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 March 31, 2006.
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
(Registrant's telephone number, including area code)
------------------------------------------------------------------------
(Former name, former address and former fiscal year if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and larger accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of May 12, 2006, BCB
Bancorp, Inc., had 5,004,606 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
March 31, 2006 and December 31, 2005 (unaudited).....................1
Consolidated Statements of Income for the three months
ended March 31, 2006 and March 31, 2005 (unaudited)..................2
Consolidated Statement of Changes in Stockholders' Equity for the
three months ended March 31, 2006 (unaudited)........................3
Consolidated Statements of Cash Flow for the three months
ended March 31, 2006 and March 31, 2005 (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..12
Item 4. Controls and Procedures.....................................14
PART II. OTHER INFORMATION....................................................15
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENT
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition at
March 31, 2006 and December 31, 2005
(Unaudited)
(in thousands, except for share data)
At At
31-Mar-06 31-Dec-05
--------- ---------
ASSETS
- ------
Cash and amounts due from depository institutions ........... $ 2,307 $ 2,987
Interest-earning deposits ................................... 16,590 22,160
--------- ---------
Total cash and cash equivalents .......................... 18,897 25,147
--------- ---------
Securities held to maturity ................................. 141,195 140,002
Loans held for sale ......................................... 1,224 780
Loans receivable, net ....................................... 308,569 284,451
Premises and equipment ...................................... 5,452 5,518
Federal Home Loan Bank of New York stock .................... 2,778 2,778
Interest receivable, net .................................... 2,944 3,104
Subscriptions Receivable .................................... -- 2,353
Deferred income taxes ....................................... 1,051 997
Other assets ................................................ 636 1,112
--------- ---------
Total assets ............................................ 482,746 466,242
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
Deposits .................................................... 377,592 362,851
Long-term Debt .............................................. 54,124 54,124
Other Liabilities ........................................... 1,827 1,420
--------- ---------
Total Liabilities ....................................... 433,543 418,395
--------- ---------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, stated value $0.06
10,000,000 shares authorized; 5,056,199 and 5,050,552 shares,
respectively, issued and outstanding ........................ 324 323
Additional paid-in capital .................................. 45,568 45,518
Treasury stock, at cost, 52,816 and 51,316 shares,
respectively ................................................ (819) (795)
Retained Earnings ........................................... 4,130 2,801
--------- ---------
Total stockholders' equity .............................. 49,203 47,847
--------- ---------
Total liabilities and stockholders' equity ............. $ 482,746 $ 466,242
========= =========
See accompanying notes to consolidated financial statements.
1
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Income
For the three months ended
March 31, 2006 and 2005
(Unaudited)
( in thousands, except for per share data)
Three Months Ended
March 31,
-----------------
2006 2005
------ ------
Interest income:
Loans .................................................. $5,342 $4,259
Securities ............................................. 1,816 1,434
Other interest-earning assets .......................... 175 10
------ ------
Total interest income ............................... 7,333 5,703
------ ------
Interest expense:
Deposits:
Demand .............................................. 82 85
Savings and club .................................... 813 1,048
Certificates of deposit ............................. 1,515 682
------ ------
2,410 1,815
------ ------
Borrowed money ...................................... 492 121
------ ------
Total interest expense ............................ 2,902 1,936
------ ------
Net interest income ...................................... 4,431 3,767
Provision for loan losses ................................ 250 260
------ ------
Net interest income, after provision for loan losses ..... 4,181 3,507
------ ------
Non-interest income:
Fees and service charges .............................. 155 121
Gain on sales of loans originated for sale ............ 136 49
Other ................................................. 7 6
------ ------
Total non-interest income .......................... 298 176
------ ------
Non-interest expense:
Salaries and employee benefits ........................ 1,299 1,025
Occupancy expense of premises ......................... 218 162
Equipment ............................................. 450 367
Advertising ........................................... 61 39
Other ................................................. 333 307
------ ------
Total non-interest expense ......................... 2,361 1,900
------ ------
Income before income tax provision ....................... 2,118 1,783
Income tax provision ..................................... 789 638
------ ------
Net Income ............................................... $1,329 $1,145
====== ======
Net Income per common share-basic and diluted
basic ......................................... $ 0.27 $ 0.31
====== ======
diluted ....................................... $ 0.26 $ 0.29
====== ======
Weighted average number of common shares outstanding-
basic ......................................... 5,002 3,742
====== ======
diluted ....................................... 5,159 3,922
====== ======
See accompanying notes to consolidated financial statements.
