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| BCBP > SEC Filings for BCBP > Form 10-K on 27-Mar-2009 | All Recent SEC Filings |
27-Mar-2009
Annual Report
General
This discussion, and other written material, and statements management may make, may contain certain forward-looking statements regarding the Company's prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of said safe harbor provisions.
Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in the Company's Annual Report on Form 10-K and in other documents filed by the Company with the Securities and Exchange Commission. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by the use of the words "plan," "believe," "expect," "intend," "anticipate," "estimate," "project," "may," "will," "should," "could," "predicts," "forecasts," "potential," or "continue" or similar terms or the
negative of these terms. The Company's ability to predict results or the actual effects of its plans or strategies is inherently uncertain. Accordingly, actual results may differ materially from anticipated results.
Factors that could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in market interest rates, general economic conditions, legislation, and regulation; changes in monetary and fiscal policies of the United States Government, including policies of the United States Treasury and Federal Reserve Board; changes in the quality or composition of the loan or investment portfolios; changes in deposit flows, competition, and demand for financial services, loans, deposits and investment products in the Company's local markets; changes in accounting principles and guidelines; war or terrorist activities; and other economic, competitive, governmental, regulatory, geopolitical and technological factors affecting the Company's operations, pricing and services.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this discussion. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.
Critical Accounting Policies
Critical accounting policies are those accounting policies that can have a significant impact on the Company's financial position and results of operations that require the use of complex and subjective estimates based upon past experiences and management's judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Below are those policies applied in preparing the Company's consolidated financial statements that management believes are the most dependent on the application of estimates and assumptions. For additional accounting policies, see Note 2 of "Notes to Consolidated Financial Statements."
Allowance for Loan Losses
Loans receivable are presented net of an allowance for loan losses. In determining the appropriate level of the allowance, management considers a combination of factors, such as economic and industry trends, real estate market conditions, size and type of loans in portfolio, nature and value of collateral held, borrowers' financial strength and credit ratings, and prepayment and default history. The calculation of the appropriate allowance for loan losses requires a substantial amount of judgment regarding the impact of the aforementioned factors, as well as other factors, on the ultimate realization of loans receivable.
Other-than-Temporary Impairment of Securities
We evaluate on a quarterly basis whether any securities are other-than-temporarily impaired. In making this determination, we consider the extent and duration of the impairment, the nature and financial health of the issuer and our ability and intent to hold securities for a
period sufficient to allow for any anticipated recovery in market value. Other considerations include a review of the credit quality of the issuer and the existence of a guarantee or insurance, if applicable to the security. If a security is determined to be other-than-temporarily impaired, we record an impairment loss as a charge to income for the period in which the impairment loss is determined to exist, resulting in a reduction to our earnings for that period.
Financial Condition
Comparison at December 31, 2008 and at December 31, 2007
Since we commenced operations in 2000 we have sought to grow our assets and deposit base consistent with our capital requirements. We offer competitive loan and deposit products and seek to distinguish ourselves from our competitors through our service and availability. Total assets increased by $15.1 million or 2.7% to $578.6 million at December 31, 2008 from $563.5 million at December 31, 2007 as the Company continued to grow the Bank's balance sheet with loans funded primarily through growth in the Bank's deposit base and the utilization of wholesale funding sources, specifically Federal Home Loan Bank advances.
Total cash and cash equivalents decreased by $5.0 million or 42.4% to $6.8 million at December 31, 2008 from $11.8 million at December 31, 2007 reflecting management's decision, with money market rates at historically low levels, to deploy those liquid assets into loans in an effort to achieve higher returns. Securities held-to-maturity decreased by $23.7 million or 14.4% to $141.3 million at December 31, 2008 from $165.0 million at December 31, 2007. The decrease was primarily attributable to call options exercised on $78.9 million of callable agency securities and $5.5 million of repayments and prepayments in the mortgage backed securities portfolio during the year ended December 31, 2008, partially offset by purchases of $47.3 million of callable agency securities and $13.3 million in the mortgage backed securities.
Loans receivable increased by $42.1 million or 11.5% to $406.8 million at December 31, 2008 from $364.7 million at December 31, 2007. The increase resulted primarily from a $46.4 million increase in real estate mortgages comprising residential, commercial, construction and participation loans with other financial institutions, net of amortization, and a $2.8 million increase in consumer loans, net of amortization, partially offset by a $5.8 million decrease in commercial loans comprising business loans and commercial lines of credit, net of amortization, and a $1.2 million increase in the allowance for loan losses. At December 31, 2008, the allowance for loan losses was $5.3 million or 1.28% of loans receivable. The growth in loans receivable was primarily attributable to competitive pricing in a lower than historically normal interest rate environment.
