BCB BANCORP INC - Quarter Report: 2007 September (Form 10-Q)
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, 2007.
Or
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the
transition period from _____________________ to
_______________________
Commission
File Number: 0-50275
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 [X] 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 13, 2007, BCB Bancorp,
Inc., had 4,669,919 shares of common stock, no par value,
outstanding.
|
PART
I. FINANCIAL
INFORMATION
|
||||||||
|
ITEM
I. FINANCIAL STATEMENT
|
||||||||
|
BCB
BANCORP INC. AND SUBSIDIARIES
|
||||||||
|
Consolidated
Statements of Financial Condition at
|
||||||||
|
September
30, 2007 and December 31, 2006
|
||||||||
|
(Unaudited)
|
||||||||
|
(in
thousands except for share data )
|
||||||||
|
At
|
At
|
|||||||
|
30-Sep-07
|
31-Dec-06
|
|||||||
|
ASSETS
|
||||||||
|
Cash
and amounts due from depository institutions
|
$ |
3,172
|
$ |
3,400
|
||||
|
Interest-earning
deposits
|
35,607
|
22,437
|
||||||
|
Total
cash and cash equivalents
|
38,779
|
25,837
|
||||||
|
Securities
held to maturity
|
165,976
|
148,672
|
||||||
|
Loans
held for sale
|
2,299
|
2,976
|
||||||
|
Loans
receivable, net
|
347,346
|
318,130
|
||||||
|
Premises
and equipment
|
6,011
|
5,885
|
||||||
|
Federal
Home Loan Bank of New York stock
|
5,560
|
3,724
|
||||||
|
Interest
receivable, net
|
3,769
|
3,697
|
||||||
|
Other
real estate owned, net
|
1,446
|
-
|
||||||
|
Deferred
income taxes
|
1,208
|
1,238
|
||||||
|
Other
assets
|
890
|
676
|
||||||
|
Total
assets
|
573,284
|
510,835
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
LIABILITIES
|
||||||||
|
Deposits
|
407,968
|
382,747
|
||||||
|
Long-term
Debt
|
114,124
|
74,124
|
||||||
|
Other
Liabilities
|
2,147
|
2,001
|
||||||
|
Total
Liabilities
|
524,239
|
458,872
|
||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
Common
stock, stated value $0.06
|
||||||||
|
10,000,000
shares authorized; 5,068,728 and
|
||||||||
|
5,063,432
shares respectively, issued
|
324
|
324
|
||||||
|
Additional
paid-in capital
|
45,676
|
45,632
|
||||||
|
Treasury
stock, at cost, 363,053 and 55,293 shares,
|
||||||||
|
respectively
|
(6,110 | ) | (859 | ) | ||||
|
Retained
Earnings
|
9,155
|
6,866
|
||||||
|
Total
stockholders' equity
|
49,045
|
51,963
|
||||||
|
Total
liabilities and stockholders' equity
|
$ |
573,284
|
$ |
510,835
|
||||
|
See
accompanying notes to consolidated financial statements.
|
||||||||
|
BCB
BANCORP INC. AND SUBSIDIARIES
|
|||||||||||||||||
|
Consolidated
Statements of Income
|
|||||||||||||||||
|
For
the three and nine months ended
|
|||||||||||||||||
|
September
30, 2007 and 2006
|
|||||||||||||||||
|
(Unaudited)
|
|||||||||||||||||
|
(
in thousands except for per share
data)
|
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||||
|
September
30,
|
September
30,
|
||||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
||||||||||||||
|
Interest
income:
|
|||||||||||||||||
|
Loans
|
$ |
6,271
|
$ |
5,844
|
$ |
17,903
|
$ |
16,903
|
|||||||||
|
Securities
|
2,353
|
2,083
|
6,459
|
5,774
|
|||||||||||||
|
Other
interest-earning assets
|
323
|
93
|
926
|
373
|
|||||||||||||
|
Total
interest income
|
8,947
|
8,020
|
25,288
|
23,050
|
|||||||||||||
|
