UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 2005.
Or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________________ to _______________________
Commission File Number: 0-50275
BCB Bancorp, Inc.
-----------------
(Exact name of registrant as specified in its charter)
New Jersey 26-0065262
---------- ----------
(State or other jurisdiction of incorporation or organization) (IRS Employer I.D. No.)
104-110 Avenue C Bayonne, New Jersey 07002
- ------------------------------------ ------
(Address of principal executive offices) (Zip Code)
(201) 823-0700
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [_] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[_] Yes [X] No
Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act).
[_] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court.
[_] Yes [_] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of November 1, 2005, BCB
Bancorp, Inc., had 3,744,113 shares of common stock, no par value, issued and
outstanding.
BCB BANCORP INC., AND SUBSIDIARY
INDEX
PART I. CONSOLIDATED FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 2005 and December 31, 2004 (unaudited) .................... 1
Consolidated Statements of Income for the three and nine months
ended September 30, 2005 and September 30, 2004 (unaudited) ............. 2
Consolidated Statement of Changes in Stockholders' Equity for
the nine months ended September 30, 2005 (unaudited)..................... 3
Consolidated Statements of Cash Flow for the nine months ended
September 30, 2005 and September 30, 2004 (unaudited).................... 4
Notes to Unaudited Consolidated Financial Statements .................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk ...... 16
Item 4. Controls and Procedures ......................................... 18
PART II. OTHER INFORMATION ............................................................... 19
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
PART I. CONSOLIDATED FINANCIAL INFORMATION
ITEM I. CONSOLIDATED FINANCIAL STATEMENT
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition at
September 30, 2005 and December 31, 2004
(Unaudited)
(in thousands except for share data )
At At
30-Sep-05 31-Dec-04
--------- ---------
ASSETS
- ------
Cash and amounts due from depository institutions ............... $ 2,479 $ 2,353
Interest-earning deposits ....................................... 3,342 2,181
--------- ---------
Total cash and cash equivalents .............................. 5,821 4,534
--------- ---------
Securities held to maturity ..................................... 141,573 117,036
Loans receivable, net ........................................... 286,070 246,380
Premises and equipment .......................................... 5,566 5,679
Federal Home Loan Bank of New York stock ........................ 3,120 944
Interest receivable, net ........................................ 2,773 2,329
Deferred income taxes ........................................... 1,023 772
Other assets .................................................... 912 615
--------- ---------
Total assets ................................................ 446,858 378,289
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
- -----------
Deposits ........................................................ 351,877 337,243
Short-Term Borrowings ........................................... 10,400 10,000
Long-Term Debt .................................................. 54,124 4,124
Other Liabilities ............................................... 1,284 886
--------- ---------
Total Liabilities ........................................... 417,685 352,253
--------- ---------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock, $0.08 stated value: 10,000,000 shares
authorized, 2,995,185 and 2,993,538 shares issued ............ 239 239
Additional paid-in capital ...................................... 27,739 27,725
Treasury Stock: 21,982 shares in 2005 ........................... (422) --
Retained Earnings (accumulated deficit) ......................... 1,617 (1,928)
--------- ---------
Total stockholders' equity .................................. 29,173 26,036
--------- ---------
Total liabilities and stockholders' equity ................. $ 446,858 $ 378,289
========= =========
See accompanying notes to consolidated financial statements
1
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Income
For the three and nine months ended
September 30, 2005 and September 30, 2004
(Unaudited)
(in thousands except for per share data)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
Interest income:
Loans ............................................. $ 4,859 $ 3,824 13,741 10,706
Securities ........................................ 1,570 1,520 4,475 4,228
Other interest-earning assets ..................... 13 51 27 121
-------- -------- -------- --------
Total interest income .......................... 6,442 5,395 18,243 15,055
-------- -------- -------- --------
Interest expense:
Deposits:
Demand ......................................... 81 95 249 246
Savings and club ............................... 984 1,023 3,059 2,905
Certificates of deposit ........................ 1,008 582 2,511 1,512
-------- -------- -------- --------
2,073 1,700 5,819 4,663
-------- -------- -------- --------
Borrowed money ................................. 386 136 696 327
-------- -------- -------- --------
Total interest expense ....................... 2,459 1,836 6,515 4,990
-------- -------- -------- --------
Net interest income ................................. 3,983 3,559 11,728 10,065
Provision for loan losses ........................... 200 90 760 440
-------- -------- -------- --------
Net interest income, after provision for loan losses 3,783 3,469 10,968 9,625
-------- -------- -------- --------
Non-interest income:
Fees and service charges ......................... 146 137 403 407
Gain on sales of loans originated for sale ....... 52 46 157 109
Loss on sale of non-performing loans ............. -- -- -- (56)
Gain on sale of securities ....................... -- -- 28 --
Other ............................................ 7 6 19 17
-------- -------- -------- --------
Total non-interest income ..................... 205 189 607 477
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits ................... 1,125 1,039 3,240 3,038
