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BLMT > SEC Filings for BLMT > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for BSB BANCORP, INC.

Form 10-Q for BSB BANCORP, INC.


13-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following analysis discusses the changes in financial condition and results of operation of the Company, and should be read in conjunction with both the unaudited consolidated interim financial statements and notes thereto, appearing in Part 1, Item 1 of this report.

Forward-Looking Statements

This report contains forward-looking statements, which can be identified by the use of words such as "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect," "will," "may" and words of similar meaning. These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;

statements regarding our business plans, prospects, growth and operating strategies;

statements regarding the asset quality of our loan and investment portfolios; and

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We do not undertake any obligation to update any forward-looking statements after the date of this document, except as required by law.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

our ability to successfully implement our business strategy, which includes significant asset and liability growth;

our ability to increase our market share in our market areas and capitalize on growth opportunities;

our ability to successfully implement our branch network expansion strategy;

general economic conditions, either nationally or in our market areas, and conditions in the real estate markets that could affect the demand for our loans and other products and the ability of borrowers to repay loans, lead to declines in credit quality and increased loan losses, and negatively affect the value and salability of the real estate that is the collateral for many of our loans;

competition among depository and other financial institutions;

inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

adverse changes in the securities markets;

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

our ability to successfully integrate acquired entities, if any;

changes in consumer spending, borrowing and savings habits;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

changes in our organization, compensation and benefit plans;

changes in our financial condition or results of operations that reduce capital available; and


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changes in the financial condition or future prospects of issuers of securities that we own.

Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the filings made by BSB Bancorp, Inc. with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2011 under the heading "Item 1A. Risk Factors." Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies from those disclosed in BSB Bancorp, Inc.'s 2011 Annual Report on Form 10-K. In applying these accounting policies, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. As discussed in the Company's 2011 Annual Report on Form 10-K, the three most significant areas in which management applies critical assumptions and estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, investment classification and impairment, and deferred income taxes. Management's estimates and assumptions affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from the amount derived from management's estimates and assumptions under different conditions.

Comparison of Financial Condition at September 30, 2012 and December 31, 2011

Total Assets. Total assets increased $153.3 million to $822.3 million at September 30, 2012, from $669.0 million at December 31, 2011. The increase was primarily the result of a $147.4 million, or 28.9%, increase in net loans, a $10.3 million, or 45.1% increase in cash and cash equivalents, and a $22.8 million increase in investments in available-for-sale-securities (from zero at December 31, 2011), partially offset by an $11.8 million, or 74.5%, decrease in loans held for sale, and a $17.4 million decrease in securities held-to-maturity.

Loans. Net loans increased by $147.4 million to $657.4 million at September 30, 2012 from $510.0 million at December 31, 2011. The increase in net loans was primarily due to increases of $77.2 million, or 46.4%, in commercial real estate loans, $38 million, or 19.8% in residential one-to-four family loans, $12.1 million, or 24.1%, in home equity lines of credit, $6.6 million, or 31.8%, in commercial loans, and $14.0 million, or 21.1%, in indirect auto loans. While we have continued to originate significant amounts of one-to-four family residential loans and indirect auto loans in 2012, we have sold these loan types at an increased pace from the prior years. Further, our plan to prudently build new commercial and consumer loan businesses is working as solid growth was experienced in each of these strategic business lines.

Investment Securities. Total investment securities increased $5.4 million to $94.8 million at September 30, 2012, from $89.4 million at December 31, 2011, reflecting our deployment of excess cash into earning assets. The increase in investment securities resulted from an increase of $3.5 million, or 7.62% in U.S. government sponsored mortgage-backed securities, and an increase of $7.4 million, or 19.88% in corporate debt securities, partially offset by a decrease of $5.6 million, or 100%, in U.S. government and federal agency obligations.

Cash and Cash Equivalents. Cash and cash equivalents increased by $10.3 million to $33.1 million at September 30, 2012, from $22.8 million at December 31, 2011. The influx of cash was due to the success in deposit growth.

Bank-Owned Life Insurance. We invest in bank-owned life insurance to provide a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. At September 30, 2012, our investment in bank-owned life insurance was $12.8 million, an increase of $341,000 from $12.4 million at December 31, 2011, reflecting premiums paid and an increase in cash value.