Interest
expense:
|
|||||||||||||||||
|
Deposits:
|
|||||||||||||||||
|
Demand
|
271
|
109
|
674
|
277
|
|||||||||||||
|
Savings
and club
|
442
|
591
|
1,442
|
2,066
|
|||||||||||||
|
Certificates
of deposit
|
2,641
|
2,156
|
7,498
|
5,428
|
|||||||||||||
|
3,354
|
2,856
|
9,614
|
7,771
|
||||||||||||||
|
Borrowed
money
|
1,231
|
737
|
2,934
|
1,781
|
|||||||||||||
|
Total
interest expense
|
4,585
|
3,593
|
12,548
|
9,552
|
|||||||||||||
|
Net
interest income
|
4,362
|
4,427
|
12,740
|
13,498
|
|||||||||||||
|
Provision
for loan losses
|
200
|
50
|
200
|
625
|
|||||||||||||
|
Net
interest income after provision for loan losses
|
4,162
|
4,377
|
12,540
|
12,873
|
|||||||||||||
|
Non-interest
income:
|
|||||||||||||||||
|
Fees
and service charges
|
146
|
149
|
436
|
437
|
|||||||||||||
|
Gain
on sales of loans originated for sale
|
108
|
151
|
358
|
489
|
|||||||||||||
|
Other
|
7
|
8
|
21
|
21
|
|||||||||||||
|
Total
non-interest income
|
261
|
308
|
815
|
947
|
|||||||||||||
|
Non-interest
expense:
|
|||||||||||||||||
|
Salaries
and employee benefits
|
1,463
|
1,306
|
4,264
|
3,858
|
|||||||||||||
|
Occupancy
expense of premises
|
268
|
238
|
748
|
676
|
|||||||||||||
|
Equipment
|
487
|
408
|
1,425
|
1,299
|
|||||||||||||
|
Advertising
|
73
|
86
|
268
|
241
|
|||||||||||||
|
Other
|
486
|
358
|
1,268
|
1,087
|
|||||||||||||
|
Total
non-interest expense
|
2,777
|
2,396
|
7,973
|
7,161
|
|||||||||||||
|
Income
before income tax provision
|
1,646
|
2,289
|
5,382
|
6,659
|
|||||||||||||
|
Income
tax provision
|
616
|
824
|
1,962
|
2,450
|
|||||||||||||
|
Net
Income
|
$ |
1,030
|
$ |
1,465
|
$ |
3,420
|
$ |
4,209
|
|||||||||
|
Net
Income per common share-basic and diluted
|
|||||||||||||||||
|
basic
|
$ |
0.22
|
$ |
0.29
|
$ |
0.70
|
$ |
0.84
|
|||||||||
|
diluted
|
$ |
0.21
|
$ |
0.28
|
$ |
0.68
|
$ |
0.81
|
|||||||||
|
Weighted
average number of common shares outstanding-
|
|||||||||||||||||
|
basic
|
4,743
|
5,006
|
4,866
|
5,004
|
|||||||||||||
|
diluted
|
4,862
|
5,181
|
4,993
|
5,176
|
|||||||||||||
|
See
accompanying notes to consolidated financial statements.
|
|||||||||||||||||
|
BCB
BANCORP INC. AND SUBSIDIARIES
|
||||||||||||||||||||
|
Consolidated
Statement of Changes in Stockholders' Equity
|
||||||||||||||||||||
|
For
the nine months ended September 30, 2007
|
||||||||||||||||||||
|
(Unaudited)
|
||||||||||||||||||||
|
(dollars
in thousands, except for share and per share amounts)
|
||||||||||||||||||||
|
Additional
|
Treasury
|
Retained
|
||||||||||||||||||
|
Common
Stock
|
Paid-In
Capital
|
Stock
|
Earnings
|
Total
|
||||||||||||||||
|
Balance, December
31, 2006
|
$ |
324
|
$ |
45,632
|
$ | (859 | ) | $ |
6,866
|
$ |
51,963
|
|||||||||
|
Exercise
of Stock Options (5,296 shares)
|
-
|
44
|
-
|
-
|
44
|
|||||||||||||||
|
Treasury
Stock Purchases (307,760 shares)
|
-
|
(5,251 | ) |
-
|
(5,251 | ) | ||||||||||||||
|
Cash
dividends ($0.23 per share) declared
|
-
|
-
|
(1,131 | ) | (1,131 | ) | ||||||||||||||
|
Net
income for the nine months ended
|
||||||||||||||||||||
|
September
30, 2007
|
-
|
-
|
-
|
3,420
|
3,420
|
|||||||||||||||
|
Balance,
September 30, 2007
|
$ |
324
|
$ |
45,676
|
$ | (6,110 | ) | $ |
9,155
|
$ |
49,045
|
|||||||||
|
See
accompanying notes to consolidated financial statements.