Occupancy expense of premises .................... 187 175 511 498
Equipment ........................................ 436 365 1,170 1,076
Advertising ...................................... 34 48 111 100
Other ............................................ 313 296 934 1,202
-------- -------- -------- --------
Total non-interest expense .................... 2,095 1,923 5,966 5,914
-------- -------- -------- --------
Income before income tax provision .................. 1,893 1,735 5,609 4,188
Income tax provision ................................ 702 692 2,064 1,675
-------- -------- -------- --------
Net Income .......................................... $ 1,191 $ 1,043 $ 3,545 $ 2,513
======== ======== ======== ========
Net Income per common share-basic and diluted
basic .................................... $ 0.32 $ 0.28 $ 0.95 $ 0.68
======== ======== ======== ========
diluted .................................. $ 0.31 $ 0.27 $ 0.91 $ 0.65
======== ======== ======== ========
Weighted average number of common shares outstanding-
basic .................................... 3,716 3,741 3,731 3,702
======== ======== ======== ========
diluted .................................. 3,901 3,836 3,910 3,870
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
2
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 2005
(Unaudited)
(in thousands)
Additional Treasury Accumulated
Common Stock Paid-In Capital Stock Deficit Total
--------------- --------------- --------------- --------------- ---------------
Balance, December 31, 2004 ........ $ 239 $ 27,725 $ -- $ (1,928) $ 26,036
Exercise of Stock Options .......... -- 14 -- -- 14
Treasury Stock Purchases ........... -- -- (422) -- (422)
Net income for the nine months ended
September 30, 2005 ............ -- -- -- 3,545 3,545
--------------- --------------- --------------- --------------- ---------------
Balance, September 30, 2005 ........ $ 239 $ 27,739 $ (422) $ 1,617 $ 29,173
--------------- --------------- --------------- --------------- ---------------
See accompanying notes to consolidated financial statements.
3
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the nine months ended
September 30, 2005 and 2004
(Unaudited)
(in thousands)
Nine Months Ended
Sept. 30,
--------------------
2005 2004
--------------------
Cash flows from operating activities:
Net Income ............................................... $ 3,545 $ 2,513
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation ....................................... 264 255
Amortization and accretion, net .................... (384) (179)
Provision for loan losses .......................... 760 440
Deferred income tax ................................ (251) (56)
Loans originated for sale .......................... (10,372) (9,594)
Proceeds from sale of loans originated for sale .... 10,074 9,703
(Gain) on sale of loans originated for sale ......... (157) (109)
Loss on sale of non-performing loans ............... -- 56
(Gain) on sale of securities held to maturity ....... (28) --
(Increase) in interest receivable .................. (444) (494)
(Increase) in other assets ......................... (297) (323)
Increase in other liabilities ...................... 398 88
-------- --------
Net cash provided by operating activities ... 3,108 2,300
-------- --------
Cash flows from investing activities:
Purchase of FHLB stock ................................ (2,176) --
Purchases of securities held to maturity .............. (55,815) (45,368)
Proceeds from call of security held to maturity ....... 18,755 9,500
Proceeds from sales of securities held to maturity .... 7,373 --
Proceeds from repayments on securities held to maturity 5,201 5,177
Proceeds from sale of non-performing loans ............ -- 1,072
Net (increase) in loans receivable .................... (39,634) (47,196)
Additions to premises and equipment ................... (151) (291)
-------- --------
Net cash (used in) investing activities ........ (66,447) (77,106)
-------- --------
Cash flows from financing activities:
Net increase in deposits .............................. 14,634 74,684
Net change in short-term borrowings ................... 400 --
Stock options exercised ............................... 14 1,066
Purchase of Treasury Stock ............................ (422) --
Proceeds of long-term borrowings ...................... 50,000 4,124
-------- --------
Net cash provided by financing activities ...... 64,626 79,874
-------- --------
Net increase in cash and cash equivalents ................... 1,287 5,068
Cash and cash equivalents-begininng ......................... 4,534 11,786
-------- --------
Cash and cash equivalents-ending ............................ $ 5,821 $ 16,854
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes ....................................... $ 2,138 $ 1,845
======== ========
Interest ........................................... $ 6,239 $ 4,868
======== ========
See accompanying notes to consolidated financial statements.
4
BCB Bancorp Inc., and Subsidiary
Notes to Unaudited Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of BCB Bancorp, Inc. (the "Company") and the Company's wholly owned
subsidiaries, Bayonne Community Bank (the "Bank"), BCB Holding Company
Investment Corp., (the "Investment Company") a New Jersey Investment Company,
and BCB Equipment Leasing Company. The Company's business is conducted
principally through the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not
necessarily include all information that would be included in audited financial
statements. The information furnished reflects all adjustments that are, in the
opinion of management, necessary for a fair presentation of consolidated
financial condition and results of operations. All such adjustments are of a
normal recurring nature. The results of operations for the three and nine months
ended September 30, 2005 are not necessarily indicative of the results to be
expected for the fiscal year ended December 31, 2005 or any other future interim
period.
These statements should be read in conjunction with the Company's audited
consolidated financial statements and related notes for the year ended December
31, 2004, which are included in the Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission.
NOTE 2 - EARNINGS PER SHARE AND STOCK-BASED COMPENSATION PLANS
The Company provides dual presentation of basic and diluted earnings per share.