2
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
For the three months ended March 31, 2006
(Unaudited)
(in thousands)
Additional Treasury Retained
Common Stock Paid-In Capital Stock Earnings Total
------------ --------------- ----- -------- -----
Balance, December 31, 2005 ......... $ 323 $ 45,518 $ (795) $ 2,801 $ 47,847
Stock-based compensation ............ -- 20 -- -- 20
Exercise of Stock Options ........... 1 39 -- -- 40
Stock Offering Costs ................ -- (9) -- -- (9)
Treasury Stock Purchases ............ -- -- (24) -- (24)
Net income for the three months ended
March 31, 2006 ................. -- -- -- 1,329 1,329
------------ ------------ ------------ ------------ ------------
Balance, March 31, 2006 ............. $ 324 $ 45,568 $ (819) $ 4,130 $ 49,203
------------ ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements.
3
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the three months ended
March 31, 2006 and 2005
(Unaudited)
(in thousands)
Three Months Ended
March 31,
--------------------
2006 2005
-------- --------
Cash flows from operating activities:
Net Income .................................................................. $ 1,329 $ 1,145
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation .......................................................... 85 86
Amortization and accretion, net ....................................... (145) (110)
Provision for loan losses ............................................. 250 260
Stock-based compensation .............................................. 20 --
Deferred income tax ................................................... (54) (65)
Loans originated for sale ............................................. (6,818) (3,353)
Proceeds from sale of loans originated for sale ....................... 6,510 3,402
(Gain) on sale of loans originated for sale ........................... (136) (49)
Decrease (Increase) in interest receivable ............................ 160 (6)
Decrease in subscriptions receivable .................................. 2,353 --
Decrease (Increase) in other assets ................................... 476 (113)
Increase in accrued interest payable .................................. 61 30
Increase in other liabilities ......................................... 346 242
-------- --------
Net cash provided by operating activities ...................... 4,437 1,469
-------- --------
Cash flows from investing activities:
Proceeds from call of security held to maturity .......................... -- 13,755
Proceeds from maturation of security held to maturity .................... 5,000 --
Purchases of security held to maturity ................................... (7,500) (12,315)
Proceeds from repayments on securities held to maturity .................. 1,311 1,658
Net (increase) in loans receivable ....................................... (24,227) (15,456)
Additions to premises and equipment ...................................... (19) (49)
-------- --------
Net cash (used in) investing activities ........................... (25,435) (12,407)
-------- --------
Cash flows from financing activities:
Net increase in deposits ................................................. 14,741 7,697
Net change in short-term debt ............................................ -- 3,400
Purchases of treasury stock .............................................. (24) --
Net proceeds from sales of common stock .................................. 40 --
Stock issuance costs ..................................................... (9) --
-------- --------
Net cash provided by financing activities ......................... 14,748 11,097
-------- --------
Net increase in cash and cash equivalents ...................................... (6,250) 159
Cash and cash equivalents-begininng ............................................ 25,147 4,534
-------- --------
Cash and cash equivalents-ending ............................................... $ 18,897 $ 4,693
======== ========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Income taxes .......................................................... $ -- $ 1
Interest .............................................................. 2,841 1,906
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 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 months ended
March 31, 2006 are not necessarily indicative of the results to be expected for
the fiscal year ended December 31, 2006 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, 2005, which are included in the Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission.
Note 2 - Stock Compensation Plans
The Company has two stock-related compensation plans, the 2002 Stock
Option Plan and the 2003 Stock Option Plan, which are described in Note 11 to
the Company's Consolidated Financial Statements included in its Annual Report on
Form 10-K for the year ended December 31, 2005. Through December 31, 2005, the
Company accounted for its stock option plans using the intrinsic value method
set forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," ("APB No. 25") and related interpretations. Under APB No.
25, generally, when the exercise price of the Company's stock options equaled
the market price of the underlying stock on the date of the grant, no
compensation expense was recognized. As described in Note 11 to the Company's
Consolidated Financial Statements included in its Annual Report on Form 10-K for
the year ended December 31, 2005, the Company's Board of Directors approved, on
December 14, 2005, the acceleration of vesting for all 218,195 outstanding
unvested options so that all such options would become fully vested effective
December 20, 2005. Absent the acceleration of vesting, these options would have
become vested from time to time through 2008. As required, the Company has
estimated the number of options that will be exercised in the future which would
not have been exercisable under their original vesting terms and recorded an
expense therefore. This estimate will be updated on a quarterly basis and is not
expected to be significant.
