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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004.
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to_______________
Commission File Number: 0-50275
BCB Bancorp, Inc.
-----------------
(Exact name of registrant as specified in its charter)
New Jersey 26-0065262
---------- ----------
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
104-110 Avenue C Bayonne, New Jersey 07002
- ------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(201) 823-0700
--------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of August 9, 2004, BCB
Bancorp, Inc., had 2,394,319 shares of common stock with no par value issued
and outstanding.
BCB BANCORP INC., AND SUBSIDIARY
INDEX
PAGE
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 2004 and December 31, 2003 (unaudited)........................ 1
Consolidated Statements of Income for the three
and six months ended June 30, 2004 and June 30, 2003 (unaudited)....... 2
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 2004 (unaudited).............. 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 2004 and June 30, 2003 (unaudited)...................... 4
Notes to Unaudited Consolidated Financial Statements................... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations..................................................... 7
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.................................................... 14
Item 4. Controls and Procedures........................................ 16
PART II. OTHER INFORMATION...................................................... 17
PART I. FINANCIAL INFORMATION
ITEM I. CONSOLIDATED FINANCIAL STATEMENTS
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition at
June 30, 2004 and December 31, 2003
(Unaudited)
(in thousands except for share data )
At At
30-Jun-04 31-Dec-03
--------- ---------
ASSETS
- ------
Cash and amounts due from depository institutions..... $ 2,924 $ 2,895
Interest-bearing deposits............................. 16,838 8,891
----------- ----------
Total cash and cash equivalents .................... 19,762 11,786
----------- ----------
Securities held to maturity........................... 111,170 90,313
Loans receivable, net................................. 220,596 188,786
Premises and equipment ............................... 5,678 5,704
Federal Home Loan Bank of New York stock.............. 1,250 1,250
Interest receivable, net.............................. 2,127 1,856
Deferred income taxes................................. 753 697
Other assets.......................................... 957 284
----------- ----------
Total assets........................................ 362,293 $ 300,676
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
- -----------
Deposits.............................................. 308,680 $ 253,650
Borrowed Money........................................ 25,000 25,000
Trust Preferred Borrowing............................. 4,124 --
Other Liabilities..................................... 786 859
----------- ----------
Total Liabilities................................. 338,590 279,509
=========== ==========
STOCKHOLDERS' EQUITY
- --------------------
Common Stock, $0.10 stated value: 10,000,000 shares
authorized, 2,394,319 and 2,296,984 shares issued
and outstanding 239 230
Additional paid-in capital............................ 27,541 26,484
Accumulated deficit................................... (4,077) (5,547)
----------- ----------
Total stockholders' equity.......................... 23,703 21,167
----------- ----------
Total liabilities and stockholders' equity.......... $ 362,293 $ 300,676
=========== ==========
See accompanying notes to consolidated financial statements.
1
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Income
For the three and six months ended
June 30, 2004 and June 30, 2003
(Unaudited)
(in thousands except for per share data)
Three Months Ended Six Months Ended
---------------------------- -----------------------
June 30, June 30,
---------------------------- -----------------------
2004 2003 2004 2003
------------ ------------- --------- ---------
Interest income:
Loans................................................... $ 3,605 $ 2,580 $ 6,882 $ 4,894
Securities.............................................. 1,417 744 2,708 1,471
Other interest-earning assets .......................... 39 27 70 56
------- -------- --------- --------
Total interest income ................................. 5,061 3,351 9,660 6,421
------- -------- --------- --------
Interest expense:
Deposits:
Demand................................................. 78 58 151 109
Savings and club....................................... 970 788 1,882 1,535
Certificates of deposit................................ 524 166 930 304
------- -------- --------- --------
1,572 1,012 2,963 1,948
------- -------- --------- --------
Borrowed Money......................................... 99 -- 191 --
------- -------- --------- --------
Total interest expense............................ 1,671 1,012 3,154 1,948
------- -------- --------- --------
Net interest income...................................... 3,390 2,339 6,506 4,473
Provision for loan losses................................ 150 225 350 450
------- -------- --------- --------
Net interest income after provision for loan losses ..... 3,240 2,114 6,156 4,023
------- -------- --------- --------
Non-interest income:
Fees and service charges................................ 140 84 270 167
Gain on sales of loans originated for sale.............. 46 -- 63 --
Gain (loss) on sales of loans .......................... (56) -- (56) --
Other................................................... 5 4 11 9
------- -------- --------- --------
Total non-interest income.............................. 135 88 288 176
------- -------- --------- --------
Non-interest expense:
Salaries and employee benefits.......................... 1,023 647 1,999 1,178
Occupancy expense of premises........................... 164 91 323 176
Equipment............................................... 364 234 711 425
Advertising............................................. 29 32 51 62
Other 513 245 907 456
------- -------- --------- --------
Total non-interest expense............................. 2,093 1,249 3,991 2,297
------- -------- --------- --------
Income before income tax provision...................... 1,282 953 2,453 1,902
Income tax provision..................................... 512 381 983 757
------- -------- --------- --------
Net Income............................................... $ 770 $ 572 $ 1,470 $ 1,145
======= ======== ========= ========
Net Income per common share:.............................