Basic earnings per share utilizes reported net income as the numerator and the
actual average shares outstanding as the denominator. Diluted earnings per share
includes any dilutive effects of options, warrants and convertible securities.
In October 2005, the Company announced that its Board of Directors had
authorized a 25% stock dividend, payable as a 5-for-4 split, to stockholders of
record on October 13, 2005. Such dividend was distributed on October 27, 2005.
Basic and diluted earnings per share have been restated, as applicable, to give
effect to the stock dividend.
The Company, under plans approved by its stockholders in 2003 and 2002, has
granted stock options to employees and outside directors. The Company accounts
for options granted using the intrinsic value method, in accordance with
Accounting Principles Board (APB), Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations. No compensation expense has been
reflected in net income for the options granted as all such grants have an
exercise price equal to the market price of the
5
underlying stock at the date of the grant. The following table provides
information as to net income and earnings per share as if the Company had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", as
amended, to all option grants.
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
2005 2004 2005 2004
(In Thousands, Except for Per Share Amounts)
Net Income as reported $ 1,191 $ 1,043 $ 3,545 $ 2,513
Less: Total stock-based compensation expense,
net of income taxes, included in reported
net income -- -- -- --
Add: Total stock-based compensation expense,
net of income taxes, that would have been
included in the determination of net income
if the fair value method had been applied to
all grants (110) (363) (352) (418)
---------- ---------- ---------- ----------
Pro forma net income $ 1,081 $ 680 $ 3,193 $ 2,095
---------- ---------- ---------- ----------
Net income per common share, as reported:
Basic $ 0.32 $ 0.28 $ 0.95 $ 0.68
Diluted 0.31 0.27 0.91 0.65
---------- ---------- ---------- ----------
Pro forma net income per common share:
Basic $ 0.29 $ 0.18 $ 0.86 $ 0.57
Diluted 0.28 0.18 0.82 0.54
---------- ---------- ---------- ----------
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement No. 123 (revised), "Share-Based Payment." Statement No. 123 (revised)
replaces Statement No. 123 and supersedes APB Opinion No. 25. Statement No. 123
(revised) requires compensation costs related to share based payment
transactions to be recognized in the financial statements over the period that
an employee provides service in exchange for the award. Public companies are
required to adopt the new standard using a modified prospective method and may
elect to restate prior periods using the modified retrospective method. Under
the modified prospective method, companies are required to record compensation
cost for new and modified awards over the related vesting period of such awards
prospectively and record compensation cost prospectively for the unvested
portion at the date of adoption, of previously issued and outstanding awards
over the remaining vesting period of such awards. No change to prior periods
presented is permitted under the modified prospective method. Under the modified
retrospective method, companies record compensation costs for prior periods
retroactively through restatement of such periods using the exact pro forma
amounts disclosed in the
6
companies' footnotes. Also, in the period of adoption and after, companies
record compensation cost based on the modified prospective method.
On April 14, 2005, the Securities and Exchange Commission ("SEC") adopted a new
rule that amends the compliance dates for Statement No. 123 (revised). Under the
new rule, the Company is required to adopt Statement No. 123 (revised) in the
first annual period beginning after June 15, 2005. The Company plans to utilize
the modified prospective method and, based upon current analysis, estimates that
expenses to be recorded for existing option grants will total approximately
$372,000 in 2006 and $159,000 in 2007.
Early application of Statement No. 123 (revised) is encouraged, but not
required.
NOTE 3 - SIGNIFICANT EVENTS
In June 2004, the Company participated in the issuance of a Pooled Trust
Preferred Security in the amount of $4.1 million. The primary purpose for the
Company's participation in the issuance of this instrument was an effort to
augment capital including Tier 1 capital, thereby allowing additional growth of
the Company's assets without diluting present shareholder percentage ownership.
The Investment Company commenced operations in January 2005. Under New Jersey
tax law, the Investment Company is subject to a 3.6% state income tax rate as
compared to the 9.0% rate to which the Company and the Bank are subject. The
Investment Company was brought into existence in order to reduce the overall tax
burden of the consolidated Company. The presence of the Investment Company
during the three and nine months ended September 30, 2005 resulted in an income
tax savings of approximately $55,000 and $159,000 respectively.
On April 27, 2005, the Company announced that the Board of Directors had
approved a stock repurchase program for the repurchase of up to 5% of the
Company's outstanding common stock equal to approximately 150,000 shares.
Through September 30, 2005, a total of 21,982 shares of Company common stock
were repurchased at an aggregate cost of approximately $422,000. As a
consequence of the Company's decision to raise additional capital, as described
in the next paragraph, the Company has suspended its stock repurchase program.
On September 12, 2005, the Company announced that it had filed a registration
statement with the Securities and Exchange Commission proposing to sell up to
920,000 shares, exclusive of any underwriter's over-allotment option of its
common stock in a public offering. The Board of Directors has authorized an
increase in the number of shares authorized to be sold in order to reflect the
five for four stock dividend.
7
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
Total assets increased by $68.6 million or 18.1% to $446.9 million at September
30, 2005 from $378.3 million at December 31, 2004. We continued to grow assets
primarily through the origination of real estate loans and the purchase of
Government Sponsored Enterprise, (GSE), investment securities funded primarily
through cash flow provided by retail deposit growth, repayments and prepayments
of loans as well as the mortgage backed security portfolio and the utilization
of Federal Home Loan Bank advances.