The Company adopted SFAS No. 123R, using the modified-prospective
transition method, beginning on January 1, 2006, and therefore, began to expense
the fair value of all outstanding options over their remaining vesting periods
to the extent the options were not fully vested as of the adoption date and
instituted a procedure to expense the fair value of all options granted
subsequent to December 31, 2005 over their requisite service periods. Since all
outstanding options were fully vested by December 31, 2005, no expenses were
recorded for stock-based compensation during the quarter ended March 31, 2006,
except for $20,000 related to a revision of the termination rate estimate to 12%
annually as it relates to the previously discussed option vesting acceleration.
SFAS No. 123R also requires that the benefits of realized tax deductions
in excess of previously recognized tax benefits on compensation expense to be
reported as a financing cash flow (none recognized during the three months ended
March 31, 2006) rather than an operating cash flow, as previously required. In
accordance with Staff Accounting Bulletin ("SAB") No. 107, the Company
classifies share-based compensation within salaries and employee benefits and
directors compensation expenses to correspond with the same line item as the
cash compensation paid to such individuals.
Options granted generally vest over a four-year service period 20%
immediately upon grant and an additional 20% at each of the four succeeding
grant anniversary dates. Compensation expense recognized for all option grants
5
is net of estimated forfeitures and is recognized over the awards' respective
requisite service periods. The fair values relating to all options granted were
estimated using a Black-Scholes option pricing model. Expected volatilities are
based on historical volatility of our stock and other factors, such as implied
market volatility. As permitted by SAB No. 107, we used the mid-point of
original vesting period and original option life to estimate the options'
expected term, which represents the period of time that the options granted are
expected to be outstanding. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant. We will recognize compensation expense for the fair
values of these awards, which have graded vesting, on a straight-line basis over
the requisite service period of these awards. We did not grant any options
during the quarters ended March 31, 2006 and 2005.
During the three months ended March 31, 2006, the Company recorded $20,000
of share-based compensation expense, all of which related to the aforementioned
revision of the estimated termination rate. The Company does not expect to
record significant share-based compensation expense in fiscal 2006. This
estimate may be impacted by potential changes to the structure of the Company's
share-based compensation plans which could impact the number of stock options
granted in fiscal 2006, changes in valuation assumptions, and changes in the
market price of the Company's common stock, among other things and, as a result,
the actual share-based compensation expense in fiscal 2006 may differ from the
Company's current estimate.
The following table illustrates the impact of share-based compensation on
reported amounts:
Three months ended March 31, 2006
(in thousands, except per share data)
Impact of Share-Based
As Reported Compensation
Income before income taxes $ 2,118 $ 20
Net Income $ 1,329 $ 20
Earnings per share:
Basic $ 0.27 $ 0.00
Diluted $ 0.26 $ 0.00
A summary of the Company's stock option activity and related information for its
option plans for the three months ended March 31, 2006, was as follows:
Wtd. Avg. Wtd. Avg. Rem. Aggregate
Options Exercise Price Contractual Term Intrinsic Value
Outstanding at 12/31/2005 428,454 $ 9.79
Granted 0 0.00
Exercised (5,677) 7.27
Forfeited or Cancelled 0 0.00
Outstanding at 3/31/2006 422,777 $ 9.83 7.7 years $ 2,741,000
Exercisable at 3/31/2006 422,777 $ 9.83 7.7 years $ 2,741,000
The total intrinsic value of the options exercised during the quarter
ended March 31, 2006, was $46,000. There were no stock options granted during
the three months ended March 31, 2006 and 2005. The Company had no non-vested
options outstanding as of March 31, 2006, and during the three months then
ended.
6
For purposes of pro forma disclosures, the estimated fair value of the
stock are amortized to expense over their assumed vesting periods. The following
table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of SFAS No. 123, to all
stock-related compensation prior to January 1, 2006.
