.8% from $18.4 million at September
30, 2003 to $17.7 million at December 31, 2003. The Company's investment
portfolio available for sale decreased $6.9 million or 5.7%, from $121.3 million
at September 30, 2003 to $114.4 million at December 31, 2003. The Company's
investment portfolio held to maturity increased by $500,000 or 20.0% from $2.5
million at September 30, 2003 to $3.0 million at December 31, 2003. During the
three months ended December 31, 2003 the Company purchased $11.5 million of bank
owned life insurance. The preceding was accomplished in an effort to reduce
interest rate risk in the balance sheet. The bank was reluctant to make long
term low rate loans in the low interest rate environment that prevailed during
the three month period ended December 31, 2003. Emphasis has been placed on
short term loans such as automobile loans, home equity loans and short term
mortgages. The Company's deposits increased by $3.8 million, or .7%, from $551.9
million at September 30, 2003 to $555.7 million at December 31, 2003. The
increase in deposits was achieved through normal marketing efforts.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND
2002
Net Income. Net income decreased by $227,000, or 50.1%, from $452,000 for
the three months ended December 31, 2002 to $226,000 for the three months ended
December 31, 2003. The decrease in net income was primarily attributable to
decreased net interest income of $347,000. This was partially offset by a
decrease in the provision for loan losses and income taxes and an increase in
other income due to the Bank Owned Life Insurance.
Net Interest Income. Net interest income was $3.9 million for the three
months ended December 31, 2003, compared to $4.5 million for the three months
ended December 31, 2002, representing a decrease of $629,000, or 14.0%. The
decrease was primarily due to the decrease in the average rate on interest
earning-assets. The average rate on interest-earning assets decreased by 88
basis points from, 6.15% for the three months ended December 31, 2002 to 5.27%
for the three months ended December 31, 2003. Due to declining interest rates
and loans re-pricing faster than deposits the interest rate spread decreased 37
basis points from, 3.07% for the three months ended December 31, 2003 to 2.70%
for the three months ended December 31, 2003.
Interest Income. Interest income decreased by $872,000, or 10.0% from $8.7
million for the three months ended December 31, 2002 to $7.8 million for the
three months ended December 31, 2003. Interest and fees on loans decreased by
$1.4 million, or 19.3%, from $7.0 million for the three months ended December
31, 2002 to $5.6 million for the three months ended December 31, 2003. This was
primarily due to a decrease in the average yield on loans of 90 basis points
from 7.15% for the three months ended December 31, 2002 to 6.25% for the three
months ended December 31, 2003, and a $30.2 million decrease in the average
balance of loans receivable from $391.8 million at December 31, 2002 to $361.6
million at December 31, 2003. The decrease in the average balance of loans was
primarily attributable to increased competition in the refinancing market,
current economic conditions and the management's reluctance to make long term
low rate loans in the low interest rate environment that prevailed during the
period. The decrease in the average yield was attributed to the prevailing
market rates in the economy. Interest on mortgage-backed securities increased by
$144,000 or 13.7% from $1.1 million for the three months ended December 31, 2002
to $1.2 million for the three months ended December 31, 2003. This increase was
primarily due to the increase in the average balance of mortgage-backed
securities from $92.8 million at December 31, 2002 to $108.1 million at December
31, 2003. Interest and dividends on investment securities increased by $416,000
or 78.9% from $527,000 million for the three months ended December 31, 2002 to
$943,000 million for the three months ended December 31, 2003. This was
primarily due to an increase in the average balance of investments of $63.5
million from, $56.0 million at December 31, 2002 to $119.6 million at December
31, 2003. The increase in the average balance more than offset a decrease of 61
basis points in the average
12
yield on investments from, 3.76 % for the three months ended December 31, 2002
to 3.15% for the three months ended December 31, 2003.