Total cash and cash equivalents increased by $1.3 million or 28.9% to $5.8
million at September 30, 2005 from $4.5 million at December 31, 2004 and
reflects the liquidity levels management believes is prudent in light of the
investment alternatives available to the Bank in the current interest rate
environment. Securities held-to-maturity increased by $24.6 million or 21.0% to
$141.6 million at September 30, 2005 from $117.0 million at December 31, 2004.
The increase was primarily attributable to the purchase of $55.8 million of
callable agency securities partially offset by call options exercised on $18.8
million of callable agency securities, sales of $6.0 million of callable agency
securities and $1.3 million of mortgage backed securities and $5.2 million of
repayments and prepayments in the mortgage backed security portfolio during the
nine months ended September 30, 2005. As the Company's securities are
exclusively categorized as held-to-maturity, the Bank relied on an explanatory
portion of FASB 115 to engage in the specific sales of agency securities.
Specifically, FASB 115 recognizes sales of debt securities that meet either of
the following two conditions as maturities for purposes of the classification of
securities.
a. The sale of a security occurs near enough to its maturity date (or
call date if exercise of the call is probable) that interest rate
risk is substantially eliminated as a pricing factor. That is, the
date of sale is so near the maturity or call date (for example,
within three months) that changes in market interest rates would not
have a significant effect on the security's fair value.
b. The sale of a security occurs after the enterprise has already
collected a substantial portion (at least 85 percent) of the
principal outstanding at acquisition due either to prepayments on
the debt security or to scheduled payments on a debt security
payable in equal installments (both principal and interest) over its
term.
In the case of the sale of the agency debt securities, FASB 115 was satisfied
because the sale of the debt securities occurred near enough to their call date,
with the call being probable, that interest rate risk was substantially
eliminated. In the case of the sale of the
8
mortgage backed securities, a substantial portion, (over 85 percent), of the
principal outstanding at acquisition had been collected.
Loans receivable increased by $39.7 million or 16.1% to $286.1 million at
September 30, 2005 from $246.4 million at December 31, 2004. The increase
resulted primarily from a $40.9 million increase in real estate mortgages
comprising residential, commercial and construction loans, net of amortization
and a $3.0 million increase in consumer loans, net of amortization, partially
offset by a $4.3 million decrease in loan participations with other financial
institutions and a $760,000 provision recorded in the allowance for loan losses.
At September 30, 2005, the allowance for loan losses was $3.2 million.
Deposits increased by $14.7 million or 4.4% to $351.9 million at September 30,
2005 from $337.2 million at December 31, 2004. The increase resulted primarily
from an increase during the nine months ended September 30, 2005 of $32.7
million in time deposit accounts and an increase of $5.7 million in transaction
accounts, partially offset by a $23.9 million decrease in savings and club
accounts as the Bank has experienced some deposit flow from lower cost savings
and club balances to higher cost time deposits. Time deposit rates have
increased during the nine months ended September 30, 2005 reflecting the
increase in short term market interest rates. The Bank has been able to achieve
the growth in deposits through competitive pricing on select deposit products.
Borrowed money increased by $50.4 million or 356.8% to $64.5 million at
September 30, 2005 from $14.1 million at December 31, 2004. The increase in
borrowings reflects the use of long-term Federal Home Loan Bank advances to
augment deposits as the Bank's funding source for originating loans and
investing in Government Sponsored Enterprise (GSE) investment securities. During
July and August 2005, we obtained $50.0 million in long-term advances from the
Federal Home Loan Bank with a fixed rate. Such borrowings were at an average
interest rate of 3.37% with a final maturity of ten years, callable after one
year.
Stockholders' equity increased by $3.2 million or 12.3% to $29.2 million at
September 30, 2005 from $26.0 million at December 31, 2004. The increase was
primarily attributable to net income for the nine months ended September 30,
2005 of $3.5 million partially offset by $422,000 utilized to repurchase 21,982
shares of common stock under the Company's stock repurchase plan. At September
30, 2005 the Bank's Tier 1, Tier 1 Risk-Based and Total Risk Based Capital
Ratios were 7.98%, 11.17% and 12.23% respectively.
Results of Operations
Three Months
Net income increased by $148,000 or 14.2% to $1.19 million for the three months
ended September 30, 2005 from $1.04 million for the three months ended September
30, 2004. The increase in net income was due to increases in net interest income
and non-interest income partially offset by increases in non-interest expense,
the provision for loan losses and income taxes. Net interest income increased by
$424,000 or 11.9% to $4.0 million
9
for the three months ended September 30, 2005 from $3.6 million for the three
months ended September 30, 2004. This increase resulted primarily from an
increase in average interest earning assets of $47.1 million or 13.0% to $410.3
million for the three months ended September 30, 2005 from $363.2 million for
the three months ended September 30, 2004, funded primarily through an increase
in average interest bearing liabilities of $38.6 million or 11.8% to $364.7
million for the three months ended September 30, 2005 from $326.1 million for
the three months ended September 30, 2004, partially offset by a decrease in the
net interest margin to 3.88% for the three months ended September 30, 2005 from
3.92% for the three months ended September 30, 2004.
