BCB BANCORP INC - Quarter Report: 2016 September (Form 10-Q)

95864 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

 

(Mark One)

For the quarterly period ended September 30, 2016

Or

 

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)

 



Not Applicable

(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, or a non-accelerated filer. See definition of “accelerated filer and larger accelerated filer” 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 1st, 2016, BCB Bancorp, Inc., had 11,254,103 shares of common stock, no par value, outstanding.



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BCB BANCORP INC. AND SUBSIDIARIES

INDEX

 





 

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PART I. CONSOLIDATED FINANCIAL INFORMATION

ITEM I. CONSOLIDATED 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)





















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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, 2016 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, 2015, 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, the Company evaluated the events and transactions that occurred between September 30, 2016, and the date these consolidated financial statements were issued.





Recent Accounting Pronouncements





In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede the current revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year.  The new guidance will be effective for public companies for periods beginning after December 15, 2017 with private companies provided a one-year deferral until periods beginning after December 15, 2018. The ASU permits application of the new revenue recognition guidance to be applied using one of two retrospective application methods. The Company has not yet determined which application method it will use or the potential effects of the new standard on the financial statements, if any. The Company is currently assessing the impacts this new standard will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will supersede the current lease requirements in Topic 840. The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of income. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new guidance will be effective for years beginning after December 15, 2018 for public companies and for years beginning after December 15, 2019 for private companies. Once effective, the standard will be applied using a modified retrospective transition method to the beginning of the earliest period presented. The Company is currently assessing the impacts this new standard will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718).  This ASU was issued as part of FASB’s Simplification Initiative.  The areas for simplification in this Update include income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows for share-based payment transactions.  For public companies, this ASU will be effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  For all other entities, the amendments will be effective for annual periods beginning after December 31, 2017, and interim periods within annual periods beginning after December 15, 2018.  Early adoption is permitted.  The Company is currently assessing the impacts this new standard will have on its consolidated financial statements.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. For public business entities that are U.S. Securities and Exchange Commission filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and results of operations.



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Note 2 – Reclassification



Certain amounts as of December 31, 2015 and the three and nine month periods ended September 30, 2015 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 – Pension and Other Postretirement 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 – Pension and Other Postretirement Plans (Continued) 



The Company, under the plan approved by its stockholders on April 28, 2011 (“2011 Stock Plan”), authorized the issuance of up to 900,000 shares of common stock of the Company pursuant to grants of stock options. Employees and directors of the Company and the 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 September 13, 2016, a grant of 160,000 options was declared for members of the Board of Directors which vest at a rate of 10% per year commencing on the first anniversary of the grant date. On December 2, 2015, a grant of 120,000 options and on March 7, 2014, a grant of 110,000 options was declared for certain 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. There were 32,500 and 6,000 stock options granted to employees in the fourth quarters of 2015 and 2014, respectively, which vest at a rate of 20% per year over the years, commencing on the first anniversary of the grant date.















As of September 30, 2016, stock options which were granted and were exercisable totaled 78,200 stock options.





It is Company policy to issue new shares upon share option exercise. Expected future compensation expense relating to the 496,800 shares underlying unexercised options outstanding as of September 30, 2016 was $1,238,000 over a weighted average period of 7.33 years. 

















As of September 30, 2015, stock options which are granted and were exercisable totaled 78,720 stock options.





It is Company policy to issue new shares upon share option exercise. Expected future compensation expense relating to the unvested options outstanding as of September 30, 2015 was $553,613 over a weighted average period of 7.76 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 months and nine months ended September 30, 2016 and 2015, 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, 2016 and 2015 the weighted average number of outstanding options considered to be anti-dilutive were 24,823 and 127,000 respectively, and for the nine months ended September 30, 2016 and 2015, the weighted average number of outstanding options considered to be anti-dilutive were 32,619 and 127,000, 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 tables present by maturity the amortized cost, gross unrealized gains and losses on, and fair value of, securities available for sale as of September 30,  2016 and December 31, 2015: 

















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:









Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Company  intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery. At September 30, 2016 and December 31, 2015, management performed an assessment for possible OTTI of the Company’s residential mortgage-backed securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. The extent of individual analysis applied to each security depended on the size of the Company’s investment, as well as management’s perception of the credit risk associated with each security. Based on the results of the assessment, management believes impairment of these residential mortgage-backed securities, at September 30, 2016 and December 31, 2015 to be temporary.

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Note 6 - Loans Receivable and Allowance for Loan Losses

The following table presents the recorded investment in loans receivable as of September 30, 2016 and December 31, 2015 by segment and class:









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Note 6 - 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 general allocated reserve for performing impaired loans, a specific reserve for impaired 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 qualitative factors that include:



The methodology includes the segregation of the loan portfolio into two divisions. Loans that are performing and loans that are impaired. Loans which are performing are evaluated homogeneously 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 referred to above. Impaired loans are loans which are more than 90 days delinquent, troubled debt restructured, or where contractual principal and interest collections are not expected to be received. These loans are individually evaluated for loan loss either by current appraisal, or net present value of cash flows, and assigned a specific reserve when it is probable that we will be unable to collect all amounts due (interest and principal) in accordance with the contractual terms of the loan agreement. Management reviews the overall estimate for feasibility and bases the loan loss provision accordingly.