|
||||||||||||||||||||
|
BCB
BANCORP INC. AND SUBSIDIARIES
|
|||||||||
|
Consolidated
Statements of Cash Flows
|
|||||||||
|
For
the nine months ended
|
|||||||||
|
September
30, 2007 and 2006
|
|||||||||
|
(Unaudited)
|
|||||||||
|
(
in thousands)
|
|
Nine
Months Ended
|
||||||||
|
September 30,
|
||||||||
|
2007
|
2006
|
|||||||
|
Cash
flows from operating activities :
|
||||||||
|
Net
Income
|
$ |
3,420
|
$ |
4,209
|
||||
|
Adjustments
to reconcile net income to net cash provided
|
||||||||
|
by
operating activities:
|
||||||||
|
Depreciation
|
291
|
255
|
||||||
|
Amortization
and accretion, net
|
(471 | ) | (480 | ) | ||||
|
Provision
for loan losses
|
200
|
625
|
||||||
|
Stock-based
compensation
|
-
|
25
|
||||||
|
Deferred
income tax
|
30
|
(215 | ) | |||||
|
Loans
originated for sale
|
(19,666 | ) | (28,055 | ) | ||||
|
Proceeds
from sale of loans originated for sale
|
20,701
|
27,608
|
||||||
|
(Gain)
on sale of loans originated for sale
|
(358 | ) | (489 | ) | ||||
|
(Increase)
in interest receivable
|
(72 | ) | (323 | ) | ||||
|
Decrease
in subscriptions receivable
|
-
|
2,353
|
||||||
|
(Increase)
Decrease in other assets
|
(214 | ) |
255
|
|||||
|
Increase
in accrued interest payable
|
197
|
280
|
||||||
|
(Decrease)
Increase in other liabilities
|
(51 | ) |
519
|
|||||
|
Net
cash provided by operating activities
|
4,007
|
6,567
|
||||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchase
of FHLB stock
|
(1,836 | ) | (946 | ) | ||||
|
Proceeds
from maturation of securities held to maturity
|
-
|
5,000
|
||||||
|
Purchases
of securities held to maturity
|
(20,000 | ) | (37,500 | ) | ||||
|
Proceeds
from repayments on securities held to maturity
|
2,705
|
3,775
|
||||||
|
Net
(increase) in loans receivable
|
(30,400 | ) | (30,146 | ) | ||||
|
Additions
to premises and equipment
|
(417 | ) | (92 | ) | ||||
|
Net
cash (used in) investing activities
|
(49,948 | ) | (59,909 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Net
increase in deposits
|
25,221
|
19,967
|
||||||
|
Proceeds
of long-term debt
|
40,000
|
70,000
|
||||||
|
Repayment
of long-term debt
|
-
|
(50,000 | ) | |||||
|
Purchases
of treasury stock
|
(5,251 | ) | (56 | ) | ||||
|
Cash
dividend paid
|
(1,131 | ) | (1,503 | ) | ||||
|
Exercise
of stock options
|
44
|
84
|
||||||
|
Stock
issuance costs
|
-
|
(9 | ) | |||||
|
Net
cash provided by financing activities
|
58,883
|
38,483
|
||||||
|
Net
increase (decrease) in cash and cash equivalents
|
12,942
|
(14,859 | ) | |||||
|
Cash
and cash equivalents-begininng
|
25,837
|
25,147
|
||||||
|
Cash
and cash equivalents-ending
|
$ |
38,779
|
$ |
10,288
|
||||
|
Supplemental
disclosure of cash flow information:
|
||||||||
|
Cash
paid during the year for:
|
||||||||
|
Income
taxes
|
$ |
2,176
|
$ |
2,487
|
||||
|
Interest
|
$ |
12,351
|
$ |
7,491
|
||||
|
Transfer
of loans to Real Estate Owned
|
$ |
1,446
|
$ |
-
|
||||
|
See
accompanying notes to consolidated financial statements.
|
||||||||
BCB
Bancorp Inc., and Subsidiaries
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,
BCB Community Bank (the “Bank”) and BCB Holding Company Investment 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, 2007 are not necessarily indicative of the results to be expected
for the fiscal year ended December 31, 2007 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, 2006,
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
Basic
net
income per common share is computed by dividing net income by the weighted
average number of shares of common stock outstanding. The diluted net income
per
common share is computed by adjusting the weighted average number of shares
of
common stock outstanding to include the effects of outstanding stock options,
if
dilutive, using the treasury stock method.
Note
3 – New Accounting Pronouncements
In
July
2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
in
Income Taxes – an interpretation of FASB Statement No. 109 (FIN 48), which
clarifies the accounting for uncertainty in tax positions. This Interpretation
requires that companies recognize in their financial statements the impact
of a
tax position, if that position is more likely than not of being sustained on
audit, based on the technical merits of the position. The
provisions of FIN 48 are effective for fiscal years beginning after December
15,
2006, with the cumulative effect of the change in
accounting principle recorded as an adjustment to opening retained earnings.
The
adoption of FIN 48 did not result in a material impact on our consolidated
financial statements.
In
September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value
under
U. S. GAAP, and expands disclosures about fair value measurements. Statement
No.
157 applies to other accounting pronouncements that require or permit fair
value
measurements. SFAS No. 157 is effective for our Company January 1, 2008. We
are
currently evaluating the potential impact, if any, of the adoption of FASB
Statement No. 157 on our consolidated financial position, results of operations
and cash flows.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair value. Unrealized
gains and losses on items for which the fair value option has been elected
will
be recognized in earnings at each subsequent reporting date.
SFAS No. 159 is effective for our Company on
January 1, 2008. The Company is evaluating the impact that the adoption of
SFAS No. 159 will have on our consolidated financial
statements.