basic................................................... $ 0.32 $ 0.25 $ 0.62 $ 0.50
diluted................................................. 0.31 0.24 0.59 0.48
======= ======== ========= ========
Weighted average number of common shares outstanding-
basic................................................... 2,394 2,297 2,357 2,297
diluted................................................. 2,488 2,362 2,488 2,367
======= ======== ========= ========
See accompanying notes to consolidated financial statements.
2
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
For the six months ended June 30, 2004
(Unaudited)
(in thousands)
Additional Accumulated
Common Stock Paid-In Capital Deficit Total
------------ --------------- ----------- -----
Balance, December 31, 2003.......... $ 230 $ 26,484 $ (5,547) $ 21,167
--
Exercise of Stock Options............ 9 1,057 1,066
--
--
--
Net income for the six months ended --
June 30, 2004.................... -- -- 1,470 1,470
-------- ----------- ---------- ---------
Balance, June 30, 2004............... $ 239 $ 27,541 $ (4,077) $ 23,703
-------- ----------- ---------- ---------
See accompanying notes to consolidated financial statements.
3
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the six months ended
June 30, 2004 and 2003
(Unaudited)
(in thousands)
Six Months Ended June 30,
--------------------------
2004 2003
------------- ---------
Cash flows from operating activities :
Net Income $ 1,470 $ 1,145
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 164 57
Amortization and accretion, net....................... (19) (61)
Provision for loan losses............................. 350 450
Deferred income tax................................... (56) (177)
Loans originated for sale............................. (6,018) --
Proceeds from sale of loans originated for sale....... 6,081 --
(Gain) on sale of loans originated for sale............ (63) --
Loss on sale of non-performing loans.................. 56 --
(Increase) in interest receivable...................... (271) (204)
Decrease (Increase) in other assets................... (673) 33
(Increase) in other liabilities........................ (73) (292)
------------- ---------
Net cash provided by operating activities.......... 948 951
------------- ---------
Cash flows from investing activities:
Purchase of FHLB stock................................... -- (136)
Purchases of securities held to maturity................. (26,900) (32,495)
Proceeds from calls of securities held to maturity....... 2,500 17,000
Proceeds from repayments on securities held to maturity.. 3,485 8,771
Proceeds from sale of non-performing loans............... 1,072 --
Net (increase) in loans receivable....................... (33,211) (32,690)
Additions to premises and equipment...................... (138) (1,624)
------------- ---------
Net cash (used in) investing activities............ (53,192) (41,174)
------------- ---------
Cash flows from financing activities:
Net increase in deposits................................. 55,030 44,625
Stock options exercised.................................. 1,066 --
Net proceeds from trust preferred bond................... 4,124 --
------------- ---------
Net cash provided by financing activities.......... 60,220 44,625
------------- ---------
Net increase in cash and cash equivalents...................... 7,976 4,402
Cash and cash equivalents-begininng............................ 11,786 5,144
------------- ---------
Cash and cash equivalents-ending............................... $ 19,762 $ 9,546
============= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes........................................ $ 1,170 $ 913
============= =========
Interest............................................ $ 3,053 $ 1,943
============= =========
See accompanying notes to consolidated financial statements.
