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BLMT > SEC Filings for BLMT > Form 10-Q on 8-Nov-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.


8-Nov-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;

government shutdowns;

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 September 30, 2013 and December 31, 2012

Total Assets. Total assets increased $185.0 million to $1.0 billion at September 30, 2013, from $838.1 million at December 31, 2012. The increase was primarily the result of a $141.2 million, or 21.6%, increase in net loans, and a $57.4 million, or 89.8% increase in held-to- maturity investments, partially offset by an $11.2 million, or 100%, decrease in loans held for sale and a $4.4 million, or 8.6% decrease in interest-bearing deposits in other banks.

Loans. Net loans increased by $141.2 million to $795.5 million at September 30, 2013 from $654.3 million at December 31, 2012. The increase in net loans was primarily due to increases of $44.2 million, or 16.9%, in commercial real estate loans, $70.5 million, or 34.9%, in residential one-to-four family loans, $13.3 million, or 19.9%, in home equity lines of credit, $12.0 million, or 15.0%, in indirect auto loans, and $3.0 million, or 18.3%, in construction loans, partially offset by a decrease in commercial loans of $2.1 million, or 7.0%. While we have continued to originate 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 strategy. Further, our plan to prudently build our commercial real estate and home equity loan businesses is working as solid growth was experienced in these business lines during the period.

Investment Securities. Total investment securities increased $56.6 million to $143.2 million at September 30, 2013, from $86.6 million at December 31, 2012. The increase in investment securities primarily resulted from an increase of $57.4 million, or 89.8%, in held-to-maturity securities, partially offset by a decrease of $0.8 million, or 3.6%, in available-for-sale securities.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $3.9 million to $48.8 million at September 30, 2013, from $52.7 million at December 31, 2012.

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, 2013, our investment in bank-owned life insurance was $13.2 million, an increase of $319,000 from $12.9 million at December 31, 2012, reflecting premiums paid and an increase in cash surrender value.

Deposits. Deposits increased $119.1 million, or 19.6%, to $727.0 million at September 30, 2013 from $607.9 million at December 31, 2012. The increase in deposits was due to a $102.8 million, or 32.5%, increase in savings accounts, an increase of $4.2 million, or 13.0%, in interest bearing checking accounts, an increase of $7.4 million, or 5.8%, in demand deposits, and an increase of $5.8 million, or 4.8%, in CD's. Core deposits, which we consider to include all deposits other than CD's and brokered CD's, increased by $113.3 million. Deposit growth continued this quarter as two new InStore branches in Cambridge and Newton were opened in June and August. In addition, the growing deposit relationships of new and existing commercial and small business customers, along with the momentum of our municipal banking program, contributed to this consistent, strong performance.


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

                                          September 30, 2013           December 31, 2012
                                          Amount       Percent        Amount       Percent
                                              (unaudited)
 Deposit type:
 Demand deposits                        $  134,145        18.45 %    $ 126,760        20.85 %
 Interest-bearing checking accounts         36,694         5.05         32,463         5.34
 Savings accounts                          419,378        57.69        316,563        52.08
 Money market deposits                       9,677         1.33         10,767         1.77

 Total transaction accounts                599,894        82.52        486,553        80.04

 Term certificates less than $100,000       60,769         8.36         55,298         9.10
 Term certificates $100,000 or more         66,339         9.12         66,014        10.86

 Total certificate accounts                127,108        17.48        121,312        19.96

 Total deposits                         $  727,002       100.00 %    $ 607,865       100.00 %

Borrowings. At September 30, 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 that are accounted for as a secured borrowing.

Total borrowings increased $66.6 million, or 76.0%, to $154.3 million at September 30, 2013, from $87.7 million at December 31, 2012. Advances from the Federal Home Loan Bank of Boston increased $67.5 million to $150.6 million at September 30, 2013, from $83.1 million at December 31, 2012, and repurchase agreements decreased $852,000 to $2.6 million at September 30, 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):

                                                September 30, 2013            December 31, 2012
                                                   (unaudited)
Long-term borrowed funds:
Federal Home Loan Bank of Boston
long-term advances                             $             55,600          $            68,100
Other borrowed funds                                          1,124                        1,156

                                               $             56,724          $            69,256


Short-term borrowed funds:
Federal Home Loan Bank of Boston
short-term advances                            $             95,000          $            15,000
Repurchase agreements                                         2,552                        3,404

                                                             97,552                       18,404


Total borrowed funds                           $            154,276          $            87,660

Stockholders' Equity. Total stockholders' equity decreased from $133.3 million as of December 31, 2012 to $129.1 million as of September 30, 2013. This decrease is largely the result of the Stock Repurchase Program that was announced on December 21, 2012. During the nine months ended September 30, 2013, the Company repurchased 476,622 shares of its common stock for $6.5 million and completed the first Stock Repurchase Program that was announced on December 21, 2012. The decrease due to the Stock Repurchase Program was partially offset by $1.3 million of net income and $1.4 million of stock based compensation and ESOP stock released during the nine months ended September 30, 2013.