Three months ended March 31, 2005
(in thousands, except per share data)
Net income, as reported $ 1,145
Add: Stock related compensation expense included in
reported net income, net of income taxes 0
Deduct: Stock related compensation expense determined
under the fair value method, net of income taxes (121)
Pro forma net income $ 1,024
Earnings per share:
Basic, as reported $ 0.31
Basic, pro forma $ 0.27
Diluted, as reported $ 0.29
Diluted, pro forma $ 0.26
7
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
Total assets increased by $16.5 million or 3.5% to $482.7 million at March 31,
2006 from $466.2 million at December 31, 2005 as the Bank continued to grow
assets through the origination of real estate loans, funded primarily through
cash flow provided by retail deposit growth, repayments and prepayments of loans
as well as the net proceeds from our offering of common stock that was completed
in December 2005. Asset growth has stabilized as management is concentrating on
controlled loan growth. The composition of the Bank's assets will shift more
significantly to loans as compared to investments reflecting management's desire
to obtain higher yields from loan products than are obtainable from investments.
We intend to continue to grow at a measured pace consistent with our capital
levels and as business opportunities permit.
Total cash and cash equivalents decreased by $6.2 million or 24.7% to $18.9
million at March 31, 2006 from $25.1 million at December 31, 2005. Investment
securities classified as held-to-maturity increased by $1.2 million or 0.9% to
$141.2 million at March 31, 2006 from $140.0 million at December 31, 2005. This
increase was primarily attributable to the purchase of $7.5 million of agency
securities, partially offset by the maturity of $5.0 million of an agency
security and $1.3 million of mortgage backed securities repayments and
prepayments during the three months ended March 31, 2006.
Loans receivable increased by $24.1 million or 8.5% to $308.6 million at March
31, 2006 from $284.5 million at December 31, 2005. The increase resulted
primarily from a $24.0 million increase in real estate mortgages comprising
residential, commercial, construction and participation loans with other
financial institutions, net of amortization, and a $1.3 million increase in
consumer loans, net of amortization, partially offset by an $830,000 decrease in
commercial loans comprising business loans and commercial lines of credit, net
of amortization, and a $182,000 increase in the allowance for loan losses to
$3.3 million at March 31, 2006 from $3.1 million at December 31, 2005. At March
31, 2006, the allowance for loan losses was $3.3 million or 173.68% of
non-performing assets.
Deposit liabilities increased by $14.7 million or 4.1% to $377.6 million at
March 31, 2006 from $362.9 million at December 31, 2005. The increase resulted
primarily from an increase of $29.4 million in time deposit accounts and a $2.4
million increase in transaction accounts, partially offset by a $17.0 million
decrease in savings and club accounts as the Bank has experienced a change in
the composition of deposits with savings and club balances being reduced in
favor of higher cost time deposits. Time deposit rates have continued to rise
commensurate with increases in short term rates by the Federal Reserve during
the three months ended March 31, 2006 and the resultant increase in competitive
rates by financial institutions.
8
The balance of borrowed money remained constant at $54.1 million during the
three months ended March 31, 2006 as the net proceeds from our offering of
common stock as well as retail deposit growth and repayments and prepayments
from the loan portfolio and mortgage backed securities portfolio have provided
sufficient cash flow to grow our balance sheet consistent with our capital
levels and available business opportunities.
Stockholders' equity increased by $1.4 million or 2.9% to $49.2 million at March
31, 2006 from $47.8 million at December 31, 2005. The increase in stockholders'
equity is primarily attributable to the net income by the Company for the three
months ended March 31, 2006. At March 31, 2006 the Company's Tier 1, Tier 1
Risk-Based and Total Risk Based Capital Ratios were 10.38%, 16.06% and 17.13%
respectively.
Results of Operations
Net income increased by $184,000 or 16.1% to $1.3 million for the three months
ended March 31, 2006 from $1.1 million for the three months ended March 31,
2005. The increase in net income primarily reflects increases in net interest
income and non-interest income, partially offset by increases in non-interest
expense and income taxes. Net interest income increased by $664,000 or 17.6% to
$4.4 million for the three months ended March 31, 2006 from $3.8 million for the
three months ended March 31, 2005. This increase resulted primarily from an
increase in average interest earning assets of $90.6 million or 24.3% to $463.9
million for the three months ended March 31, 2006 from $373.3 million for the
three months ended March 31, 2005, funded primarily through an increase in
average interest bearing liabilities of $65.0 million or 19.6% to $395.9 million
for the three months ended March 31, 2006 from $330.9 million for the three
months ended March 31, 2005, partially offset by a decrease in the net interest
margin to 3.82% for the three months ended March 31, 2006 from 4.04% for the
three months ended March 31, 2005.