Interest income on loans receivable increased by $1.04 million or 27.2% to $4.86
million for the three months ended September 30, 2005 from $3.82 million for the
three months ended September 30, 2004. The increase was primarily attributable
to an increase in average loans receivable of $54.8 million or 24.1% to $282.4
million for the three months ended September 30, 2005 from $227.6 million for
the three months ended September 30, 2004, and an increase in the average yield
on loans receivable to 6.88% for the three months ended September 30, 2005 from
6.72% for the three months ended September 30, 2004. The increase in average
loans reflects management's philosophy to originate higher yielding loans,
specifically commercial real estate loans. The increase in average yield
reflects higher yields on loans having interest rates which are based on
short-term indices such as the prime rate which have been rising faster then
longer term interest rates.
Interest income on securities held-to-maturity increased by $50,000 or 3.3% to
$1.57 million for the three months ended September 30, 2005 from $1.52 million
for the three months ended September 30, 2004. This increase was primarily due
to an increase in the average balance of securities held-to-maturity of $10.4
million or 9.1% to $124.8 million for the three months ended September 30, 2005
from $114.4 million for the three months ended September 30, 2004, partially
offset by a decrease in the average yield on securities held-to-maturity to
5.03% for the three months ended September 30, 2005 from 5.32% for the three
months ended September 30, 2004. The decrease in average yield reflects the
lower interest rate environment for securities in 2005 as compared to 2004. The
increase in average balance reflects management's philosophy to purchase
investments, to the extent that the opportunity to originate higher yielding
loans, consistent with our underwriting criteria fails to exist in an effort to
achieve higher returns.
Interest income on other interest-earning assets decreased by $38,000 or 74.5%
to $13,000 for the three months ended September 30, 2005 from $51,000 for the
three months ended September 30, 2004. This decrease was primarily due to a
$18.2 million or 85.4% decrease in the average balance of other interest-earning
assets to $3.1 million for the three months ended September 30, 2005 from $21.3
million for the three months ended September 30, 2004, partially offset by an
increase in the average yield on other interest-earning assets to 1.68% for the
three months ended September 30, 2005 from 0.96% for the three months ended
September 30, 2004. The decrease in average balance reflects management's
philosophy to deploy funds in higher yielding investments such as commercial
real estate loans and securities in an effort to achieve higher returns.
10
Total interest expense increased by $623,000 or 33.9% to $2.46 million for the
three months ended September 30, 2005 from $1.84 million for the three months
ended September 30, 2004. The increase resulted primarily from an increase in
average interest bearing liabilities of $38.6 million or 11.8% to $364.7 million
for the three months ended September 30, 2005 from $326.1 million for the three
months ended September 30, 2004, and an increase in the average cost of interest
bearing liabilities to 2.70% for the three months ended September 30, 2005 from
2.25% for the three months ended September 30, 2004.
The provision for loan losses totaled $200,000 and $90,000 for the three-month
periods ended September 30, 2005 and 2004, respectively. The provision for loan
losses is established based upon management's review of the Bank's loans and
consideration of a variety of factors including, but not limited to, (1) the
risk characteristics of the loan portfolio, (2) current economic conditions, (3)
actual losses previously experienced, (4) significant level of loan growth and
(5) the existing level of reserves for loan losses that are possible and
estimable. During the three months ended September 30, 2005, the Bank charged
off $13,000 of loans deemed uncollectible. During the three months ended
September 30, 2004, the Bank did not charge off any loans and recorded $35,000
in recoveries of loans previously charged off. The Bank had non-performing loans
totaling $1.16 million or 0.40% of gross loans at September 30, 2005, $1.17
million or 0.42% of gross loans at June 30, 2005 and $945,000 or 0.40% of gross
loans at September 30, 2004. The allowance for loan losses stood at $3.2 million
or 1.10% of gross loans at September 30, 2005, $3.0 million or 1.07% of gross
loans at June 30, 2005 and $2.4 million or 1.00% of gross loans at September 30,
2004. The amount of the allowance is based on estimates and the ultimate losses
may vary from such estimates. Management assesses the allowance for loan losses
on a quarterly basis and makes provisions for loan losses as necessary in order
to maintain the adequacy of the allowance. While management uses available
information to recognize losses on loans, future loan loss provisions may be
necessary based on changes in the aforementioned criteria. In addition various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses and may require the Bank to
recognize additional provisions based on their judgment of information available
to them at the time of their examination. Management believes that the allowance
for loan losses was adequate at September 30, 2005, June 30, 2005 and September
30, 2004.
Total non-interest income increased by $16,000 to $205,000 for the three months
ended September 30, 2005 from $189,000 for the three months ended September 30,
2004. The increase in non-interest income resulted primarily from an $9,000
increase in service fees and charges to $146,000 for the three months ended
September 30, 2005 from $137,000 for the three months ended September 30, 2004,
a $6,000 increase in gain on sales of loans originated for sale to $52,000 for
the three months ended September 30, 2005 from $46,000 for the three months
ended September 30, 2004 and a $1,000 increase in other income for the
comparative three month time periods.
