BCB BANCORP INC - Quarter Report: 2014 September (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q 

 

(Mark One)

For the quarterly period ended September 30, 2014

 

 

For the transition period from                      to                     

Commission File Number: 0-50275

 

BCB Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

(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.    ☒   Yes    ☐   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒   Yes    ☐   No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 6, 2014, BCB Bancorp, Inc., had 8,386,957 shares of common stock, no par value, outstanding.

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BCB BANCORP INC. AND SUBSIDIARIES

INDEX

 

 

 

 

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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In  Thousands, Except Share and Per Share Data, Unaudited)

 

 

 

See accompanying notes to unaudited consolidated financial statements.

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BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Income 

(In Thousands, except for per share amounts, Unaudited)

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In Thousands, Unaudited)

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity

(In Thousands, except share and per share data, Unaudited)

 

 

 

See accompanying notes to unaudited consolidated financial statements.

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BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In Thousands, Unaudited)

 

 

See accompanying notes to unaudited consolidated financial statements.

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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”), BCB Holding Company Investment Company, BCB New York Asset Management, Inc. and Pamrapo Service Corporation. 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 Regulation S-X 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. These results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2014 or any other future period. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.

These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2013, which are included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission. In preparing these consolidated financial statements, BCB Bancorp, Inc., evaluated the events and transactions that occurred between December 31, 2013, and the date these consolidated financial statements were issued.

 

 

New Accounting Pronouncements

 

The Financial Accounting Standards Board (“FASB”) has issued ASU No. 2014-04, Receivable-Troubled Debt Restructurings by Creditors (Sub-Topic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this ASU are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that  the loan should be derecognized and the real estate recognized. They clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. Early adoption is permitted. Retrospective application is permitted. The Company does not believe this pronouncement, when adopted, will have a material impact on the Company’s results of operations or financial position.

 

The Financial Accounting Standards Board (“FASB”) has issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this ASU state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of ASU 2013-11 did not have a significant impact on the Company’s financial condition, results of operations, or cash flows.

 

In June 2014, The Financial Accounting Standards Board (“FASB”) has issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this Update require two accounting changes. First, repurchase-to-maturity transactions will be accounted for as secured borrowing transactions on the balance sheet, rather than sales. Second, for repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with (or in contemplation of) a repurchase agreement with the same counterparty, which also will generally result in secured borrowing accounting for the repurchase agreement. The ASU introduces new disclosures to increase transparency about the types of collateral pledged for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted for as secured borrowings. The ASU also requires a transferor to disclose information about transactions accounted for as a sale in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets through an agreement with the transferee.

 

For public business entities, the accounting changes and disclosure for certain transactions accounted for as a sale are effective for the first interim or annual period beginning after December 15, 2014. The disclosure for transactions accounted for as secured borrowings is required for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. All entities are required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application for a public business entity is prohibited. The disclosures are not required to be presented for comparative periods before the effective date. The Company does not believe the adoption of this update will have a material impact of the Company’s consolidated financial statements.

 

In August 2014, The Financial Accounting Standards Board (“FASB”) has issued ASU 2014-14, Receivables — Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force).The amendments in this Update address a practice issue related to the classification of certain foreclosed residential and nonresidential mortgage loans that are either fully or partially guaranteed under government programs. Specifically, creditors should reclassify loans that meet certain conditions to “other receivables” upon foreclosure, rather than reclassifying them to other real estate owned (OREO). The separate other receivable recorded upon foreclosure is to be measured based on the amount of the loan balance (principal and interest) the creditor expects to recover from the guarantor.

The ASU is effective for public business entities for annual periods and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted, if the entity has already adopted ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. Transition methods include a prospective method and a modified retrospective method; however, entities must apply the same transition method as elected under ASU 2014-04. The Company does not believe the adoption of this update will have a material impact of the Company’s consolidated financial statements.  

 

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Note 2 – Reclassification

 

Certain amounts as of December 31, 2013 and the three and nine month periods ended September 30, 2013 have been reclassified to conform to the current period’s presentation. These changes had no effect on the Company’s results of operations or financial position.

 

 

Note 3 – Benefit Plans

The Company assumed, through the merger with Pamrapo Bancorp, Inc., a non-contributory defined benefit pension plan covering all eligible employees of Pamrapo Savings Bank. Effective January 1, 2010, the defined benefit pension plan (“Pension Plan”), was frozen by Pamrapo Savings Bank. All benefits for eligible participants accrued in the “Pension Plan” to the freeze date have been retained. Accordingly, no employees are permitted to commence participation in the Pension Plan and future salary increases and future years of service are not considered when computing an employee’s benefits under the Pension Plan. The Pension Plan is funded in conformity with the funding requirements of applicable government regulations. The Company also acquired through the merger with Pamrapo Bancorp, Inc. a supplemental executive retirement plan (“SERP”) in which certain former employees of Pamrapo Savings Bank are covered. A SERP is an unfunded non-qualified deferred retirement plan. Participants who retire at the age of 65 ( the “Normal Retirement Age”), are entitled to an annual retirement benefit equal to 75% of compensation reduced by their retirement plan annual benefits. Participants retiring before the Normal Retirement Age receive the same benefits reduced by a percentage based on years of service to the Company and the number of years prior to the Normal Retirement Age that participants retire.

 

Periodic pension and SERP cost, which is recorded as part of salaries and employee benefits expense in our Consolidated Statements of Income, is comprised of the following. (In Thousands):

 

 

 

 

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Note 3 – Benefit Plans (Continued) 

The Company, under the plan approved by its shareholders on April 28, 2011 (“2011 Stock Plan”), authorized the issuance of up to 900,000 shares of common stock of BCB Bancorp, Inc. pursuant to grants of stock options. Employees and directors of BCB Bancorp, Inc. and BCB Community Bank are eligible to participate in the 2011 Stock Plan. All stock options will be granted in the form of either "incentive" stock options or "non-qualified" stock options. Incentive stock options have certain tax advantages that must comply with the requirements of Section 422 of the Internal Revenue Code.  Only employees are permitted to receive incentive stock options. On March 7, 2014, a grant of 110,000 options was declared for members of the Board of Directors which vest at a rate of 10% per year, over ten years commencing on the first anniversary of the grant date. The exercise price was recorded as of the close of business on March 7, 2014.  On January 17, 2013, a grant of 130,000 options was declared for certain members of the Board of Directors.    The exercise price was recorded as of the close of business on January 17, 2013.  During the third quarter of 2013, there were 29,928 stock options granted to one director, which vested immediately. The exercise price was recorded as of the close of business on August 7, 2013.

 

The expense recognized for all option grants is net of estimated forfeitures and is recognized over the awards’ respective requisite service periods. The fair values relating to all options granted are 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 using this options expected term. The Company used the mid-point of the 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. The Company recognizes expense for the fair values of these option awards, which have graded vesting, on a straight-line basis over the requisite service period of these awards.

