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BCBP > SEC Filings for BCBP > Form 10-Q on 8-Nov-2013All Recent SEC Filings

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Form 10-Q for BCB BANCORP INC


8-Nov-2013

Quarterly Report

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

Financial Condition

Total assets increased by $12.0 million or 1.0% to $1.183 billion at September 30, 2013 from $1.171 billion at December 31, 2012. The increase in total assets occurred as a result of an increase in net loans receivable of $65.1 million, partially offset by a decrease in securities held to maturity of $45.7 million and a decrease in total cash and cash equivalents of $1.9 million. Management has historically concentrated on maintaining adequate liquidity in anticipation of funding loans in the loan pipeline as well as seeking opportunities in the secondary market that provide competitive returns in a risk-mitigated environment. During 2013 we have utilized our liquidity to take advantage of lending opportunities. It is our intention to grow the balance sheet at a measured pace consistent with our capital levels and as business opportunities permit.

Total cash and cash equivalents decreased by $1.9 million or 5.6% to $32.2 million at September 30, 2013 from $34.1 million at December 31, 2012. Investment securities classified as held-to-maturity decreased by $45.7 million or 27.8% to $118.9 million at September 30, 2013 from $164.6 million at December 31, 2012. This decrease in investment securities held-to-maturity resulted primarily from allowable sales of $9.5 million of mortgage-backed securities from the held-to-maturity portfolio and $39.0 million of repayments and prepayments in the mortgage-backed securities portfolio, partially offset by purchases of $3.6 million in investment securities. The funds received have been utilized to fund loan originations.

Net loans receivable increased by $65.1 million or 7.1% to $987.4 million at September 30, 2013 from $922.3 million at December 31, 2012. The increase resulted primarily from a $76.4 million increase in real estate mortgages comprising residential, commercial and multi-family, construction and participation loans with other financial institutions partially offset by a decrease of $4.3 million in consumer loans, net of amortization, along with a $4.8 million decrease in commercial loans comprising business loans and commercial lines of credit, net of amortization, partially offset by a $1.5 million increase in the allowance for loan losses. During the second quarter of 2013, the Company sold at par $24.2 million in commercial real estate participation loans in which no gain or loss was incurred. As of September 30, 2013, the allowance for loan losses was $13.9 million or 66.2% of non-performing loans and 1.39% of gross loans. As a result of the loans acquired in the business combination transactions being recorded at their fair value, the balances in the allowance for loan losses that were on the balance sheets 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 increased by $27.2 million or 2.9% to $968.0 million at September 30, 2013 from $940.8 million at December 31, 2012. The increase resulted primarily from a $17.7 million increase in non-interest bearing deposits, an increase of $18.7 million in NOW deposits, an increase of $8.9 million in savings and club deposits and an increase of $2.3 million in money market interest bearing deposits which more than offset a $20.4 million decrease in time deposits. Consistent with our customers' preferences, we have attempted to shift our funding from higher cost time deposit accounts to more liquid and lower cost core deposits. During the quarter ended September 30, 2013, 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.

We had no outstanding short-term borrowing money at September 30, 2013 compared with $17.0 million in short-term borrowings at December 31, 2012. Long-term borrowed money remained constant at $114.1 million at September 30, 2013 and December 31, 2012, respectively. The purpose of the borrowings reflects the use of long term and short term Federal Home Loan Bank advances to augment deposits as the Company's funding source for originating loans and investing in GSE investment securities.

Stockholders' equity increased by $2.3 million or 2.5% to $93.9 million at September 30, 2013 from $91.6 million at December 31, 2012. The increase in stockholders' equity is primarily attributable to net income of $7.1 million offset by the Company repurchasing during the period 183,199 shares of the Company's common stock at a cost of $1.9 million along with cash dividends paid during the period totaling $3.0 million on outstanding common shares of stock and $390,000 on outstanding preferred shares of stock. The Company accrued a dividend payable for the third quarter on the preferred shares for $130,000 which will be paid in the fourth quarter. As of September 30, 2013, the Bank's Tier 1, Tier 1 Risk-Based and Total Risk Based Capital Ratios were 8.39%, 12.13% and 13.38% respectively.