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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,
                                                       2013                         2012
                                                   (unaudited)
Non-accrual loans:
Mortgage loans:
One-to-four family                              $            2,528            $           3,278
Commercial real estate                                          38                           -
Construction loans                                              -                            -
Equity lines of credit                                          -                           319
Commercial loans                                                24                           -
Consumer loans:
Indirect auto loans                                             -                            24
Other consumer loans                                            -                            -

Total non-accrual loans                                      2,590                        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                      $            2,590            $           3,621


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


Total non-performing assets (NPAs)              $            2,590            $           4,325


Troubled debt restructurings:
Troubled debt restructures included in
NPAs                                            $               -             $             946
Troubled debt restructures not included
in NPAs                                                      9,345                        6,437

Total troubled debt restructures                $            9,345            $           7,383


Ratios:
Non-performing loans to total loans                           0.32 %                       0.55 %
Non-performing assets to total assets                         0.25 %                       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 September 30, 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 rates not otherwise available in the market for loans with similar risk characteristics as the restructured debt. At September 30, 2013, we had $9.3 million of troubled debt restructurings related to ten loans as compared to $7.4 million of troubled debt restructurings related to ten loans at December 31, 2012. However, the balance of TDR's has decreased from $9.5 million at June 30, 2013 due to net paydowns of $173,000.


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Comparison of Operating Results for the Three Months Ended September 30, 2013 and 2012

General. Net income for the three months ended September 30, 2013 was $538,000, compared to net income of $183,000 for the three months ended September 30, 2012. The change in operating results of $355,000, or 194.0% for the three months ended September 30, 2013 compared to the 2012 period resulted from an increase in net interest and dividend income after the provision for loan losses of $1.4 million, partially offset by an increase in noninterest expense of $1.0 million.

Net Interest and Dividend Income. Net interest and dividend income increased $1.1 million to $6.8 million for the three months ended September 30, 2013, compared to $5.7 million for the three months ended September 30, 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 $32.0 million, or 15.0% to $245.4 million for the three months ended September 30, 2013, from $213.4 million for the three months ended September 30, 2012. Partially offsetting this was a decrease in our net interest margin of 12 basis points to 2.88% for the three months ended September 30, 2013, compared to 3.00% for the three months ended September 30, 2012, and a decrease in our net interest rate spread of 2 basis points to 2.70% for the three months ended September 30, 2013, compared to 2.72% for the three months ended September 30, 2012.

Interest and Dividend Income. Interest and dividend income increased $1.0 million to $8.0 million for the three months ended September 30, 2013, from $7.0 million for the three months ended September 30, 2012. The increase in interest and dividend income was primarily due to a $919,000 increase in interest income on loans and a $125,000 increase in interest on securities. The increase in interest income on loans resulted from an increase in the average balance of loans of $140.2 million to $770.2 million for the three months ended September 30, 2013, from $630.0 million for the three months ended September 30, 2012, partially offset by a 27 basis point decrease in the average yield on loans to 3.75% from 4.02%, primarily due to lower interest rates on originated loans during the period. The increase in interest and dividend income on securities was primarily due to an increase in the average balance of securities of $38.1 million to $121.3 million for the three months ended September 30, 2013, from $83.2 million for the three months ended September 30, 2012, partially offset by a 43 basis point decrease in the average yield on securities to 2.24% from 2.67%.

Interest Expense. Interest expense decreased $80,000 to $1.2 million for the three months ended September 30, 2013, from $1.3 million for the three months ended September 30, 2012. The decrease resulted from a 26 basis point decrease in the cost of interest-bearing liabilities, partially offset by a $150.3 million, or 28.1%, increase in the average balance of interest-bearing liabilities.