In
March 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue
No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based
Payment Awards.” EITF 06-11 requires companies to recognize the income tax
benefit realized from dividends or dividend equivalents that are charged to
retained earnings and paid to employees for nonvested equity-classified employee
share-based payment awards as an increase to additional paid-in capital. EITF
06-11 is effective for fiscal years beginning after September 15, 2007. The
Company does not expect that EITF 06-11 will have a material impact on its
financial position, results of operations or cash flows.
In
May
2007, the FASB issued FASB Staff Position (“FSP”) FIN 48-1 “Definition of
Settlement in FASB Interpretation No. 48” (FSP FIN 48-1). FSP FIN 48-1 provides
guidance on how to determine whether a tax position is effectively settled
for
the purpose of recognizing previously unrecognized tax benefits. FSP FIN 48-1
is
effective retroactively to January 1, 2007. The implementation of this standard
did not have a material impact on our consolidated financial position or results
of operation.
ITEM
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Financial
Condition
Total
assets increased by $62.5 million or 12.2% to $573.3 million at September 30,
2007 from $510.8 million at December 31, 2006. The Bank continued to grow
assets, funded primarily through cash flow provided by retail deposit growth,
and repayments and prepayments of loans and mortgage backed securities as well
as the utilization of Federal Home Loan Bank Advances. During the first nine
months of 2007 the Company increased both loan and investment security balances
in an effort to deploy excess liquidity into assets with more competitive yields
while managing the various levels of risk associated with those assets. Asset
growth stabilized as management is concentrating on controlled growth and
maintaining adequate liquidity in the anticipation of funding outstanding loan
commitments. The primary composition of the Bank’s assets has shifted more to
loans reflecting management’s desire to obtain higher yields from loan products
than are obtainable from other types of investments. We intend to continue
to
grow our assets at a measured pace consistent with our capital levels and as
business opportunities permit.
Total
cash and cash equivalents increased by $13.0 million or 50.4% to $38.8 million
at September 30, 2007 from $25.8 million at December 31, 2006. Investment
securities classified as held-to-maturity increased by $17.3 million or 11.6%
to
$166.0 million at September 30, 2007 from $148.7 million at December 31, 2006.
This increase was primarily attributable to the engagement of a leverage
transaction for $20.0 million funded through the utilization of an advance
from
the Federal Home Loan Bank, partially offset by $2.7 million of repayments
and
prepayments in the mortgage backed securities portfolio during the nine months
ended September 30, 2007.
Loans
receivable increased by $29.2 million or 9.2% to $347.3 million at September
30,
2007 from $318.1 million at December 31, 2006. The increase resulted primarily
from a $22.3 million increase in real estate mortgages comprising residential,
commercial, construction and participation loans with other financial
institutions, net of amortization, a $608,000 increase in consumer loans, net
of
amortization, a $5.6 million increase in commercial loans comprising business
loans and commercial lines of credit, net of amortization, and a $76,000
decrease in the allowance for loan losses. At September 30, 2007 loan
commitments that were not yet funded totaled $57.4 million. During the nine
months ended September 30, 2007, the Company placed two loan relationships
into
real estate owned. A loan made in participation with another financial
institution to Kara Homes became a parcel of real estate owned, and the estate
of a deceased borrower also fell into this category. These facilities have
been
written down to $1.45 million, an aggregate appraised value, less selling costs,
as of September 30, 2007. At September 30, 2007 the allowance for loan losses
was $3.7 million or 117.32% of non-performing assets.
Deposit
liabilities increased by $25.3 million or 6.6% to $408.0 million at September
30, 2007 from $382.7 million at December 31, 2006. The increase resulted
primarily from an increase of $14.6 million in time deposit accounts and a
$25.4
million increase in transaction accounts, partially offset by a $14.7 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. Short term time deposit rates continue
to be
more competitively priced than core deposit rates as the yield curve remains
slightly inverted following the Federal Open Market Committee decision to lower
short term interest rates in September.
The
balance of borrowed money increased by $40.0 million or 54.0% to $114.1 million
at September 30, 2007 from $74.1 million at December 31, 2006. The increase
in
borrowings was attributable to the engagement of a $20.0 million leverage
transaction executed during the nine months ended September 30, 2007 and the
use
of an additional advance of $20.0 million from the Federal Home Loan Bank to
augment deposit growth in the funding of our loan portfolio. Long term Federal
Home Loan Bank advances are primarily used to augment deposits as the Bank’s
funding source for originating loans and investing in Government Sponsored
Enterprise, (GSE) investment securities.