4
BCB Bancorp Inc., and Subsidiary
Notes to Unaudited Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of BCB Bancorp, Inc. ("the Company") and the Company's wholly owned
subsidiary, Bayonne Community Bank (the "Bank"). The Company's business is
conducted principally through the Bank. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not
necessarily include all information that would be included in audited financial
statements. The information furnished reflects all adjustments that are, in the
opinion of management, necessary for a fair presentation of consolidated
financial condition and results of operations. All such adjustments are of a
normal recurring nature. The results of operations for the three and six months
ended June 30, 2004 are not necessarily indicative of the results to be
expected for the fiscal year ended December 31, 2004 or any other future
interim period.
These statements should be read in conjunction with the Company's audited
consolidated financial statements and related notes for the year ended December
31, 2003, which are included in the Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission.
NOTE 2 - EARNINGS PER SHARE
The Company provides dual presentation of basic and diluted earnings per share.
Basic earnings per share utilizes reported net income as the numerator and the
actual average shares outstanding as the denominator. Diluted earnings per
share includes any dilutive effects of options, warrants and convertible
securities.
The Company's Board of Directors authorized a 10% stock dividend to
stockholders of record on November 3, 2003. Such dividend was distributed on
November 17, 2003. Basic and diluted earnings per share and the weighted
average number of common shares outstanding for the three and six months ended
June 30, 2003 have been retroactively adjusted to give effect to the stock
dividend.
NOTE 3 - SIGNIFICANT EVENTS
In June 2004, the Company participated in the issuance of a Pooled Trust
Preferred Security in the amount of $4.0 million. The Company's participation
in the issuance of this security was facilitated by a favorable ruling from the
Federal Reserve Bank regarding the Tier 1 Capital treatment of Pooled Trust
Preferred Securities. The primary
5
purpose for the Company's participation in the issuance of this instrument was
done in an effort to augment capital thereby allowing additional balance sheet
growth without diluting present shareholder percentage ownership.
6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
Total assets increased by $61.6 million or 20.5% to $362.3 million at June 30,
2004 from $300.7 million at December 31, 2003 as the Bank continued to grow
assets primarily through the origination of loans and the purchase of
Government Sponsored Enterprise (GSE) investment securities, funded primarily
through retail deposit growth.
Total cash and cash equivalents increased by $8.0 million or 67.8% to $19.8
million at June 30, 2004 from $11.8 million at December 31, 2003 as the Bank
retained cash for the purpose of funding loan closings for which a loan
commitment had already been made by the Bank. The increase in cash and cash
equivalents was primarily attributable to retail deposit growth and repayments
and prepayments in the loan and mortgage backed security portfolios. Securities
classified as held-to-maturity increased by $20.9 million or 23.1% to $111.2
million at June 30, 2004 from $90.3 million at December 31, 2003. The increase
was primarily attributable to the purchase of $23.4 million of mortgage backed
securities and $3.5 million of callable agency securities, partially offset by
mortgage backed securities repayments and prepayments of $3.5 million and the
exercise of a call option on a callable agency security of $2.5 million during
the six months ended June 30, 2004.
Loans receivable increased by $31.8 million or 16.8% to $220.5 million at June
30, 2004 from $188.8 million at December 31, 2003. The increase resulted
primarily from a $22.2 million increase in real estate mortgages comprising
residential, commercial and construction loans, net of amortization, a $7.5
million increase in business loans and lines of credit, net of amortization,
and a $2.8 million increase in consumer loans, net of amortization.
Deposit liabilities increased by $55.0 million or 21.7% to $308.7 million at
June 30, 2004 from $253.7 million at December 31, 2003. The increase resulted
primarily from an increase during the six months ended June 30, 2004 of $27.4
million in time deposits, an increase of $18.9 million in savings and club
accounts and an increase of $8.7 million in demand deposits. The Bank has been
able to achieve these growth rates through competitive pricing on select
deposit products.
Other borrowings increased by $4.1 million primarily as the result of the
issuance of a $4.0 million Pooled Trust Preferred Security in an effort to
augment capital thereby allowing additional balance sheet growth without
diluting present shareholder percentage ownership.
Stockholders' equity increased by $2.5 million or 11.8% to $23.7 million at
June 30, 2004 from $21.2 million at December 31, 2003. The increase was
primarily attributable
7
to the cash received from the exercise of options by directors, officers and
employees of Bayonne Community Bank totaling $1.1 million and net income for the
six months ended June 30, 2004 of $1.5 million. At June 30, 2004 the Company's
Tier 1, Tier 1 Risk-Based and Total Risk Based Capital Ratios were 7.89%, 11.28%
and 12.20% respectively.