Three Months of Operation

Net income was $2.14 million for the three months ended September 30, 2013 compared with a net loss of ($1.35) million for three months ended September 30, 2012. Our net income is primarily reflective of an increase in total interest income and total non-interest income as well as decreases in total interest expense, provision for loan losses and non-interest expense, partially offset by an increase in the income tax provision.

Net interest income increased by $1.3 million or 12.6% to $11.6 million for the three months ended September 30, 2013 from $10.3 million for the three months ended September 30, 2012. The increase in net interest income resulted primarily from an increase in the average yield on interest earning assets of thirty-four basis points to 4.92% for the three months ended September 30, 2013 from 4.58% for the three months ended September 30, 2012, along with an increase in the average balance of interest earning assets of $13.0 million or 1.1% to $1.158 billion for the three months ended September 30, 2013 from $1.145 billion for the three months ended September 30, 2012. While yields on the individual components of interest-earning assets generally declined, the overall yield on interest-earning assets increased due to a reallocation of assets into higher yielding loans. The average balance of interest bearing liabilities decreased by $15.7 million or 1.6% to $976.3 million for the three months ended September 30, 2013 from $992.0 million for the three months ended September 30, 2012, while the average cost of interest bearing liabilities decreased by six basis points to 1.09% for the three months ended September 30, 2013 from 1.15% for the three months ended September 30, 2012. As a consequence of the aforementioned, our net interest margin increased by forty-two basis points to 4.00% for the three months ended September 30, 2013 from 3.58% for the three months ended September 30, 2012.

Interest income on loans receivable increased by $1.71 million or 14.7% to $13.34 million for the three months ended September 30, 2013 from $11.63 million for the three months ended September 30, 2012. The increase was primarily attributable to an increase in the average balance of loans receivable of $131.5 million or 15.4% to $984.3 million for the three months ended September 30, 2013 from $852.8 million for the three months ended September 30, 2012, partially offset by a slight decrease in the average yield on loans receivable to 5.42% for the three months ended September 30, 2013 from 5.46% for the three months ended September 30, 2012. The decrease in average yield reflects the competitive price environment prevalent in the Company's primary market area on loan facilities as well as the repricing downward of certain variable rate loans.

Interest income on securities decreased by $569,000 or 39.2% to $884,000 for the three months ended September 30, 2013 from $1.45 million for the three months ended September 30, 2012. This decrease was primarily due to a decrease in the average balance of securities held-to-maturity of $74.0 million or 36.1% to $131.0 million for the three months ended September 30, 2013 from $205.0 million for the three months ended September 30, 2012, as well as a decrease in the average yield of securities held-to-maturity to 2.70% for the three months ended September 30, 2013 from 2.84% for the three months ended September 30, 2012. The decrease in the average yield reflects the persistent low interest rate environment for the three months ended September 30, 2013.

Index

Interest income on other interest-earning assets decreased by $12,000 or 46.2% to $14,000 for the three months ended September 30, 2013 from $26,000 for the three months ended September 30, 2012. This decrease was primarily due to a decrease of $44.3 million or 50.6% in the average balance of other interest-earning assets to $43.2 million for the three months ended September 30, 2013 from $87.5 million for the three months ended September 30, 2012. The average yield on other interest-earning assets increased marginally to 0.13% for the three months ended September 30, 2013 from 0.12% for the three months ended September 30, 2012. The static nature of the average yield on other interest-earning assets reflects the current philosophy of the FOMC of keeping short term interest rates at historically low levels for the last several years. The decreased balance of other interest earning assets reflects management's decision to reallocate excess liquidity into higher yielding, regularly repricing loan product during a period of historically low money market interest rates.