 

A summary of stock option activity follows:

 

 

 

 

As of September 30, 2014, stock options which are granted and were exercisable totaled 53,220 stock options.

 

 

It is Company policy to issue new shares upon share option exercise. Expected future expense relating to the unvested options outstanding as of September 30, 2014 is $474,819 over a weighted average period of  8.84 years. 

 

 

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Note 4 – Net Income per Common Share

 

Basic net income per common share is computed by dividing net income less dividends on preferred stock 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. Dilution is not applicable in periods of net loss. For the three and nine months ended September 30, 2014 and 2013, the difference in the weighted average number of basic and diluted common shares was due solely to the effects of outstanding stock options. No adjustments to net income were necessary in calculating basic and diluted net income per share. For the three months ended September 30, 2014 and 2013, the weighted average number of outstanding options considered to be anti-dilutive were 121,458, and 324,772, respectively, and for the nine months ended September 30, 2014 and 2013, the weighted average number of outstanding options considered to be anti-dilutive were 128,125 and 324,772, respectively.  

 

 

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations: 

 

 

 

 

 

 

 

 

 

 

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Note 5 – Securities Available for Sale

 

The following table presents by maturity the amortized cost and gross unrealized gains and losses on securities available for sale as September 30, 2014. There were no mortgage backed securities available for sale at December 31, 2013.

 

 

 

 

The following tables present the cost and gross unrealized gains and losses on securities available for sale as of September 30, 2014 and December 31, 2013: 

 

 

 

 

 

The unrealized losses, categorized by the length of time of continuous loss position, and fair value of related securities available for sale were as follows:

 

 

 

 

 

 

 

 

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Note 6 – Securities Held to Maturity

 

The following table presents by maturity the amortized cost and gross unrealized gains and losses on securities held to maturity as of December 31, 2013. There were no securities held to maturity at September 30, 2014.

 

 

 

 

 

The amortized cost and carrying values shown above are categorized by contractual final maturity. Actual maturities will differ from contractual final maturities due to scheduled monthly payments related to mortgage–backed securities and due to the borrowers having the right to prepay obligations with or without prepayment penalties. As of December 31, 2013, all residential mortgage backed securities held in the portfolio were Government Sponsored Enterprise securities.

 

In 2013, management decided to sell certain mortgage-backed securities that were issued by the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). While these securities were classified as held to maturity, with the intent to hold to maturity, ASC 320 (formerly FAS 115) allows sales of securities so designated, provided that a substantial portion (at least 85%) of the principal balance purchased has been amortized prior to the sale. Sales of securities that had been classified as held to maturity, and do not meet any of the safe harbor exemptions under ASC 320, would then require that all remaining securities be transferred to the available for sale category and the Company would be prohibited from using the held to maturity classification for at least a two-year period. In July 2014, the Company transferred all of its remaining held-to-maturity investments to the available-for-sale category. Management determined that it no longer had the positive intent to hold its investment in securities classified as held-to-maturity, and in July 2014 sold $96.9 million of these securities. During the nine months ended September 30, 2014, proceeds from sales of securities previously classified as held to maturity  totaled approximately $99.2 million, and resulted in gross gains of approximately $2.8 million, and gross losses of approximately $500,000. Sales of held to maturity securities that met the 85% threshold totaled approximately $537,000, and resulted in gross gains of approximately $40,000, and gross losses of approximately $1,000 during the nine months ended September 30, 2014.

 

During the nine months ended September 30, 2013, proceeds from sales of securities held to maturity meeting the 85% threshold totaled approximately $9.5 million, and resulted in gross gains of approximately $402,000, and gross losses of approximately $24,000. There were no sales of held to maturity securities that did not meet the 85% threshold.

 

 

 

 

The unrealized losses, categorized by the length of time of continuous loss position, and fair value of related securities held to maturity were as follows:

 

 

 

 

 

 

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Note 7 - Loans Receivable and Allowance for Loan Losses

The following table presents the recorded investment in loans receivable as of September 30, 2014 and December 31, 2013 by segment and class:

 

 

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued) 

Allowance for Loan Losses

 

Management reviews the adequacy of the allowance on at least a quarterly basis to ensure that the provision for loan losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is adequate based on management’s assessment of probable estimated losses.  The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements.  These elements include a specific reserve for impaired loans, a general allocated reserve for all remaining loans, and an unallocated portion.  

 

The Company consistently applies the following comprehensive methodology.  During the quarterly review of the allowance for loan losses, the Company considers a variety of factors that include:

 

 

The methodology includes the segregation of the loan portfolio by loans that are performing and loans that are impaired. Loans which are performing are evaluated collectively by loan class or loan type. The allowance for performing loans is evaluated based on historical loan loss experience, including consideration of peer loss analysis, with an adjustment for qualitative factors including economic conditions in the Company’s market. Impaired loans are loans which are 90 days or more delinquent or troubled debt restructured. These loans are individually evaluated for impairment either by current appraisal or net present value of expected cash flows. Management reviews the overall estimate of this allowance for reasonableness and bases the loan loss provision accordingly.

 

The portfolio of performing loans is segmented into the following loan classes, where the risk level for each class is analyzed when determining the allowance for these loans:

 

Residential one-to-four family real estate loans involve certain risks such as interest rate risk and risk of non-repayment. Adjustable-rate residential family real estate loans decrease the interest rate risk to the Company that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. Repayment risk can additionally be affected by job loss, divorce, illness and personal bankruptcy of the borrower.

 

Commercial and multi-family real estate lending entails significant additional risks as compared with residential family property lending. Such loans typically involve large loan balances to single borrowers or groups of related borrowers. The payment experience on such loans is typically dependent on the successful operation of the real estate project. The success of such projects is sensitive to changes in supply and demand conditions in the market for commercial real estate as well as economic conditions generally.

 

Construction lending is generally considered to involve a high degree of risk due to the concentration of principal in a limited number of loans and borrowers and the effects of the general economic conditions on developers and builders. Moreover, a construction loan can involve additional risks because of the inherent difficulty in estimating both a property’s value at completion of the project and the total  cost (including interest charges to completion) of the project. The nature of these loans is such that they are generally difficult to evaluate and monitor. Additionally, speculative construction loans to a builder are not ordinarily  pre-sold and thus pose a greater potential risk to the Bank than construction loans to individuals on their personal residence.

 

           Commercial business lending is generally considered high risk due to the concentration of principal in a limited number of loans and borrowers and the impact changing general economic conditions have on the business. Commercial business loans and lines of credit are primarily secured by inventories and other business assets. In most cases, any repossessed collateral for a defaulted commercial business loans will not provide an adequate source of repayment of the outstanding loan balance.

 

Home equity lending entails certain risks such as interest rate risk and risk of non-repayment. The marketability of the underlying property may be adversely affected by higher interest rates, decreasing the value of collateral securing the loan. Repayment risk can be affected by job loss, divorce, illness and personal bankruptcy of the borrower.