Interest Expense. Interest expense, which consists of interest on deposits,
interest on borrowed money and other interest expense decreased from $4.1
million for the three months ended December 31, 2002 to $3.9 million for the
three months ended December 31, 2003 a change of $243,000 or 5.8%. Interest on
deposits decreased $305,000 due to a decrease in the average yield on deposits
of 49 basis points from 2.92% at December 31, 2002 to 2.43% at December 31,
2003. This was partially offset by an increase in the average volume of deposits
of $50.9 million from $504.2 million at December 31, 2002 to $555.2 million at
December 31, 2003. The Company was able to increase its deposits through normal
marketing efforts. Interest on short-term borrowings decreased by $13,000 for
the three months ended December 31, 2003, and interest on long-term borrowings
decreased by $14,000 for the three months ended December 31, 2003. This decrease
was primarily due to a decrease of 161 basis points in the average yield paid on
advances from the Federal Home Loan Bank of Atlanta during the three months
ended December 31, 2003. Also contributing to interest expense was interest on
the Trust Preferred Securities which was $268,000 for the three month period
ending December 31,2003, compared to $179,000 for the three month period ending
December 31, 2002.
Average Balance Sheet. The following table sets forth certain information
relating to the Company's average balance sheet and reflects the average yield
on assets and cost of liabilities for the periods indicated and the average
yields earned and rates paid. Such yields and costs are derived by dividing
income or expense by the average daily balance of assets or liabilities,
respectively, for the three month periods ended December 31, 2003 and 2002.
Total average assets are computed using month-end balances.
The table also presents information for the periods indicated with respect
to the differences between the average yield earned on interest-earning assets
and average rate paid on interest-bearing liabilities, or "interest rate
spread," which banks have traditionally used as an indicator of profitability.
Another indicator of net interest income is "net interest margin," which is its
net interest income divided by the average balance of interest-earning assets.
Three Months Ended December 31
---------------------------------------------------------------------------
2003 2002
----------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- --------
(Dollars in thousands)
Interest-earning assets:
Loans.................................... $ 361,599 $ 5,653 6.25% $391,822 $ 7,008 7.15%
Mortgage-backed securities............... 108,150 1,200 4.44 92,795 1,056 4.55
Dividends and investment securities...... 119,575 943 3.15 56,096 527 3.76
Other Investments........................ 3,800 14 1.47 24,336 91 1.50
--------- --------- ---------- --------
Total interest-earning assets........ 593,124 7,810 5.27 565,049 8,682 6.15
Noninterest-earning assets.................. 68,784 30,496
--------- ----------
Total assets......................... $ 661,908 $ 595,545
========= ==========
Interest-bearing liabilities:
Deposits................................. $ 555,192 3,371 2.43 504,238 3,676 2.92
FHLB Advances............................ 34,258 304 3.55 25,760 332 5.16
Trust Preferred Securities............... 22,500 268 4.76 12,500 178 5.70
Other liabilities........................ 1,094 1 0.37 1,435 1 0.28
--------- --------- ---------- --------
Total interest-bearing liabilities.......... 613,044 3,944 2.57 543,933 4,187 3.08
--------- -------- -------- -------
Noninterest-bearing liabilities............. 4,752 5,125
--------- ----------
Total liabilities.................... 617,796 549,058
Stockholders' equity ....................... 44,112 46,487
--------- ----------
Total liabilities and stockholders'
equity.......................... $ 661,908 $ 595,545
========= ==========
Net interest income......................... $ 3,866 $ 4,495
========= ========
Interest rate spread........................ 2.70% 3.07%
======= ====
Net interest margin......................... 2.61% 3.18%
======= ====
Ratio average interest earning assets/
interest bearing liabilities............ 96.75% 103.88%
===== ======
13
Rate/Volume Analysis. The table below sets forth certain information
regarding changes in interest income and interest expense of the Bank for the
periods indicated. For each category of interest-earning asset and
interest-bearing liability, information is provided on changes attributable to:
(i) changes in volume (changes in volume multiplied by old rate); (ii) changes
in rates (change in rate multiplied by old volume); and (iii) changes in
rate/volume (changes in rate multiplied by the changes in volume).