Results of Operations
Three Months
Net income increased by $198,000 or 34.6% to $770,000 for the three months
ended June 30, 2004 from $572,000 for the three months ended June 30, 2003. The
increase in net income was due to increases in net interest income and
non-interest income and a decrease in the provision for loan losses partially
offset by increases in non-interest expense and income taxes. Net interest
income increased by $1.1 million or 47.8% to $3.4 million for the three months
ended June 30, 2004 from $2.3 million for the three months ended June 30, 2003.
This increase resulted primarily from the increase in Bank assets and an
increase in average net interest earning assets of $2.9 million or 8.6% to
$36.5 million for the three months ended June 30, 2004 from $33.6 million for
the three months ended June 30, 2003 partially offset by a decrease in the net
interest margin to 3.97% for the three months ended June 30, 2004 from 4.41%
for the three months ended June 30, 2003.
Interest income on loans receivable increased by $1.0 million or 38.5% to $3.6
million for the three months ended June 30, 2004 from $2.6 million for the
three months ended June 30, 2003. The increase was primarily attributable to an
increase in average loans receivable of $69.1 million or 46.9% to $216.5
million for the three months ended June 30, 2004 from $147.4 million for the
three months ended June 30, 2003, partially offset by a decrease in the average
yield on loans receivable to 6.66% for the three months ended June 30, 2004
from 7.00% for the three months ended June 30, 2003. The increase in average
loans reflects management's philosophy to deploy funds in higher yielding
instruments, specifically commercial real estate, in an effort to achieve
higher returns. The decrease in average yield reflects the cumulative effect of
the underwriting of loans over the last several years in a low interest rate
environment despite recent increases in short-term interest rates.
Interest income on securities held-to-maturity increased by $673,000 or 90.5%
to $1.4 million for the three months ended June 30, 2004 from $744,000 for the
three months ended June 30, 2003. The increase was primarily due to an increase
in the average balance of securities held-to-maturity of $51.3 million or 95.5%
to $105.0 million for the three months ended June 30, 2004 from $53.7 million
for the three months ended June 30, 2003 partially offset by a decrease in the
average yield on investment securities held-to-maturity to 5.40% for the three
months ended June 30, 2004 from 5.54% for the three months ended June 30, 2003.
The decrease in average yield reflects the lower interest rate environment in
2004 as compared to 2003. The increase in average balance reflects management's
philosophy to deploy funds in higher yielding instruments in an effort to
achieve higher returns.
8
Interest income on other interest-earning assets increased by $12,000 or 44.4%
to $39,000 for the three months ended June 30, 2004 from $27,000 for the three
months ended June 30, 2003. This increase was primarily due to an increase in
the average balance of other interest-earning assets to $20.1 million for the
three months ended June 30, 2004 from $11.2 million for the three months ended
June 30, 2003 partially offset by a decrease in the average yield on other
interest-earning assets to 0.78% for the three months ended June 30, 2004 from
0.96% for the three months ended June 30, 2003. The increase in average balance
reflects management's philosophy to forego current income in lower yielding
short-term investments and warehouse liquidity to fund the Bank's loan pipeline
and the decrease in average yield reflects the lower interest rate environment
in 2004 as compared to 2003.
Total interest expense increased by $659,000 or 65.1% to $1.7 million for the
three months ended June 30, 2004 from $1.0 million for the three months ended
June 30, 2003. The increase resulted primarily from an increase in average
interest bearing liabilities of $126.2 million or 70.6% to $305.0 million for
the three months ended June 30, 2004 from $178.8 million for the three months
ended June 30, 2003, partially offset by a decrease in the average cost of
interest bearing liabilities to 2.19% for the three months ended June 30, 2004
from 2.26% for the three months ended June 30, 2003.
The provision for loan losses totaled $150,000 and $225,000 for the three-month
periods ended June 30, 2004 and 2003, 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) significant level of loan growth
and (5) the existing level of reserves for loan losses that are probable and
estimable. During the three months ended June 30, 2004, the Bank recorded
$219,000 in loan charge-offs related to the foreclosure of five loans, which
were resolved by the Bank taking ownership of the underlying collateral, heavy
construction equipment, which has been recorded in other assets at $371,000.
