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| PBCI > SEC Filings for PBCI > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
Forward-Looking Statements
This Form 10-Q may include certain forward-looking statements based on current management expectations. The actual results of the Company could differ materially from those management expectations. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of loan and investment portfolios of the Bank, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices.
Pending Merger
On June 29, 2009, the Company and BCB Bancorp, Inc., a New Jersey corporation ("BCB"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Pamrapo will merge with and into BCB, with BCB as the surviving corporation. The Bank and BCB Community Bank, a New Jersey-chartered bank and a wholly-owned subsidiary of BCB ("BCB Bank"), will also enter into a subsidiary agreement and plan of merger that provides for the merger of the Bank with and into BCB Bank, with BCB Bank as the surviving institution. Pursuant to the terms of the Merger Agreement, shareholders of Pamrapo will receive 1.0 share of BCB common stock for each share of the Company's common stock. In addition, all outstanding unexercised options to purchase the Company's common stock will be converted into options to purchase BCB common stock. The transaction is expected to close in the first quarter of 2010, pending regulatory approvals, approval of the Merger Agreement by shareholders of both Pamrapo and BCB, and the satisfaction of other customary closing conditions.
Changes in Financial Condition
The Company's assets at September 30, 2009 totaled $571.5 million, which represents a decrease of $26.5 million or 4.4% as compared with $598.0 million at December 31, 2008.
Total cash and cash equivalents of $27.5 million at September 30, 2009 increased $13.9 million or 102.2% when compared with $13.6 million at December 31, 2008. The increase during the nine months ended September 30, 2009 resulted from an increase in interest-bearing deposits in other banks.
Securities available for sale at September 30, 2009 decreased $54,000 or 7.0% to $717,000 when compared with $771,000 at December 31, 2008. The decrease during the nine months ended September 30, 2009 resulted primarily from repayments on securities available for sale of $95,000 and net unrealized gains of $41,000.
Investment securities held to maturity at September 30, 2009 totaled $11.3 million as compared with $11.4 million at December 31, 2008. Mortgage-backed securities held to maturity at September 30, 2009 decreased $23.7 million or 20.2% to $93.7 million when compared with $117.4 million at December 31, 2008. The decrease during the nine months ended September 30, 2009 resulted primarily from principal repayments totaling $23.6 million.
Net loans receivable amounted to $421.6 million at September 30, 2009, as compared to $437.6 million at December 31, 2008, which represents a decrease of $16.0 million or 3.7%. The decrease during the nine months ended September 30, 2009 resulted primarily from principal repayments exceeding loan originations.
Foreclosed real estate consists of three single-family residences.
Deferred tax assets totaled $5.4 million at September 30, 2009 as compared to $4.4 million at December 31, 2008 representing an increase of $1.0 million. This increase was primarily due to an increase in the provision for loan losses, the reserve for uncollectable interest and the accrual for pension and other post-retirement plans.
Deposits at September 30, 2009 totaled $447.6 million as compared with $444.0 million at December 31, 2008 representing an increase of $3.6 million or 0.8%. The increase during the nine months ended September 30, 2009 resulted from an increase in interest bearing deposits, which more than offset the loss of deposits as a result of the sale of the Bank's Fort Lee, New Jersey branch in March 2009 with deposits, as of the date of sale, approximating $14.5 million.
Advances from the Federal Home Loan Bank of New York ("FHLB") amounted to $59.0 million at September 30, 2009 as compared with $89.5 million at December 31, 2008 representing a decrease of $30.5 million or 34.1% due to repayments on the advances.
Stockholders' equity totaled $50.5 million and $54.7 million at September 30, 2009 and December 31, 2008, respectively. The decrease of $4.2 million for the nine months ended September 30, 2009 resulted from a net loss of $3.2 million and from cash dividends paid of $1.3 million offset by other comprehensive income of $235,000. The Company has suspended dividends on its common stock until further notice.
Comparison of Operating Results for the Three Months Ended September 30, 2009 and 2008
Net loss for the three months ended September 30, 2009 totaled $10,000 as compared to net income of $611,000 for the three months ended September 30, 2008, representing a decrease of $621,000 or 101.6%. The decrease in net income during the three months ended September 30, 2009, as compared to the same 2008 period, resulted primarily from a $1.0 million decrease in total interest income, an $806,000 decrease in total interest expense, a $498,000 increase in the provision for loan losses, a $274,000 decrease in non interest income, a $34,000 increase in noninterest expenses and a $388,000 decrease in income tax expense.
