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BCBP > SEC Filings for BCBP > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for BCB BANCORP INC

Form 10-Q for BCB BANCORP INC


9-Nov-2012

Quarterly Report

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

Subsequent Event

On October 29th and 30th, 2012, Hurricane Sandy struck the Northeast section of the country. The Bank's market area has been significantly impacted by the storm which resulted in widespread flooding, wind damage and power outages. The storm temporarily disrupted our branch network and our ability to service our customers, however within one week, all of our offices were fully functional. We have begun the process of assessing whether the underlying collateral of any loan facilities we have in those areas affected by the storm have suffered damage and possible loss of value. Additionally, we are in the process of determining whether or not the storm has impacted our borrowers' ability to repay their obligations to the Bank. The Bank is generally named as a loss payee on hazard and flood insurance policies covering collateral properties and carries both mortgage impairment and business interruption insurance. These policies could mitigate losses that the Bank may sustain due to the effects of the hurricane. Presently, that process remains on-going and it is premature to determine what, if any impact this may have on our level of loan losses or non-performing loans. Predicated upon the completion of the aforementioned, the Company may experience increased levels of non-performing loans and loan losses which may negatively impact future operating results.

Financial Condition

Total assets decreased by $62.1 million or 5.1% to $1.155 billion at September 30, 2012 from $1.217 billion at December 31, 2011. The decrease in total assets occurred primarily as a result of decreases in securities held to maturity of $21.7 million, loans held for sale of $5.6 million and cash and cash equivalents of $44.8 million which more than offset the increases in loans receivable of $7.0 million and other assets of $6.4 million. Management is concentrating on controlled balance sheet growth and maintaining adequate liquidity in anticipation of funding loans in the loan pipeline as well as seeking opportunities in the secondary market that provide reasonable returns. During the third quarter, the Bank sold a portion of the non-performing loan portfolio which totaled approximately $8.3 million resulting in a pre-tax loss of $3.5 million; for the nine months ended September 30, 2012, such sales totaled $25.9 million and resulted in a pre-tax loss of $10.8 million. Management continues to evaluate its non-performing loans, and based upon market conditions and the ability to obtain satisfactory pricing may consider sales of a portion of its non-performing loans. It is our intention to grow the statement of financial condition at a measured pace consistent with our capital levels and as business opportunities permit.

Total cash and cash equivalents decreased by $44.8 million or 38.3% to $72.3 million at September 30, 2012 from $117.1 million at December 31, 2011. The decrease in cash and cash equivalents resulted primarily from funding new loans and deposit outflow. Investment securities classified as held-to-maturity decreased by $21.7 million or 10.5% to $185.3 million at September 30, 2012 from $207.0 million at December 31, 2011. This decrease in investment securities resulted primarily from purchases of $55.7 million for the nine months ended September 30, 2012 offset by allowable sales of $26.5 million of mortgage-backed securities from the held-to-maturity portfolio, $43.3 million of repayments and prepayments in the mortgage-backed securities portfolio, $3.3 million in maturities of certain Government Sponsored Enterprise bonds and $3.0 million of call options exercised on certain callable agency securities during the nine months ended September 30, 2012.

Loans receivable increased by $7.0 million or 0.8% to $847.8 million at September 30, 2012 from $840.8 million at December 31, 2011. The increase resulted primarily from a $26.6 million increase in real estate mortgages comprising residential, commercial and multi-family, construction and participation loans with other financial institutions partially offset by a $10.7 million decrease in commercial loans comprising business loans and commercial lines of credit, net of amortization, and a $7.4 million decrease in consumer loans, net of amortization partially offset by a $1.4 million increase in the allowance for loan losses. The increase was partially off-set by the sale of certain commercial loans obtained as part of the Allegiance Community Bank acquisition in April 2011 totaling approximately $10.8 million. The sale of the aforementioned in loans receivable resulted in a gain on sale of loans of approximately $286,000. Further, during the nine months ended September 30, 2012, the Bank sold approximately $25.9 million of loans that were non-performing loans. The $25.9 million of non-performing loans sold included $9.1 million of residential mortgage loans, $14.6 million of commercial and multi-family loans, $1.1 million of home equity loans, $781,000 of commercial business loans, and $313,000 of construction loans. The primary reason for this transaction was the elimination of carrying and legacy costs associated with these non-interest earning assets. The sale of this sub-set of the non-performing loan portfolio resulted in a pre-tax loss of approximately $10.8 million. The balance in the loan pipeline at September 30, 2012 was $112.6 million. As of September 30, 2012, the allowance for loan losses was $11.9 million or 47.6% of non-performing loans and 1.38% of gross loans. As a result of the loans acquired in the recent business combination transactions being recorded at their fair value, the balance in the allowance for loan losses that were on the balance sheet of the former Pamrapo Bancorp, Inc., and Allegiance Community Bank are precluded from being reported in the allowance balance previously discussed, consistent with generally accepted accounting principles.