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



Residential one-to-four family real estate loans. These loans involve certain risks such as interest rate risk and risk of non-repayment. Adjustable-rate residential family real estate loans decreases 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 may be affected by a number of factors including, but not necessarily limited to, job loss, divorce, illness and personal bankruptcy of the borrower.



Commercial and multi-family real estate loans. These loans entail significant additional risks as compared with residential real estate loans. 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 loans. These loans are generally considered to be high 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 estimated cost (including interest) of the project. The nature of these loans is such that they are generally difficult to evaluate and monitor. In addition, speculative construction loans to a builder are not necessarily pre-sold and thus pose a greater potential risk to the Company than construction loans to individuals on their personal residence.



Commercial business loans. These types of loans which include lines of credit, are generally considered higher risk due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on the business. Commercial business loans 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 Loans. 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 the 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. In many cases, the Company’s position in these loans is as a junior lien holder to another institution’s superior lien. 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 decreases 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.



Other consumer loans. Other consumer loans generally have more credit risk 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. For acquired loans that have been 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.



          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 acquired loan had evidence of deterioration in credit quality and was therefore in the scope of Accounting Standards Codification (“ASC”) 310-30:



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Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)

         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 loans. 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 and the New Jersey Department of Banking and Insurance 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, 2016, we had $31.3 million in loans classified as substandard, $17.8 million in loans classified as special mention and no loans classified as doubtful or 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 had not been provided timely, or the collateral underlying the loan was 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 class, 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 loans as a percentage of the specific loan category.

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Note 6 - 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, 2016. The table also details the amount of total loans receivable, 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, as of September 30, 2016. (In Thousands):







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Note 6 - 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, 2016, and the related portion of the allowance for loan losses that is allocated to each loan class (in thousands):









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Note 6 - 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, 2015. 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, as of December 31, 2015. (In Thousands):

____



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

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Note 6 - 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, 2015. 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, as of September 30, 2015 (In Thousands):









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Note 6 - 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, 2015, and the related portion of the allowance for loan losses that is allocated to each loan class (in thousands):





  



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







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Note 6 - 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, 2016 and December 31, 2015. 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, 2016 and December 31, 2015, 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 and until the borrower has demonstrated its ability to satisfy the terms of the restructured loan.   









__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

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Note 6-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, 2016 and 2015. (In Thousands):











__________

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

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Note 6-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, 2016 and 2015. (In Thousands):









__________

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

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Note 6-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, 2016 and December 31, 2015. (In Thousands):







__________

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

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Note 6-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, 2016 and December 31, 2015. (In Thousands):



__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.



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Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table presents the total troubled debt restructured loans at September 30, 2016, 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 6 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table presents the total troubled debt restructured loans at December 31, 2015, 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 6 - 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. A 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 generally include, but are not limited to interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.



The following table summarizes information with regards to troubled debt restructurings which occurred during the three months ended September 30, 2016. (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 6 - Loans Receivable and Allowance for Loan Losses (Continued 

The following table summarizes information with regards to troubled debt restructurings which occurred during the nine months ended September 30, 2016. (Dollars In Thousands):





(1) Includes business lines of credit.

(2) Includes home equity lines of credit.



There were no payment defaults for loans modified as TDR in the 12 months ended September 30, 2016. Payment defaults for loans modified as TDRs in the 12 months ended September 30, 2015 consisted of four residential loans with a recorded investment of $2.0 million at September 30, 2015.































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Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table summarizes information with regards to troubled debt restructurings which occurred during the three months ended September 30, 2015 (dollars in thousands): 





(1) Includes business lines of credit.

(2) Includes home equity lines of credit.















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Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table summarizes information in regard to troubled debt restructurings which occurred during the nine months ended September 30, 2015 (dollars in thousands):





(1) Includes business lines of credit.

(2) Includes home equity lines of credit.



















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Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the delinquency status of total loans receivable as of September 30, 2016. (In Thousands):





 

_________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.



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Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the delinquency status of total loans receivable at December 31, 2015. (In Thousands):



__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

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Note 6 - 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, 2016. (In Thousands):





_________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

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Note 6 - 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, 2015. (In Thousands):







________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

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Note 6 - 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, 2016 and 2015. (In Thousands):









The following table presents changes in the non-accretable yield on loans acquired for the three and nine months ended September 30, 2016 and 2015. (In Thousands):









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Note 7 – 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, 2016 and 2015.

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 7 – Fair Values of Financial Instruments (Continued)

The following tables present additional quantitative information as of September 30, 2016 and December 31, 2015 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, 2016 and December 31, 2015.

  





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) are determined by 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, 2016 and December 31, 2015.