 

Home equity line of credit lending entails securing an equity interest in the borrower’s home. The principal risk associated with this type of lending is that the marketability of the underlying property may be adversely affected by higher interest rates. Repayment risk can additionally be affected by job loss, divorce, illness and personal bankruptcy of the borrower. This type of lending is often priced on an adjustable rate basis with the rate set at or above a predefined index. Adjustable-rate loans decrease the interest rate risk to the Company that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default.

 

Consumer loans generally have more credit risk than loans secured by real estate because of the type and nature of the collateral and, in certain cases, the absence of collateral. Consumer loans generally have shorter terms and higher interest rates than other lending. In addition, consumer lending collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely effected by job loss, divorce, illness and personal bankruptcy. In most cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan.

 

           Acquired loans added to portfolio via our purchase of banks are recorded at fair value with no carryover of a related allowance for loan losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

         

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

          We have acquired loans in two separate acquisitions (Pamrapo Savings Bank in 2010 (“Pamrapo”) and Allegiance Community Bank in 2011 (“Allegiance”)).  For each acquisition, we reviewed all acquired loans and considered the following factors as indicators that such an acquired loan had evidence of deterioration in credit quality and was therefore in the scope of Accounting Standards Codification (“ASC”) 310-30:

 

 

         Any acquired loans that were not individually in the scope of ASC 310-30 because they did not meet the criteria above were accounted for under ASC 310-20 (Nonrefundable fees and other costs).  Charge-offs of the principal amount on acquired loans accounted for under ASC 310-20 would be charged off against the allowance for loan losses.   

 

Acquired loans accounted for under ASC 310-30

 

         We performed a fair market valuation on each of the loans and each loan was recorded at a discount which includes the establishment of an associated “Credit Mark” reducing the carrying value of that loan to its fair value at the time of acquisition. We determined that at least part of the discount on the acquired loans was attributable to credit quality by reference to the valuation model used to estimate the fair value of the loan. The valuation model incorporated lifetime expected credit losses into the loans’ fair valuation in consideration of factors such as evidence of credit deterioration since origination and the amounts of contractually required principal and interest that we did not expect to collect as of the acquisition date. The excess of expected cash flows from acquired loans over the estimated fair value of acquired loans at acquisition is referred to as the accretable discount and is recognized into interest income over the remaining life of the acquired loans using the interest method. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the acquired loans.

 

          Subsequent decreases to the expected cash flows require us to evaluate the need for an addition to the allowance for loan losses. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the nonaccretable discount which we then reclassify as accretable discount that is recognized into interest income over the remaining life of the loan using the interest method. Our evaluation of the amount of future cash flows that we expect to collect takes into account actual credit performance of the acquired loans to date and our best estimates for the expected lifetime credit performance of the loans using currently available information. Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment. To the extent that we experience a deterioration in credit quality in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.

 

          In accordance with ASC 310-30, recognition of income is dependent on having a reasonable expectation about the timing and amount of cash flows expected to be collected.  We perform such an evaluation on a quarterly basis on our acquired loans individually accounted for under ASC 310-30. Cash flows for acquired loans individually accounted for under ASC 310-30 are estimated on a quarterly basis.  Based on this evaluation, a determination is made as to whether or not we have a reasonable expectation about the timing and amount of cash flows.  Such an expectation includes cash flows from normal customer repayment, foreclosure or other collection efforts. To the extent that we cannot reasonably estimate cash flows, interest income recognition is discontinued. 

 

The Company also maintains an unallocated allowance.  The unallocated allowance is used to cover any factors or conditions which may cause a potential loan loss but are not specifically identifiable.  It is prudent to maintain an unallocated portion of the allowance because no matter how detailed an analysis of potential loan losses is performed, these estimates lack some element of precision.  Management must make estimates using assumptions and information that is often subjective and changing rapidly. In addition, as an integral part of their examination process, the Federal Deposit Insurance Corporation will periodically review the allowance for loan losses and may require us to adjust the allowance based on their analysis of information available to it at the time of its examination.

 

Classified Assets.  The Company’s policies provide for a classification system for problem assets.  Under this classification system, problem assets are classified as “substandard,” “doubtful,” “loss” or “special mention.”  An asset is considered substandard if it is inadequately protected by its current net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected.  Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weakness present makes collection or liquidation in full on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted, and the loan, or a portion thereof, is charged-off.  Assets may be designated special mention because of potential weaknesses that do not currently warrant classification in one of the aforementioned categories.

When the Company classifies problem loans, it may establish general allowances for loan losses in an amount deemed prudent by management.  General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. A portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in determining our regulatory capital. Specific valuation allowances for loan losses generally do not qualify as regulatory capital. As of September 30, 2014, we had $25.7 million in loans classified as substandard, $13.9 million in loans classified as special mention and no loans classified as loss. The loans classified as substandard represent primarily commercial loans secured either by residential real estate, commercial real estate or heavy equipment.  The loans that have been classified substandard were classified as such primarily because either updated financial information has not been provided timely, or the collateral underlying the loan is in the process of being revalued.

The current methodology for this calculation is determined with the Company’s specific Historical Loss Percentage (“HLP”) for each loan type, using two years of prior Company data (or eight quarters). The relative weights of prior quarters are decayed logarithmically and are further adjusted based on the trend of the historical loss percentage at the time. Also, instead of applying consistent percentages to each of the credit risk grades, the current methodology applies a higher factor to classified loans based on a delinquency risk trend and concentration risk trend by using the past due and non-accrual as a percentage of the specific loan category.

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the activity in the Company’s allowance for loan losses for the three months ended September 30, 2014 and recorded investment in loans receivable at September 30, 2014. The table also details the amount of total loans receivable, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is allocated to each loan class. (In Thousands):

 

 

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the activity in the Company’s allowance for loan losses for the nine months ended September 30, 2014. (In Thousands):

 

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

 

The following table sets forth the activity in the Company’s allowance for loan losses for the year ended December 31, 2013 and recorded investment in loans receivable at December 31, 2013. The table also details the amount of total loans receivable, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is allocated to each loan class. (In Thousands):

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

 

The following table sets forth the activity in the Company’s allowance for loan losses for the three months ended September 30, 2013. (In Thousands):

 

 

 

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

 

The following table sets forth the activity in the Company’s allowance for loan losses for the nine months ended September 30, 2013. (In Thousands): 

 

 

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The table below sets forth the amounts and types of non-accrual loans in the Company’s loan portfolio as of September 30, 2014 and December 31, 2013. Loans are placed on non-accrual status when they become more than 90 days delinquent, or when the collection of principal and/or interest become doubtful. As of September 30, 2014 and December 31, 2013, total non-accrual loans differed from the amount of total loans past due greater than 90 days due to troubled debt restructuring of loans which are maintained on non-accrual status for a minimum of six months until the borrower has demonstrated its ability to satisfy the terms of the restructured loan. Non-accrual loans represent 1.63% of total gross loans at September 30, 2014.  