Stockholders’
equity decreased by $3.0 million or 5.8% to $49.0 million at September 30,
2007
from $52.0 million at December 31, 2006. The decrease in stockholders’ equity is
primarily attributable to a decrease of $5.3 million to repurchase 307,760
shares of common stock consistent with our previously disclosed stock repurchase
plans and a $1.1 million decrease as a result of three quarterly cash dividend
distributions during the nine months ended September 30, 2007, partially offset
by net income of $3.4 million for the nine months ended September 30, 2007
and
$44,000 realized from the exercise of 5,296 stock options during the nine months
ended September 30, 2007. At September 30, 2007 the Bank’s Tier 1, Tier 1
Risk-Based and Total Risk Based Capital Ratios were 9.17%, 13.01% and 13.96%
respectively.
Results
of Operations
Three
Months
Net
income decreased by $435,000 or 29.7% to $1.03 million for the three months
ended September 30, 2007 from $1.47 million for the three months ended September
30, 2006. The decrease in net income was due to decreases in net interest income
and non-interest income and increases in non-interest expense and the provision
for loan losses, partially offset by a decrease in income tax expense. Net
interest income decreased by $65,000 or 1.5% to $4.36 million for the three
months ended September 30, 2007 from $4.43 million for the three months ended
September 30, 2006. This decrease in net interest income resulted primarily
from
an increase of $55.4 million or 13.4% in the average balance of interest bearing
liabilities to $467.7 million for the three months ended September 30, 2007
from
$412.3 million for the three months ended September 30, 2006 and an increase
in
the average cost of interest bearing liabilities to 3.92% for the three months
ended September 30, 2007 from 3.49% for the three months ended September 30,
2006. The
average
balance of interest earning assets increased by $56.8 million or 11.6% to $545.7
million for the three months ended September 30, 2007 from $488.9 million for
the three months ended September 30, 2006 while the average yield on interest
earning assets was unchanged at 6.56% for the three months ended September
30,
2007 and September 30, 2006. As a consequence, our net interest margin decreased
to 3.20% for the three months ended September 30, 2007 from 3.62% for the three
months ended September 30, 2006.
Interest
income on loans receivable increased by $427,000 or 7.3% to $6.27 million for
the three months ended September 30, 2007 from $5.84 million for the three
months ended September 30, 2006. The increase was primarily attributable to
an
increase in average loans receivable of $25.3 million or 7.9% to $345.7 million
for the three months ended September 30, 2007 from $320.4 million for the three
months ended September 30, 2006, partially offset by a slight decrease in the
average yield on loans receivable to 7.26% for the three months ended September
30, 2007 from 7.30% for the three months ended September 30, 2006. The increase
in average loans reflects management’s philosophy to deploy funds in higher
yielding instruments, specifically commercial real estate loans, in an effort
to
achieve higher returns. The decrease in average yield reflects the competitive
price environment prevalent in the Bank’s primary market area for commercial and
construction loans.
Interest
income on securities held-to-maturity increased by $270,000 or 13.0% to $2.35
million for the three months ended September 30, 2007 from $2.08 million for
the
three months ended September 30, 2006. This increase was primarily due to an
increase in the average balance of securities held-to-maturity of $13.8 million
or 8.7% to $171.8 million for the three months ended September 30, 2007 from
$158.0 million for the three months ended September 30, 2006, and an increase
in
the average yield on securities held-to-maturity to 5.48% for the three months
ended September 30, 2007 from 5.27% for the three months ended September 30,
2006. The increase in average balance reflects management’s philosophy to deploy
funds in investments, absent an opportunity to originate higher yielding loans,
in an effort to achieve higher returns.
Interest
income on other interest-earning assets increased by $230,000 to $323,000 for
the three months ended September 30, 2007 from $93,000 for the three months
ended September 30, 2006. This increase was primarily due to a $17.8 million
increase in the average balance of other interest-earning assets to $28.3
million for the three months ended September 30, 2007 from $10.5 million for
the
three months ended September 30, 2006 and an increase in the average yield
on
other interest-earning assets to 4.57% for the three months ended September
30,
2007 from 3.54% for the three months ended September 30, 2006. The increase
in
the average yield reflects the higher short-term interest rate environment
for
overnight deposits during the three months ended September 30, 2007 as compared
to the three months ended September 30, 2006. The increase in the average
balance primarily reflects the Bank’s need to increase its liquidity in the
anticipation of funding loans as to which commitments existed.
Total
interest expense increased by $1.0 million or 27.8% to $4.6 million for the
three months ended September 30, 2007 from $3.6 million for the three months
ended
September
30, 2006. The increase resulted primarily from an increase in average interest
bearing liabilities of $55.4 million or 13.4% to $467.7 million for the three
months ended September 30, 2007 from $412.3 million for the three months ended
September 30, 2006, and an increase in the average cost of interest bearing
liabilities to 3.92% for the three months ended September 30, 2007 from 3.49%
for the three months ended September 30, 2006.