11
Total non-interest expense increased by $172,000 or 8.9% to $2.1 million for the
three months ended September 30, 2005 from $1.9 million for the three months
ended September 30, 2004. The increase in the three-month period in 2005 was
primarily due to an increase of $86,000 in salaries and employee benefits
expense to $1.13 million for the three months ended September 30, 2005 from
$1.04 million for the three months ended September 30, 2004 due to normal salary
increases and increased personnel levels commensurate with an increase in
Company's balance sheet. Equipment expense increased $71,000 to $436,000 for the
three months ended September 30, 2005 from $365,000 for the three months ended
September 30, 2004. The primary component of this expense represents data
service provider expense which increases with the asset growth of the Bank.
Occupancy expense increased by $12,000 to $187,000 for the three months ended
September 30, 2005 from $175,000 for the three months ended September 30, 2004
as the Bank is incurring higher costs for our three facilities. Advertising
expense decreased $14,000 to $34,000 for the three months ended September 30,
2005 from $48,000 for the three months ended September 30, 2004. Other
non-interest expense increased by $17,000 to $313,000 for the three months ended
September 30, 2005 from $296,000 for the three months ended September 30, 2004.
Other non-interest expense is comprised of stationary, forms and printing,
professional fees, check printing, correspondent bank fees, telephone and
communication, shareholder relations and other fees and expenses.
Income tax expense increased $10,000 to $702,000 for the three months ended
September 30, 2005 from $692,000 for the three months ended September 30, 2004
reflecting increased pre-tax income earned during the three month time period
ended September 30, 2005 partially offset by the formation of BCB Holding
Company Investment Corp., (the "Investment Company"). The Investment Company, a
New Jersey Investment Company wholly owned by the Bank, is subject to a state
income tax rate of 3.6% as compared to the 9.0% rate paid by the Company and the
Bank. The Investment Company was funded by a transfer of securities from the
Bank. The utilization of the Investment Company to hold investments during the
quarter ended September 30, 2005 reduced consolidated income tax expenses by
approximately $55,000 reducing the consolidated effective income tax rate to
37.1% as compared to 39.9% for the quarter ended September 30, 2004.
Results of Operations
Nine Months
Net income increased by $1.0 million or 41.1% to $3.5 million for the nine
months ended September 30, 2005 from $2.5 million for the nine months ended
September 30, 2004. The increase in net income is due to increases in net
interest income and non-interest income, partially offset by increases in the
provision for loan losses, non-interest expense and income taxes. Net interest
income increased by $1.66 million or 16.5% to $11.73 million for the nine months
ended September 30, 2005 from $10.07 million for the nine months ended September
30, 2004. This increase resulted primarily from an increase in average interest
earning assets of $53.4 million or 15.8% to $391.0 million for the nine months
ended September 30, 2005 from $337.6 million for the nine months ended
12
September 30, 2004 funded primarily through an increase in average interest
bearing liabilities of $43.6 million or 14.4% to $346.0 million for the nine
months ended September 30, 2005 from $302.4 million for the nine months ended
September 30, 2004. The increase in net interest income was also aided by an
increase in the net interest margin to 4.00% for the nine months ended September
30, 2005 from 3.99% for the nine months ended September 30, 2004.
Interest income on loans receivable increased by $3.0 million or 28.0% to $13.7
million for the nine months ended September 30, 2005 from $10.7 million for the
nine months ended September 30, 2004. The increase was primarily attributable to
an increase in average loans receivable of $55.8 million or 26.1% to $269.3
million for the nine months ended September 30, 2005 from $213.5 million for the
nine months ended September 30, 2004, and an increase in the average yield on
loans receivable to 6.80% for the nine months ended September 30, 2005 from
6.68% for the nine months ended September 30, 2004. The increase in average
loans reflects management's philosophy to originate higher yielding loan
products, specifically commercial real estate loans.
Interest income on securities held-to-maturity increased by $247,000 or 5.8% to
$4.48 million for the nine months ended September 30, 2005 from $4.23 million
for the nine months ended September 30, 2004. The increase was primarily due to
an increase in the average balance of securities held-to-maturity of $13.2
million or 12.6% to $117.9 million for the nine months ended September 30, 2005
from $104.7 million for the nine months ended September 30, 2004 partially
offset by a decrease in the average yield on securities held-to-maturity to
5.06% for the nine months ended September 30, 2005 from 5.39% for the nine
months ended September 30, 2004. The increase in average balance reflects
management's philosophy to purchase investments to the extent that the
opportunity to invest in higher yielding loans consistent with our underwriting
criteria fails to exist. The decrease in average yield reflects the lower
interest rate environment for investment securities in 2005 as compared to 2004.
Interest income on other interest-earning assets decreased by $94,000 or 77.7%
to $27,000 for the nine months ended September 30, 2005 from $121,000 for the
nine months ended September 30, 2004. This decrease was primarily due to a
decrease of $15.6 million or 80.4% in the average balance of other
interest-earning assets to $3.8 million for the nine months ended September 30,
2005 from $19.4 million for the nine months ended September 30, 2004 partially
offset by a slight increase in the average yield on other interest-earning
assets to 0.94% for the nine months ended September 30, 2005 from 0.83% for the
nine months ended September 30, 2004. The decrease in average balance reflects
management's philosophy to deploy funds in higher yielding instruments such as
commercial real estate loans and securities in an effort to achieve higher
returns.