Interest income on loans decreased by $651,000 or 9.4% to $6.3 million during the three months ended September 30, 2009, when compared with $6.9 million for the same 2008 period. The decrease during the 2009 period resulted from a decrease of $11.8 million or 2.7% in the average balance of loans outstanding, along with a decrease of 44 basis points in the yield earned on loans. Interest on mortgage-backed securities decreased $326,000 or 22.8% to $1.1 million during the three months ended September 30,
2009, when compared with $1.4 million for the same 2008 period. The decrease during the 2009 period resulted from a decrease of $27.2 million or 21.7% in the average balance of mortgage-backed securities outstanding, along with a six basis point decrease in the yield earned on the mortgage-backed securities. Interest earned on investments increased by $10,000 or 4.4% to $236,000 during the three months ended September 30, 2009, when compared to $226,000 during the same 2008 period, primarily due to an increase of 36 basis points in the yield on the portfolio, which more than offset a decrease of $41,000 or 0.3% in the average balance of such assets outstanding. Interest income earned on other interest-earning assets decreased by $42,000 or 41.6% to $59,000 during the three months ended September 30, 2009, when compared to $101,000 during the same 2008 period, primarily due to a decrease of 210 basis points in the yield on the portfolio, which more than offset an increase of $13.5 million or 99.3% in the average balance of such assets outstanding.
Interest expense on deposits decreased $684,000 or 26.0% to $2.0 million during the three months ended September 30, 2009, when compared to $2.6 million during the same 2008 period. Such decrease was primarily attributable to a decrease of 61 basis points in the cost of interest-bearing deposits, in addition to a decrease of $8.5 million or 2.0% in the average balance of interest-bearing deposits.
Interest expense on advances from the FHLB and overnight borrowings decreased by $122,000 or 13.9% to $757,000 million during the three months ended September 30, 2009, when compared with $ 879,000 during the same 2008 period, primarily due to a decrease of $12.9 million or 17.8% in the average balance of advances and overnight borrowings outstanding, which more than offset a 23 basis point increase in the cost of advances and overnight borrowings.
Net interest income decreased $203,000 or 3.9% during the three months ended September 30, 2009 when compared with the same 2008 period. Such decrease was due to a decrease in total interest expense of $806,000, which was more than offset by a decrease in total interest income of $1.0 million. The Bank's net interest rate spread was 3.19% in 2009 and 3.08% in 2008. There was a decrease in the cost of interest-bearing liabilities of 56 basis points, which more than offset a decrease of 45 basis points in the yield on interest-earning assets.
During the three months ended September 30, 2009 and 2008, the Bank provided $850,000 and $352,000, respectively, as a provision for loan losses. The $498,000 increase in the provision for loan losses, from the 2008 to the 2009 period, was primarily due to an increase in the Bank's non-performing loans, which were $21.6 million at September 30, 2009 compared to $8.8 million at September 30, 2008. The allowance for loan losses is based on management's evaluation of the risk inherent in its loan portfolio and gives due consideration to the changes in general market conditions and in the nature and volume of the Bank's loan activity. The Bank intends to continue to provide for loan losses based on its periodic review of the loan portfolio, taking into account general economic conditions, delinquency trends, historic charge-off experience, and recent valuations of properties collateralizing nonperforming loans.
At September 30, 2009 and 2008, the Bank's non-performing loans, which were delinquent ninety days or more, totaled $21.6 million or 3.78% of total assets, and $8.8 million or 1.46% of total assets, respectively. At September 30, 2009, $5.6 million of non-performing loans were accruing interest and $16.0 million were on nonaccrual status.
Included in the non-performing loans were $10.0 million in one-to-four family mortgage loans, $2.0 million in multi-family mortgage loans, $2.6 million in non-residential mortgage loans, $4.6 million in construction and land loans, and $2.2 million in commercial loans. The Bank's largest non-accruing commercial loan of $1.9 million is to a local hospital. In October 2006, $1.0 million of the total $3.0 million due on the loan was paid and the remaining contractual balance of approximately $1.9 million was secured by a mortgage on real estate. The $1.9 million was due on June 1, 2007. As of September 30, 2009, the $1.9 million loan balance had not been paid. The repayment of the loan is subject to bankruptcy proceedings. In September 2008, the creditor's committee for the hospital filed a complaint against the Bank seeking to recover the $1.0 million previously paid on the loan and to set aside the mortgage securing the $1.9 million still owed to the Bank, charging that the payment and the mortgage were "avoidable preferences."