The
provision for loan losses totaled $200,000 and $50,000 for the three-month
periods ended September 30, 2007 and 2006, respectively. The provision for
loan
losses is established based upon management’s review of the Bank’s loans and
consideration of a variety of factors including, but not limited to, (1) the
risk characteristics of the loan portfolio, (2) current economic conditions,
(3)
actual losses previously experienced, (4) significant level of loan growth
and
(5) the existing level of reserves for loan losses that are probable and
estimable. During the three months ended September 30, 2007, the Bank
experienced $61,000 of charge-offs. During the three months ended September
30,
2006, the Bank recorded $38,000 in recoveries. The Bank had non-performing
loans
totaling $1.7 million or 0.48% of gross loans at September 30, 2007, $2.0
million or 0.59% of gross loans at June 30, 2007 and $477,000 or 0.15% of gross
loans at September 30, 2006. The allowance for loan losses was $3.7 million
or
1.04% of gross loans at September 30, 2007, $3.5 million or 1.05% of gross
loans
at June 30, 2007, and $3.7 million or 1.15% of gross loans at September 30,
2006. The amount of the allowance is based on estimates and the ultimate losses
may vary from such estimates. Management assesses the allowance for loan losses
on a quarterly basis and makes provisions for loan losses as necessary in order
to maintain the adequacy of the allowance. While management uses available
information to recognize 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, 2007, June 30, 2007 and September
30, 2006.
Total
non-interest income decreased by $47,000 or 15.3% to $261,000 for the three
months ended September 30, 2007 from $308,000 for the three months ended
September 30, 2006. The decrease in non-interest income resulted primarily
from
a $43,000 decrease in gain on sales of loans originated for sale to $108,000
for
the three months ended September 30, 2007 from $151,000 for the three months
ended September 30, 2006, and a $4,000 decrease in general fees and service
charges to $153,000 for the three months ended September 30, 2007 from $157,000
for the three months ended September 30, 2006. The decrease in gain on sale
of
loans originated for sale reflects the softening one- to four-family residential
real estate market during the three months ended September 30,
2007.
Total
non-interest expense increased by $381,000 or 15.9% to $2.8 million for the
three months ended September 30, 2007 from $2.4 million for the three months
ended September 30, 2006. Salaries and employee benefits expense increased
by
$157,000 or
12.0%
to
$1.5 million for the three months ended September 30, 2007 from $1.3 million
for
the three months ended September 30, 2006. This increase was primarily
attributable to an increase in the number of full time equivalent employees
to
92 for the three months ended September 30, 2007 from 82 for the three months
ended September 30, 2006 as well as annual salary increases in conjunction
with
annual reviews. Equipment expense increased by $79,000 to $487,000 for the
three
months ended September 30, 2007 from $408,000 for the three months ended
September 30, 2006. The primary component of this expense item is data service
provider expense which increases with the growth of the Bank’s assets. Occupancy
expense, advertising and other non-interest expense increased by an aggregate
of
$145,000 or 21.3% to $827,000 for the three months ended September 30, 2007
from
$682,000 for the three months ended September 30, 2006. The increase in
occupancy, advertising and other expenses was primarily attributable to $84,000
in foreclosure costs associated with a loan facility placed into the real estate
owned category during the three months ended September 30, 2007 and increases
in
expenses commensurate with a growing franchise. Other non-interest expense
is
comprised of directors’ fees, stationary, forms and printing, professional fees,
legal fees, check printing, correspondent bank fees, telephone and
communication, shareholder relations and other fees and expenses.
Income
tax expense decreased $208,000 to $616,000 for the three months ended September
30, 2007 from $824,000 for the three months ended September 30, 2006 reflecting
decreased pre-tax income earned during the three month time period ended
September 30, 2007. The consolidated effective income tax rate for the three
months ended September 30, 2007 was 37.4% as compared to 36.0% for the three
months ended September 30, 2006.
Nine
Months of Operations
Net
income decreased by $789,000 or 18.7% to $3.4 million for the nine months ended
September 30, 2007 from $4.2 million for the nine months ended September 30,
2006. The decrease in net income was due to decreases in net interest income
and
non-interest income and an increase in non-interest expense partially offset
by
decreases in the provision for loan losses and income taxes. Net interest income
decreased by $758,000 or 5.6% to $12.7 million for the nine months ended
September 30, 2007 from $13.5 million for the nine months ended September 30,
2006. This decrease in net interest income resulted primarily from an increase
of $38.1 million or 9.5% in the average balance of interest bearing liabilities
to $441.1 million for the nine months ended September 30, 2007 from $403.0
million for the nine months ended September 30, 2006 and an increase in the
average cost of interest bearing liabilities to 3.79% for the nine months ended
September 30, 2007 from 3.16% for the nine months ended September 30, 2006.