Deposits. Deposits increased $148.0 million, or 34.4%, to $578.6 million at September 30, 2012 from $430.7 million at December 31, 2011. The increase in deposits was due to a $75.9 million, or 34.1% increase in savings accounts, a $53.5 million, or 95.8%, increase in demand deposits, and a $12.1 million, or 53.5%, increase in interest-bearing checking accounts. The strong deposit growth continued as our retail, small business and commercial real estate teams have had ongoing success with the Platinum Blue checking and savings relationship products. A new advertising campaign, technology offerings and the expansion of our Waltham Supermarket branch, further contributed to the results.


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The following table sets forth the Company's deposit accounts at the dates indicated (dollars in thousands):

                                          September 30, 2012           December 31, 2011
                                          Amount       Percent        Amount       Percent
                                              (unaudited)
 Deposit type:
 Demand deposits                        $  109,427        18.91 %    $  55,900        12.98 %
 Interest-bearing checking accounts         34,764         6.01         22,646         5.26
 Savings accounts                          298,541        51.59        222,630        51.69
 Money market deposits                      10,545         1.82         10,633         2.47

 Total transaction accounts                453,277        78.33        311,809        72.40

 Term certificates less than $100,000       56,922         9.84         53,877        12.51
 Term certificates $100,000 or more         68,426        11.83         64,968        15.09

 Total certificate accounts                125,348        21.67        118,845        27.60

 Total deposits                         $  578,625       100.00 %    $ 430,654       100.00 %

Borrowings. At September 30, 2012, borrowings consisted of advances from the Federal Home Loan Bank of Boston, securities sold to customers under agreements to repurchase, or "repurchase agreements", and other borrowed funds consisting of the balance of loans that we sold with recourse to another financial institution in March of 2006.

Total borrowings increased $2.2 million, or 2.17%, to $102.3 million at September 30, 2012, from $100.1 million at December 31, 2011. Advances from the Federal Home Loan Bank of Boston increased $2.0 million to $97.6 million at September 30, 2012, from $95.6 million at December 31, 2011, and repurchase agreements increased $208,000 to $3.2 million at September 30, 2012, from $3.0 million at December 31, 2011.

The following table sets forth the Company's short-term borrowings and long-term debt for the dates indicated (in thousands):

                                                 September 30, 2012            December 31, 2011
                                                    (unaudited)
Long-term borrowed funds:
Federal Home Loan Bank of Boston
long-term advances                              $             60,600          $            82,600
Other borrowed funds                                           1,463                        1,502

                                                $             62,063          $            84,102

Short-term borrowed funds:
Federal Home Loan Bank of Boston
short-term advances                             $             37,000          $            13,000
Repurchase agreements                                          3,193                        2,985

                                                              40,193                       15,985

Total borrowed funds                            $            102,256          $           100,087

Stockholders' Equity. Total equity capital increased $1.2 million to $132.7 million at September 30, 2012, from $131.5 million at December 31, 2011. This increase in stockholders' equity was primarily due to earnings for the year of $916,000, other comprehensive income related to unrealized gains on investments in securities available for sale of $139,000 after taxes and the release of ESOP stock of $137,000 .


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Non-Performing Assets. The following table sets forth the amounts and categories of our non-performing assets at the dates indicated (dollars in thousands):

                                                  At September 30,             At December 31,
                                                        2012                        2011
                                                    (unaudited)
Non-accrual loans:
Mortgage loans:
One-to-four family                               $            1,587           $           3,149
Commercial real estate                                           -                           -
Construction loans                                               -                           -
Equity lines of credit                                          416                       1,123
Commercial loans                                                121                         155
Consumer loans:
Indirect auto loans                                              -                           -
Other consumer loans                                              4                          -

Total non-accrual loans                          $            2,128           $           4,427

Loans delinquent 90 days or greater and
still accruing:
Mortgage loans:
Residential one-to-four family                                   -                           -
Commercial real estate                                           -                           -
Construction loans                                               -                           -
Equity lines of credit                                           -                           -
Commercial loans                                                 -                           -
Consumer loans:
Indirect auto loans                                              -                           -
Other consumer loans                                             -                           -

Total loans 90 days delinquent and still
accruing                                                         -                           -

Total non-performing loans                       $            2,128           $           4,427

Other real estate owned                          $              661           $              -
Repossessed automobiles                                          26                          -

Total non-performing assets (NPAs)               $            2,815           $           4,427

Troubled debt restructures included in
NPAs                                             $              825           $             609
Troubled debt restructures not included
in NPAs                                                       6,655                          -

Total troubled debt restructures                 $            7,480           $             609

Ratios:
Non-performing loans to total loans                            0.32 %                      0.86 %
Non-performing assets to total assets                          0.34 %                      0.66 %

It is the general policy of the Bank to consider any loan on non-accrual as an impaired loan. Exceptions to this policy can be made when, in the opinion of Senior Management, a loan is adequately secured, properly documented and clearly in the process of collection. Any exceptions to policy are reviewed on a monthly basis and must be approved by Senior Management. At September 30, 2012, there were no loans on non-accrual that were determined to not be impaired.