 

 

 

 

__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

---

 

Note 7-Loans Receivable and Allowance for Loan Losses (Continued)

 

The following table summarizes the average recorded investment and interest income recognized on impaired loans with no related allowance recorded by portfolio class for the three and nine months ended September 30, 2014 and 2013. (In Thousands):

 

 

 

__________

(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

 

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Note 7-Loans Receivable and Allowance for Loan Losses (Continued)

 

The following table summarizes the average recorded investment and interest income recognized on impaired loans with allowance recorded by portfolio class for the three and nine months ended September 30, 2014 and 2013. (In Thousands):

 

 

 

__________

(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

 

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Note 7-Loans Receivable and Allowance for Loan Losses (Continued)

 

The following table summarizes the recorded investment and unpaid principal balances where there is no related allowance on impaired loans by portfolio class at

September 30, 2014 and December 31, 2013. (In Thousands):

 

 

 

__________

(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

 

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Note 7-Loans Receivable and Allowance for Loan Losses (Continued)

 

The following table summarizes the recorded investment, unpaid principal balance, and the related allowance on impaired loans by portfolio class at September 30, 2014 and December 31, 2013. (In Thousands):

 

__________

(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table presents the total troubled debt restructured loans at September 30, 2014, excluding the purchase impairment mark on the acquired loans with deteriorated credit. (Dollars In Thousands):

 

 

__________

(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table presents the total troubled debt restructured loans at December 31, 2013. (Dollars In Thousands):

 

 

__________

(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

 

A troubled debt restructuring (“TDR”) is a loan that has been modified whereby the Company has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Company to maximize the ultimate recovery of a loan. TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted are generally included, but not limited to interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.

 

 

There were no troubled debt restructurings which occurred during the three months ended September 30, 2014.  

 

The following table summarizes information in regards to troubled debt restructurings for which there was a payment default within twelve months of restructuring during the three months ended September 30, 2014. (Dollars In Thousands):

 

 

__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table summarizes information in regards to troubled debt restructurings which occurred during the nine months ended September 30, 2014. (Dollars In Thousands):

 

 

__________
(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

 

 

The loans included above are considered TDRs as a result of the Company implementing one or more of the following concessions: granting a material extension of time, issuing a forbearance agreement, adjusting the interest rate to a below market rate, accepting interest only for a period of time or a change in amortization period. All TDRs were considered impaired and therefore were individually evaluated for impairment in the calculation of the allowance for loan losses. Prior to their classification as TDRs, certain of these loans had been collectively evaluated for impairment in the calculation of the allowance for loan losses.

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table summarizes information in regards to troubled debt restructurings for which there was a payment default within twelve months of restructuring during the nine months ended September 30, 2014. (Dollars In Thousands):

 

 

__________
(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

 

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Note 7-Loans Receivable and Allowance for Loan Losses (Continued)

 

The following table summarizes information in regards to troubled debt restructurings which occurred during the three months ended September 30, 2013. (Dollars In Thousands):

 

 

 

_________
(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

 

---

 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table summarizes information in regards to troubled debt restructurings for which there was a payment default within twelve months of restructuring during the three months ended September 30, 2013. (Dollars In Thousands):

 

 

__________
(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

 

---

 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table summarizes information in regards to troubled debt restructurings which occurred during the nine months ended September 30, 2013. (Dollars In Thousands):

 

 

__________
(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

 

---

 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table summarizes information in regards to troubled debt restructurings for which there was a payment default within twelve months of restructuring during the nine months ended September 30, 2013. (Dollars In Thousands):

 

 

__________
(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

 

---

 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the delinquency status of total loans receivable as of September 30, 2014. (In Thousands):

 

 

_________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the delinquency status of total loans receivable at December 31, 2013. (In Thousands):

 

 

__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful, and loss within the Company’s internal risk rating system as of September 30, 2014. (In Thousands):

 

 

_________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

 

---

 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful, and loss within the Company’s internal risk rating system as of December 31, 2013. (In Thousands):

 

 

________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

 

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Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table presents the unpaid principal balance and the related recorded investment of acquired loans included in our Consolidated Statements of Financial Condition. (In Thousands):

 

 

 

 

 

 

 

The following table presents changes in the accretable discount on loans acquired for the three and nine months ended September 30, 2014 and 2013. (In Thousands):

 

 

 

 

The following table presents changes in the non-accretable yield on loans acquired for the three and nine months ended September 30, 2014 and 2013. (In Thousands):

 

 

 

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Note 8 – Fair Values of Financial Instruments 

 

Guidance on fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 

 

 

The only assets or liabilities that the Company measured at fair value on a recurring basis were as follows.  (In  Thousands):

 

 

 

 

The Company’s policy is to recognize transfers between levels as of the actual date of the event or change in circumstances that caused the transfer.  There were no transfers of assets or liabilities into or out of Level 1, Level 2, or Level 3 of the fair value hierarchy during the nine months ended September 30, 2014.

 

The only assets or liabilities that the Company measured at fair value on a nonrecurring basis were as follows.  (In  Thousands):

 

 

 

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Note  8 – Fair Values of Financial Instruments (Continued)

The following tables present additional quantitative information as of September 30, 2014 and December 31, 2013 about assets measured at fair value on a nonrecurring basis and for which the Company has utilized adjusted Level 3 inputs to determine fair value.  (Dollars in thousands):

 

 

 

 

 

 

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments as of September 30, 2014 and December 31, 2013.

  

 

 

Cash and Cash Equivalents and Interest-Earning Time Deposits (Carried at Cost)

The carrying amounts reported in the consolidated statements of financial condition for cash and short-term instruments approximate those assets’ fair values.

Securities

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Loans Held for Sale (Carried at Lower of Cost or Fair Value)

The fair value of loans held for sale is determined, when possible, using quoted secondary-market prices. If no such quoted prices exist, the fair value of a loan is determined using quoted prices for a similar loan or loans, adjusted for specific attributes of that loan. Loans held for sale are carried at their cost as of September 30, 2014 and December 31, 2013.

Loans Receivable (Carried at Cost)

The fair value of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

 

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Note  8 – Fair Values of Financial Instruments (Continued)

Impaired Loans (Generally Carried at Fair Value)

A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value at September 30, 2014 and December 31, 2013 consists of the loan balances of $13.4 million and $24.8 million, net of a valuation allowance of $1.9 million and $2.6 million, respectively. 

 

 

Real Estate Owned (Generally Carried at Fair Value)

Real Estate Owned is generally carried at fair value, when the carrying value is written down to fair value, which is determined based upon independent third-party appraisals of the properties, or based upon the expected proceeds from a pending sale. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

FHLB of New York Stock (Carried at Cost)

The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

Interest Receivable and Payable (Carried at Cost)

The carrying amount of interest receivable and interest payable approximates its fair value.