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 7 – 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 loans 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, 2016 and December 31, 2015 consisted of the loan balances of $19.8 million and $19.0 million, net of a valuation allowance of $3.80 million and $3.79 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 7 – Fair Values of Financial Instruments (Continued)





The carrying values and estimated fair values of financial instruments were as follows as of September 30, 2016 and December 31, 2015:

 



































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ITEM 2.



Management’s Discussion and Analysis of Financial Condition and Results of Operations



Forward-Looking Statements



This report on Form 10-Q contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, or the PSLRA. Such forward-looking statements, in addition to historical information, involve risk and uncertainties, and are based on the beliefs, assumptions and expectations of our management team. Words such as “expects,” “believes,” “should,” “plans,” “anticipates,” “will,” “potential,” “could,” “intend,” “may,” “outlook,” “predict,” “project,” “would,” “estimated,” “assumes,” “likely,” and variation of such similar expressions are intended to identify such forward-looking statements. Forward-looking statements speak only as of the date they are made. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possible materially, from those that we anticipated in our forward-looking statements and future results could differ materially from historical performance.

 

Factors that could cause future results to vary from current management expectations as reflected in our forward looking statements include, but are not limited to:









You should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this Form 10-Q. We do not assume any obligation to revise forward-looking statements except as may be required by law.





Overview



BCB Bancorp, Inc. is a New Jersey corporation, and is the holding company parent of BCB Community Bank, or the Bank. The Company has not engaged in any significant business activity other than owning all of the outstanding common stock of BCB Community Bank. Our executive office is located at 104-110 Avenue C, Bayonne, New Jersey 07002. At September 30, 2016 we had approximately $1.679 billion in consolidated assets, $1.380 billion in deposits and $132.3 million in consolidated stockholders’ equity.



BCB Community Bank opened for business on November 1, 2000 as Bayonne Community Bank, a New Jersey chartered commercial bank. The Bank changed its name from Bayonne Community Bank to BCB Community Bank in April 2007. At September 30, 2016 the Bank operated through twenty branches in Bayonne, Colonia, Edison, Jersey City, Hoboken, Fairfield, Holmdel, Lodi, Lyndhurst, Monroe Township, Rutherford, South Orange, and Woodbridge, New Jersey, as well as two branches in Staten Island, NY, and through executive offices located at 104-110 Avenue C and an administrative office located at 591-595 Avenue C, Bayonne, New Jersey 07002. The Bank’s deposit accounts are insured by the FDIC, and the Bank is a member of the Federal Home Loan Bank System.

 

We are a community-oriented financial institution. Our business is to offer FDIC-insured deposit products and to invest funds held in deposit accounts at the Bank, together with funds generated from operations, in loans and investment securities. We offer our customers:







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Critical Accounting Policies



The preparation of the Consolidated Financial Statements in accordance with U.S. GAAP requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenue and expenses. We regularly evaluate these estimates and assumptions including those used to determine the allowance for loan losses, investment in reverse mortgages, deferred taxes, fair value measurements, goodwill and other intangible assets. We base our estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments on the carrying value of assets and liabilities that are not readily apparent from other sources.  Although our current estimates contemplate current economic conditions and how we expect them to change in the future, for the remainder of 2016, it is reasonably possible that actual conditions may be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Actual results may differ from these estimates under different assumptions or conditions.



See further discussion of these critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2015 and Note 1, Basis of Presentation, to the unaudited Consolidated Financial Statements. There has been no change in critical accounting policies since the Company’s last reported 10-K.





Financial Condition



Total assets increased by $60.5 million, or 3.7 percent, to $1.679 billion at September 30, 2016 from $1.618 billion at December 31, 2015. The increase in total assets occurred primarily as a result of an increase in cash and cash equivalents of $5.1 million, an increase in securities available for sale of $43.3 million, and an increase in loans receivable, net of $11.1 million. Management is concentrating on maintaining adequate liquidity in anticipation of funding loans in the loan pipeline as well as seeking opportunities to purchase securities 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 in 2016.



Total cash and cash equivalents increased by $5.1 million, or 3.8 percent, to $137.7 million at September 30, 2016 from $132.6 million at December 31, 2015 due to the Company’s strategy to increase our deposit base.



Securities available for sale increased by $43.3 million, or 449.8%, to $52.9 million at September 30, 2016 from $9.6 million at December 31, 2015 as the Company deployed excess cash to improve returns on earning assets and liquidity.



Loans receivable, net increased by $11.1 million, or 0.8 percent, to $1.431 billion at September 30, 2016 from $1.420 billion at December 31, 2015. The increase resulted primarily from increases of $13.5 million in residential real estate loans, $12.4 million in commercial real estate and multi-family loans, and construction loans of $3.7 million. The increase in loans receivable was partly offset by decreases of $15.5 million in commercial business loans, $2.4 million in home equity loans and home equity lines of credit, and $1.6 million in consumer loans. As of September 30, 2016, the allowance for loan losses was $17.6 million, or 90.9 percent, of non-performing loans and 1.21 percent of gross loans.  

