Add
BFBC to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| BFBC > SEC Filings for BFBC > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
The TLGP is a voluntary and time-limited program that will be funded through
special fees charged to participating financial institutions. For the first 30
days of the program, the guarantees provided by the program have been offered at
no cost to the Company. Unless the Company opts out of either or both of the
TLGP programs before December 5, 2008, the Company will thereafter be assessed
fees for its participation in either or both of the programs.
The TLGP program consists of two components: a temporary guarantee of newly
issued senior unsecured debt (the Debt Guarantee Program or "DGP") and a
temporary unlimited guarantee of funds in noninterest-bearing transaction
accounts at FDIC-insured institutions (the Transaction Account Guarantee Program
or "TAGP"). The Company is eligible to participate in either or both components
of the TLGP.
The DGP is designed primarily to provide liquidity to the bank-to-bank lending
market and to help banks roll over unsecured debt. The program specifies that
the FDIC will temporarily guarantee (through June 30, 2012) all new senior
unsecured debt up to prescribed limits issued by participating financial
institutions from October 14, 2008 through June 30, 2009. Coverage under the DGP
is available for 30 days without charge and thereafter at a cost of 75 basis
points per year multiplied by the amount of debt covered by the program. The
Company has not previously issued senior unsecured debt, and has not made a
decision relative to its continued participation in the DGP.
Under the TAGP, the FDIC will provide an unlimited guarantee for
noninterest-bearing transaction accounts in excess of the existing deposit
insurance limit of $250,000 per account. This coverage is effective on October
14, 2008, and will continue through December 31, 2009. Coverage under the TAGP
is available for 30 days without charge and thereafter at a cost of 10 basis
points per year for the affected noninterest bearing transaction deposits.
The Company is currently assessing the benefit of participation in the TLGP
after the December 5, 2008 opt-out date. Although management has not made a
final decision relative to the Bank's participation in the TAGP, management does
not believe any assessments under the TAGP would be material to the Bank's
future operating results.
It is not clear at present whether these programs, along with other recently
announced liquidity and funding initiatives of the Federal Reserve and other
agencies, will result in significant improvement in national financial and
economic conditions, including those affecting the banking industry. If the
significant levels of volatility and disruption in the credit markets were to
continue, and if U.S. economy were to remain in a recessionary condition for an
extended period, this would likely have an adverse effect on all financial
institutions, including the Company.
Critical Accounting Policies
Critical accounting policies are those that involve significant judgments and
assessments by management, and which could potentially result in materially
different results under different assumptions and conditions. As discussed in
the Company's 2007 Annual Report on Form 10-K, the Company considers its
critical accounting policies to be those associated with the allowance for loan
losses, the valuation of goodwill and other intangible assets and the valuation
of deferred tax assets. The Company's critical accounting policies have not
changed since December 31, 2007.
Comparison of Financial Condition at September 30, 2008 and December 31, 2007
Overview
Total assets increased by $77.5 million, or 8.6%, to $980.7 million at
September 30, 2008 from $903.3 million at December 31, 2007. The increase in
assets was primarily attributable to increases in net loans (up $65.1 million or
10.7%) and securities (up $26.0 million or 15.4%), offset in part by a decrease
in cash and cash equivalents (down $13.5 million or 21.0%). The increase in
total assets was funded principally by growth in deposits, which increased by
$43.4 million or 7.0%, and in borrowed funds, which increased by $31.8 million
or 19.3%.
Investment Activities
Cash and cash equivalent balances, comprised of $13.5 million in cash and
correspondent bank balances, $12.8 million in short-term investments, and
$24.8 million in cash supplied to ATMs owned by ATM customers decreased by
$13.5 million to $51.1 million at September 30, 2008, compared to $64.6 million
at December 31, 2007. This decrease was primarily a result of a $17.2 million
decrease in cash supplied to ATM customers over the nine-month period, and is
primarily attributable to the loss of three large customers.