Deposits (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Long-Term Debt (Carried at Cost)

Fair values of long-term debt are estimated using discounted cash flow analysis, based on quoted prices for new long-term debt with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-Balance Sheet Financial Instruments

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and unused lines of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these commitments was deemed immaterial and is not presented in the accompanying table.

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Note 8 – Fair Values of Financial Instruments (Continued)

 

 

The carrying values and estimated fair values of financial instruments were as follows as of September 30, 2014 and December 31, 2013 (In Thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward Looking Statements

This quarterly report contains certain “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward looking statements may be identified by reference to a future period or periods, or by use of forward looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward looking statements are subject to numerous risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements, in addition to those risks disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2013, include, but are not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset/liability management, the financial and securities markets, and the availability of and costs associated with sources of liquidity.

 

The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions, which may be made to any forward looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

 

Financial Condition 

 

Total assets increased by $21.9 million or 1.8% to $1.230 billion at September 30, 2014 from $1.208 billion at December 31, 2013. The increase in total assets occurred primarily as a result of an increase in loans receivable, net of $124.7 million, partially offset by a decrease in securities held to maturity of $114.2 million. Management is focusing on maintaining adequate liquidity in anticipation of funding loans in the loan pipeline as well as seeking opportunities to purchase loans in the secondary market that provide competitive returns in a risk-mitigated environment. It is our intention to grow our assets at a measured pace consistent with our capital levels and as business opportunities permit. Organic growth should occur consistent with our strategic plan under which we anticipate opening additional branch offices during the next six months.

 

Total cash and cash equivalents decreased by $4.7 million or 15.8% to $25.1 million at September 30, 2014 from $29.8 million at December 31, 2013. Investment securities classified as held-to-maturity, which totaled $114.2 million at December 31, 2013, were sold in the quarter ended September 30, 2014, except for approximately $9.8 million of such securities which were re-designated to available for sale securities.

 

Loans receivable, net increased by $124.7 million or 12.2% to $1.145 billion at September 30, 2014 from $1.020 billion at December 31, 2013. The increase resulted primarily from a $121.6 million increase in real estate mortgages comprising commercial and multi-family, construction and participation loans with other financial institutions and an increase of $8.6 million in residential real estate loans, partially offset by a $3.0 million decrease in business loans and commercial lines of credit, a $2.0 million decrease in home equity loans and home equity lines of credit and a $1.1 million increase in the allowance for loan losses. As of September 30, 2014, the allowance for loan losses was $15.4 million or 78.9% of non-accrual loans and 1.28% of gross loans. As a result of the loans acquired in the business combination transactions being recorded at their fair value, the balances in the allowance for loan losses that were on the balance sheets of the former Pamrapo Bancorp, Inc., and Allegiance Community Bank are precluded from being reported in the allowance balance previously discussed, consistent with generally accepted accounting principles.

 

Deposit liabilities increased by $30.7 million or 3.2% to $999.4 million at September 30, 2014 from $968.7 million at December 31, 2013. The increase resulted primarily from a $31.5 million increase in certificates of deposit, and a $13.6 million increase in non-interest bearing deposits, partly offset by a decrease of $15.9 million in money market interest bearing deposits.  The increase in certificates of deposit primarily was the result of additional CDARS deposits of $41.8 million. Recognizing this shift in the mix of our deposits, the attraction and retention of non-interest bearing commercial deposits, and longer dated maturity deposits remains a focus of our retail deposit gathering philosophy. During the nine months ended September 30, 2014, the Federal Open Market Committee (FOMC) has continued its accommodative monetary policy. This extended environment of historically low short term market rates has resulted in continuing parallel low retail deposit account yields, directly decreasing interest expense.

 

Short-term borrowings decreased by $11.0 million, or 61.1%, to $7.0 million at September 30, 2014 from $18.0 million at December 31, 2013. The lower borrowing total resulted from repayments from proceeds of the sale of investment securities classified as held-to-maturity  Long-term borrowed money remained constant at $110.0 million at September 30, 2014 and December 31, 2013. The purpose of these borrowings reflects the use of long and short term Federal Home Loan Bank advances to augment deposits as the Company’s funding source for originating loans and investing in GSE investment securities.

 

Stockholders’ equity increased by $2.6 million or 2.7% to $102.7 million at September 30, 2014 from $100.1 million at December 31, 2013. The increase in stockholders’ equity was primarily attributable to net income of $6.0 million, and an increase of $770,000 in preferred stock outstanding as a result of our capital raising efforts, which concluded by March 31, 2014, partly offset by cash dividends paid during the nine months ended September 30, 2014 totaling $3.3 million on outstanding common shares of stock and $599,000 on outstanding shares of preferred stock. The Company accrued a dividend payable for the third quarter on the preferred shares for $201,000 which will be paid in the fourth quarter. As of September 30, 2014, the Bank’s Tier 1, Tier 1 Risk-Based and Total Risk Based Capital Ratios were 8.30%, 11.19% and 12.45% respectively.

 

 

Three Months of Operation

 

Net income decreased by $1.0 million or 49.2% to $1.1 million for the three months ended September 30, 2014 from $2.1 million for the three months ended September 30, 2013. Net income decreased due to lower non-interest income and higher non-interest expense in the current-year period, partially offset by increased net interest income.

 

Net interest income increased by $1.5 million or 12.6% to $13.1 million for the three months ended September 30, 2014 from $11.6 million for the three months ended September 30, 2013. The increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $54.4 million, or 4.7%, to $1.213 billion for the three months ended September 30, 2014, from $1.158 billion for the three months ended September 30, 2013, and an increase in the average yield on interest-earning assets of 23 basis points to 5.15% for the three months ended September 30, 2014, from 4.92% for the three months ended September 30, 2013. The average balance of interest-bearing liabilities increased by $34.7 million, or 3.6%, to $1.011 billion for the three months ended September 30, 2014, from $976.3 million for the three months ended September 30, 2013, while the average cost of interest-bearing liabilities decreased by seven basis points to 1.01% for the three months ended

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September 30, 2014, from 1.08% for the three months ended September 30, 2013. Net interest margin was 4.31% for the three months ended September 30, 2014 and 4.00% for the three months ended September 30, 2013.

 

Interest income on loans receivable increased by $1.9 million or 14.6% to $15.3 million for the three months ended September 30, 2014 from $13.4 million for the three months ended September 30, 2013. The increase was primarily attributable to an increase in the average balance of loans receivable of $158.9 million or 16.1% to $1.143 billion for the three months ended September 30, 2014 from $984.3 million for the three months ended September 30, 2013, partially offset by a decrease in the average yield on loans receivable to 5.34% for the three months ended September 30, 2014 from 5.42% for the three months ended September 30, 2013. The increase in the average balance of loans receivable was the result of the successful on-going implementation of our comprehensive loan growth strategy. The decrease in average yield reflects the competitive price environment prevalent in the Company’s primary market area on loan facilities as well as the repricing downward of certain variable rate loans.