.  

Deposit liabilities increased by $106.5 million, or 8.4 percent, to $1.380 billion at September 30, 2016 from $1.274 billion at December 31, 2015. The increase resulted primarily from increases of $98.5 million in NOW deposits, $18.1 million in non-interest-bearing deposits, $6.1 million in savings and club deposits, and $44.0 million in money market interest-bearing deposits, partly offset by a decrease of $60.2 million in certificates of deposit. In addition to organic deposit growth resulting from the opening of five additional branches over the last 18 months, the Company has also added listing service certificates of deposit and brokered certificates of deposit to fund loan growth, which totaled $35.5 million and $20.8 million, respectively, at September 30, 2016. The decrease in certificates of deposit related to maturities of a promotional 15-month program from 2015 that were not retained by the Company.



Long-term debt decreased by $45.0 million, or 22.5 percent, to $155.0 million at September 31, 2016 from $200.0 million at December 31, 2016 due to net repayments of outstanding FHLB advances. The purpose of these borrowings reflected the use of long-term Federal Home Loan Bank advances to augment deposits as the Company’s funding source for originating loans and investing in GSE investment securities. The decrease in Federal Home Loan Bank advances resulted from the Company’s pay downs of medium-term, fixed rate FHLB advances as part of our interest rate risk management strategy. The weighted average interest rate of borrowings was 2.66 percent at September 30, 2016.



Stockholders’ equity decreased by $1.2 million, or 0.9 percent, to $132.3 million at September 30, 2016 from $133.5 million at December 31, 2015. The decrease in stockholders’ equity was primarily attributable to the redemption of $1.7 million in Series A preferred stock, cash dividends paid during the nine-month period ended September 30, 2016, totaling $4.5 million on outstanding shares of common stock and $702,000 on outstanding preferred stock, partly offset by net income of $5.5 million. The Company accrued a dividend payable for the third quarter on our outstanding preferred stock of $234,000 which will be paid in the fourth quarter. As of September 30, 2016, the Bank’s Total capital to risk-weighted assets, Tier 1 capital to risk-weighted assets, Common Equity Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets were 11.57 percent, 10.40 percent, 10.40 percent and 7.83 percent, respectively.



Results of Operations comparison for the Three Months Ended September 30, 2016 and 2015

Net income was $1.9 million for the three months ended September 30, 2016, compared with $2.3 million for the three months ended September 30, 2015. The decrease in net income was primarily related to an increase in non-interest expense, and a decreases in non-interest income, partly offset by a decrease in the provision for loan losses and income tax provision.



Net interest income increased by $54,000, or 0.4 percent, to $13.6 million for the three months ended September 30, 2016 from $13.5 million for the three months ended September 30, 2015. The increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $201.6 million, or 13.6 percent, to $1.688 billion for the three months ended September 30, 2016 from $1.486 billion for the three months ended September 30, 2015, partly offset by a decrease in the average yield on interest-earning assets of 43 basis points, or 9.3 percent to 4.20 percent for the three months ended September 30, 2016 from 4.63 percent for the three months ended September 30, 2015.



Interest income on loans receivable increased by $158,000, or 0.9 percent, to $17.2 million for the three months ended September 30, 2016 from $17.0 million for the three months ended September 30, 2015. The increase was primarily attributable to an increase in the average balance of loans receivable of $34.6 million, or 2.5 percent, to $1.443 billion for the three months ended September 30, 2016 from $1.409 billion for the three months ended September 30, 2015, partly offset by a decrease in the average yield on loans receivable to 4.76 percent for the three months ended September 30, 2016 from 4.84 percent for the three months ended September 30, 2015. The increase in the average balance of loans receivable was in accordance with the Company’s growth strategy, which included the hiring of additional loan production and

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business development personnel and the opening of five additional branches over the last 18 months. The decrease in average yield on loans reflected 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 increased by $135,000, or 81.8 percent, to $300,000 for the three months ended September 30, 2016 from $165,000 for the three months ended September 30, 2015. This increase was primarily due to an increase in the average balance of securities of $17.7 million, or 89.0 percent, to $37.7 million for the three months ended September 30, 2016 from $20.0 million for the three months ended September 30, 2015, partly offset by a decrease in the average yield of securities to 3.19 percent for the three months ended September 30, 2016 from 3.31 percent for the three months ended September 30, 2015.

Interest income on other interest-earning assets increased by $222,000, or 1233.3 percent, to $240,000 for the three months ended September 30, 2016 from $18,000 for the three months ended September 30, 2015. This increase was primarily due to an increase in the average balance of other interest-earning assets of $149.3 million to $206.7 million for the three months ended September 30, 2016 from $57.4 million for the three months ended September 30, 2015. The increase in the average balance of other interest-earning assets related to an increase in cash as a result of the growth in deposits, the funds of which will be deployed for purchases of investment securities and to fund loan growth.