Deposit liabilities decreased by $29.5 million or 3.0% to $948.1 million at September 30, 2012 from $977.6 million at December 31, 2011. The decrease resulted primarily from a $32.3 million decrease in interest bearing deposits which more than offset a $2.8 million increase in non-interest bearing deposits. During the nine months ended September 30, 2012, the Federal Open Market Committee (FOMC) has continued its mindset of a continuing accommodative monetary policy. This has resulted in historically low short term market rates that have further resulted in low time deposit account yields which in turn has had the effect of decreasing interest expense.

Borrowed money decreased by $15.4 million or 11.9% to $114.1 million at September 30, 2012 from $129.5 million at December 31, 2011. The decrease in borrowed money resulted primarily from the pre-payment of $15.4 million in Federal Home Loan Bank Advances that were acquired in the business combination transaction with Allegiance Community Bank. As a result, a pre-payment penalty of $49,000 was recognized as interest expense. The purpose of the borrowings reflects the use of long term Federal Home Loan Bank advances to augment deposits as the Bank's funding source for originating loans and investing in GSE investment securities.

Stockholders' equity decreased by $16.5 million or 16.5% to $83.5 million at September 30, 2012 from $100.0 million at December 31, 2011. The decrease in stockholders' equity is primarily attributable to the repurchase of 999,079 shares of the Company's common stock at a cost of $10.4 million, as well as the payment of a three quarterly cash dividends totaling $3.3 million, along with a net loss for the nine months ended September 30, 2012 of $3.1 million, partially offset by an increase of $100,000 resulting from the exercise of stock options totaling 28,661 shares. As of September 30, 2012, the Bank's Tier 1, Tier 1 Risk-Based and Total Risk Based Capital Ratios were 7.54%, 12.35% and 13.60% respectively.

Three Months of Operations

We experienced a net loss of $1.35 million for the three months ended September 30, 2012, compared with net income of $1.19 million for the three months ended September 30, 2011. The net loss was due to increases in non-interest expense and the provision for loan losses and a decrease in total non-interest income, partially offset by an increase in net interest income and a decrease in the income tax provision. Net interest income increased by $861,000 or 9.2% to $10.26 million for the three months ended September 30, 2012 from $9.39 million for the three months ended September 30, 2011. The increase in net interest income resulted primarily from an increase of $79.1 million or 7.4% in the average balance of interest earning assets to $1.145 billion for the three months ended September 30, 2012 from $1.066 billion for the three months ended September 30, 2011, partially offset by a decrease in the average yield on interest earning assets of twenty basis points to 4.58% for the three months ended September 30, 2012 from 4.78% for the three months ended September 30, 2011. The average balance of interest bearing liabilities increased by $77.5 million or 8.5% to $992.0 million for the three months ended September 30, 2012 from $914.5 million for the three months ended September 30, 2011, and the average cost of interest bearing liabilities decreased by thirty-one basis points to 1.15% for the three months ended September 30, 2012 from 1.46% for the three months ended September 30, 2011. The decrease of thirty-one basis points in the average yield of interest bearing deposits more than offset the decrease of twenty basis points on the average cost of interest earning assets. As a consequence, our net interest margin increased to 3.58% for the three months ended September 30, 2012 from 3.52% for the three months ended September 30, 2011. The increase in the average balance of interest earning assets and the average balance of interest bearing liabilities reflects the completion of the business combination transaction with Allegiance Community Bank.

Index

Interest income on loans receivable increased by $965,000 or 9.1% to $11.63 million for the three months ended September 30, 2012 from $10.66 million for the three months ended September 30, 2011. The increase was primarily attributable to an increase in the average balance of loans receivable of $76.6 million or 9.9% to $852.8 million for the three months ended September 30, 2012 from $776.2 million for the three months ended September 30, 2011, partially offset by a decrease in the average yield on loans receivable to 5.46% for the three months ended September 30, 2012 from 5.50% for the three months ended September 30, 2011. The increase in the average balance of loans is primarily attributable to the acquisition of Allegiance Community Bank. The decrease in average yield reflects the competitive price environment prevalent in the Bank's primary market area on loan facilities as well as the repricing downward of variable rate loans.