Total interest expense decreased by $204,000 or 7.2% to $2.65 million for the three months ended September 30, 2013 from $2.85 million for the three months ended September 30, 2012. The decrease resulted primarily from a decrease in the balance of average interest-bearing liabilities of $15.7 million or 1.6% to $976.3 million for the three months ended September 30, 2013 from $992.0 million for the three months ended September 30, 2012, along with a decrease in the average cost of interest-bearing liabilities of six basis points to 1.09% for the three months ended September 30, 2013 from 1.15% for the three months ended September 30, 2012. The decrease in the balance of average interest-bearing liabilities is primarily attributable to the decrease in the average balance of time deposits of $38.7 million or 8.9% to $395.6 million for the three months ended September 30, 2013 from $434.3 million for the three months ended September 30, 2012 along with a decrease in the average balance of money market deposits of $3.2 million or 4.7% to $64.3 million for the three months ended September 30, 2013 from $67.5 million for the three months ended September 30, 2012, which more than offset an increase in the average balance of interest-bearing demand deposits of $18.1 million or 15.4% to $135.6 million for the three months ended September 30, 2013 from $117.5 million for the three months ended September 30, 2012 along with an increase in the average balance of savings deposits of $8.1 million or 3.1% to $266.6 million for the three months ended September 30, 2013 from $258.5 million for the three months ended September 30, 2012. 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 $450,000 and $1.6 million for the three months ended September 30, 2013 and 2012, respectively. The provision for loan losses is established based upon management's review of the Company'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 three months ended September 30, 2013, the Company experienced $242,000 in net charge-offs (consisting of $387,000 in charge-offs and $145,000 in recoveries). During the year ended December 31, 2012, the Company experienced $3.05 million in net charge-offs (consisting of $3.08 million in charge-offs and $35,000 in recoveries). The Bank had non-performing loans totaling $21.0 million or 2.10% of gross loans at September 30, 2013 and $22.9 million or 2.45% of gross loans at December 31, 2012. The allowance for loan losses was $13.9 million or 1.39% of gross loans at September 30, 2013, $12.4 million or 1.32% of gross loans at December 31, 2012 and $11.9 million or 1.38% of gross loans at September 30, 2012. 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 Company 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, 2013, December 31, 2012 and September 30, 2012.

Total non-interest income (loss) was $763,000 for the three months ended September 30, 2013 compared with a ($2.7) million loss for the three months ended September 30, 2012. Non-interest income reflected a ($3.5) million loss on the sale of non-performing loans in the third quarter of 2012 with no corresponding transaction for the third quarter 2013 along with an increase of $76,000 or 20.7% in fees and service charges to $444,000 for the three months ended September 30, 2013 from $368,000 for the three months ended September 30, 2012 and an increase of $2,000 or 5.6% in other non-interest income to $38,000 for the three months ended September 30, 2013 from $36,000 for the three months ended September 30, 2012, partially offset by a decrease of $13,000 or 41.9% in gain on sale of securities held to maturity to $18,000 for the three months ended September 30, 2013 from $31,000 for the three months ended September 30,2012 along with a decrease of $25,000 or 8.7% in gain on sale of loans originated for sale to $263,000 for the three months ended September 30, 2013 from $288,000 for the three months ended September 30, 2012. The securities sold consisted of mortgage-backed securities that had already returned at least 85% of the original principal purchased. The increase in fees and service charges is primarily due to increased deposit service charges of $77,000 or 160.4% to $125,000 for the three months ended September 30, 2013 from $48,000 for the three months ended September 30, 2012. The decrease in gain on sale of loans originated for sale occurred primarily as a result of a decrease in sales activity for the three months ended September 30, 2013.