During the three months ended June 30, 2003, the Bank did not record any loan
charge-offs. The Bank had non-performing loans totaling $386,000 or 0.17% of
gross loans at June 30, 2004, $1.05 million or 0.51% of gross loans at March
31, 2004 and $67,000 or 0.04% of gross loans at June 30, 2003. The allowance
for loan losses was $2.2 million or 1.01% of gross loans at June 30, 2004, $2.3
million or 1.12% of gross loans at March 31, 2004 and $1.7 million or 1.08% of
gross loans at June 30, 2003. The amount of the allowance is based on estimates
and the ultimate losses may vary from such estimates. Management assesses the
allowance for loan losses on a quarterly basis and makes provisions for loan
losses as necessary in order to maintain the adequacy of the allowance. While
management uses available information to recognize losses on loans, future loan
loss provisions may be necessary based on changes in the aforementioned
criteria. In addition various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses and may
require the Bank to recognize additional provisions based on their judgment of
information available to them at the time of their examination. Management
believes that the allowance for loan losses was adequate at June 30, 2004,
March 31, 2004 and June 30, 2003.
9
Total non-interest income increased by $47,000 to $135,000 for the three months
ended June 30, 2004 from $88,000 for the three months ended June 30, 2003. The
increase in non-interest income resulted primarily from a $56,000 increase in
fees and service charges to $140,000 from $84,000 for the quarters ended June
30, 2004 and 2003, respectively, an increase of $46,000 in gains derived from
the sale of loans originated for sale to various investors and a $1,000
increase in other income for the comparative three month time periods,
partially offset by a $56,000 loss on sale of loans in the current quarter as
the Bank, after a risk assessment of the loan portfolio, decided to sell an
underperforming portion of the loan portfolio at a slight discount and redeploy
that cash flow to commercial real estate loans.
Total operating expenses increased by $844,000 or 67.6% to $2.09 million for
the three months ended June 30, 2004 from $1.25 million for the three months
ended June 30, 2003. The increase in the three-month period in 2004 was
primarily due to an increase of $376,000 in salaries and employee benefits
expense to $1.02 million for the three months ended June 30, 2004 from $647,000
for the three months ended June 30, 2003 as the Bank had a total of 78
full-time equivalent employees staffing three offices at June 30, 2004 as
compared to 57 full-time equivalent employees staffing two offices at June 30,
2003. Equipment expense increased $130,000 to $364,000 for the three months
ended June 30, 2004 from $234,000 for the three months ended June 30, 2003. The
primary component of this expense represents data service provider expense
which increases with the asset growth of the Bank. Occupancy expense increased
by $73,000 to $164,000 for the three months ended June 30, 2004 from $91,000
for the three months ended June 30, 2003 as the Bank is incurring higher costs
for the three facilities currently operational. Advertising expense decreased
$3,000 to $29,000 for the three months ended June 30, 2004 from $32,000 for the
three months ended June 30, 2003. Other non-interest expense increased by
$268,000 to $513,000 for the three months ended June 30, 2004 from $245,000 for
the three months ended June 30, 2003. Other non-interest expense is comprised
of director fees, stationary, forms and printing, professional fees, legal
fees, check printing, correspondent bank fees, telephone and communication,
shareholder relations and other fees and expenses. The increase in other
non-interest expenses is primarily attributable to increased legal,
professional and shareholder relation expense as, during the three months ended
June 30, 2004, the Bank incurred expenses associated with a proxy contest
initiated by an opposing slate of directors.
Income tax expense increased $131,000 to $512,000 for the three months ended
June 30, 2004 from $381,000 for the three months ended June 30, 2003 reflecting
increased pre-tax income earned during the three month time period ended June
30, 2004.
Six Months of Operations
Net income increased by $325,000 or 28.4% to $1.47 million for the six months
ended June 30, 2004 from $1.15 million for the six months ended June 30, 2003.