Interest income on securities decreased by $598,000 or 29.2% to $1.45 million for the three months ended September 30, 2012 from $2.05 million for the three months ended September 30, 2011. This decrease was primarily due to a decrease in the average balance of investment securities of $12.8 million or 5.9% to $205.0 million for the three months ended September 30, 2012 from $217.8 million for the three months ended September 30, 2011 along with a decrease in the average yield of securities held-to-maturity to 2.84% for the three months ended September 30, 2012, from 3.77% for the three months ended September 30, 2011. The decrease in the average yield reflects the low interest rate environment during the three months ended September 30, 2012.

Interest income on other interest-earning assets increased by $13,000 or 100.0% to $26,000 for the three months ended September 30, 2012 from $13,000 for the three months ended September 30, 2011. This increase was primarily due to an increase of $15.3 million or 21.2% in the average balance of other interest-earning assets to $87.5 million for the three months ended September 30, 2012 from $72.2 million for the three months ended September 30, 2011. The average yield on other interest-earning assets increased slightly to 0.12% for the three months ended September 30, 2012 from 0.07% for the three month ended September 30, 2011. The static nature of the average yield on other interest earning assets reflects the current philosophy by the FOMC of keeping short term interest rates at historically low levels for the last two years. The increase in the average balance of other interest earning assets is primarily attributable to the completion of the acquisition of Allegiance Community Bank.

Total interest expense decreased by $481,000 or 14.4% to $2.85 million for the three months ended September 30, 2012 from $3.33 million for the three months ended September 30, 2011. The decrease resulted primarily from a decrease in the average cost of interest bearing liabilities of thirty-one basis points to 1.15% for the three months ended September 30, 2012 from 1.46% for the three months ended September 30, 2011, partially offset by an increase in the balance of average interest bearing liabilities of $77.5 million or 8.5% to $992.0 million for the three months ended September 30, 2012 from $914.5 million for the three months ended September 30, 2011. The increase in the balance of average interest bearing liabilities is primarily attributable to the completion of the acquisition of Allegiance Community Bank. The decrease in the average cost reflects the Company's reaction to the lower short term interest rate environment and our ability to reduce our pricing on a select number of retail deposit products.

The provision for loan losses totaled $1.6 million and $800,000 for the three month periods ended September 30, 2012 and 2011, 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) our level of loan growth and
(5) the existing level of reserves for loan losses that are probable and estimable. During the three months ended September 30, 2012, the Bank experienced $1.1 million in net charge-offs, (consisting of $1.1 million in charge-offs and no recoveries). During the three months ended September 30, 2011, the Bank experienced $476,000 in net charge-offs, (consisting of $476,000 in charge-offs and no recoveries). The Bank had non-performing loans totaling $25.0 million or 2.91% of gross loans at September 30, 2012, $47.8 million or 5.61% of gross loans at December 31, 2011 and $41.8 million or 5.50% of gross loans at September 30, 2011. The decrease in non-performing loans resulted primarily from two sales totaling approximately $25.9 million in non-performing loans during the nine months ended September 30, 2012. The primary reason for this transaction was the elimination of carrying and legacy costs associated with these non-interest earning assets. The sale of non-performing loans for the three months ended September 30, 2012 of $8.3 million resulted in a pre-tax loss of approximately $3.5 million. The allowance for loan losses was $11.9 million or 1.38% of gross loans at September 30, 2012, $10.5 million or 1.23% of gross loans at December 31, 2011 and $9.0 million or 1.19% of gross loans at September 30, 2011. 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 Bank 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 as of September 30, 2012, December 31, 2011 and September 30, 2011.

We experienced a $3.1 million non-interest loss for the three months ended September 30, 2012 compared with non-interest income of $182,000 for the three months ended September 30, 2011. The non-interest loss resulted primarily from the aforementioned $3.5 million loss on sale of non-performing loans partially offset by a $292,000 or 384.2% increase in fees and service charges to $368,000 for the three months ended September 30, 2012 primarily due to increases in deposit account service charges, loan application fees, and late charges from $76,000 for the three months ended September 30, 2011, and an increase in gain on sale of loans of $98,000 or 51.6% to $288,000 for the three months ended September 30, 2012 from $190,000 for the three months ended September 30, 2011. The increase in gain on sale of loans occurred primarily as a result of the active local market for refinancing one-to four-family residential mortgages, aided in large part by the low interest rate environment. The Bank also recorded an increase on loss on sale of real estate owned of $260,000 or 214.9% to a loss of $381,000 for the three months ended September 30, 2012 from a loss of $121,000 for the three months ended September 30, 2011.

