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BLMT > SEC Filings for BLMT > Form 10-Q on 10-May-2013All Recent SEC Filings

Show all filings for BSB BANCORP, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for BSB BANCORP, INC.


10-May-2013

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;


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changes in our organization, compensation and benefit plans;

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

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, 2012 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 2012 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 2012 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 March 31, 2013 and December 31, 2012

Total Assets. Total assets increased $1.6 million to $839.7 million at March 31, 2013, from $838.1 million at December 31, 2012. The increase was primarily the result of a $47.2 million, or 7.2%, increase in net loans, offset by a $33.5 million, or 63.5%, decrease in cash and cash equivalents and a $10.6 million, or 46.9%, decrease in investments in available-for-sale-securities.

Loans. Net loans increased by $47.2 million to $701.4 million at March 31, 2013 from $654.3 million at December 31, 2012. The increase in net loans was primarily due to increases of $27.1 million, or 10.4%, in commercial real estate loans, $10.8 million, or 5.4%, in residential one-to-four family loans, $1.2 million, or 1.8%, in home equity lines of credit, $1.3 million, or 4.2%, in commercial loans, and $9.0 million, or 11.2%, in indirect auto loans, offset by a decrease in construction loans of $2.6 million, or 16.1%. While we have continued to originate significant amounts of one-to-four family residential loans and indirect auto loans in 2013, we have continued to sell a portion of these loan types as part of our operations. Further, our plan to prudently build new commercial loan businesses is working as solid growth was experienced in this business line during the quarter.

Investment Securities. Total investment securities decreased $9.9 million to $76.7 million at March 31, 2013, from $86.6 million at December 31, 2012, reflecting our response to strong loan demand and conversion primarily into higher yielding assets. The decrease in investment securities primarily resulted from a decrease of $10.6 million, or 46.9%, in available-for-sale corporate debt securities.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $33.5 million to $19.2 million at March 31, 2013, from $52.7 million at December 31, 2012. The outflow of cash was due to strong loan demand and deployment of cash into earning assets.

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 March 31, 2013, our investment in bank-owned life insurance was $13.0 million, an increase of $104,000 from $12.9 million at December 31, 2012, reflecting premiums paid and an increase in cash surrender value.

Deposits. Deposits increased $8.8 million, or 1.4%, to $616.7 million at March 31, 2013 from $607.9 million at December 31, 2012. The increase in deposits was due to a $30.0 million, or 9.5% increase in savings accounts, offset by a decrease in demand deposits of $10.5 million, or 8.3%, and a decrease in CDs of $9.2 million, or 7.5%. Core deposits, which we consider to include all deposits other than CDs and brokered CDs, increased by $17.9 million. Our core deposit growth continued in the first quarter with significant contributions from our new supermarket branch in Waltham. Through its tenth month of operation, the Waltham branch has exceeded $25 million in deposits, already twice the average for in-store branches nationwide.


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

                                             March 31, 2013            December 31, 2012
                                          Amount       Percent        Amount       Percent
                                              (unaudited)

  Deposit type:
  Demand deposits                        $ 116,229        18.85 %    $ 126,760        20.85 %
  Interest-bearing checking accounts        31,018         5.03         32,463         5.34
  Savings accounts                         346,540        56.20        316,563        52.08
  Money market deposits                     10,706         1.74         10,767         1.77

  Total transaction accounts               504,493        81.81        486,553        80.04

  Term certificates less than $100,000      53,847         8.73         55,298         9.10
  Term certificates $100,000 or more        58,313         9.46         66,014        10.86

  Total certificate accounts               112,160        18.19        121,312        19.96

  Total deposits                         $ 616,653       100.00 %    $ 607,865       100.00 %

Borrowings. At March 31, 2013, 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 decreased $6.5 million, or 7.4%, to $81.2 million at March 31, 2013, from $87.7 million at December 31, 2012. Advances from the Federal Home Loan Bank of Boston decreased $6.5 million to $76.6 million at March 31, 2013, from $83.1 million at December 31, 2012, and repurchase agreements increased $56,000 to $3.5 million at March 31, 2013, from $3.4 million at December 31, 2012.

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

                                                  March 31, 2013            December 31, 2012
                                                    (unaudited)

Long-term borrowed funds:
Federal Home Loan Bank of Boston long-term
advances                                          $        61,600          $            68,100
Other borrowed funds                                        1,145                        1,156

                                                  $        62,745          $            69,256


Short-term borrowed funds:
Federal Home Loan Bank of Boston
short-term advances                               $        15,000          $            15,000
Repurchase agreements                                       3,460                        3,404

                                                           18,460                       18,404


Total borrowed funds                              $        81,205          $            87,660

Stockholders' Equity. Total stockholders' equity decreased from $133.3 million as of December 31, 2012 to $132.0 million as of March 31, 2013. This decrease is largely the result of the Stock Repurchase Program that was adopted on December 12, 2012. During the first quarter of 2013, the Company repurchased 144,219 shares of its common stock for $1.94 million.