Total interest expense increased by $1.5 million or 30.6% to $6.5 million for
the nine months ended September 30, 2005 from $5.0 million for the nine months
ended September 30, 2004. The increase resulted primarily from an increase in
average interest bearing liabilities of $43.6 million or 14.4% to $346.0 million
for the nine months ended
13
September 30, 2005 from $302.4 million for the nine months ended September 30,
2004, and an increase in the average cost of interest bearing liabilities to
2.51% for the nine months ended September 30, 2005 from 2.20% for the nine
months ended September 30, 2004.
The provision for loan losses totaled $760,000 and $440,000 for the nine-month
periods ended September 30, 2005 and 2004, respectively. The provision for loan
losses is established based upon management's review of the Bank's loans and
consideration of a variety of factors including, but not limited to, (1) the
risk characteristics of the loan portfolio, (2) current economic conditions, (3)
actual losses previously experienced, (4) significant level of loan growth and
(5) the existing level of reserves for loan losses that are possible and
estimable. During the nine months ended September 30, 2005, the Bank recorded
$99,000 in loan charge-offs and $11,000 in recoveries of previously charged off
loans. During the nine months ended September 30, 2004, the Bank recorded
$219,000 in loan charge-offs related to the foreclosure of five loans, which
were resolved by the Bank taking ownership of the underlying loan collateral and
$35,000 in recoveries of previously charged off loans. The Bank had
non-performing loans totaling $1.16 million or 0.40% of gross loans at September
30, 2005, $1.17 million or 0.42% of gross loans at June 30, 2005, and $945,000
or 0.40% of gross loans at September 30, 2004. The allowance for loan losses
stood at $3.2 million or 1.10% of gross loans at September 30, 2005, $3.0
million or 1.07% of gross loans at June 30, 2005 and $2.4 million or 1.00% of
gross loans at September 30, 2004. The amount of the allowance is based on
estimates and the ultimate losses may vary from such estimates. Management
assesses the allowance for loan losses on a quarterly basis and makes provisions
for loan losses as necessary in order to maintain the adequacy of the allowance.
While management uses available information to recognize losses on loans, future
loan loss provisions may be necessary based on changes in the aforementioned
criteria. In addition various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses and may
require the Bank to recognize additional provisions based on their judgment of
information available to them at the time of their examination. Management
believes that the allowance for loan losses was adequate at September 30, 2005,
June 30, 2005 and September 30, 2004.
Total non-interest income increased by $130,000 to $607,000 for the nine months
ended September 30, 2005 from $477,000 for the nine months ended September 30,
2004. The increase in non-interest income resulted primarily from a $56,000
decrease in losses on sales of non-performing loans as the Bank did not sell any
such loans or record any gain or loss therefrom during the nine months ended
September 30, 2005 as compared to a $56,000 loss recorded during the nine months
ended September 30, 2004, and increases of $28,000 on gain on sale of securities
and $48,000 on gains on sale of loans originated for sale. The aforementioned
gain on sale of securities was accomplished from securities originally
designated as held-to-maturity. Because of certain language located in the text
of FASB 115 specified earlier allows for the sale of securities designated as
held-to-maturity if certain criteria are met, management undertook the research
necessary to make their determination that such sales were permitted. Upon
scrutiny of the text and
14
concurrence and confirmation with the Company's independent external auditor,
the allowable transactions were consummated.
Total non-interest expense increased by $52,000 or 0.9% to $6.0 million for the
nine months ended September 30, 2005 from $5.9 million for the nine months ended
September 30, 2004. The increase in the nine-month period in 2005 was primarily
due to an increase of $320,000 or 6.8% in aggregate in the categories of
salaries and benefits, occupancy, equipment and advertising expense. This
increase was partially offset by a decrease of $268,000 or 22.3% in other
non-interest expense. Other non-interest expense is comprised of director fees,
stationary, forms and printing, professional fees, legal fees, check printing,
correspondent bank fees, telephone and communication, shareholder relations and
other fees and expenses. The decrease in other non-interest expense is primarily
attributable to decreased legal, professional and shareholder relation expense,
as the Company incurred expenses associated with a contested proxy contest
initiated by an opposing slate of directors during the nine months ended
September 30, 2004. No such additional expenses were incurred during the nine
months ended September 30, 2005.
Income tax expense increased $389,000 to $2.06 million for the nine months ended
September 30, 2005 from $1.68 million for the nine months ended September 30,
2004 reflecting increased pre-tax income earned during the nine month time
period ended September 30, 2005 partially offset by the formation of BCB Holding
Company Investment Corp., (the Investment Company"). The Investment Company, a
New Jersey Investment Company wholly owned by the Bank, is subject to a state
income tax rate of 3.6% as compared to the 9.0% rate paid by the Company and the
Bank. The Investment Company was funded by a transfer of securities from the
Bank. The utilization of the Investment Company to hold investments during the
nine months ended September 30, 2005 reduced consolidated income tax expenses by
approximately $159,000 and reduced the consolidated effective income tax rate to
36.8% as compared to 40.0% for the nine months ended September 30, 2004.