Total interest expense increased by $461,000, or 12.6 percent, to $4.1 million for the three months ended September 30, 2016 from $3.7 million for the three months ended September 30, 2015. The increase resulted primarily from an increase in the average balance of interest-bearing liabilities of $168.3 million, or 13.4 percent, to $1.428 billion for the three months ended September 30, 2016 from $1.260 billion for the three months ended September 30, 2015, while the average cost of interest-bearing liabilities decreased by 1 basis point to 1.16 percent for the three months ended September 30, 2016 from 1.17 percent for the three months ended September 30, 2015. The average balance of deposits increased $187.9 million, or 17.8 percent, to $1.244 billion for the three months ended September 30, 2016 from $1.056 billion for the three months ended September 30, 2015, while the average balance of borrowings decreased $19.6 million, or 9.6 percent, to $184.5 million for the three months ended September 30, 2016 from $204.1 million and for the three months ended September 30, 2015. The increase in the average balance of interest-bearing liabilities was primarily due to the Bank’s 15-month CD promotion initiated in the second quarter of 2015. The decrease in Federal Home Loan Bank advance borrowings resulted from the scheduled repayments. The increase in the average rate on interest-bearing primarily related to a  decrease in the average rate of Federal Home Loan Bank advance borrowings, resulting from scheduled repayments of much higher cost funds. 



Net interest margin was 3.22 percent for the three-month period ended September 30, 2016 and 3.65 percent for the three-month period ended September 30, 2015. The decline in net interest margin was the result of competitive pressures in attracting new loans and deposits, as evidenced by a decline in the average yield on loans and an increase in the average cost of deposits.

The provision for loan losses decreased by $371,000, to ($301,000) for the three months ended September 30, 2016 from $70,000 for the three months ended September 30, 2015. The negative provision for loan losses in the current period reflects the excess specific provisions previously accrued on certain loans that were settled in the current period. 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, 2016, the Company experienced $447,000 in net charge-offs compared to $92,000 in net charge-offs for the three months ended September 30, 2015. The Bank had non-performing loans totaling $19.3 million, or 1.34 percent, of gross loans at September 30, 2016 and $23.4 million, or 1.65 percent, of gross loans at December 31, 2015. The allowance for loan losses was $17.6 million, or 1.21 percent, of gross loans at September 30, 2016, $18.0 million, or 1.25 percent, of gross loans at December 31, 2015 and $17.7 million, or 1.25 percent, of gross loans at September 30, 2015. 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, 2016 and December 31, 2015.



Total non-interest income decreased by $434,000, or 22.1 percent, to $1.5 million for the three months ended September 30, 2016 from $2.0 million for the three months ended September 30, 2015. Gain on sales of loans decreased by $635,000 to $718,000 for the three months ended September 30, 2016 compared to $1.4 million for the three months ended September 30, 2015. A loss on a bulk sale of impaired loans held in portfolio of $88,000 was incurred during the three months ended September 30, 2016, with no comparable sale for the three months ended September 30, 2015. The decrease in total non-interest income was partly offset by increases in fees and service charges of $291,000 to $873,000 for the three months ended September 30, 2016 from $582,000 for the three months ended September 30, 2015.



Total non-interest expense increased by $651,000, or 5.6 percent, to $12.3 million for the three months ended September 30, 2016 from $11.7 million for the three months ended September 30, 2015. Salaries and employee benefits expense increased by $806,000, or 13.6 percent, to $6.7 million for the three months ended September 30, 2016 from $5.9 million for the three months ended September 30, 2015. This increase in both salaries and employee benefits was mainly attributable to an increase of 33 full-time equivalent employees, or 9.9 percent, to 367 at September 30, 2016 from 334 at September 30, 2015, which relates to the addition of business development and loan administration employees and the opening of five new branch offices in the last 18 months. Occupancy and equipment expense increased by $243,000, or 12.5 percent, to $2.2 million for the three months ended September 30, 2016 from $1.9 million for the three months ended September 30, 2015. The increase in occupancy and equipment expense also related primarily to the opening of the new branch offices. Professional fees increased by $36,000, or 8.6 percent, to $457,000 for the three months ended September 30, 2016 from $421,000 for the three months ended September 30, 2015. Regulatory assessments increased by $101,000, or 30.8 percent, to $429,000 for the three months ended September 30, 2016 from $328,000 for the three months ended September 30, 2015, primarily related to asset growth. Advertising expense increased by $123,000, or 34.3 percent, to $482,000 for the three months ended September 30, 2016 from $359,000 for the three months ended September 30, 2015, resulting from continued expansion into new market areas. Other Real Estate Owned (OREO) expense increased by $9,000, or 33.3 percent, to $36,000 for the three months ended September 30, 2016 from $27,000 for the three months ended September 30, 2015. Other non-interest expense decreased by $14,000, or 1.0 percent, to $1.5 million for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015. Other non-interest expense consisted of loan expense, business development, office supplies, correspondent bank fees, telephone and communication and other fees and expenses. The above increases in non-interest expense were partly offset by a decrease in data processing expense of $655,000, or 64.7 percent, to $358,000 for the three months ended September 30, 2016 as compared to $1.0 million for the three months ended September 30, 2015. The decrease in data processing expense primarily related to efficiencies achieved with the conversion to a new core system.