Interest expense on interest-bearing deposits decreased by $39,000 to $1.04 million for the three months ended September 30, 2013, from $1.08 million for the three months ended September 30, 2012. This decrease was primarily due to a decrease in the interest expense on CDs of $68,000 from $542,000 to $474,000, which was driven by both a decrease in the average balance of $5.2 million and a decrease in the average cost of CD's of 15 basis points. This was partially offset by an increase in interest expense on savings accounts of $28,000 from $526,000 to $554,000. The increase in interest expense on savings accounts was driven by a $118.6 million increase in the average balance of savings accounts to $403.3 million for the three months ended September 30, 2013, from $284.7 million for the three months ended September 30, 2012. Partially offsetting the increase in average balance was a 19 basis point decrease in the average cost of savings accounts to 0.55% for the three months ended September 30, 2013, from 0.74% for the three months ended September 30, 2012. We experienced decreases in average cost within all deposit categories except for checking.

Interest expense on total borrowings decreased $41,000 to $182,000 for the three months ended September 30, 2013, from $223,000 for the three months ended September 30, 2012. This decrease was primarily due to a 49 basis point decrease in the average cost of FHLB advances to 0.63% for the three months ended September 30, 2013, from 1.12% for the three months ended September 30, 2012, partially offset by a $34.3 million increase in the average balance of FHLB advances to $109.3 million for the three months ended September 30, 2013, from $75.0 million for the three months ended September 30, 2012.

Provision for Loan Losses. Based on our methodology for establishing the allowance for loan losses and provisions for loan losses discussed in Note 4 to the Consolidated Financial Statements included in this Form 10-Q, we recorded a provision for loan losses of $438,000 for the three months ended September 30, 2013, compared to $734,000 for the three months ended September 30, 2012. The allowance for loan losses was $7.3 million, or 0.92% of total loans, at September 30, 2013, compared to $6.4 million, or 0.98% of total loans, at December 31, 2012.

Noninterest Income. Noninterest income increased by $211,000 to $890,000 for the three months ended September 30, 2013, from $679,000 for the three months ended September 30, 2012. The increase was primarily due to an increase of $55,000 in loan servicing fee income and an increase of $134,000 in other income.

Noninterest Expense. Noninterest expense increased $1.0 million to $6.4 million for the three months ended September 30, 2013, from $5.3 million for the three months ended September 30, 2012. The largest components of this increase were salaries and employee benefits, which increased $592,000, or 18.1%, and data processing, which increased $186,000, or 35.1%. The increase in salaries and employee benefits was primarily the result of the equity incentive plan established in the fourth quarter of 2012 and the increased data processing expenses were driven by increased loan and deposit volumes.

Income Tax Expense. We recorded income tax expense of $313,000 for the three months ended September 30, 2013, compared to income tax expense of $63,000 for the three months ended September 30, 2012. The effective tax rate for the three months ended


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September 30, 2013 was 36.78% compared to 25.49% 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.

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,
                                                                                        (unaudited)
                                                                 2013                                                  2012
                                                                                   (Dollars in thousands)
                                              Average                                               Average
                                            Outstanding                                           Outstanding
                                              Balance         Interest      Yield/ Rate(1)          Balance         Interest      Yield/ Rate(1)
Interest-earning assets:
Total loans                                $     770,208     $    7,283                3.75 %    $     629,979     $    6,364                4.02 %
Securities                                       121,334            684                2.24 %           83,206            559                2.67 %
Other                                             39,089             21                0.21 %           35,138             18                0.21 %

Total interest-earning assets (5)                930,631          7,988                3.41 %          748,323          6,941                3.69 %
Non-interest-earning assets                       27,612                                                25,271

Total assets                                     958,243                                               773,594


Interest-bearing liabilities:
Savings accounts                                 403,356            554                0.55 %          284,732            526                0.74 %
Checking accounts                                 36,492             11                0.12 %           32,008              9                0.11 %
Money market accounts                              9,820              2                0.08 %           10,543              3                0.12 %
Certificates of deposit                          122,494            474                1.54 %          127,707            542                1.69 %

Total interest-bearing deposits                  572,162          1,041                0.72 %          454,990          1,080                0.94 %
Federal Home Loan Bank advances                  109,296            173                0.63 %           74,980            211                1.12 %
Securities sold under agreements to
repurchase                                         2,612              1                0.15 %            3,483              1                0.15 %
Other borrowed funds                               1,130              8                2.89 %            1,471             11                2.86 %

Total interest-bearing liabilities               685,200          1,223                0.71 %          534,924          1,303                0.97 %
Non-interest-bearing liabilities                 145,540                                               107,059

Total liabilities                                830,740                                               641,983
Stockholders' Equity                             127,503                                               131,611

Total liabilities and equity               $     958,243                                         $     773,594


Net interest income                                          $    6,765                                            $    5,638

Net interest rate spread (2)                                                           2.70 %                                                2.72 %
Net interest-earning assets (3)            $     245,431                                         $     213,399
. . .
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