15
Item 3. Quantitative and Qualitative Analysis of Market Risk
Management of Market Risk
General. The majority of our assets and liabilities are monetary in nature.
Consequently, one of most significant forms of market risk is interest rate
risk. Our assets, consisting primarily of mortgage loans, have longer maturities
than our liabilities, consisting primarily of deposits. As a result, a principal
part of our business strategy is to manage interest rate risk and reduce the
exposure of our net interest income to changes in market interest rates.
Accordingly, our Board of Directors has established an Asset/Liability Committee
which is responsible for evaluating the interest rate risk inherent in our
assets and liabilities, for determining the level of risk that is appropriate
given our business strategy, operating environment, capital, liquidity and
performance objectives, and for managing this risk consistent with the
guidelines approved by the Board of Directors. Senior Management monitors the
level of interest rate risk on a regular basis and the Asset/Liability
Committee, which consists of senior management and outside directors operating
under a policy adopted by the Board of Directors, meets as needed to review our
asset/liability policies and interest rate risk position.
The following table presents the Company's net portfolio value ("NPV"). These
calculations were based upon assumptions believed to be fundamentally sound,
although they may vary from assumptions utilized by other financial
institutions. The information set forth below is based on data that included all
financial instruments as of June 30, 2005, the latest data for which this
information is available. Assumptions have been made by the Company relating to
interest rates, loan prepayment rates, core deposit duration, and the market
values of certain assets and liabilities under the various interest rate
scenarios. Actual maturity dates were used for fixed rate loans and certificate
accounts. Investment securities were scheduled at either the maturity date or
the next scheduled call date based upon management's judgment of whether the
particular security would be called in the current interest rate environment and
under assumed interest rate scenarios. Variable rate loans were scheduled as of
their next scheduled interest rate repricing date. Additional assumptions were
made in preparation of the NPV table include prepayment rates on loans and
mortgage-backed securities, core deposits without stated maturity dates were
scheduled with an assumed term of 48 months, and money market and noninterest
bearing accounts were scheduled with an assumed term of 24 months. The NPV at
"PAR" represents the difference between the Company's estimated value of assets
and estimated value of liabilities assuming no change in interest rates. The NPV
for a decrease of 300 basis points has been excluded since it would not be
meaningful, in the interest rate environment as of June 30, 2005. The following
sets forth the Company's NPV as of June 30, 2005.
NPV as a % of Assets
Change in Net Portfolio $ Change from % Change from --------------------
Calculation Value PAR PAR NPV Ratio Change
- ----------- ----- --- --- ------------------
+300bp $ 34,522 $(20,782) -37.58% 9.54% -424 bps
+200bp 42,756 (12,548) -22.69 11.42 -236 bps
+100bp 49,687 (5,617) -10.16 12.82 -96 bps
PAR 55,304 -- -- 13.78 -- bps
- -100bp 54,868 (436) -0.79 13.39 -39 bps
- -200bp 52,021 (3,283) -5.94 12.50 -128 bps
bp - basis points
16
The table above indicates that at June 30, 2005, in the event of a 100 basis
point decrease in interest rates, we would experience a 0.79% decrease in NPV.
In the event of a 100 basis point increase in interest rates, we would
experience a 10.16% decrease in NPV.
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurement. Modeling changes in NPV require making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV table
presented assumes that the composition of our interest rate sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured and assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration or
repricing of specific assets and liabilities. Accordingly, although the NPV
table provides an indication of our interest rate risk exposure at a particular
point in time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes in market interest rates on our net
interest income, and will differ from actual results.
17
ITEM 4.
Controls and Procedures
Under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer, the Company
has evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this quarterly report.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the end of the period covered by this quarterly
report, the Company's disclosure controls and procedures are effective to ensure
that information required to be disclosed in the reports that the Company files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. There has been no change in the Company's
internal control over financial reporting during the most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND STOCK
REPURCHASES
Securities sold within the past three years without registering the securities
under the Securities Act of 1933
On June 17, 2004 the Company sold $4.1 million in debentures in connection with
its participation in a pooled trust preferred offering. The proceeds of the
offering were used to fund asset growth and qualify as regulatory capital.
The Company has not sold any securities during the past three years. In
connection with the Plan of Acquisition completed on May 1, 2003 the Bank
reorganized into the holding company form of ownership and each share of Bank
common stock became a share of Company common stock. No new capital was received
in the reorganization. During the last three months the Company did not engage
in any stock repurchases. As a consequence of the Company's decision to raise
additional capital, as described in the next paragraph, the Company has
suspended its stock repurchase program.
Lastly, as of September 9, 2005, the Company has filed an S-1 registration
statement with the Securities and Exchange Commission to sell up to 920,000
shares of common stock in the Company. This statement is subject to review and
approval by the Securities and Exchange Commission and subject to amendment by
the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
19
ITEM 6. EXHIBITS
Exhibit 31.1 and 31.2 Officers' Certification filed pursuant to section 302 of
the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Officers' Certification filed pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
20