Deposit liabilities increased by $11.7 million or 2.9% to $410.5 million at December 31, 2008 from $398.8 million at December 31, 2007. The increase resulted primarily from an increase of $20.5 million or 9.6% in time deposits to $235.0 million from $214.5 million, partially offset by a decrease of $8.0 million or 9.5% in demand deposits to $75.9 million from $83.9 million and a decrease of $855,000 or 0.9% in savings and club accounts to $99.6 million from $100.4 million. The decrease in demand, savings and club account balances resulted primarily from internal disintermediation brought on by an increasingly competitive local market
for deposit growth. The Bank has been able to achieve overall growth in deposits through competitive pricing on select deposit products.
Total borrowed money increased by $2.0 million or 1.8% to $116.1 million at December 31, 2008 from $114.1 million at December 31, 2007. The increase in borrowings reflects the use of Federal Home Loan Bank advances to augment deposits as the Bank's funding source for originating loans.
Total stockholders' equity increased by $1.2 million or 2.5% to $49.7 million at December 31, 2008 from $48.5 million at December 31, 2007. The increase in stockholders' equity primarily reflects net income of $3.5 million for the year ended December 31, 2008 and the exercise of stock options during the year to purchase 104,873 shares of the Company's common stock for a total of approximately $925,000, partially offset by the repurchase of 93,029 shares of the Company's common stock through the stock repurchase plans in place at a cost during the year of $1.3 million and cash dividends paid through the year totaling $1.9 million. At December 31, 2008 the Bank's Tier 1 leverage, Tier 1 risk-based and Total risk-based capital ratios were 9.22%, 13.38%, and 14.63% respectively.
Analysis of Net Interest Income
Net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them, respectively.
The following tables set forth balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts and premiums, which are included in interest income.
At December 31, 2008 The year ended December 31, 2008 The year ended December 31, 2007
-------------------- -------------------------------- ---------------------------------
Actual Average Average
Actual Yield/ Average Interest Yield/ Average Interest Yield/
Balance Cost Balance earned/paid Cost (5) Balance earned/paid Cost (5)
---------- ------ -------- ----------- -------- ------- ----------- --------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) ............... $ 413,552 7.09% $ 393,198 $ 27,248 6.96% $ 339,057 $ 24,365 7.19%
Investment securities(2) ........... 147,904 5.55 161,281 9,185 5.70 161,707 8,843 5.47
Interest-earning deposits .......... 3,266 0.06 10,034 190 1.89 26,010 1,182 4.54
---------- --------- ----------- --------- -----------
Total interest-earning assets ..... 564,722 6.65% 564,513 36,623 6.49% 526,774 34,390 6.53%
---------- --------- ----------- --------- -----------
Interest-earning liabilities:
Interest-bearing demand deposits ... $ 25,843 1.25% $ 23,930 $ 300 1.25% $ 21,076 $ 294 1.40%
Money market deposits .............. 19,539 2.43 26,697 746 2.79 17,212 712 4.14
Savings deposits ................... 99,586 1.32 100,754 1,370 1.36 108,921 1,866 1.71
Certificates of deposit ............ 234,974 3.87 220,375 9,106 4.13 209,828 10,109 4.82
Borrowings ......................... 116,124 4.28 118,920 5,141 4.32 93,412 4,236 4.54
---------- --------- ----------- --------- -----------
Total interest-bearing
liabilities .................... 496,066 3.27% 490,676 16,663 3.40% 450,449 17,217 3.82%
---------- --------- ----------- --------- -----------
Net interest income .................. $ 19,960 $ 17,173
=========== ===========
Interest rate spread(3) .............. 3.38% 3.09% 2.71%
====== ======== ========
Net interest margin(4) ............... 3.54% 3.26%
======== ========
Ratio of interest-earning assets
to interest-bearing liabilities .... 113.84% 115.05% 116.94%
========== ========= =========
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(2) Includes Federal Home Loan Bank of New York stock.
(3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of average interest-earning assets.
(5) Average yields are computed using annualized interest income and expense for the periods.