On June 9, 2009, the Liquidating Trustee for the hospital filed a motion providing for an auction sale of the two mortgaged properties to be sold free and clear of all liens, with liens to attach to the proceeds of sale. The Bank did not oppose the motion and the auction sale was held at a hearing on July 20, 2009. The U.S. Bankruptcy Court for the District of New Jersey, by orders dated July 23, 2009, approved separate bids to acquire the properties for a total of $1.6 million. The closings took place on August 5, 2009 and August 6, 2009, respectively. Net proceeds of the sale, after deducting taxes, real estate commissions and other closing costs, were approximately $1.5 million.
The parties in the litigation have recently completed discovery. All motions, including those for summary judgment, must be filed no later than November 25, 2009. The trial of any issues remaining following disposition of the motions is scheduled for February 24, 2010. The successful party in the preference litigation will be entitled to some or all of the net proceeds of the sale of the properties. At this point, management believes, based on discussions with its litigation counsel, the Bank will likely prevail in its defense. However, due to the normal uncertainties of any litigation, the loan has been deemed impaired and is included in the recorded investments in impaired loans, net of its related allowance, at September 30, 2009. Based upon the net carrying value of the hospital loan as of September 30, 2009, if the Bank is successful in the preference litigation and, as a result, receives all or a certain portion of the net proceeds of the sale of the properties, the Bank may recover the current net carrying value of the hospital loan plus a portion of amounts previously reserved for. The Bank will continue to monitor this loan and evaluate its collectability as necessary.
During the three months ended September 30, 2009 and 2008, the Bank charged off loans totaling $115,000 and $21,000, respectively. There were also no recoveries during either period. The allowance for loan losses amounted to $6.7 million at September 30, 2009, representing 1.58% of total loans and 31.02% of loans delinquent ninety days or more, and $3.7 million at September 30, 2008, representing 0.84% of total loans and 42.27% of loans delinquent ninety days or more.
Non-interest income decreased $273,000 or 42.7% to $367,000 during the three months ended September 30, 2009, from $640,000 during the same 2008 period, which resulted primarily from a decrease in commissions from the sale of financial products of $221,000, in addition to a decrease in fees and service charges of $25,000 and a decrease in other non-interest income of $27,000. The decrease in commissions from the sale of financial products was primarily due to management's decision to eliminate the sale of financial products to the general public in April of 2009.
Non-interest expenses increased $35,000 or 0.8% to $4.5 million during the three months ended September 30, 2009, when compared with $4.4 million during the same 2008 period. Equipment expense, professional fees and federal deposit insurance premium increased $6,000, $133,000, $171,000, respectively, which were greater than decreases in salaries and employee benefits, net occupancy expense of premises, advertising and other non-interest expense in the amounts of $172,000, $26,000, $8,000, $69,000, respectively, during the 2009 period when compared with the same 2008 period.
As previously reported, the Bank received federal grand jury subpoenas from the U.S. Attorney's Office for the District of New Jersey ("U.S. Attorney's Office"). The subpoenas were issued to the Bank in connection with an ongoing investigation regarding the Bank's anti-money laundering and Bank Secrecy Act compliance. Certain individuals, including the Bank's senior officers and directors, have received grand jury testimony subpoenas in connection with this investigation. In addition, the Bank and its wholly-owned subsidiary, Pamrapo Service Corporation (the "Corporation"), have also received federal grand jury subpoenas from the U.S. Attorney's Office relating to certain commissions paid to the manager of the Corporation. The Bank has and continues to fully cooperate with this ongoing investigation.
No penalties, either criminal or civil, have been imposed on the Bank to date as a result of the investigation. However, pursuant to FASB ASC 450 "Contingencies," a company must accrue funds for a possible litigation loss if a loss is probable and the amount of the expected loss is reasonably estimable. It is probable that the Bank will incur monetary penalties in the form of fines and forfeitures as a result of these matters. As reported in a Form 8-K filed with the Securities and Exchange Commission on June 23, 2009, the Bank was able to reasonably estimate certain losses, based on information that had come to light at that time. As a result, the Bank accrued a $3.0 million litigation loss reserve to reflect a potential criminal forfeiture, and related costs and expenses in the quarter ended June 30, 2009.