Interest income on loans receivable increased by $1.08 million or 25.4% to $5.34
million for the three months ended March 31, 2006 from $4.26 million for the
three months ended March 31, 2005. The increase was primarily attributable to an
increase in the balance of average loans receivable of $45.7 million or 17.8% to
$301.8 million for the three months ended March 31, 2006 from $256.1 million for
the three months ended March 31, 2005, and an increase in the average yield on
loans receivable to 7.08% for the three months ended March 31, 2006 from 6.65%
for the three months ended March 31, 2005. The increase in average loans
reflects management's philosophy to deploy funds in higher yielding assets,
specifically commercial real estate loans in an effort to achieve higher
returns. The increase in average yield reflects the increase in loan yields tied
to the prime lending rate which has been increasing consistent with the Federal
Reserve's more restrictive interest rate policy over the last twenty-one months.
Interest income on securities held-to-maturity increased by $382,000 or 26.6% to
$1.8 million for the three months ended March 31, 2006 from $1.4 million for the
three months ended March 31, 2005. The increase was primarily attributable to an
increase in the average balance of securities held-to-maturity of $29.4 million
or 26.0% to $142.4
9
million for the three months ended March 31, 2006 from $113.0 million for the
three months ended March 31, 2005, and a slight increase in the average yield on
securities to 5.10% for the three months ended March 31, 2006 from 5.08% for the
three months ended March 31, 2005. The increase in average balance reflects
management's philosophy to deploy funds in higher yielding assets in an effort
to achieve higher returns.
Interest income on other interest-earning assets increased by $165,000 to
$175,000 for the three months ended March 31, 2006 from $10,000 for the three
months ended March 31, 2005. The increase was primarily due to an increase in
the average balance of other interest-earning assets to $19.6 million for the
three months ended March 31, 2006 from $4.2 million for the three months ended
March 31, 2005, and an increase in the average yield on other interest-earning
assets to 3.57% for the three months ended March 31, 2006 from 0.96% for the
three months ended March 31, 2005. The increase in the average yield reflects
the higher short-term interest rate environment for overnight deposits in 2006
as compared to 2005. The increase in the average balance primarily reflects the,
as yet, undeployed net proceeds from our offering of common stock.
Total interest expense increased by $966,000 or 49.9% to $2.9 million for the
three months ended March 31, 2006 from $1.9 million for the three months ended
March 31, 2005. The increase resulted primarily from an increase in average
interest bearing liabilities of $65.0 million or 19.6% to $395.9 million for the
three months ended March 31, 2006 from $330.9 million for the three months ended
March 31, 2005, as well as an increase in the average cost of interest bearing
liabilities to 2.93% for the three months ended March 31, 2006 from 2.34% for
the three months ended March 31, 2005.
The provision for loan losses totaled $250,000 and $260,000 for the three-month
periods ended March 31, 2006 and 2005 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 probable and
estimable. The Bank had non-performing loans totaling $1.9 million or 0.58% of
gross loans at March 31, 2006, $1.0 million or 0.36% of gross loans at December
31, 2005 and $352,000 or 0.13% of gross loans at March 31, 2005. The allowance
for loan losses stood at $3.3 million or 1.05% of gross loans at March 31, 2006,
$3.1 million or 1.07% of gross total loans at December 31, 2005 and $2.7 million
or 1.01% of gross loans at March 31, 2005. 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
10
believes that the allowance for loan losses was adequate at March 31, 2006,
December 31, 2005 and March 31, 2005.
Total non-interest income increased by $122,000 or 69.3% to $298,000 for the
three months ended March 31, 2006 from $176,000 for the three months ended March
31, 2005. The increase in non-interest income resulted primarily from an $87,000
increase in gains on sales of loans originated for sale to $136,000 for the
three months ended March 31, 2006 from $49,000 for the three months ended March
31, 2005, and a $34,000 increase in general fees and service charges to $155,000
for the three months ended March 31, 2006 from $121,000 for the three months
ended March 31, 2005.