The
average balance of interest earning assets increased by $41.6 million or 8.7%
to
$517.7 million for the nine months ended September 30, 2007 from $476.1 million
for the nine months ended September 30, 2006 and the average yield of interest
earning assets increased to 6.51% for the nine months ended September 30, 2007
from 6.45% for the nine months ended September 30, 2006. As a consequence,
our
net interest margin
decreased
to 3.28% for the nine months ended September 30, 2007 from 3.78% for the nine
months ended September 30, 2006.
Interest
income on loans receivable increased by $1.0 million or 5.9% to $17.9 million
for the nine months ended September 30, 2007 from $16.9 million for the nine
months ended September 30, 2006. The increase was primarily attributable to
an
increase in average loans receivable of $18.8 million or 6.0% to $331.8 million
for the nine months ended September 30, 2007 from $313.0 million for the nine
months ended September 30, 2006, while the average yield on loans receivable
remained static at 7.20% for the nine months ended September 30, 2007 and
September 30, 2006. The increase in average loans reflects management’s
philosophy to deploy funds in higher yielding instruments, specifically
commercial real estate loans, in an effort to achieve higher
returns.
Interest
income on securities held-to-maturity increased by $685,000 or 11.9% to $6.5
million for the nine months ended September 30, 2007 from $5.8 million for
the
nine months ended September 30, 2006. The increase was primarily due to an
increase in the average balance of securities held-to-maturity of $10.4 million
or 7.0% to $159.1 million for the nine months ended September 30, 2007 from
$148.7 million for the nine months ended September 30, 2006 and an increase
in
the average yield on securities held-to-maturity to 5.41% for the nine months
ended September 30, 2007 from 5.18% for the nine months ended September 30,
2006. The increase in average balance reflects management’s philosophy to deploy
funds in investments absent the opportunity to invest in higher yielding loans
in an effort to achieve higher returns.
Interest
income on other interest-earning assets increased by $553,000 or 148.3% to
$926,000 for the nine months ended September 30, 2007 from $373,000 for the
nine
months ended September 30, 2006. This increase was primarily due to an increase
of $12.3 million or 84.8% in the average balance of other interest-earning
assets to $26.8 million for the nine months ended September 30, 2007 from $14.5
million for the nine months ended September 30, 2006 and an increase in the
average yield on other interest-earning assets to 4.60% for the nine months
ended September 30, 2007 from 3.44% for the nine months ended September 30,
2006. The increase in the average yield reflects the higher short-term interest
rate environment for overnight deposits in 2007 as compared to 2006. The
increase in the average balance primarily reflects the Bank’s need to increase
its liquidity in the anticipation of funding loans as to which commitments
existed.
Total
interest expense increased by $3.0 million or 31.4% to $12.55 million for the
nine months ended September 30, 2007 from $9.55 million for the nine months
ended September 30, 2006. The increase resulted primarily from an increase
in
average interest bearing liabilities of $38.1 million or 9.5% to $441.1 million
for the nine months ended September 30, 2007 from $403.0 million for the nine
months ended September 30, 2006, and an increase in the average cost of interest
bearing liabilities to 3.79% for the nine months ended September 30, 2007 from
3.16% for the nine months ended September 30, 2006.
The
provision for loan losses totaled $200,000 and $625,000 for the nine-month
periods ended September 30, 2007 and 2006, respectively. The provision for
loan
losses is
established
based upon management’s review of the Bank’s loans and consideration of a
variety of factors including, but not limited to, (1) the risk characteristics
of the loan portfolio, (2) current economic conditions, (3) actual losses
previously experienced, (4) significant level of loan growth and (5) the
existing level of reserves for loan losses that are probable and estimable.
During the nine months ended September 30, 2007, the Bank experienced $275,000
in net charge-offs (consisting of $283,000 in charge-offs and $8,000 in
recoveries), primarily as a result of the repossession of a loan to facilitate
the construction of approximately ten residential units done in participation
with another financial institution. During the nine months ended September
30,
2006, the Bank experienced $30,000 in net loan charge-offs (consisting of
$68,000 in loan charge-offs and $38,000 in recoveries). The Bank had
non-performing loans totaling $1.7 million or 0.48% of gross loans at September
30, 2007, $323,000 or 0.10% of gross loans at December 31, 2006 and $477,000
or
0.15% of gross loans at September 30, 2006. The allowance for loan losses was
$3.7 million or 1.04% of gross loans at September 30, 2007, $3.7 million or
1.16% of gross loans at December 31, 2006 and $3.7 million or 1.15% of gross
loans at September 30, 2006. The amount of the allowance is based on estimates
and the ultimate losses may vary from such estimates. Management assesses the
allowance for loan losses on a quarterly basis and makes provisions for loan
losses as necessary in order to maintain the adequacy of the allowance. While
management uses available information to recognize 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, 2007,
December 31, 2006 and September 30, 2006.