Interest income on securities decreased by $572,000 or 64.7% to $312,000 for the three months ended September 30, 2014 from $884,000 for the three months ended September 30, 2013.  This decrease was primarily due to a decrease in the average balance of securities of $91.6 million or 70.0% to $39.3 million for the three months ended September 30, 2014 from $130.9 million for the three months ended September 30, 2013, partly offset by an increase in the average yield of securities to 3.17% for the three months ended September 30, 2014 from 2.70% for the three months ended September 30, 2013. Investment securities classified as held-to-maturity, which totaled $114.2 million at December 31, 2013, were sold in the quarter ended September 30, 2014, except for approximately $9.8 million of such securities which were re-designated as available for sale securities.

Interest income on other interest-earning assets decreased by $2,000 or 14.3% to $12,000 for the three months ended September 30, 2014 from $14,000 for the three months ended September 30, 2013. This decrease was primarily due to a decrease of $12.8 million or 29.6% in the average balance of other interest-earning assets to $30.4 million for the three months ended September 30, 2014 from $43.2 million for the three months ended September 30, 2013. The average yield on other interest-earning assets increased to 0.16% for the three months ended September 30, 2014 from 0.13% for the three months ended September 30, 2013. The static nature of the average yield on other interest-earning assets reflects the current philosophy of the FOMC of keeping short term interest rates at historically low levels for the last several years.

Total interest expense decreased by $93,000 or 3.5% to $2.56 million for the three months ended September 30, 2014 from $2.65 million for the three months ended September 30, 2013. The decrease resulted primarily from a decrease in the average cost of interest-bearing liabilities of seven basis points to 1.01% for the three months ended September 30, 2014 from 1.08% for the three months ended September 30, 2013, partly offset by an increase in the average balance of interest-bearing liabilities of $34.7 million or 3.6% to $1.010 billion for the three months ended September 30, 2014 from $976.3 million for the three months ended September 30, 2013. The decrease in the average cost of interest bearing liabilities reflects the lower short term interest rate environment and our ability to reduce our pricing on a select number of retail deposit products.

The provision for loan losses totaled $650,000 and $450,000 for the three months ended September 30, 2014 and 2013, respectively. The provision for loan losses is established based upon management’s review of the Company’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) the dynamic activity and fluctuating balance of loans receivable, and (5) the existing level of reserves for loan losses that are probable and estimable. During the three months ended September 30, 2014, the Company experienced $209,000 in net charge-offs (consisting of $358,000 in charge-offs and $149,000 in recoveries). The Bank had non-performing loans totaling $19.0 million or 1.63% of gross loans at September 30, 2014 and $20.6 million or 1.98% of gross loans at December 31, 2013. The allowance for loan losses was $15.4 million or 1.32% of gross loans at September 30, 2014, $14.3 million or 1.38% of gross loans at December 31, 2013 and $13.9 million or 1.39% of gross loans at September 30, 2013. 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 Company 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, 2014, December 31, 2013 and September 30, 2013.

Total non-interest income decreased by $1.5 million, or 198.3%, to a loss of $750,000 for the three months ended September 30, 2014, from $763,000 of income for the three months ended September 30, 2013. The decrease in non-interest income for the three-month period ended September 30, 2014, primarily reflected a $4.0 million loss on the bulk sale of impaired loans, partially offset by a $2.2 million gain on the sale of investment securities held to maturity.

Total non-interest expense increased by $1.6 million or 19.1% to $9.9 million for the three months ended September 30, 2014 from $8.3 million for the three months ended September 30, 2013. Salaries and employee benefits expense increased by $1.3 million or 31.1% to $5.3 million for the three months ended September 30, 2014 from $4.0 million for the three months ended September 30, 2013. This increase in both salaries and employee benefits was mainly attributable to an increase of 71 full-time equivalent employees, or 28.9%, to 317 at September 30, 2014 from 246 at September 30, 2013, which relates to the addition of new business development and loan administration employees, and the anticipated opening of new branch offices in 2014, as well as providing health benefits to a greater number of existing employees. Occupancy expense increased by $133,000 or 14.3% to $1.1 million for the three months ended September 30, 2014 from $933,000 for the three months ended September 30, 2013. Equipment expense increased by $77,000 or 5.5% to $1.5 million for the three months ended September 30, 2014 from $1.4 million for the three months ended September 30, 2013. The increases in occupancy and equipment expenses related primarily to the anticipated opening of new branch offices in 2014. Professional fees decreased by $173,000 or 25% to $520,000 for the three months ended September 30, 2014 from $693,000 for the three months ended September 30, 2013. Advertising expense increased by $129,000 or 86.6% to $278,000 for the three months ended September 30, 2014 from $149,000 for the three months ended September 30, 2013. The increase in advertising was primarily due to our marketing efforts related to the previously mentioned expansion of our geographic footprint. Other non-interest expense increased by $186,000 or 31.8% to $770,000 for the three months ended September 30, 2014 from $584,000 for the three months ended September 30, 2013. Other non-interest expense is comprised of loan expense, stationary, forms and printing, check printing, correspondent bank fees, telephone and communication, and other fees and expenses.

 

Income tax provision decreased by $788,000 or 55.2% to $640,000 for the three months ended September 30, 2014 from $1.4 million for the three months ended September 30, 2013. The decrease in income tax provision was a result of lower taxable income during the three-month period ended September 30, 2014 as compared to the three months ended September 30, 2013. The consolidated effective tax rate for the three months ended September 30, 2014 was 37.0% compared to 40.0% for the three months ended September 30, 2013.

 

 

 

Nine Months of Operation

 

Net income was $6.0 million for the nine months ended September 30, 2014, compared with $7.1 million for the nine months ended September 30, 2013. Net income decreased due to higher non-interest expense, partially offset by increases in net interest income and non-interest income for the nine months ended September 30, 2014, as compared to the prior year period.

 

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Net interest income increased by $2.8 million, or 8.1%, to $37.4 million for the nine months ended September 30, 2014, from $34.6 million for the nine months ended September 30, 2013. The increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $61.1 million, or 5.3%, to $1.207 billion for the nine months ended September 30, 2014, from $1.146 billion for the nine months ended September 30, 2013, and an increase in the average yield on interest-earning assets of two basis points to 4.97% for the nine months ended September 30, 2014, from 4.95% for the nine months ended September 30, 2013. The average balance of interest-bearing liabilities increased by $38.0 million, or 3.9 %, to $1.010 billion for the nine months ended September 30, 2014, from $971.6 million for the nine months ended September 30, 2013, while the average cost of interest-bearing liabilities decreased by eight basis points to 1.01% for the nine months ended September 30, 2014, from 1.09% for the nine months ended September 30, 2013. Net interest margin was 4.13% for the nine-month period ended September 30, 2014 and 4.02% for the nine-month period ended September 30, 2013.