Income tax provision decreased by $292,000, or 20.0 percent, to $1.2 million for the three months ended September 30, 2016 from $1.5 million for the three months ended September 30, 2015. The decrease in income tax provision was a result of lower taxable income during the three-month period ended September 30, 2016 as compared with the three months ended September 30, 2015. The consolidated effective tax rate for the three months ended September 30, 2016 was 38.0 percent compared to 39.1 percent for the three months ended September 30, 2015.





Results of Operations comparison for the Nine Months Ended September 30, 2016 and 2015

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Net income was $5.5 million for the nine months ended September 30, 2016, compared with $6.0 million for the nine months ended September 30, 2015. The decrease in net income was primarily related to an increase in non-interest expense, and a decrease in non-interest income, partly offset by an increase in net interest income and decreases in the provision for loan losses and income tax provision.



Net interest income increased by $828,000, or 2.1 percent, to $40.7 million for the nine months ended September 30, 2016 from $39.8 million for the nine months ended September 30, 2015. The increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $259.2 million, or 18.5 percent, to $1.662 billion for the nine months ended September 30, 2016 from $1.403 billion for the nine months ended September 30, 2015, partly offset by a decrease in the average yield on interest-earning assets of 46 basis points, or 9.7 percent, to 4.27 percent for the nine months ended September 30, 2016 from 4.73 percent for the nine months ended September 30, 2015.



Interest income on loans receivable increased by $2.7 million, or 5.5 percent, to $51.9 million for the nine months ended September 30, 2016 from $49.3 million for the nine months ended September 30, 2015. The increase was primarily attributable an increase in the average balance of loans receivable of $101.6 million, or 7.6 percent, to $1.443 billion for the nine months ended September 30, 2016 from $1.342 billion for the nine months ended September 30, 2015 partly offset by a decrease in the average yield on loans receivable to 4.80 percent for the nine months ended September 30, 2016 from 4.89 percent for the nine months ended September 30, 2015. The increase in the average balance of loans receivable was in accordance with the Company’s growth strategy, which included the hiring of additional loan production and business development personnel and the opening of five additional branches over the last 18 months. The decrease in average yield on loans reflected 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 increased by $210,000, or 45.4 percent, to $673,000 for the nine months ended September 30, 2016 from $463,000 for the nine months ended September 30, 2015. This increase was primarily due to an increase in the average balance of securities of $7.0 million, or 35.5 percent, to $26.6 million for the nine months ended September 30, 2016 from $19.6 million for the nine months ended September 30, 2015, and by an increase in the average yield of securities to 3.37 percent for the nine months ended September 30, 2016 from 3.14 percent for the nine months ended September 30, 2015.

Interest income on other interest-earning assets increased by $578,000 to $623,000 for the nine months ended September 30, 2016 from $45,000 for the nine months ended September 30, 2015. This increase was primarily due to an increase in the average balance of other interest-earning assets of $150.6 million to $191.8 million for the nine months ended September 30, 2016 from $41.2 million for the nine months ended September 30, 2015.

Total interest expense increased by $2.6 million, or 26.6 percent, to $12.6 million for the nine months ended September 30, 2016 from $10.0 million for the nine months ended September 30, 2015. The increase resulted primarily from an increase in the average balance of interest-bearing liabilities of $225.5 million, or 19.1 percent to $1.409 billion for the nine months ended September 30, 2016 from $1.183 billion for the nine months ended September 30, 2015, and an increase in the average cost of interest-bearing liabilities of 7 basis points to 1.19 percent for the nine months ended September 30, 2016 from 1.12 percent for the nine months ended September 30, 2015. The average balance of deposits increased $220.3 million, or 22.3 percent, to $1.208 billion for the nine months ended September 30, 2016 from $987.3 million for the nine months ended September 30, 2015, while the average balance of borrowings decreased $5.2 million, or 2.7 percent, to $201.0 million for the nine months ended September 30, 2016 from $195.8 million for the nine months ended September 30, 2015. The increase in the average balance of interest-bearing liabilities was primarily due to the Bank’s 15-month CD promotion initiated in the second quarter of 2015. The decrease in Federal Home Loan Bank advance borrowings resulted from scheduled repayments. The increase in the average rate on interest-bearing liabilities was due to competitive forces in attracting new deposits and a change in the mix of funding sources and terms, including interest expense associated with the Bank’s 15-month CD promotion, to support aggressive loan growth, partly offset by a decrease in the average rate of Federal Home Loan Bank advance borrowings, resulting from scheduled repayments of much higher cost funds. 