Total non-interest expense increased by $1.87 million or 27.7% to $8.62 million for the three months ended September 30, 2012 from $6.75 million for the three months ended September 30, 2011. Unless specified otherwise, the increase in the categories of non-interest expense occurred primarily as a result of the acquisition of Allegiance Community Bank in October 2011. Salaries and employee benefits expense increased by $551,000 or 17.1% to $3.78 million for the three months ended September 30, 2012 from $3.23 million for the three months ended September 30, 2011. This increase occurred primarily as a result of an increase in the number of full time equivalent employees to 205 at September 30, 2012, from 166 at September 30, 2011. Occupancy expense increased by $112,000 or 15.1% to $855,000 for the three months ended September 30, 2012 from $743,000 for the three months ended September 30, 2011. Equipment expense increased by $86,000 or 8.1% to $1.15 million for the three months ended September 30, 2012 from $1.06 million for the three months ended September 30, 2011. The primary component of this expense item is data service provider expense which increases with the growth in the Bank's assets. Professional fees increased by $750,000 or 126.3% to $1.34 million for the three months ended September 30, 2012 from $594,000 for the three months ended September 30, 2011. The increase is primarily due to the settlement of several legacy lawsuits that arose as a result of the business combination transaction with Pamrapo Bancorp, Inc. Directors' fees decreased by $12,000 or 6.7% to $168,000 for the three months ended September 30, 2012 from $180,000 for the three months ended September 30, 2011. Regulatory assessments increased by $172,000 or 141.0% to $294,000 for the three months ended September 30, 2012 from $122,000 for the three months ended September 30, 2011. Advertising expense increased by $10,000 or 8.7% to $125,000 for the three months ended September 30, 2012 from $115,000 for the three months ended September 30, 2011. Merger related expenses decreased by $81,000 to no corresponding entry for the three months ended September 30, 2012 from $81,000 for the three months ended September 30, 2011. Other non-interest expense increased by $284,000 or 45.6% to $907,000 for the three months ended September 30, 2012 from $623,000 for the three months ended September 30, 2011. Other non-interest expense is comprised of loan expense, stationary, forms and printing, check printing, correspondent bank fees, telephone and communication, and other fees and expenses.

Index

The income tax constituted an income tax benefit of $1.7 million for the three months ended September 30, 2012 compared with a tax provision of $840,000 for the three months ended September 30, 2011, reflecting the loss during the three months ended September 30, 2012 primarily as a result of the previously mentioned non-performing loan sale completed during the three months ended September 30, 2012. The consolidated effective tax rate for the three months ended September 30, 2012 was a tax benefit of 56.4% compared to a tax provision of 41.4% for the three months ended September 30, 2011.

Nine Months of Operations

We experienced a net loss of $3.12 million for the nine months ended September 30, 2012 compared with net income of $5.06 million for the nine months ended September 30, 2011. The net loss was due to increases in the non-interest expense and provision for loans losses along with a decrease in non-interest income, partially offset by an increase in net interest income and a decrease in the income tax provision. Net interest income increased by $1.85 million or 6.4% to $30.80 million for the nine months ended September 30, 2012 from $28.95 million for the nine months ended September 30, 2011. This increase in net interest income resulted primarily from an increase of $95.1 million or 8.8% in the average balance of interest earning assets to $1.171 billion for the nine months ended September 30, 2012 from $1.076 billion for the nine months ended September 30, 2011, partially offset by a decrease in the average yield on interest earning assets to 4.55% for the nine months ended September 30, 2011 from 4.84% for the nine months ended September 30, 2011. The average balance of interest bearing liabilities increased by $91.7 million or 9.9% to $1.014 billion for the nine months ended September 30, 2012 from $922.7 million for the nine months ended September 30, 2011, while the average cost of interest bearing liabilities decreased to 1.21% for the nine months ended September 30, 2012 from 1.46% for the nine months ended September 30, 2011. As a consequence of the aforementioned, our net interest margin decreased to 3.51% for the nine months ended September 30, 2012 from 3.59% for the nine months ended September 30, 2011. The increase in the average balance of interest earning assets and the average balance of interest bearing liabilities reflects the completion of the acquisition of Allegiance Community Bank.