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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 March 31,             At December 31,
                                                        2013                      2012
                                                    (unaudited)

Non-accrual loans:
Mortgage loans:
One-to-four family                                 $        3,057           $           3,278
Commercial real estate                                         77                          -
Construction loans                                             -                           -
Equity lines of credit                                        319                         319
Commercial loans                                               -                           -
Consumer loans:
Indirect auto loans                                            -                           24
Other consumer loans                                           -                           -

Total non-accrual loans                            $        3,453           $           3,621


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                         $        3,453           $           3,621

Other real estate owned                            $          661           $             661
Repossessed automobiles                                        20                          43

Total non-performing assets (NPAs)                 $        4,134           $           4,325


Troubled debt restructurings:
Troubled debt restructures included in NPAs        $          726           $             946
Troubled debt restructures not included in
NPAs                                                        9,884                       6,437

Total troubled debt restructures                   $       10,610           $           7,383


Ratios:
Non-performing loans to total loans                          0.49 %                      0.55 %
Non-performing assets to total assets                        0.49 %                      0.52 %

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 March 31, 2013, there were no loans on non-accrual that were determined to not be impaired.

Troubled Debt Restructurings. We occasionally modify loans to extend the term or make other concessions to help a borrower stay current on their loan and to avoid foreclosure or collection activity. 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 March 31, 2013, we had $10.6 million of troubled debt restructurings related to thirteen loans.

Comparison of Operating Results for the Three Months Ended March 31, 2013 and 2012

General. Net income for the three months ended March 31, 2013 was $416,000, compared to net income of $447,000 for the three months ended March 31, 2012. The change in operating results for the three months ended March 31, 2013 compared to the 2012 period resulted from an increase in net interest and dividend income after the provision for loan losses of $673,000 and an increase in noninterest income of $42,000. This was more than offset by an increase in noninterest expense of $716,000.


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Net Interest and Dividend Income. Net interest and dividend income increased $519,000 to $5.8 million for the three months ended March 31, 2013, compared to $5.3 million for the three months ended March 31, 2012. 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. Net average interest-earning assets increased $58.5 million, or 33.3% to $234.1 million for the three months ended March 31, 2013, from $175.6 million for the three months ended March 31, 2012. Our net interest margin decreased 26 basis points to 2.92% for the three months ended March 31, 2013, compared to 3.18% for the three months ended March 31, 2012, and our net interest rate spread decreased 24 basis points to 2.66% for the three months ended March 31, 2013, compared to 2.90% for the three months ended March 31, 2012.

Interest and Dividend Income. Interest and dividend income increased $495,000 to $7.0 million for the three months ended March 31, 2013, from $6.5 million for the three months ended March 31, 2012. The increase in interest and dividend income was primarily due to a $622,000 increase in interest income on loans partially offset by a $131,000 decrease in interest and dividend income on securities. The increase in interest income on loans resulted from a 51 basis point decrease in the average yield on loans to 3.80% from 4.31%, 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 $144.9 million to $692.7 million for the three months ended March 31, 2013, from $547.8 million for the three months ended March 31, 2012. The decrease in interest and dividend income on securities was primarily due to a decrease in the average balance of $2.2 million to $77.4 million for the three months ended March 31, 2013, from $79.7 million for the three months ended March 31, 2012, as well as a 56 basis point decrease in the average yield on securities to 2.52% from 3.08%.

Interest Expense. Interest expense decreased $23,000 to $1.2 million for the three months ended March 31, 2013, from $1.3 million for the three months ended March 31, 2012. The decrease resulted from a 16 basis point decrease in the cost of interest-bearing liabilities, partially offset by a $79.4 million, or 16.3%, increase in the average balance of interest-bearing liabilities.

Interest expense on interest-bearing deposits increased by $95,000 to $1.0 million for the three months ended March 31, 2013, from $938,000 for the three months ended March 31, 2012. This increase was primarily due to a $94.9 million increase in the average balance of interest-bearing deposits to $489.9 million for the three months ended March 31, 2013, from $395.1 million for the three months ended March 31, 2012. Offsetting the increase in average balance was a 10 basis point decrease in the average cost of interest-bearing deposits to 0.85% for the three months ended March 31, 2013, from 0.95% for the three months ended March 31, 2012. We experienced decreases in the average cost within all deposit categories.