Total non-interest expense increased by $461,000 or 24.3% to $2.4 million for
the three months ended March 31, 2006 from $1.9 million for the three months
ended March 31, 2005. Salaries and employee benefits expense increased by
$274,000 or 26.7% to $1.3 million for the three months ended March 31, 2006 from
$1.0 million for the three months ended March 31, 2005. This increase was
primarily attributable to annual salary increases in conjunction with annual
reviews and an increase in health care benefits expense as well as an increase
in the number of full-time equivalent employees to 82 for the three months ended
March 31, 2006 from 73 for the three months ended March 31, 2005. Equipment
expense increased by $83,000 to $450,000 for the three months ended March 31,
2006 from $367,000 for the three months ended March 31, 2005. The primary
component of this expense item is data service provider expense which increases
with the growth of the Bank's assets. Occupancy expense increased by $56,000 to
$218,000 for the three months ended March 31, 2006 from $162,000 for the three
months ended March 31, 2005 primarily as a result of the Bank securing a lease
for the opening of a branch office in Hoboken, New Jersey. It is anticipated
that this office will commence operations during the second half of 2006.
Advertising expense increased by $22,000 to $61,000 for the three months ended
March 31, 2006 from $39,000 for the three months ended March 31, 2005. The
increase in advertising expense relates to advertisements for deposit and loan
promotions in an effort to attract additional business during the three months
ended March 31, 2006. Other non-interest expense increased by $26,000 to
$333,000 for the three months ended March 31, 2006 from $307,000 for the three
months ended March 31, 2005. The increase in other non-interest expense is
primarily attributable to increases in expenses commensurate with a growing
franchise. Other non-interest expense is comprised of directors' fees,
stationary, forms and printing, professional fees, legal fees, check printing,
correspondent bank fees, telephone and communication, shareholder relations and
other fees and expenses.
Income tax expense increased $151,000 to $789,000 for the three months ended
March 31, 2006 from $638,000 for the three months ended March 31, 2005
reflecting increased income earned during the three month time period ended
March 31, 2006. The consolidated effective income tax rate for the three months
ended March 31, 2006 was 37.3% as compared to 35.8% the three months ended March
31, 2005.
11
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 March 31, 2006, 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 March 31, 2006. The following
sets forth the Company's NPV as of March 31, 2006.
NPV as a % of Assets
Change in Net Portfolio $ Change from % Change from --------------------
Calculation Value PAR PAR NPV Ratio Change
- ----------- ----- --- --- --------------------------
+300bp $ 35,061 $ (29,171) -45.41% 8.12% -541 bps
+200bp 45,478 (18,754) -29.20 10.21 -332 bps
+100bp 55,144 (9,088) -14.15 12.00 -153 bps
PAR 64,232 ------ ------ 13.53 ---- bps
-100bp 70,528 6,296 9.80 14.46 93 bps
-200bp 68,228 3,996 6.22 13.85 32 bps
bp - basis points
12
The table above indicates that at March 31, 2006, in the event of a 100 basis
point decrease in interest rates, we would experience a 9.80% increase in NPV.
In the event of a 100 basis point increase in interest rates, we would
experience a 14.15% 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.
13
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.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no changes in the Company's risk factors since the filing of the
Annual Report on Form 10-K.
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.
Other than as stated below, 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. Last year, the Company announced a
stock repurchase plan which provides for the purchase of up to 187,096 shares,
adjusted for the 25% stock dividend paid on October 27, 2005. The Company's
stock purchases during the last three months are as follows:
Shares Average Total Number of Maximum Number of Shares
Period Purchased Price Shares Purchased That May Yet be Purchased
- ------ --------- ----- ---------------- -------------------------
1/1 - 1/31 -------- ----- ----------------- 135,780
2/1 - 2/28 -------- ----- ----------------- 135,780
3/1 - 3/31 1,500 $15.50 1,500 134,280
The Company conducted a secondary public stock offering during the fourth
quarter of 2005. The Company sold 1,265,000 shares of its common stock for an
aggregate offering price of $19.3 million. The Company offered 1,100,000 shares
of its common stock, (with an over-allotment option of 165,000 shares) to the
public at a price of $15.25. The stock offering was underwritten by Janney
Montgomery Scott LLC on a firm commitment basis. The Company's registration
statement on Form S-1 (Commission File No. 333-128214) was declared effective by
the Securities and Exchange Commission on December 13, 2005. The Company also
filed a rule 462 registration statement on Form S-1 (Commission File No.
15
333-130307) which was effective upon filing December 14, 2005. The sale of 1.1
million shares was completed on December 19, 2005, and the over-allotment was
exercised in full on January 5, 2006.
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.
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.
16