The net interest margin was 3.26 percent for the nine-month period ended September 30, 2016 and 3.79 percent for the nine-month period ended September 30, 2015. The decline in net interest margin was the result of competitive pressures in attracting new loans and deposits, as evidenced by a decline in the average yield on loans and an increase in the average cost of deposits.

The provision for loan losses decreased by $2.0 million to ($75,000) for the nine months ended September 30, 2016 from $1.9 million for the nine months ended September 30, 2015. The negative provision for loan losses in the current period reflects the excess specific provisions previously accrued on certain loans that were settled in the current period.  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, 2016, the Company experienced $377,000 in net charge-offs compared to $381,000 in net charge-offs for the nine months ended September 30, 2015. The Bank had non-performing loans totaling $19.3 million, or 1.34 percent, of gross loans at September 30, 2016 and $23.4 million, or 1.65 percent, of gross loans at December 31, 2015. The allowance for loan losses was $17.6 million, or 1.21 percent, of gross loans at September 30, 2016, $18.0 million, or 1.25 percent, of gross loans at December 31, 2015 and $17.7 million, or 1.25 percent, of gross loans at September 30, 2015. 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. The decrease in the allowance for loan loss. Management believes that the allowance for loan losses was adequate at September 30, 2016 and December 31, 2015.



Total non-interest income decreased by $266,000, or 5.4 percent, to $4.7 million for the nine months ended September 30, 2016 from $5.0 million for the nine months ended September 30, 2015. Gain on sale of loans decreased by $657,000, or 19.7 percent, to $2.7 million for the nine months ended September 30, 2016 compared to $3.3 million for the nine months ended September 30, 2015. Losses on bulk sales of impaired loans held in portfolio were $373,000 for the nine months ended September 30, 2016, with no comparable figure for the nine months ended September 30, 2015. Other non-interest income decreased by $3,000, or 4.0 percent, to $72,000 for the nine months ended September 30, 2016 from $75,000 for the nine months ended September 30, 2015. The above decreases in total non-interest income were partly offset by an increase in fees and service charges of $767,000, or 49.4 percent, to $2.3 million for the nine months ended September 30, 2016 from $1.6 million for the nine months ended September 30, 2015.



Total non-interest expense increased by $3.4 million, or 10.4 percent, to $36.2 million for the nine months ended September 30, 2016 from $32.8 million for the nine months ended September 30, 2015. Salaries and employee benefits expense increased by $2.1 million, or 12.8 percent, to $18.9 million for the nine months ended September 30, 2016 from $16.8 million for the nine months ended September 30, 2015. This increase in both salaries and employee benefits was mainly attributable to an increase of 33 full-time equivalent employees, or 9.9 percent, to 367 at September 30, 2016 from 334 at September 30, 2015, which relates to the addition of business development and loan administration employees and the opening of five new branch offices in the last 18 months. Occupancy and equipment expense increased by $425,000, or 7.5 percent, to $6.1 million for the nine months ended September 30, 2016 from $5.7 million for the nine months ended September 30, 2015. The increase in occupancy and equipment expense also related primarily to the opening of the new branch offices. Professional fees increased by $540,000, or 65.3 percent, to $1.4 million for the nine months ended September 30, 2016 as compared to $827,000 for the nine months ended September 30, 2015. The increase in professional fees resulted from a $400,000 reduction in expense in the prior-year period upon the settlement of a litigation issue. Regulatory assessments increased by $271,000, or 31.2 percent, to $1.1 million for the nine months ended September 30, 2016 from $868,000 for the nine months ended September 30, 2015, primarily related to asset growth. Advertising expense increased by $201,000, or 19.4 percent, to $1.2 million for the nine months ended September 30, 2016 from $1.0 million for the nine months ended September 30, 2015, resulting from continued expansion into new market areas. Other non-interest expense increased by $733,000, or 19.2 percent, to $4.6 million for the nine

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months ended September 30, 2016 from $3.8 million for the nine months ended September 30, 2015. Other non-interest expense consisted of loan expense, business development, office supplies, correspondent bank fees, telephone and communication and other fees and expenses, which all experienced increases as part of the Company’s growth strategy. The above increases in non-interest expense were partly offset by a decrease in data processing expense of $821,000, or 26.7 percent, to $2.3 million for the nine months ended September 30, 2016 as compared to $3.1 million for the nine months ended September 30, 2015. The decrease in data processing expense primarily related to efficiencies achieved with the conversion to a new core system.



Income tax provision decreased by $371,000, or 9.2 percent, to $3.6 million for the nine months ended September 30, 2016 from $4.0 million for the nine months ended September 30, 2015. The decrease in income tax provision was a result of lower taxable income during the nine-month period ended September 30, 2016 as compared with the nine months ended September 30, 2015. The consolidated effective tax rate for the nine months ended September 30, 2016 was 39.7 percent compared with 40.1 percent for the nine months ended September 30, 2015.