At September 30, 2008, the Company's securities portfolio amounted to
$194.4 million, or 19.8% of total assets. When compared to year-end 2007,
securities increased by $26.0 million, or 15.4%. The increase primarily
consisted of increases in government-sponsored enterprise ("GSE") insured
mortgage-backed securities, which grew by $19.9 million or 28.7% in the first
nine months of 2008. All of the Company's holdings of mortgage-backed securities
are issued by a GSE (FHLMC and FNMA), or by GNMA, which bears full and explicit
credit backing by the federal government. The following table sets forth certain
information regarding the amortized cost and fair values of the Company's
securities at the dates indicated:
September 30, December 31,
2008 2007
Amortized Fair Amortized Fair
Cost Value Cost Value
(Dollars in thousands)
Securities available for sale:
Government-sponsored enterprise
obligations $ 92,141 $ 92,072 $ 85,972 $ 86,178
Municipal obligations - - 1,206 1,202
92,141 92,072 87,178 87,380
Mortgage-backed securities 91,671 89,304 70,839 69,381
Total debt securities 183,812 181,376 158,017 156,761
Total available for sale securities $ 183,812 $ 181,376 $ 158,017 $ 156,761
Restricted equity securities:
Federal Home Loan Bank of Boston stock $ 10,505 $ 10,505 $ 9,110 $ 9,110
Access Capital Strategies Community
Investment Fund 1,965 1,965 1,965 1,965
SBLI & DIF stock 516 516 516 516
Total restricted equity securities $ 12,986 $ 12,986 $ 11,591 $ 11,591
|
The following supplemental table provides information regarding the issuers of the Company's available for sale securities as of September 30, 2008:
September 30,
2008
Amortized Fair
Cost Value
(Dollars in thousands)
Securities available for sale:
Federal Home Loan Banks $ 45,890 $ 45,848
Federal Farm Credit Banks 10,915 10,922
Federal National Mortgage Association 15,559 15,541
Federal Home Loan Mortgage Corporation 19,777 19,761
Government-sponsored enterprise obligations 92,141 92,072
Government National Mortgage Association $ 38 $ 38
Federal National Mortgage Association 47,018 46,320
Federal Home Loan Mortgage Corporation 44,615 42,946
Mortgage-backed securities 91,671 89,304
Total debt securities 183,812 181,376
Total available for sale securities $ 183,812 $ 181,376
|
Lending Activities
The Company's net loan portfolio aggregated $672.1 million on September 30,
2008, or 68.5% of total assets on that date. As of December 31, 2007, the net
loan portfolio totaled $606.9 million, or 67.2% of total assets. The main
components of the growth of $65.1 million in the first nine months of 2008 were
a $41.3 million (21.9%) increase in residential mortgage loans, a $19.5 million
(12.2%) increase in commercial business loans and a $10.9 million (6.4%)
increase in commercial real estate loans. Offsetting these increases was a
reduction of $6.8 million (12.3%) in construction loans. The growth in
residential mortgage loans reflects the Company's strategic decision in late
2007 to retain most new residential originations (fixed-rate and
adjustable-rate) in its portfolio, due to the widening of market interest rate
spreads available on most residential mortgage products. Previously, for much of
2006 and 2007, the Company had sold most fixed-rate residential loan production
in the secondary market. While demand for commercial loans have been strong for
much of this year, management believes that commercial loan demand may lessen in
future quarters as a result of the current economic downturn occurring in New
England and nationally. The following table sets forth the composition of the
loan portfolio at the dates indicated:
September 30, 2008 December 31, 2007
Amount Percent Amount Percent
(Dollars in thousands)
Mortgage loans on real estate:
Residential $ 229,253 33.82 % $ 187,991 30.73 %
Commercial 179,298 26.45 % 168,463 27.54 %
Construction 48,919 7.22 % 55,763 9.11 %
Home equity 38,982 5.75 % 37,768 6.17 %
496,452 73.24 % 449,985 73.55 %
Other loans:
Commercial 178,704 26.37 % 159,233 26.03 %
Consumer 2,674 0.39 % 2,592 0.42 %
181,378 26.76 % 161,825 26.45 %
Total loans 677,830 100.00 % 611,810 100.00 %
Other items:
Net deferred loan costs 1,078 925
Allowance for loan losses (6,853 ) (5,789 )
Total loans, net $ 672,055 $ 606,946
|
Non-performing Assets
The table below sets forth the amounts and categories of the Company's
non-performing assets at the dates indicated:
15
--------------------------------------------------------------------------------
Table of Contents
September 30, 2008 December 31, 2007
(Dollars in thousands)
Non-accrual loans:
Residential mortgage $ 1,208 $ 712
Commercial mortgage 4,972 658
Construction 1,945 -
Commercial 567 -
Consumer and other 116 228
Total non-accrual loans $ 8,808 $ 1,598
Loans greater than 90 days delinquent and still accruing: $ - $ -
$ - $ -
Total non-performing loans and assets $ 8,808 $ 1,598
Total restructured loans $ 1,182 $ -
Ratios:
Non-performing loans to total loans 1.30 % 0.26 %
Non-performing assets to total assets 0.90 % 0.18 %
|
Loans are placed on non-accrual status either when reasonable doubt exists as to
the full and timely collection of interest and principal, or when a loan becomes
90 days past due, unless an evaluation by the management Credit Committee
clearly indicates that the loan is well-secured and in the process of
collection.
The $7.2 million increase in non-performing loans since year-end 2007 is
primarily due to the addition of one $6.4 million loan relationship to
non-performing status during the second quarter of 2008. Within this loan
relationship, two loans totaling $5.9 million (one for $4.0 million in the
commercial mortgage category and one for $1.9 million reported within the
construction loan category; construction on the building is complete with the
exception of tenant fit-up in some areas) are secured by a mixed-use building
located in Boston, MA. The remainder of this relationship consists of two
commercial business loans aggregating $492,000, both of which were underwritten
under the Massachusetts Capital Access Program ("MCAP"). These loans are secured
primarily by equipment and the Bank's specific reserves accumulated as a result
of its participation in the MCAP program. Based on a review of all relevant
factors, including the collateral securing these loans, specific loan loss
reserves of $277,000 have been allocated for this loan relationship.