For Three Months Ended December 31,
---------------------------------------------------
2003 vs. 2002
---------------------------------------------------
Increase (Decrease)
Due to
---------------------------------------------------
Rate/
Volume Rate Volume Total
------ ---- ------ -----
(In thousands)
Interest income:
Loans receivable.......................... $ (537) $ (888) $ 70 $ (1,355)
Mortgage-backed securities................ 177 (28) (5) 144
Investment securities and
FHLB Stock............................ 593 (82) (95) 416
Other interest-earning assets............. (77) 0 0 (77)
--------- -------- -------- ---------
Total interest-earning assets........... 156 (998) (30) (872)
Interest expense:
Deposits.................................. 371 (614) (62) (305)
FHLB advances............................. 109 (103) (34) (28)
Trust Preferred Securities................ 142 (29) (23) 90
Other liabilities......................... 0 0 0 0
-------- -------- -------- --------
Total interest-bearing
liabilities.......................... 622 (746) (119) (243)
-------- --------- --------- ---------
Change in net interest income............... $ (466) $ (252) $ 89 $ (629)
========= ========= ======== =========
Provision for Loan Losses. The Company charges provisions for loan losses
to earnings to maintain the total allowance for loan losses at a level
management considers adequate to provide for probable future loan losses. In
determining the provision, management considers a number of factors such as
existing loan levels, prior loss experience, current economic conditions and the
probability of these conditions affecting future loan performance. The Company
established provisions for losses on loans of $182,000 for the three months
ended December 31, 2003, as compared to $282,000 for the three months ended
December 31, 2002, representing a decrease of $100,000. Loan chargeoffs for the
three months ended December 31, 2003 were $329,000 as compared to $243,000 for
the three months ended December 31, 2002 an increase of $86,000. Loan chargeoffs
increased due to adverse economic conditions. Loan recoveries were $26,000 for
the three months ended December 31, 2003 compared to $195,000 for the three
months ended December 31, 2002. Non performing loans at December 31, 2003 were
$430,000 as compared to $759,000 at December 31, 2002. The total loss allowance
allocated to domestic loans is $2.6 million. In establishing such provisions,
management considered an analysis of the risk inherent in the loan portfolio.
For additional information see Asset Quality.
Other Income. Other income increased by $100,000, or 23.5% from $426,000
for the three months ended December 31, 2002 to $526,000 for the three months
ended December 31, 2003. The increase in other income for the three months ended
December 31 2003 was primarily attributable to an increase in the cash surrender
value of bank owned life insurance of $122,000 for the three months ended
December 31, 2003, compared to $0 for the three months ended December 31, 2002.
There was also a gain on the sale of repossessed assets of $77,000 for the three
months ended December 31, 2003 compared to $0, for the three months ended
December 31, 2002. Fees on transaction accounts also increased $82,000 from
$129,000 for the three months ended December 31, 2002 to $211,000 for the three
months ended December 31, 2003. Fees on transaction accounts increased due to
the increase in the volume of transaction accounts. These gains were partially
offset by a decrease in the gain on sale of loans of $43,000, from $67,000 for
the three months ended December 31, 2002 to $24,000 for the three months ended
December 31, 2003. There was also a decrease in the gain on the sale of
investments of $38,000 for the three months ended December 31, 2003, from a gain
on investments of $25,000 for the three months ended December 31, 2002 to a loss
of $13,000 for the three months ended December 31, 2003. Gain on the sale of
mortgage backed securities also decreased $62,000 for the three months ended
December 31,
14
2003 from $70,000 for the three months ended December 31, 2002 to $8,000 for the
three months ended December 31, 2003. These securities were sold in an effort to
mitigate interest rate risk.
Non-interest Expenses. Total non-interest expenses remained relatively
stable at $3.9 million for the three months ended December 31, 2003 and 2002.
The Company experienced increases of $38,000 in salaries and related expenses
for the three months ended December 31, 2003, from $2.1 million for the three
months ended December 31, 2002 to $2.2 million for the three months ended
December 31, 2003. Occupancy expense also increased by $92,000, from $395,000
for the three months ended December 31, 2002 to $487,000 for the three months
ended December 31, 2003. These increases were partially offset by a decrease in
data processing expense of $25,000, from $412,000 for the three months ended
December 31, 2002 to $386,000 for the three months ended December 31, 2003.
Other expenses also decreased by $87,000 for the three months ended December 31,
2003, from $163,000 for the three months ended December 31, 2002 to $76,000 for
the three months ended December 31, 2003.
Income Taxes. The Company's income tax expense was $54,000 and $279,000 for
the three months ended December 31, 2003 and 2002, respectively. The Company's
effective tax rates were 19.2% and 38.2% for the three months ended December 31,
2003 and 2002, respectively. The Company's effective tax rate decreased for the
three months ended December 31, 2003 as compared to the same quarter in the
prior year as the Company earned non-taxable income from bank owned life
insurance during the three months ended December 31, 2003.
COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
including commitments to extend credit under existing lines of credit and
commitments to sell loans. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheets.
Off-balance sheet financial instruments whose contract amounts represent
credit and interest rate risk are summarized as follows:
December 31, 2003 September 30, 2003
------------------ ------------------
(In thousands)
Commitments to originate new loans $ 5,512 $ 10,600
Commitments to originate new loans held for sale -- --
Unfunded commitments to extend credit under existing
equity line and commercial lines of credit 23,991 20,400
Commercial letters of credit 419 419
Commitments to sell loans held for sale -- --
The Company does not have any unconsolidated special purpose entities or other
similar forms of off-balance sheet financing arrangements.
Commitments to originate new loans or to extend credit are agreements to
lend to a customer as long as there is no violation of any condition established
in the contract. Loan commitments generally expire within 30 to 45 days. Most
equity line commitments for the unfunded portion of equity lines are for a term
of 20 years, and commercial lines of credit are generally renewable on an annual
basis. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amounts of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the borrower.
Commitments to sell loans held for sale are agreements to sell loans to a
third party at an agreed upon price.
15
CONTRACTUAL OBLIGATIONS
As of December 31, 2003
Payments due by period
----------------------
(Dollars in thousands)
Less than
1 year 1-3 years 4-5 years Over 5 years Total
----------------- --------- --------- ------------ -----
Time Deposits $ 192,909 99,986 80,924 -- 373,819
Long-term borrowings 12,250 1,000 9,000 9,000 31,250
Trust Preferred Securities -- -- -- 22,500 22,500
Lease obligations 907 2,847 1,347 5,422 10,523
--------------- ------ ------ ------ -------
Total contractual cash
obligations $ 206,066 103,833 91,271 36,922 438,092
=============== ======= ====== ====== =======
ASSET QUALITY
At December 31, 2003, the Company had approximately $561,000 in
non-performing assets (nonaccrual loans, repossessed assets and foreclosed real
estate) or .08% of total assets. At September 30, 2003, non-performing assets
were $593 000 or .04% of total assets. The Bank's net charge-offs for the three
months ended December 31, 2003 were $303,000. The Bank's allowance for loan
losses was $2.6 million at December 31, 2003 and $2.7 million at September 30,
2003.
The following table presents an analysis of the Company's non-performing
assets:
At At
December 31, September 30,
2003 2003
------------------ ------------------
Nonperforming loans:
Nonaccrual loans $ 430 $ 300
Loans 90 days past due and accruing -- --
Restructured loans -- --
------- ------
Total nonperforming loans 430 300
Other non-performing assets 131 283
------- ------
Total nonperforming assets $ 561 $ 593
======= ======
Nonperforming loans to loans receivable, net .12% .08%
Nonperforming assets as a percentage
of loans and other real estate owned .16% .08%
Nonperforming assets to total assets .08% .04%
16
The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.
For the Three Months Ended
December 31,
2003 2002
---- ----
Balance at beginning of period................... $ 2,698 $ 2,199
------------ -----------
Loans charged-off:
Real estate mortgage:
Single-family residential.................... -- --
Multi-family residential..................... -- --
Commercial..................................... -- --
Construction................................... -- --
Commercial loans............................... -- --
Consumer....................................... 329 243
------------ -----------
Total charge-offs................................ 329 243
Recoveries:
Real estate mortgage:
Single-family residential.................... -- --
Multi-family residential......................... -- --
Commercial................................... -- --
Construction................................. -- --
Commercial loans secured......................... -- --
Consumer....................................... 26 103
------------ ------------
Total recoveries................................. 26 103
Net loans charged off............................ (303) (140)
Provision for loan losses....................... 182 282
------------ ------------
Balance at end of period......................... $ 2,577 $ 2,342
============ ============
Ratio of net charge-offs to average
loans outstanding during the period............ .08% .04%
============ ============
Regulations require that the Company classify its assets on a regular
basis. There are three classifications for problem assets: substandard, doubtful
and loss. The Company regularly reviews its assets to determine whether any
assets require classification or re-classification. At December 31, 2003, the
Company had $561,000 in classified assets, consisting of $430,000 in substandard
and loss loans, $0 in foreclosed real estate and $ 131,000 in other repossessed
assets. At September 30, 2003, the Company had $583,000 in substandard assets,
consisting of $300,000 in loans, $0 in foreclosed real estate and $283,000 in
other repossessed assets.