The Bank is only able to reasonably estimate certain losses at this time. It is probable that the Bank will incur material losses in addition to the $3.0 million litigation loss reserve described above; however it is not able to reasonably estimate additional losses at this time. These additional losses relate to potential further criminal forfeitures and potential criminal
fines that may be imposed separately by a court, and civil money penalties that may be imposed by the Office of Thrift Supervision ("OTS"), the Bank's primary federal regulator, and Financial Crimes Enforcement Network, a part of the United States Treasury Department (FinCEN). Depending on the end result of the investigation, the total amount of penalties and related costs and expenses incurred by the Bank may be significantly higher than $3.0 million, and could have a material impact on the Company's consolidated financial position, results of operations, and regulatory capital ratios.
The increase in professional fees during the three months ended September 30, 2009, as compared to the same 2008 period, was predominately due to expenses incurred for legal, accounting and other professional services as a result of the federal grand jury investigation by the U.S. Attorney's Office discussed above and the proposed merger with BCB, and fees paid to consultants that the Bank engaged as a result of a cease and desist order issued by the OTS, effective September 26, 2008.
FDIC premiums increased as a result of an increase in premium rates and the depletion of assessment credits previously in effect.
Income tax expense for the three months ended September 30, 2009 totaled $11,000 as compared to $399,000 for the three months ended September 30, 2008. The decrease during the 2009 period resulted primarily from a decrease in pre-tax income of $1.0 million offset by New Jersey State income tax liability under Pamrapo Investment Company, Inc. and Pamrapo Service Corp. reduced by the Company's federal income tax benefits. The effective income tax rate was (2282.9%) and 39.5% for the three months ended September 30, 2009 and 2008, respectively.
Comparison of Operating Results for the Nine Months Ended September 30, 2009 and 2008
Net loss for the nine months ended September 30, 2009 totaled $3.2 million as compared to net income of $2.6 million for the nine months ended September 30, 2008, representing a decrease of $5.8 million or 223.1%. The decrease in net income during the nine months ended September 30, 2009, as compared to the same 2008 period, resulted primarily from a $5.8 million increase in total non-interest expenses and a higher provision for loan losses, as well as a decrease in total interest and non-interest income, which were partially offset by decreases in total interest expense and a reduction in income taxes. The $5.8 million increase in total non-interest expenses was primarily driven by a $3.0 million litigation loss reserve accrued during the second quarter of 2009 and a $2.3 million increase in professional fees from the nine months ended September 30, 2008 to the nine months ended September 30, 2009, as well as a $638,000 increase in FDIC premiums, including a special assessment of $263,000 from the 2008 to the 2009 period.
Interest income on loans decreased by $1.2 million or 5.8% to $19.5 million during the nine months ended September 30, 2009, when compared with $20.7 million for the same 2008 period. The decrease during the 2009 period resulted from a decrease of $5.0 million or 1.2% in the average balance of loans outstanding, along with a decrease of 32 basis points in the yield earned on loans. Interest on mortgage-backed securities decreased $651,000 or 15.2% to $3.6 million during the nine months ended September 30, 2009, when compared with $4.3 million for the same 2008 period. The decrease during the 2009 period resulted from a decrease of $18.6 million or 14.8% in the average balance of mortgage-backed securities outstanding and a decrease of three basis points in the yield on the securities. Interest earned on investments increased by $80,000 or 12.8% to $703,000 during the nine months ended September 30, 2009, when compared to $623,000 during the same 2008 period, primarily due to an increase of $604,000 or 5.4% in the average balance of such assets outstanding, along with an increase of 52 basis points in the yield on the portfolio.
Interest income earned on other interest-earning assets decreased by $768,000 or 82.5% to $163,000 during the nine months ended September 30, 2009, when compared to $931,000 during the same 2008 period, primarily due to a decrease of $17.1 million or 40.3% in the average balance of such assets, in addition to a decrease of 208 basis points in the yield on the portfolio.
Interest expense on deposits decreased $2.4 million or 26.7% to $6.6 million during the nine months ended September 30, 2009, when compared to $9.0 million during the same 2008 period. Such decrease was primarily attributable to a decrease of 56 basis points in the cost of interest-bearing deposits, in addition to a decrease of $33.6 million or 7.6% in
the average balance of interest-bearing deposits. Interest expense on advances from the FHLB and overnight borrowings decreased by $480,000 or 16.1% to $2.5 million during the nine months ended September 30, 2009, when compared with $3.0 million during the same 2008 period, primarily due to a decrease of $4.9 million or 6.4% in the average balance of advances and overnight borrowings outstanding, in addition to a decrease of 53 basis points in the cost of advances and overnight borrowings.