The year ended December 31, 2006
------------------------------------
Average
Average Interest Yield/Cost
Balance earned/paid (5)
--------- ----------- ----------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) .............. $ 315,493 $ 22,770 7.22%
Investment securities(2) .......... 153,628 8,046 5.24
Interest-earning deposits ......... 12,569 445 3.54
--------- -----------
Total interest-earning assets .. 481,690 31,261 6.49%
--------- -----------
Interest-earning liabilities:
Interest-bearing demand deposits .. $ 21,397 302 1.41%
Money market deposits ............. 3,353 124 3.70
Savings deposits .................. 137,046 2,611 1.91
Certificates of deposit ........... 182,340 7,807 4.28
Borrowings ........................ 63,775 2,633 4.13
--------- -----------
Total interest-bearing
liabilities .................. 407,911 13,477 3.30%
--------- -----------
Net interest income .................. $ 17,784
===========
Interest rate spread(3) .............. 3.19%
==========
Net interest margin(4) ............... 3.69%
==========
Ratio of average interest-earning
assets to average interest-bearing
liabilities ....................... 118.09%
=========
----------
(1) Excludes allowance for loan losses.
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(2) Includes Federal Home Loan Bank of New York stock.
(3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of average interest-earning assets.
(5) Average yields are computed using annualized interest income and expense for the periods.
Rate/Volume Analysis
The table below sets forth certain information regarding changes in our interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in average volume (changes in average volume multiplied by old rate); (ii) changes in rate (change in rate multiplied by old average volume); (iii) changes due to combined changes in rate and volume; and (iv) the net change.
Years Ended December 31,
----------------------------------------------------------------------------------------
2008 vs. 2007 2007 vs. 2006
----------------------------- ---------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Due to
----------------------------- Total --------------------------- Total
Rate/ Increase Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
------- -------- ------ ---------- ------- ------ ------ ----------
(In Thousands)
Interest income:
Loans receivable .................... $ 3,891 $ (869) $ (139) $ 2,883 $ 1,701 $ (98) $ (8) $ 1,595
Investment securities ............... (23) 366 (1) 342 423 355 19 797
Interest-earning deposits with other
banks ............................ (726) (689) 423 (992) 476 126 135 737
------- -------- ------ ---------- ------- ------ ------ ----------
Total interest-earning assets ....... 3,142 (1,192) 283 2,233 2,600 383 146 3,129
------- -------- ------ ---------- ------- ------ ------ ----------
Interest expense:
Interest-bearing demand accounts .... 40 (30) (4) 6 (4) (4) -- (8)
Money market ........................ 392 (231) (127) 34 512 15 61 588
Savings and club .................... (140) (385) 29 (496) (536) (263) 54 (745)
Certificates of Deposits ............ 508 (1,439) (72) (1,003) 1,177 978 147 2,302
Borrowed funds ...................... 1,157 (198) (54) 905 1,224 259 120 1,603
------- -------- ------ ---------- ------- ------ ------ ----------
Total interest-bearing liabilities .. 1,957 (2,283) (228) (554) 2,373 985 382 3,740
------- -------- ------ ---------- ------- ------ ------ ----------
Change in net interest income .......... $ 1,185 $ 1,091 $ 511 $ 2,787 $ 227 $ (602) $ (236) $ (611)
======= ======== ====== ========== ======= ====== ====== ==========
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Results of Operations for the Years Ended December 31, 2008 and 2007
Net income decreased by $970,000 or 21.8% to $3.47 million for the year ended December 31, 2008 from $4.44 million for the year ended December 31, 2007. The decrease in net income resulted primarily from a decrease in non-interest income and increases in the provision for loan losses and non-interest expense, partially offset by an increase in net interest income and a decrease in income taxes. Net interest income increased by $2.8 million or 16.3% to $20.0 million for the year ended December 31, 2008 from $17.2 million for the year ended December 31, 2007. The increase in net interest income resulted primarily from an increase of $37.7 million or 7.2% in the average balance of interest earning assets to $564.5 million for the year ended December 31, 2008 from $526.8 million for the year ended December 31, 2007 offset by a decrease in the average yield on interest earning assets to 6.49% for the year ended December 31, 2008 from 6.53% for the year ended December 31, 2007. The average balance of interest bearing liabilities increased by $40.3 million or 8.9% to $490.7 million at December 31, 2008 from $450.4 million at December 31, 2007 while the average cost of interest bearing liabilities decreased to 3.40% for the year ended December 31, 2008 from 3.82% for the year ended December 31, 2007. As a result of the aforementioned, our net interest margin increased to 3.54% for the year ended December 31, 2008 from 3.26% for the year ended December 31, 2007.