In addition to regulatory classifications, the Company also classifies as
"special mention" assets that are currently performing in accordance with their
contractual terms but may become classified or non-performing assets in the
future. At December 31, 2003, the Company has identified approximately $2.8
million in assets classified as special mention.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003, the Bank exceeded all regulatory minimum capital
requirements. For information comparing the Bank's tangible, core and risk-based
capital levels to the regulatory requirements, see Note 5 of Notes to
Consolidated Financial Statements.
The Company's primary sources of funds are deposits and proceeds from
maturing investment securities and mortgage-backed securities and principal and
interest payments on loans. While maturities and scheduled amortization of
mortgage-backed securities and loans are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions, competition and other factors.
The primary investing activities of the Company are the origination of
loans and the purchase of investment securities and mortgage-backed securities.
During the three months ended December 31, 2003 and 2002, the Company had $15.4
million and $16.5 million, respectively, of loan originations. During the three
months ended December 31, 2003 and 2002, the Company purchased investment
securities in the amounts of $5.0 million and $24.1 million,
17
respectively, and mortgage-backed securities in the amounts of $6.1 million and
$16.3 million, respectively. The primary financing activity of the Company is
the attraction of savings deposits.
The Company has other sources of liquidity if there is a need for funds.
The Bank has the ability to obtain advances from the FHLB of Atlanta. In
addition, the Company maintains a portion of its investments in interest-bearing
deposits at other financial institutions that will be available, if needed.
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which may be changed at the direction of
the OTS depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The Bank's average daily
liquidity ratio for the month of December was approximately 44.9%, which
exceeded the required level for such period. Management seeks to maintain a
relatively high level of liquidity in order to retain flexibility in terms of
investment opportunities and deposit pricing. Because liquid assets generally
provide for lower rates of return, the Bank's relatively high liquidity will, to
a certain extent, result in lower rates of return on assets.
The Company's most liquid assets are cash, interest-bearing deposits in
other banks and federal funds sold, which are short-term, highly liquid
investments with original maturities of less than three months that are readily
convertible to known amounts of cash. The levels of these assets are dependent
on the Company's operating, financing and investing activities during any given
period. At December 31, 2003, cash, interest-bearing deposits in other banks and
federal funds sold were $12.4 million, $5.8.million and $1.3 million,
respectively.
The Company anticipates that it will have sufficient funds available to
meet its current commitments. Certificates of deposit which are scheduled to
mature in less than one year at December 31, 2003 totaled $193.0 million. Based
on past experience, management believes that a significant portion of such
deposits will remain with the Bank. The Bank is a party to financial instruments
with off-balance-sheet risk made in the normal course of business to meet the
financing needs of its customers. These financial instruments are standby
letters of credit, lines of credit and commitments to fund mortgage loans and
involve to varying degrees elements of credit risk in excess of the amount
recognized in the statement of financial position. The contract amounts of those
instruments express the extent of involvement the Company has in this class of
financial instruments and represents the Company's exposure to credit loss from
nonperformance by the other party.
The Company generally requires collateral or other security to support
financial instruments with off-balance-sheet credit risk. At December 31, 2003,
the Company had commitments under standby letters of credit and lines of credit
and commitments to originate mortgage loans of $419,000, $23.9 million and $5.5
million respectively.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
----------------
The following exhibit is 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 Certification
18
The following current reports on Form 8K were filed during the quarter
ended December 31, 2003:
(b) Form 8-K
--------
On December 19, 2003 the Company filed a Current Report on Form 8-K
reporting under Item 7 and Item 12.
On October 3, 2003 the Company filed a Current Report on Form 8-K reporting
under Item 5.
19
SIGNATURES
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: May 12, 2004 /s/ Gary C. Loraditch
-------------------------------------------
Gary C. Loraditch
President
(Principal Executive Officer)
Date: May 12, 2004 /s/ Bonnie M. Klein
--------------------------------------------
Bonnie M. Klein
Vice President and Treasurer
(Principal Financial and Accounting Officer)