Total
non-interest income decreased by $132,000 or 13.9% to $815,000 for the nine
months ended September 30, 2007 from $947,000 for the nine months ended
September 30, 2006. The decrease in non-interest income resulted primarily
from
a $131,000 decrease in gain on sales of loans originated for sale to $358,000
for the nine months ended September 30, 2007 from $489,000 for the nine months
ended September 30, 2006, and a $1,000 decrease in general fees, service charges
and other income to $457,000 for the nine months ended September 30, 2007 from
$458,000 for the nine months ended September 30, 2006. The decrease in gain
on
sale of loans originated for sale reflects the softening one- to four-family
residential real estate market during the nine months ended September 30,
2007.
Total
non-interest expense increased by $812,000 or 11.3% to $8.0 million for the
nine
months ended September 30, 2007 from $7.2 million for the nine months ended
September 30, 2006. Salaries and employee benefits expense increased by $406,000
or 10.5% to $4.3 million for the nine months ended September 30, 2007 from
$3.9
million for the nine months ended September 30, 2006. This increase was
primarily attributable to an increase in the number of full time equivalent
employees to 92 for the nine months ended September 30, 2007 from 82 for the
nine months ended September 30, 2006 as well as salary increases made in
conjunction with annual reviews. Equipment expense
increased
by $126,000 to $1.4 million for the nine months ended September 30, 2007 from
$1.3 million for the nine months ended September 30, 2006. The primary component
of this expense item is data service provider expense which increases as the
Bank’s assets grow. Occupancy expense increased by $72,000 to $748,000 for the
nine months ended September 30, 2007 from $676,000 for the nine months ended
September 30, 2006. Advertising expense increased by $27,000 to $268,000 for
the
nine months ended September 30, 2007 from $241,000 for the nine months ended
September 30, 2006. The increase in advertising expense relates to
advertisements for deposit and loan promotions during the nine months ended
September 30, 2007 as well as promotions highlighting the opening of our new
office in Hoboken. Other non-interest expense increased by $181,000 to $1.3
million for the nine months ended September 30, 2007 from $1.1 million for
the
nine months ended September 30, 2006. The increase in other non-interest expense
was primarily attributable to $84,000 in foreclosure costs associated with
a
loan facility placed into the real estate owned category during the nine months
ended September 30, 2007 and increases in other expenses commensurate with
a
growing franchise. Other non-interest expense is comprised of directors’ fees,
stationary, forms and printing, professional fees, legal fees, check printing,
correspondent bank fees, telephone and communication, shareholder relations
and
other fees and expenses.
Income
tax expense decreased $488,000 or 19.9% to $1.96 million for the nine months
ended September 30, 2007 from $2.45 million for the nine months ended September
30, 2006 reflecting decreased pre-tax income earned during the nine months
ended
September 30, 2007. The consolidated effective income tax rate for the nine
months ended September 30, 2007 was 36.5% as compared to 36.8% for the nine
months ended September 30, 2006.
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 the 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, 2007, 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 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, 2007. The following
sets forth the Company’s NPV as of June 30, 2007.
|
Change
in
|
Net
Portfolio
|
$
Change from
|
%
Change from
|
NPV
as a % of Assets
|
|
|
Calculation
|
Value
|
PAR
|
PAR
|
NPV
Ratio
|
Change
|
|
+300bp
|
$
33,810
|
$
(33,347)
|
-49.65%
|
7.04%
|
-567
bps
|
|
+200bp
|
44,495
|
(22,662)
|
-33.74
|
8.99
|
-372
bps
|
|
+100bp
|
55,767
|
(11,390)
|
-16.96
|
10.91
|
-180
bps
|
|
PAR
|
67,157
|
------
|
------
|
12.71
|
----- bps
|
|
-100bp
|
70,987
|
3,830
|
5.70
|
13.18
|
47 bps
|
|
-200bp
|
67,260
|
103
|
0.15
|
12.34
|
-36 bps
|
bp
–
basis points
The
table
above indicates that at June 30, 2007, in the event of a 100 basis point
decrease in interest rates, we would experience a 5.70% increase in NPV. In
the
event of a 100 basis point increase in interest rates, we would experience
a
16.96% 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.
ITEM
4.
Controls
and Procedures
Under
the
supervision and with the participation of the Company’s management, including
the Chief Executive Officer and Principal Accounting 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 Principal Accounting
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.
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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
Securities
sold within the past three years without registering the securities under the
Securities Act of 1933
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.
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. 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.
During
2005, 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. On April 26, 2007, the Company announced a second stock
repurchase plan which provides for the repurchase of 5% or 249,080 shares of
the
outstanding shares of the Company’s common stock. This plan will commence upon
the completion of the aforementioned plan. 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
|
|
7/1-7/31
|
11,293
|
$
16.37
|
11,293
|
133,722
|
|
8/1-8/31
|
41,199
|
$
16.29
|
52,492
|
92,523
|
|
9/1-9/30
|
19,400
|
$
16.16
|
71,892
|
73,123
|
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.
19