Total non-interest expense decreased by $668,000 or 7.4% to $8.3 million for the three months ended September 30, 2013 from $9.0 million for the three months ended September 30, 2012. Salaries and employee benefits expense increased by $244,000 or 6.5% to $4.02 million for the three months ended September 30, 2013 from $3.78 million for the three months ended September 30, 2012. The increase resulted primarily from an increase in employee salaries of $249,000, an increase in commissions paid to mortgage originators on loans held for sale of $38,000 compared to the three months ended September 30, 2012, partially offset by a decrease in employee benefits of $38,000 compared to the three months ended September 30, 2012. Occupancy expense increased by $78,000 or 9.1% to $933,000 for the three months ended September 30, 2013 from $855,000 for the three months ended September 30, 2012. The increase resulted primarily from increases in building repairs and supplies of $25,000 and rental expense of $33,000 compared with the three months ended September 30, 2012. Equipment expense increased by $250,000 or 21.8% to $1.40 million for the three months ended September 30, 2013 from $1.15 million for the three months ended September 30, 2012. The increase resulted primarily from increases in data processing charges, maintenance contracts, furniture and fixtures and depreciation of $235,000 compared to the three months ended September 30, 2012. Professional fees decreased by $651,000 or 48.4% to $693,000 for the three months ended September 30, 2013 from $1.34 million for the three months ended September 30, 2012. The decrease resulted primarily from a decrease in legal and legacy costs associated with the sale of the non-performing loan portfolio in 2012. Director fees remained static at $168,000 for the three months ended September 30, 2013 and September 30, 2012, respectively. Regulatory assessments decreased by $8,000 or 2.7% to $286,000 for the three months ended September 30, 2013 from $294,000 for the three months ended September 30, 2012. Advertising expense increased by $24,000 or 19.2% to $149,000 for the three months ended September 30, 2013 from $125,000 for the three months ended September 30, 2012. The increase was primarily due to our marketing efforts to increase business at the Woodbridge Branch location. Other real estate owned (OREO) (income)/expenses decreased by $344,000 or 77.7% to $99,000 for the three months ended September 30, 2013 from $443,000 for the three months ended September 30, 2012. The decrease in expenses was primarily due to an decrease in loss on sale of OREO properties of $347,000 or 91.1% to $34,000 for the three months ended September 30, 2013 from a loss on sale of OREO properties of $381,000 for the three months ended September 30, 2012 along with a decrease in OREO expenses of $16,000 or 15.7% to $86,000 for the three months ended September 30, 2013 from $102,000 for the three months ended September 30, 2012, partially offset by a decrease in OREO rental income of $19,000 or 48.7% to ($20,000) for the three months ended September 30, 2013 from ($39,000) for the three months ended September 30, 2012. Other non-interest expense decreased by $261,000 or 30.9% to $584,000 for the three months ended September 30, 2013 from $845,000 for the three months ended September 30, 2012. The decrease was primarily due to the sale of the non-performing loan portfolio in 2012 which alleviated the carrying and legacy costs associated with these non-performing loans. 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.

Income tax provision (benefit) increased by $3.2 million to an income tax provision of $1.43 million for the three months ended September 30, 2013 compared with an income tax benefit of $1.74 million for the three months ended September 30, 2012. The increase in income tax provision was a result of increased taxable income during the three month time period ended September 30, 2013 as compared to the three months ended September 30, 2012. The consolidated effective tax rate for the three months ended September 30, 2013 was 40.0% compared to a tax benefit of 56.4% for the three months ended September 30, 2012.

Index

Nine Months of Operations

Net income was $7.1 million for the nine months ended September 30, 2013 compared with a net loss of ($3.1) million for the nine months ended September 30, 2012. Our net income reflects increases in net interest income and non-interest income and decreases in non-interest expense and provision for loan losses, partially offset by an increase in income tax provision. Net interest income increased by $3.8 million or 12.3% to $34.6 million for the nine months ended September 30, 2013 from $30.8 million for the nine months ended September 30, 2012. This increase in net interest income resulted primarily from an increase in the average yield of interest earning assets to 4.95% for the nine months ended September 30, 2013 from 4.55% for the nine months ended September 30, 2012, partially offset by a decrease of $25.0 million or 2.1% in the average balance of interest earning assets to $1.146 billion for the nine months ended September 30, 2013 from $1.171 billion for the nine months ended September 30, 2012. The average balance of interest bearing liabilities decreased by $42.4 million or 4.2% to $971.6 million for the nine months ended September 30, 2013 from $1.014 billion for the nine months ended September 30, 2012, while the average cost of interest bearing liabilities decreased to 1.09% for the nine months ended September 30, 2013 from 1.21% for the nine months ended September 30, 2012. As a consequence of the aforementioned, our net interest margin increased to 4.02% for the nine months ended September 30, 2013 from 3.51% for the nine months ended September 30, 2012. The increase in the average yield of interest earning assets and the decrease in the average cost of interest bearing liabilities represents management's efforts to competitively price certain products to maximize profitability. The decrease in the average balance of both interest earning assets and interest bearing liabilities represents a pre-planned minor deleveraging of the balance sheet.