Troubled Debt Restructurings. We periodically modify loans to extend the term or make other concessions to help a borrower stay current on their loan and to avoid foreclosure. We generally do not forgive principal or interest on loans or modify the interest rates on loans to those not otherwise available in the market for loans with similar risk characteristics as the restructured debt. At September 30, 2012, we had $7.5 million of troubled debt restructurings related to ten loans.

Comparison of Operating Results for the Three Months Ended September 30, 2012 and 2011

General. Net income for the three months ended September 30, 2012 was $183,000, compared to net income of $295,000 for the three months ended September 30, 2011. The change in operating results for the three months ended September 30, 2012 compared to the 2011 period resulted primarily from an increase in the provision for loan losses of $414,000 and an increase of $1.4 million in noninterest expense partially offset by an increase of $237,000 in noninterest income and an increase of $1.4 million in net interest and dividend income, partially offset by

Net Interest and Dividend Income. Net interest and dividend income increased $1.4 million to $5.7 million for the three months ended September 30, 2012, compared to $4.3 million for the three months ended September 30, 2011. The increase in net interest and dividend income was primarily due to an increase in our net interest earning assets and the ability to attract lower cost core deposits.


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Net average interest-earning assets increased $220 million, or 41.12% to $754.7 million for the three months ended September 30, 2012 from $534.8 million for the three months ended September 30, 2011. Our net interest margin decreased 19 basis points to 2.98% for the three months ended September 30, 2012, compared to 3.17% for the three months ended September 30, 2011, and our net interest rate spread decreased 33 basis points to 2.69% for the three months ended September 30, 2012, compared to 3.02% for the three months ended September 30, 2011.

Interest and Dividend Income. Interest and dividend income increased $1.3 million to $6.9 million for the three months ended September 30, 2012, from $5.6 million for the three months ended September 30, 2011. The increase in interest and dividend income was primarily due to a $1.5 million increase in interest income on loans partially offset by a $137,000 decrease in interest and dividend income on securities. The increase in interest income on loans resulted from a 53 basis point decrease in the average yield on loans to 4.02% from 4.55%, primarily due to lower market interest rates during the period which was more than offset by an increase in the average balance of loans of $201.6 million to $630.0 million for the three months ended September 30, 2012, from $428.4 million for the three months ended September 30, 2011. The decrease in interest and dividend income on securities was primarily due to a decrease in the average balance of $6.7 million to $83.2 million for the three months ended September 30, 2012, from $89.9 million for the three months ended September 30, 2011, as well as a 42 basis point decrease in the average yield on securities to 2.67% from 3.09%. Dividends on Federal Home Loan Bank stock increased to $10,000 for the three months ended September 30, 2012, from $5,000 paid for the three months ended September 30, 2011. Interest income on other interest-earning assets increased to $18,000 for the three months ended September 30, 2012 from $6,000, primarily due to the increase of $22.8 million in the average balance to $33.9 million for the three months ended September 30, 2012, from $11.1 million for the three months ended September 30, 2011.

Interest Expense. Interest expense decreased $38,000 to $1.3 million for the three months ended September 30, 2012, from $1.3 million for the three months ended September 30, 2011. The decrease resulted from an 18 basis point decrease in the cost of interest-bearing liabilities, partially offset by a $71.5 million, or 15.4%, increase in the average balance of interest-bearing liabilities.

Interest expense on interest-bearing deposits increased by $175,000 to $1.1 million for the three months ended September 30, 2012, from $905,000 for the three months ended September 30, 2011. This increase was primarily due to a $91.5 million increase in the average balance of interest-bearing deposits to $454.8 million for the three months ended September 30, 2012, from $363.3 million for the three months ended September 30, 2011. Offsetting the increase in average balance was a 5 basis point decrease in the average cost of interest-bearing deposits to 0.94% for the three months ended September 30, 2012, from 0.99% for the three months ended September 30, 2011. We experienced decreases in the average cost within money market accounts and certificates of deposit for the three months ended September 30, 2012, reflecting lower market interest rates compared to the prior period, while the average cost of savings accounts increased and checking accounts remained consistent for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011.