Interest expense on total borrowings decreased $118,000 to $194,000 for the three months ended March 31, 2013, from $312,000 for the three months ended March 31, 2012. This decrease was primarily due to a 33 basis point decrease in the average cost of FHLB advances to 1.01% for the three months ended March 31, 2013, from 1.34% for the three months ended March 31, 2012, and a $15.5 million decrease in the average balance of FHLB advances to $74.1 million for the three months ended March 31, 2013, from $89.5 million for the three months ended March 31, 2012.

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 $327,000 for the three months ended March 31, 2013, compared to $481,000 for the three months ended March 31, 2012. The allowance for loan losses was $6.8 million, or 0.96% of total loans, at March 31, 2013, compared to $6.4 million, or 0.98% of total loans, at December 31, 2012.

Noninterest Income. Noninterest income increased by $42,000 to $1.0 million for the three months ended March 31, 2013, from $964,000 for the three months ended March 31, 2012. The increase was primarily due to an increase of $32,000 in customer service fees, an increase of $31,000 on net gains on sales and calls of securities, an increase of $99,000 in loan servicing fee income and an increase of $100,000 in experience refunds for vendor single interest ("VSI") coverage based on high credit quality and the resultant low level of VSI claims related to indirect auto loans, partially offset by a decrease in net gains on sales of loans of $227,000.

Noninterest Expense. Noninterest expense increased $716,000 to $5.8 million for the three months ended March 31, 2013, from $5.1 million for the three months ended March 31, 2012. The largest components of this increase were salaries and employee benefits, which increased 16.7%, or $527,000 and data processing, which increased 49.0% or $191,000. These increases in expenses were primarily the result of stock compensation expense and increased data processing expenses driven by loan and deposit volume increases. These increases were partially offset by a decrease of $107,000, or 33.6% in professional fees.

Income Tax Expense. We recorded income tax expense of $242,000 for the three months ended March 31, 2013, compared to income tax expense of $212,000 for the three months ended March 31, 2012. The effective tax rate for the three months ended March 31, 2013 was 36.8% compared to 32.2% for the same period in 2012. The increase in effective tax rate was primarily the result of non-deductible stock based compensation expense which was partially offset by a decrease in the valuation reserve on deferred tax assets.


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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 March 31,
                                                            2013                                           2012
                                                                           (Dollars in thousands)
                                             Average                                        Average
                                           Outstanding                      Yield/        Outstanding                      Yield/
                                             Balance         Interest      Rate(1)          Balance         Interest      Rate(1)
Interest-earning assets:
Total loans                               $     692,711     $    6,499         3.80 %    $     547,834     $    5,877         4.31 %
Securities                                       77,442            482         2.52 %           79,661            610         3.08 %
Other                                            32,635             17         0.22 %           37,384             13         0.14 %

Total interest-earning assets                   802,788          6,998         3.54 %          664,879          6,500         3.93 %
Non-interest-earning assets                      26,741                                         25,780

Total assets                              $     829,529                                  $     690,659


Interest-bearing liabilities:
Savings accounts                                334,109            538         0.65 %          238,139            411         0.69 %
Checking accounts                                27,308              8         0.12 %           24,785              8         0.13 %
Money market accounts                            11,007              2         0.08 %           12,226              5         0.18 %
Certificates of deposit                         117,525            484         1.67 %          119,912            514         1.72 %

Total interest-bearing deposits                 489,949          1,032         0.85 %          395,062            938         0.95 %
Federal Home Loan Bank advances                  74,044            185         1.01 %           89,523            298         1.34 %
Securities sold under agreements to
repurchase                                        3,562              1         0.15 %            3,228              3         0.40 %
Other borrowed funds                              1,152              8         2.94 %            1,498             11         2.90 %

Total interest-bearing liabilities              568,707          1,226         0.87 %          489,311          1,250         1.03 %
Non-interest-bearing liabilities                128,256                                         69,624

Total liabilities                               696,963                                        558,935
Stockholders' Equity                            132,566                                        131,724

Total liabilities and equity              $     829,529                                  $     690,659


Net interest and dividend income                            $    5,772                                     $    5,250

Net interest rate spread (2)                                                   2.66 %                                         2.90 %
Net interest-earning assets (3)                 234,081                                        175,568

Net interest margin (4)                                                        2.92 %                                         3.18 %
Average interest-earning assets to
interest-bearing liabilities                                                 141.16 %                                       135.88 %

(1) Yields and rates for the three-month periods ended March 31, 2013 and 2012 are annualized.

(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(4) Net interest margin represents net interest and dividend income divided by average total interest-earning assets.


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The following table presents the effects of changing rates and volumes on our net interest and dividend income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume. . . .

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