Interest income on loans receivable increased by $4.2 million or 11.9% to $39.6 million for the nine months ended September 30, 2013 from $35.4 million for the nine months ended September 30, 2012. The increase was primarily attributable to an increase in the average balance of loans receivable of $110.4 million or 12.9% to $967.5 million for the nine months ended September 30, 2013 from $857.1 million for the nine months ended September 30, 2012, partially offset by a slight decrease in the average yield of loans receivable to 5.46% for the nine months ended September 30, 2013 from 5.50% for the nine months ended September 30, 2012. The increase in the average balance of loans is primarily attributable to the re-allocation of excess liquidity into higher yielding loan products. 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 $1.63 million or 36.0% to $2.9 million for the nine months ended September 30, 2013 from $4.53 million for the nine months ended September 30, 2012. This decrease was primarily due to a decrease in the average balance of securities held-to-maturity of $65.8 million or 31.1% to $145.7 million for the nine months ended September 30, 2013 from $211.5 million for the nine months ended September 30, 2012, as well as a decrease in the average yield of securities held-to-maturity to 2.65% for the nine months ended September 30, 2013 from 2.86% for the nine months ended September 30, 2012. The decrease in the average balance represents the amortization of the portfolio in the absence of any material purchases of investment securities. The decrease in the average yield reflects the low interest rate environment during the nine months ended September 30, 2013.

Interest income on other interest-earning assets decreased by $53,000 or 58.2% to $38,000 for the nine months ended September 30, 2013 from $91,000 for the nine months ended September 30, 2012. This decrease was primarily due to a decrease of $70.3 million or 68.4% in the average balance of other interest-earning assets to $32.5 million for the nine months ended September 30, 2013 from $102.8 million for the nine months ended September 30, 2012. The average yield on other interest-earning assets increased slightly to 0.16% for the nine months ended September 30, 2013 from 0.12% for the nine months ended September 30, 2012. The somewhat 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 several years.

Total interest expense decreased by $1.24 million or 13.5% to $7.94 million for the nine months ended September 30, 2013 from $9.18 million for the nine months ended September 30, 2012. The decrease resulted primarily from a decrease in the average balance of interest bearing liabilities of $42.4 million or 4.2% to $971.6 million for the nine months ended September 30, 2013 from $1.014 billion for the nine months ended September 30, 2012 as well as a decrease in the cost of interest-bearing liabilities of twelve basis points to 1.09% for the nine months ended September 30, 2013 from 1.21% for the nine months ended September 30, 2012. The decrease in the average cost of interest bearing liabilities 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 $2.25 million and $3.4 million for the nine months ended September 30, 2013 and September 30, 2012, respectively. The provision for loan losses is established based upon management's review of the Bank's loans and consideration of a variety of factors including, but not limited to, (1) the risk characteristics of the loan portfolio, (2) current economic conditions, (3) actual losses previously experienced, (4) the 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, 2013, the Company experienced $732,000 in net charge-offs (consisting of $932,000 in charge-offs and $200,000 in recoveries). During the nine months ended September 30, 2012, the Company experienced $1.99 million in net charge-offs (consisting of $1.99 million in charge-offs and no recoveries). The Bank had non-performing loans totaling $21.0 million or 2.10% of gross loans at September 30, 2013, $22.9 million or 2.45% of gross loans at December 31, 2012 and $25.0 million or 2.91% of gross loans at September 30, 2012. The decrease in non-performing loans resulted primarily from the sales of approximately $25.9 million in non-performing loans during the second and third quarters of 2012. The sale resulted in a pre-tax loss of approximately $10.8 million. The primary reason for these transactions was the elimination of carrying and legacy costs associated with these non-interest earning assets. The allowance for loan losses was $13.9 million or 1.39% of gross loans at September 30, 2013, $12.4 million or 1.32% of gross loans at December 31, 2012 and $11.9 million or 1.38% of gross loans at September 30, 2012. 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 Company 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, 2013, December 31, 2012 and September 30, 2012.

Total non-interest income was $2.43 million for the nine months ended September 30, 2013 compared with a loss of $7.77 million for the nine months ended September 30, 2012. Our non-interest income reflects the fact that no loss on the bulk sale of impaired loans occurred during the nine months ended September 30, 2013 compared with a loss of $10.8 million for the nine months ended September 30, 2012. Gain on sale of securities held to maturity increased by $154,000 or 68.8% to $378,000 for the nine months ended September 30, 2013 from $224,000 for the nine months ended September 30, 2012. These increases were partially offset by a decrease in gain on sale of loans acquired as for the nine months ended September 30, 2012, the Company sold approximately $10.7 million of commercial business loans acquired in the Allegiance Community Bank acquisition which resulted in a gain of approximately $286,000. No such transaction occurred . . .

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