Interest expense on total borrowings decreased $213,000 to $223,000 for the three months ended September 30, 2012, from $436,000 for the three months ended September 30, 2011. This decrease was primarily due to a 64 basis point decrease in the average cost of FHLB advances to 1.12% for the three months ended September 30, 2012, from 1.76% for the three months ended September 30, 2011, and a $20.0 million decrease in the average balance of FHLB advances to $74.9 million for the three months ended September 30, 2012, from $95.0 million for the three months ended September 30, 2011.

Provision for Loan Losses. Based on our methodology for establishing our allowance for loan losses and provisions for loan losses discussed in Note 5 to the Consolidated Financial Statements included in this Form 10-Q, we recorded a provision for loan losses of $734,000 for the three months ended September 30, 2012, compared to $320,000 for the three months ended September 30, 2011. The allowance for loan losses was $6.0 million, or 0.91% of total loans, at September 30, 2012, compared to $4.8 million, or 0.93% of total loans, at December 31, 2011.

Noninterest Income. Noninterest income increased by $237,000 to $680,000 for the three months ended September 30, 2012, from $443,000 for the three months ended September 30, 2011. The increase was primarily due to an increase of 100,000 in gains on sales of loans from $91,000 for the three months ended September 30, 2011 to $191,000 for the three months ended September 30, 2012 and an increase in other income of $104,000, primarily attributable to an increase in loan servicing fee income, from $50,000 for the three months ended September 30, 2011 to $154,000 for the three months ended September 30, 2012. The loan sales for both periods were made up of residential mortgages and indirect auto loans.

Noninterest Expense. Noninterest expense increased $1.4 million to $5.3 million for the three months ended September 30, 2012, from $4.0 million for the three months ended September 30, 2011. The largest components of this increase were salaries and employee benefits, which increased $757,000, or 29.6%, data processing, which increased $224,000, or 90.3%, and other noninterest expense, which increased $240,000, or 69.4%. These increases in expenses were primarily the result of new staff added to execute the Company's commercial and consumer business strategies, increased infrastructure costs related to increased business volume, and public company costs.

Income Tax Expense. We recorded income tax expense of $63,000 for the three months ended September 30, 2012, compared to income tax expense of $113,000 for the three months ended September 30, 2011. The decrease was primarily the result of lower pre-tax earnings for the quarter ended September 30, 2012 from the same period in 2011. The effective tax rate for the three months ended September 30, 2012 was 25.49% compared to 27.75% for the same period in 2011.


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The following tables set forth average balances of assets and liabilities, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

                                                                             For the Three Months Ended September 30,
                                                                   2012                                                    2011
                                                                                      (Dollars in thousands)
                                               Average                                                 Average
                                             Outstanding                                             Outstanding
                                               Balance         Interest       Yield/  Rate(1)          Balance         Interest       Yield/  Rate(1)
Interest-earning assets:
Total loans                                 $     629,979     $    6,364                  4.02 %    $     428,366     $    4,908                  4.55 %
Securities                                         83,206            559                  2.67 %           89,948            701                  3.09 %
FHLB stock                                          7,627             10                  0.51 %            5,417              5                  0.40 %
Other                                              33,870             18                  0.21 %           11,065              6                  0.22 %

Total interest-earning assets                     754,682          6,951                  3.66 %          534,796          5,620                  4.17 %
Non-interest-earning assets                        18,873                                                  27,163

Total assets                                $     773,555                                           $     561,959

Interest-bearing liabilities:
Savings accounts                                  284,551            526                  0.74 %          201,764            344                  0.68 %
Checking accounts                                  32,008              9                  0.11 %           24,489              7                  0.12 %
Money market accounts                              10,543              3                  0.12 %           12,089              6                  0.21 %
Certificates of deposit                           127,707            542                  1.69 %          125,003            548                  1.74 %

Total interest-bearing deposits                   454,809          1,080                  0.94 %          363,345            905                  0.99 %
Federal Home Loan Bank advances                    74,980            211                  1.12 %           95,005            421                  1.76 %
Securities sold under agreements to
repurchase                                          3,483              1                  0.15 %            3,318              3                  0.41 %
Other borrowed funds                                1,471             11                  2.86 %            1,573             12                  2.97 %

Total interest-bearing liabilities                534,743          1,303                  0.97 %          463,241          1,341                  1.15 %
Non-interest-bearing liabilities                  106,415                                                  51,607

Total liabilities                                 641,158                                                 514,848
Stockholders' Equity                              132,397                                                  47,111

Total liabilities and equity                $     773,555                                           $     561,959
. . .
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