Interest income on loans receivable increased by $2.34 million or 7.1% to $35.36 million for the nine months ended September 30, 2012 from $33.02 million for the nine months ended September 30, 2011. The increase was primarily attributable to an increase in the average balance of loans receivable of $72.2 million or 9.2% to $857.1 million for the nine months ended September 30, 2012 from $784.9 million for the nine months ended September 30, 2011, partially offset by a decrease in the average yield on loans receivable to 5.50% for the nine months ended September 30, 2012 from 5.61% for the nine months ended September 30, 2011. The increase in the average balance of loans is primarily attributable to the completion of the acquisition of Allegiance Community Bank. The decrease in average yield reflects the competitive price environment prevalent in the Bank's primary market area on loan facilities as well as the repricing downward of variable rate loans.

Interest income on securities decreased by $1.43 million or 24.0% to $4.53 million for the nine months ended September 30, 2012 from $5.96 million for the nine months ended September 30, 2011. This decrease was primarily due to a decrease in the average balance of securities held-to-maturity of $6.7 million or 3.1% to $211.5 million for the nine months ended September 30, 2012 from $218.2 million for the nine months ended September 30, 2011, partially offset by a decrease in the average yield of securities held-to-maturity to 2.86% for the nine months ended September 30, 2012 from 3.64% for the nine months ended September 30, 2011. The decrease in the average yield reflects the low interest rate environment during the nine months ended September 30, 2012.

Interest income on other interest-earning assets increased by $32,000 or 54.2% to $91,000 for the nine months ended September 30, 2012 from $59,000 for the nine months ended September 30, 2011. This increase was primarily due to an increase of $29.5 million or 40.2% in the average balance of other interest-earning assets to $102.8 million for the nine months ended September 30, 2012 from $73.3 million for the nine months ended September 30, 2011. The average yield on other interest-earning assets remained relatively static at 0.12% for the nine months ended September 30, 2012 and 0.11% for the nine months ended September 30, 2011. The static nature of the average yield on other interest-earning assets reflects the current philosophy by the FOMC of keeping short term interest rates at historically low levels for the last two years. The increased balance of other interest earning assets reflects management's decision to have higher liquid investments during a period of historically low interest rates.

Total interest expense decreased by $906,000 or 9.0% to $9.18 million for the nine months ended September 30, 2012 from $10.09 million for the nine months ended September 30, 2011. The decrease resulted primarily from a decrease in the average cost of interest-bearing liabilities of twenty-five basis points to 1.21% for the nine months ended September 30, 2012 from 1.46% for the nine months ended September 30, 2011, partially offset by an increase in the balance of average interest-bearing liabilities of $91.7 million or 9.9% to $1.014 billion for the nine months ended September 30, 2012 from $922.7 million for the nine months ended September 30, 2011. The increase in the balance of average interest- bearing liabilities is primarily attributable to the completion of the acquisition of Allegiance Community Bank. The decrease in the average cost reflects the lower short term interest rate environment and our ability to reduce our pricing on a select number of retail deposit products.

The provision for loan losses totaled $3.4 million for the nine months ended September 30, 2012 and $1.6 million for the nine months ended September 30, 2011. 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 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, 2012, the Bank experienced $1.99 million in net charge-offs (consisting of $1.99 million in charge-offs and no recoveries). During the nine months ended September 30, 2011, the Bank experienced $977,000 in net charge-offs (consisting of $1.0 million in charge-offs and $25,000 in recoveries). The Bank had non-performing loans totaling $25.0 million or 2.91% of gross loans at September 30, 2012, $47.8 million or 5.61% of gross loans at December 31, 2011 and $41.8 million or 5.50% of gross loans at September 30, 2011. The decrease in non-performing loans resulted primarily from the sales of approximately $25.9 million in non-performing loans during the second quarter and third quarters of 2012. The primary reason for this transaction was the elimination of carrying and legacy costs associated with these non-interest earning assets. These sales resulted in a pre-tax loss of approximately $10.8 million. The allowance for loan losses was $11.9 million or 1.38% of gross loans at September 30, 2012, $10.5 million or 1.23% of gross loans at December 31, 2011 and $9.0 million or 1.19% of gross loans at September 30, 2011. 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 Bank 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, 2012, December 31, 2011 and September 30, 2011. . . .

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