Restructured loans represent performing loans for which concessions (such as
extension of repayment terms or reductions of interest rates to below market
rates) are granted due to a borrower's financial condition. The balance of
$1.2 million in restructured loans at September 30, 2008 represents one
residential real estate mortgage loan that was modified to lengthen the
borrower's repayment period. This loan was performing in accordance with its
modified terms at September 30, 2008.
Allowance for Loan Losses
In originating loans, the Company recognizes that losses will be experienced on
loans and that the risk of loss will vary with many factors, including the type
of loan being made, the creditworthiness of the borrower over the term of the
loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan
over the term of the loan. The Company maintains an allowance for loan losses to
absorb losses inherent in the loan portfolio, and as such, this allowance
represents management's best estimate of the probable known and inherent credit
losses in the loan portfolio as of the date of the financial statements.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, portfolio volume and mix, geographic and large
borrower concentrations, estimated credit losses based on internal and external
portfolio reviews, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective, as it requires estimates
that are susceptible to significant revision as more information becomes
available.
The allowance consists of specific, general and unallocated components. The
specific component relates to loans that are impaired. The general component
covers non-impaired loans and is based on historical loss experience adjusted
for qualitative factors. Qualitative factors considered include general business
and economic conditions, the level of real estate values in our market area, the
tenure and experience of the Company's lending staff, the seasoning of the loan
portfolio, and delinquency trends in the loan portfolio. An unallocated
component is maintained to cover uncertainties that could affect management's
estimate of probable losses. The unallocated component of the allowance reflects
the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the portfolio.
The following tables set forth Benjamin Franklin Bank's allowance by loan
category and the percent of the loans to total loans in each of the categories
listed at the dates indicated. The allowance for loan losses allocated to each
category is not necessarily indicative of future losses in any particular
category and does not restrict the use of the allowance to absorb losses in
other categories:
At September 30, At December 31,
2008 2007
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Allowance Balances Category to Allowance Balances Category to
for Loan by to Total for Loan by to Total
Losses Category Loans Losses Category Loans
(Dollars in thousands)
Mortgage loans on real
estate:
Residential $ 1,027 $ 229,253 33.82 % $ 499 $ 187,991 30.73 %
Commercial 2,342 179,298 26.45 % 1,959 168,463 27.54 %
Construction 791 48,919 7.22 % 850 55,763 9.11 %
Home equity 146 38,982 5.75 % 142 37,768 6.17 %
4,306 496,452 73.24 % 3,450 449,985 73.55 %
Other loans:
Commercial 2,178 178,704 26.37 % 1,874 159,233 26.03 %
Consumer 69 2,674 0.39 % 80 2,592 0.42 %
Unallocated (1) 300 0 0.00 % 385 0 0.00 %
2,547 181,378 26.76 % 2,339 161,825 26.45 %
Total $ 6,853 $ 677,830 100.00 % $ 5,789 $ 611,810 100.00 %
|
(1) The unallocated portion of the allowance for loan losses is intended to capture the exposure, if any, that may exist as a result of a number of qualitative factors that are difficult to quantify with precision.
The Massachusetts economy has slowed, as labor market conditions and residential
real estate values have deteriorated. Unemployment in Massachusetts over the
past twelve months has increased from 4.4% to 5.3% (Federal Reserve New England
Economic Indicators, October 2008). In addition, the median home price in
September declined 15.6% from a year earlier, and now represents a six-year low.
Sales of single-family homes in Massachusetts also decreased in the third
quarter to the lowest sales pace for the three-month period since 1991 (The
Warren Group). Management monitors these trends closely, as well as many
portfolio characteristics, including the level of delinquencies, charge-offs,
and other measures of risk within the loan portfolio. Several of the key
elements of that analysis are:
• Loan delinquency: At September 30, 2008, portfolio delinquency (percentage
of total loans greater than 30 days past due) stood at 1.66%, compared to
1.55% at June 30, 2008 and an average of 1.07% for all of 2007. The increase
compared to December 31, 2007 was primarily caused by the addition of one
$6.4 million commercial relationship, discussed earlier in "Non-performing
Assets". For all other loans, delinquency at September 30, 2008 was 0.71% of
total loans.
• Level of charge-offs: Net charge-offs have been nominal in both 2008 and 2007. For the three and nine months ended September 30, 2008, net charge-offs were $25,000 and $64,000, respectively. For the comparable 2007 periods, net charge-offs were $154,000 and $193,000, respectively. For the 2008 and 2007 year-to-date periods, net charge-offs represented a negligible 0.1% and 0.3% of average loans outstanding, respectively.
• Real estate collateral values: Management monitors loan-to-value ratios for its residential mortgage loan portfolio, as well as for its construction portfolio, which is a mix of commercial and residential construction credits. At September 30, 2008, the weighted average loan-to-value ratio of the Bank's construction loan portfolio was approximately 67%, and the . . .
|
|