 

Interest income on loans receivable increased by $3.3 million or 8.3% to $42.8 million for the nine months ended September 30, 2014 from $39.5 million for the nine months ended September 30, 2013. The increase was primarily attributable to an increase in the average balance of loans receivable of $126.1 million or 13.0% to $1.094 billion for the nine months ended September 30, 2014 from $967.5 million for the nine months ended September 30, 2013, partially offset by a decrease in the average yield on loans receivable to 5.22% for the nine months ended September 30, 2014 from 5.45% for the nine months ended September 30, 2013. The increase in the average balance of loans receivable was the result of our comprehensive loan growth strategy. The decrease in average yield reflects the competitive price environment prevalent in the Company’s primary market area on loan facilities as well as the repricing downward of certain variable rate loans.

Interest income on securities decreased by $768,000 or 26.5% to $2.1 million for the nine months ended September 30, 2014 from $2.9 million for the nine months ended September 30, 2013. This decrease was primarily due to a decrease in the average balance of securities of $55.2 million or 37.9% to $90.5 million for the nine months ended September 30, 2014 from $145.7 million for the nine months ended September 30, 2013, partly offset by an increase in the average yield of securities to 3.14% for the nine months ended September 30, 2014 from 2.65% for the nine months ended September 30, 2013. Investment securities classified as held-to-maturity, which totaled $114.2 million at December 31, 2013, were sold in the quarter ended September 30, 2014, except for approximately $9.8 million of such securities which were re-designated to available for sale securities.

Interest income on other interest-earning assets was $36,000 for the nine-month period ended September 30, 2014 compared with $38,000 for the nine months ended September 30, 2013. The average balance of other interest-earning assets decreased $9.8 million or 30.2% to $22.7 million for the nine months ended September 30, 2014 from $32.5 million for the nine months ended September 30, 2013. The average yield on other interest-earning assets increased to 0.21% for the nine months ended September 30, 2014 from 0.16% for the nine months ended September 30, 2013. The low average yield on other interest-earning assets reflects the current philosophy of the FOMC of keeping short term interest rates at historically low levels for the last several years.

Total interest expense decreased by $289,000 or 3.6% to $7.6 million for the nine months ended September 30, 2014 from $7.9 million for the nine months ended September 30, 2013. The decrease resulted primarily from a decrease in the average cost of interest-bearing liabilities of eight basis points to 1.01% for the nine months ended September 30, 2014 from 1.09% for the nine months ended September 30, 2013, partly offset by an increase in the average balance of interest-bearing liabilities of $38.0 million or 3.9% to $1.010 billion for the nine months ended September 30, 2014 from  $971.6 million for the nine months ended September 30, 2013. The decrease in the average cost reflects the lower short term interest rate environment and our ability to reduce our pricing on a select number of retail deposit products.

The provision for loan losses totaled $2.1 million and $2.3 million for the nine months ended September 30, 2014 and 2013, respectively. The provision for loan losses is established based upon management’s review of the Company’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) the dynamic activity and fluctuating balance of loans receivable, and (5) the existing level of reserves for loan losses that are probable and estimable. During the nine months ended September 30, 2014, the Company experienced $1.0 million in net charge-offs (consisting of $1.3 million in charge-offs and $293,000 in recoveries).  The Bank had non-performing loans totaling $19.0 million or 1.63% of gross loans at September 30, 2014 and $20.6 million or 1.98% of gross loans at December 31, 2013. The allowance for loan losses was $15.4 million or 1.32% of gross loans at September 30, 2014, $14.3 million or 1.38% of gross loans at December 31, 2013 and $13.9 million or 1.39% of gross loans at September 30, 2013. 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 Company 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, 2014, December 31, 2013 and September 30, 2013.

 

Total non-interest income increased by $160,000, or 6.6% to $2.6 million for the nine months ended September 30, 2014 from $2.4 million for the nine months ended September 30, 2013, which included a $1.2 million gain on the sale of investment securities available for sale in the nine-month period ended September 30, 2014, with no comparable sale in the nine-month period ended September 30, 2013, and a $1.9 million increase in gains on the sale of investment securities held to maturity to $2.3 million for the nine months ended September 30, 2014 from $378,000 for the nine months ended September 30, 2013. In addition, non-interest income included an increase in gains on sales of loans originated for sale of $758,000 to $1.4 million for the nine months ended September 30, 2014 from $609,000 for the nine months ended September 30, 2013. These increases in non-interest income were largely offset by a $4.0 million loss on the bulk sale of impaired loans in the nine-month period ended September 30, 2014, with no comparable sale in the nine-month period ended September 30, 2013.

 

Total non-interest expense increased by $5.1 million or 22.4% to $27.9 million for the nine months ended September 30, 2014 from $22.8 million for the nine months ended September 30, 2013. Salaries and employee benefits expense increased by $3.6 million or 31.8% to $14.8 million for the nine months ended September 30, 2014 from $11.2 million for the nine months ended September 30, 2013. This increase in both salaries and employee benefits was mainly attributable to an increase of 71 full-time equivalent employees, or 28.9%, to 317 at September 30, 2014 from 246 at September 30, 2013,  which relates to the addition of business development and loan administration employees, and the anticipated opening of new branch offices in 2014, as well as providing health benefits to a greater number of existing employees. Occupancy expense increased by $398,000 or 15.2% to $3.0 million for the nine months ended September 30, 2014 from $2.6 million for the nine months ended September 30, 2013. Equipment expense increased by $327,000 or 8.5% to $4.2 million for the nine months ended September 30, 2014 from $3.8 million for the nine months ended September 30, 2013. The increases in occupancy and equipment expenses related primarily to the anticipated opening of new branch offices in 2014. Advertising expense increased by $289,000 or 67.4% to $718,000 for the nine months ended September 30, 2014 from $429,000 for the nine months ended September 30, 2013. The increase in advertising was primarily due to our marketing efforts related to the previously mentioned expansion of our geographic footprint. Other real estate owned (OREO) (income)/expenses increased by $118,000 to expenses of $101,000 for the nine months ended September 30, 2014 from income of $17,000 for the nine months ended September 30, 2013. The increase in expenses was primarily due to an upward valuation adjustment of OREO property of $110,000 for the nine months ended September 30, 2013 compared to no corresponding adjustment for the nine months ended September 30, 2014. Other non-interest expense increased by $555,000 or 32.8% to $2.2 million for the nine months ended September 30, 2014 from $1.7 million for the nine months ended September 30, 2013. Other non-interest expense is comprised of loan expense, stationary, forms and printing, check printing, correspondent bank fees, telephone and communication, and other fees and expenses.