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, 2016 and December 31, 2015, the Company had no overnight borrowings outstanding with the FHLB. The Company utilizes overnight borrowings from time to time to fund short-term liquidity needs. The Company had total borrowings of $159.1 million at September 30, 2016 and  $204.1 million at December 31, 2015. The average rate of these FHLB borrowings was 2.66 percent at September 30, 2016, as compared with 3.19 percent at December 31, 2015.



The Company had the ability at September 30, 2016 to obtain additional funding from the FHLB of up to $25.2 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 $351.7 million at September 30, 2016. Based upon historical experience data, management estimates that a significant portion of such deposits will remain with the Company.





Capital Resources



At September 30, 2016, and December 31, 2015, BCB Community Bank and the Company exceeded all of its regulatory capital requirements to which they were subject. The following table sets forth the regulatory capital ratios for BCB Community Bank as well as regulatory capital requirements for the periods presented.















In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that revised 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 established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned 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 and defined benefit plan obligations to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised.  The Bank exercised the opt-out election. 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 became effective for the Bank and the Company on January 1, 2015.  The capital conservation buffer requirement is being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. The Bank and the Company currently comply with the minimum capital requirements set forth in the final rule.



At September 30, 2016 and December 31, 2015, the capital ratios of the Bank and the Company exceeded the quantitative capital ratios required for an institution to be considered “well-capitalized.”



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 quarterly 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, 2016. 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 a decrease of 200 to 300 basis points has been excluded since it would not be meaningful, in the interest rate environment as of September 30, 2016. The following sets forth the Company’s NPV as of that date.

 





bp – basis points





The table above indicates that as of September 30, 2016, in the event of a 100 basis point increase in interest rates, we would experience a 10.53%  decrease in NPV.

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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.

 



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, 2016, 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 effect on our financial condition or results of operations.

    

      The Company, as the successor to Pamrapo Bancorp, Inc., and in its own corporate capacity, was 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 (the "Action”).



      On September 21, 2015, the court entered an Order and Final Judgment (“Judgment”), whereby the Stipulation of Settlement ("Stipulation") agreed to by the plaintiff class, the Company and the remaining defendants was approved.    



      Pursuant to the Stipulation, the plaintiff class's counsel reserved the right to seek an award of counsel fees and litigation expenses (“Fees Motion”). The maximum amount which may be awarded as a result of the Fees Motion is $1,000,000.00. The plaintiff class’s counsel has made a Fee Motion to the court seeking a final award of counsel fees and litigation expenses of approximately $1,000,000.00. The Company and the remaining defendants have vigorously opposed that motion. It is anticipated that the plaintiff class’s counsel will submit a reply to the opposition filed by the Company and the remaining defendants. The court has not scheduled a hearing date for the Fee Motion. 

     

      The Company and the other defendants in the Action ("Plaintiffs") brought an action ("Carrier Suit") 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 Carrier Suit seeks, among other claims, indemnification, payment of and/or contribution toward the above settlement, payment of and/or contribution toward the above award of interim attorney's fees to the plaintiff class's counsel, payment of and/or contribution toward any future award of attorney's fees to the plaintiff class's counsel, and reimbursement of the attorney's fees and defense costs incurred by the Plaintiffs in defending the Action and pursuing the Carrier Suit.   Progressive made a motion to dismiss the Carrier Suit in 2014. The Plaintiffs opposed that motion. That motion was administratively terminated by Order of the court, dated December 3, 2014.  By Order of the court, dated December 3, 2014, the Plaintiffs' motion to file an Amended Complaint was granted.  



      On or about January 6, 2015, Progressive again made a motion to dismiss the Carrier Suit. The Plaintiffs opposed that motion. That motion was denied by oral decision on October 22, 2015, and by written Order, dated January 20, 2016.   

 

      A Mediation session ("Mediation") was held on March 11, 2015, among the parties. Following the Mediation, the Plaintiffs and Colonial agreed to settle the Plaintiffs’ claims against Colonial for $1,750,000.00. A Settlement Agreement and Release, dated June 30, 2015, was entered into by the Plaintiffs and Colonial. The Plaintiffs received the settlement amount of $1,750,000.00 from Colonial on July 9, 2015.   



      The Plaintiffs and Progressive did not settle their respective claims at the Mediation. The Carrier Suit continues with respect to these parties. Initial discovery has been exchanged between the parties.



By Order of the court, dated August 10, 2016, the parties were granted permission to serve and file motions for summary judgment by November 9, 2016. Prior to disposition of these motions, a Settlement Conference is scheduled before the court on November 16, 2016. Representatives of the parties with full settlement authority have been ordered to appear at the Settlement Conference. All discovery has been stayed until disposition of the above motions.



      The Plaintiffs are vigorously pursuing full recovery.



ITEM 1.A. RISK FACTORS

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, 2015 or as updated in other quarterly reports on Form 10-Q during 2016.



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 stock purchases for the three months ended September 30, 2016.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.



ITEM 4. MINE SAFTEY 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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