The decrease in non-interest income resulted primarily from an other than temporary impairment (OTTI) charge of $2.9 million on a $3.0 million investment in Federal National Mortgage Association (FNMA) preferred stock. The increase in non-interest expense reflected a change to income resulting from the discovery of a deposit fraud scheme by a commercial client of the Bank. The Bank recorded a $560,000 loss in other non-interest expense related to this incident. The Bank and Company anticipate that any future recoveries may partially offset this loss; however there can be no assurance of the level or probability of any recovery. The Bank and the Company have notified its insurance carriers.
Interest income on loans receivable increased by $2.8 million or 11.5% to $27.2 million for the year ended December 31, 2008 from $24.4 million for the year ended December 31, 2007. The increase was primarily due to an increase in average loans receivable of $52.6 million or 15.5% to $393.2 million for the year ended December 31, 2008 from $339.1 million for the year ended December 31, 2007, partially offset by a decrease in the average yield on loans receivable to 6.96% for the year ended December 31, 2008 from 7.19% for the year ended December 31, 2007. The increase in the average balance of loans reflects management's philosophy of deploying funds in higher yielding instruments, specifically commercial real estate loans, in an effort to achieve higher returns. The decrease in average yield reflects the competitive price environment prevalent in the Bank's primary market area for commercial and construction loans as well as the effect of the actions taken by the Federal Open Market Committee to reduce interest rates during 2008.
Interest income on securities increased by $342,000 or 3.9% to $9.2 million for the year ended December 31, 2008 from $8.8 million for the year ended December 31, 2007. The increase was primarily attributable to an increase in the average yield on securities to 5.70% for the year ended December 31, 2008 from 5.47% for the year ended December 31, 2007, partially offset by a slight decrease in the average balance of securities of $426,000 or 0.3% to $161.3 million for the year ended December 31, 2008 from $161.7 million for the year ended December 31, 2007. The decrease in average balances reflects the issuing agencies decision to exercise their call options on a select number of securities which resulted in decreases to the investment portfolio. The increase in average yield reflects the fact that the exercise of call options discussed above occurred on seasoned securities whose yield was less than those securities remaining in the investment portfolio.
Interest income on other interest-earning assets consisting primarily of federal funds sold decreased by $992,000 or 83.9% to $190,000 for the year ended December 31, 2008 from $1.2 million for the year ended December 31, 2007. This decrease was primarily due to an decrease in the average balance of other interest-earning assets of $16.0 million or 61.5% to $10.0 million for the year ended December 31, 2008 from $26.0 million for the year ended December 31, 2007 and a decrease in the average yield on other interest-earning assets to 1.89% for the year ended December 31, 2008 from 4.54% for the year ended December 31, 2007. As a result of the lower interest rate environment for overnight deposits during the year ended December 31, 2008, a decrease in the average balance resulted, as management deployed funds into loans in an effort to achieve higher returns.
Total interest expense decreased by $554,000 or 3.2% to $16.7 million for the year ended December 31, 2008 from $17.2 million for the year ended December 31, 2007. This decrease resulted primarily from a decrease in the average cost of interest bearing liabilities to 3.40% for the year ended December 31, 2008 from 3.82% for the year ended December 31, 2007, partially offset by an increase in the balance of total interest bearing deposit liabilities of $14.8 million or 4.1% to $371.8 million for the year ended December 31, 2008 from $357.0 million for the year ended December 31, 2007, and an increase in the balance of average borrowings of $25.5 million or 27.3% to $118.9 million for the year ended December 31, 2008, from $93.4 million for the year ended December 31, 2007.
The provision for loan losses totaled $1.3 million and $600,000 for the years ended December 31, 2008 and 2007, respectively. The provision for loan losses is established based upon management's review of the Bank's loans and consideration of a variety of factors including, but not limited to, (1) the risk characteristics of the loan portfolio, (2) current economic conditions, (3) actual losses previously experienced, (4) the significant level of loan growth and (5) the existing level of reserves for loan losses that are possible and estimable. During 2008, the Bank experienced $61,000 in net charge-offs . . .
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