 

Income tax provision decreased by $874,000 or 18.1% to $3.9 million for the nine months ended September 30, 2014 from $4.8 million for the nine months ended September 30, 2013. The decrease in income tax provision was a result of lower taxable income during the nine-month period ended September 30, 2014 as compared to the nine months ended September 30, 2013. The consolidated effective tax rate for the nine months ended September 30, 2014 was 39.9% compared to 40.4% for the nine months ended September 30, 2013.

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Liquidity and Capital Resources 

 

Liquidity

 

The overall objective of our liquidity management practices is to ensure the availability of sufficient funds to meet financial commitments and to take advantage of lending and investment opportunities.  The Company manages liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings and other obligations as they mature, and to fund loan and investment portfolio opportunities as they arise.

 

The Company’s primary sources of funds to satisfy its objectives are net growth in deposits (primarily retail), principal and interest payments on loans and investment securities, proceeds from the sale of originated loans and FHLB and other borrowings.  The scheduled amortization of loans is a predictable source of funds. Deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including unsecured overnight lines of credit and other collateralized borrowings from the FHLB and other correspondent banks.

At September 30, 2014, the Company had overnight borrowings outstanding with the FHLB of $7.0 million compared to $18.0 million at December 31, 2013. The Company utilizes overnight borrowings from time to time to fund short-term liquidity needs. The Company had total borrowings of $121.1 million at September 30, 2014 as compared to $132.1 million at December 31, 2013.

 

The Company had the ability at September 30, 2014 to obtain additional funding from the FHLB of $62.7 million, utilizing unencumbered loan collateral. The Company expects to have sufficient funds available to meet current loan commitments in the normal course of business through typical sources of liquidity. Time deposits scheduled to mature in one year or less totaled $271.3 million at September 30, 2014. Based upon historical experience data, management estimates that a significant portion of such deposits will remain with the Company.

 

 

 

Capital Resources.  At September 30, 2014, and December 31, 2013, BCB Community Bank exceeded all of its regulatory capital requirements to which it is subject.

 

 

In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.  Among other things, the new rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.  The final rule also requires unrealized gains and losses on certain available-for-sale securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised.  The rule limits a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a "capital conservation buffer" consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. 

 

The final rule becomes effective for the Bank and the Company on January 1, 2015.  The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.  The Bank and the Company currently comply with the final rule.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, one of our 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 September 30, 2014. 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 the 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 non-interest 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 decreases of 200 and 300 basis points have been excluded since they would not be meaningful, in the interest rate environment as of September 30, 2014. The following sets forth the Company’s NPV as of that date. (Dollars In Thousands):

 

 

 

bp – basis points

 

 

 

 

The table above indicates that as of September 30, 2014, in the event of a 100 basis point increase in interest rates, we would experience a 7.06%  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-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.

 

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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.

 

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

 

         We are involved, from time to time, as plaintiff or defendant in various legal actions arising in the normal course of business. Other than as set forth below, as of September 30, 2014, we were not involved in any material legal proceedings the outcome of which, if determined in a manner adverse to the Company, would have a material adverse affect on our financial condition or results of operations.

    

      The Company, as the successor to Pamrapo Bancorp, Inc., and in its own corporate capacity, is a named defendant in a shareholder class action lawsuit, Kube v. Pamrapo Bancorp, Inc., et al., filed in the Superior Court of New Jersey, Hudson County, Chancery Division, General Equity. On May 9, 2012, the Company obtained partial summary judgment, dismissing three of the five Counts of the Complaint. On May 9, 2012, plaintiff’s counsel was awarded interim legal fees of approximately $350,000. The Company’s obligation to pay that amount has been stayed.

 

      The Company filed a motion for summary judgment, seeking the dismissal of the remaining two Counts of the Complaint. That motion was denied, without prejudice, on February 19, 2014. The parties have conferenced in an effort to resolve this case.  A final resolution is actively being pursued.  The Company is vigorously defending its interests in this litigation.

   

          The Company has brought a lawsuit against Progressive Insurance Company ("Progressive"), the Directors' and Officers' Liability insurance carrier for Pamrapo Bancorp, Inc., at the time of its merger with the Company on July 6, 2010, and Colonial American Insurance Company ("Colonial"), the Directors' and Officers' Liability insurance carrier for the Company at the time of the merger.  The lawsuit seeks, among other claims, indemnification, payment of and/or contribution toward the above award of interim attorney's fees to the plaintiff class's counsel, and reimbursement of the attorney's fees and defense costs incurred by the Company in defending the Kube v. Pamrapo Bancorp, Inc., et al., case. 

 

      Progressive has made a motion for summary judgment seeking the dismissal of the Company's lawsuit against it. The Company has opposed that motion. That motion is pending before the court. 

 

      Preliminary discovery has been exchanged among the parties.

 

   

   

 

 

 

ITEM 1.A. RISK FACTORS

Other than as set forth below, there have been no changes to the risk factors set forth under Item 1.A Risk Factors as set forth in the Company’s Form 10-K for the year ended December 31, 2013.

 

The asset quality of our loan portfolio may deteriorate if the economy falters, resulting in a portion of our loans failing to perform in accordance with their terms. Under such circumstances our profitability will be adversely affected.

 

At September 30, 2014, the Company had $39.6 million in classified loans, of which $25.7 million were classified as substandard and $13.9 million were classified as special mention. In addition, at that date we had $18.9 million in non-accruing loans.  While we have adhered to stringent underwriting standards in the origination of loans, a large percentage of our loan portfolio was obtained in connection with our acquisitions of Pamrapo Bancorp, Inc. and Allegiance Community Bank.  In addition, there can be no assurance that loans that we originated will not experience asset quality deterioration as a result of a downturn in the local economy.  Should our local economy weaken, our asset quality may deteriorate resulting in losses to the Company.

 

 

 

 

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On June 28, 2012, the Company announced a seventh stock repurchase plan to repurchase 5% or 440,000 shares of the Company’s common stock. On July 17, 2013, the Company announced an eighth stock repurchase plan to repurchase 5% or 400,000 shares of the Company’s common stock. There were no Company’s stock purchases for the three months ended September 30, 2014.

 

 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

 

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

 

 

ITEM 5. OTHER INFORMATION

None.

 

 

ITEM 6. EXHIBITS

Exhibit 11.0 Computation of Earnings per Share.

Exhibit 31.1 and 31.2   Officers’ Certification filed pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32              Officers’ Certification filed pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101.INS        XBRL Instance Document

Exhibit 101.SCH       XBRL Taxonomy Extension Schema

Exhibit 101.CAL       XBRL Taxonomy Extension Calculation LinkBase

Exhibit 101.DEF       XBRL Taxonomy Extension Definition LinkBase

Exhibit 101.LAB       XBRL Taxonomy Extension Label LinkBase

Exhibit 101.PRE       XBRL Taxonomy Extension Presentation LinkBase

 

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Signatures

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

 

 

 

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