Net interest income increased $304,000 or 2.1% during the nine months ended September 30, 2009 when compared with the same 2008 period. Such increase was due to a decrease in total interest expense of $2.9 million, which was partially offset by a decrease in total interest income of $2.6 million. The Bank's net interest rate spread was 3.09% in 2009 when compared with 2.73% during the same 2008 period. There was a decrease of 56 basis points in the cost of interest-bearing liabilities, which was partially offset by a decrease an increase of 20 basis points in the yield on interest-earning assets.
During the nine months ended September 30, 2009 and 2008, the Bank provided $2.2 million and $580,000, respectively, as a provision for loan losses. The $1.6 million increase in the provision for loan losses, from the 2008 to the 2009 period, was primarily due to an increase in the Bank's non-performing loans, which were $21.6 million at September 30, 2009 compared to $8.8 million at September 30, 2008. The allowance for loan losses is based on management's evaluation of the risk inherent in its loan portfolio and gives due consideration to the changes in general market conditions and in the nature and volume of the Bank's loan activity. The Bank intends to continue to provide for loan losses based on its periodic review of the loan portfolio and general market conditions. During the nine months ended September 30, 2009 and 2008, the Bank charged off $138,000 and $21,000, respectively. There were also no recoveries during either period.
Non-interest income decreased by $57,000 or 3.3% during the nine months ended September 30, 2009, to $1.7 million. This change resulted from a gain on the sale of a branch in the amount of $492,000, and an increase in other non-interest income in the amount of $10,000, which were offset by decreases in commissions from sale of financial products of $425,000 and fees and service charges in the amount of $134,000. The decrease in commissions from sale of financial products was primarily due to management's decision to eliminate the sale of financial products to the general public in April of 2009.
Non-interest expenses increased by $5.8 million or 50% to $17.4 million during the nine months ended September 30, 2009, when compared with $11.6 million during the same 2008 period. Equipment, professional fees, federal deposit insurance premiums, and litigation loss reserve increased $3,000, $2.3 million, $638,000 and $3.0 million, respectively, which was sufficient to offset decreases in salaries and employee benefits, net occupancy expense of premises, advertising, provision for loss on foreclosed real estate and other non-interest expense of $34,000, $56,000, $50,000, $15,000 and $1,000, respectively, during the 2009 period when compared with the same 2008 period. As discussed in "Comparison of Operating Results for the Three Months Ended September 30, 2009 and 2008," the Bank accrued a $3.0 million litigation loss reserve to reflect a potential criminal forfeiture, and related costs and expenses in the quarter ended June 30, 2009 as a result of the federal grand jury investigation by the U.S. Attorney's Office discussed above. It is probable that the Bank will incur material losses in addition to the $3.0 million litigation loss reserve; however no reasonable estimate of additional losses can be made at this time. Depending on the end result of the investigation, the total amount of penalties and related costs and expenses incurred by the Bank may be significantly higher than $3.0 million, and could have a material impact on the Company's consolidated financial position, results of operations, and regulatory capital ratios. The increase in professional fees during the nine months ended September 30, 2009, as compared to the same 2008 period, was predominately due to expenses incurred for legal, accounting and other professional services as a result of the federal grand jury investigation by the U.S. Attorney's Office and the proposed merger with BCB, and fees paid to consultants that the Bank engaged as a result of a cease and desist order issued by the OTS. FDIC premiums increased as a result of an increase in premium rates, the depletion of assessment credits previously in effect and a special assessment during the quarter ended June 30, 2009 of $263,000.
Income tax expense for the nine months ended September 30, 2009 totaled $82,000 as compared to $1.6 million for the nine months ended September 30, 2008. The decrease during the 2009 period resulted primarily from a decrease in pre-tax income of $7.2 million, a non-deductable litigation loss reserve of $3.0 million, offset by New Jersey state income tax liability under Pamrapo Investment Company, Inc. and Pamrapo Service Corp. reduced by the Company's federal income tax benefits. The effective income tax rate was 2.7% and 37.6% for the nine months ended September 30, 2009 and 2008, respectively.
Liquidity and Capital Resources
The Bank is required by OTS regulations to maintain sufficient liquidity to ensure the Bank's safe and sound operation. The Bank's liquidity averaged 5.74% during the month of September 2009. The Bank adjusts its liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes from escrow accounts on mortgage loans, repayment of borrowings, when applicable, and loan funding commitments. The Bank also adjusts its liquidity levels as appropriate to meet its asset and liability objectives.
The Bank's primary sources of funds are deposits, amortization and prepayments of loans and mortgage-backed securities, FHLB advances, maturities of investment securities and funds provided from operations. While scheduled loan and . . .
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