The increase in net income is due to increases in net interest income and
non-interest income and a decrease in the provision for loan losses, partially
offset by increases in non-interest
10
expense and income taxes. Net interest income increased by $2.0 million or 44.4%
to $6.5 million for the six months ended June 30, 2004 from $4.5 million for the
six months ended June 30, 2003. This increase resulted primarily from the
increased size of the Bank and an increase in average net interest earning
assets of $2.0 million or 6.2% to $34.2 million for the six months ended June
30, 2004 from $32.2 million for the six months ended June 30, 2003 partially
offset by a decrease in the net interest margin to 4.01% for the six months
ended June 30, 2004 from 4.46% for the six months ended June 30, 2003.
Interest income on loans receivable increased by $2.0 million or 40.8% to $6.9
million for the six months ended June 30, 2004 from $4.9 million for the six
months ended June 30, 2003. The increase was primarily attributable to an
increase in average loans receivable of $68.0 million or 49.1% to $206.4
million for the six months ended June 30, 2004 from $138.4 million for the six
months ended June 30, 2003, partially offset by a decrease in the average yield
on loans receivable to 6.67% for the six months ended June 30, 2004 from 7.07%
for the six months ended June 30, 2003. The increase in average loans reflects
management's philosophy to deploy funds in higher yielding instruments,
specifically commercial real estate, in an effort to achieve higher returns.
The decrease in average yield reflects the lower interest rate environment in
2004 as compared to 2003.
Interest income on securities held-to-maturity increased by $1.2 million or
80.0% to $2.7 million for the six months ended June 30, 2004 from $1.5 million
for the six months ended June 30, 2003. The increase was primarily due to an
increase in the average balance of securities held-to-maturity of $48.2 million
or 93.6% to $99.7 million for the six months ended June 30, 2004 from $51.5
million for the six months ended June 30, 2003 partially offset by a decrease
in the average yield on securities held-to-maturity to 5.43% for the six months
ended June 30, 2004 from 5.71% for the six months ended June 30, 2003. The
increase in average balance reflects management's philosophy to deploy funds in
higher yielding instruments absent the opportunity to invest in higher yielding
loans in an effort to achieve higher returns. The decrease in average yield
reflects the lower interest rate environment in 2004 as compared to 2003.
Interest income on other interest-earning assets increased by $14,000 or 25.0%
to $70,000 for the six months ended June 30, 2004 from $56,000 for the six
months ended June 30, 2003. This increase was primarily due to an increase in
the average balance of other interest-earning assets to $18.5 million for the
six months ended June 30, 2004 from $10.9 million for the six months ended June
30, 2003 partially offset by a decrease in the average yield on other
interest-earning assets to 0.76% for the six months ended June 30, 2004 from
1.03% for the six months ended June 30, 2003. The increase in average balance
reflects management's philosophy to forego current income in lower yielding
short-term investments and warehouse liquidity to fund the Bank's loan
pipeline. The decrease in average yield reflects the lower interest rate
environment in 2004 as compared to 2003.
Total interest expense increased by $1.2 million or 61.5% to $3.15 million for
the six months ended June 30, 2004 from $1.95 million for the six months ended
June 30, 2003. The increase resulted primarily from an increase in average
interest bearing liabilities of
11
$121.9 million or 71.8% to $290.5 million for the six months ended June 30, 2004
from $168.6 million for the six months ended June 30, 2003, partially offset by
a decrease in the average cost of interest bearing liabilities to 2.17% for the
six months ended June 30, 2004 from 2.31% for the six months ended June 30,
2003.
The provision for loan losses totaled $350,000 and $450,000 for the six-month
periods ended June 30, 2004 and 2003, 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) significant level of loan growth
and (5) the existing level of reserves for loan losses that are probable and
estimable. During the six months ended June 30, 2004, the Bank recorded
$219,000 in loan charge-offs related to the foreclosure of five loans, which
were resolved by the Bank taking ownership of the underlying loan collateral,
heavy construction equipment, which has been recorded in other assets at
$371,000. During the six months ended June 30, 2003, the Bank did not record
any loan charge-offs. The Bank had non-performing loans totaling $386,000 or
0.17% of gross loans at June 30, 2004, $1.05 million or 0.51% of gross loans at
March 31, 2004 and $67,000 or 0.04% of gross loans at June 30, 2003. The
allowance for loan losses was $2.2 million or 1.01% of gross loans at June 30,
2004, $2.3 million or 1.12% of gross loans at March 31, 2004 and $1.7 million
or 1.08% of gross loans at June 30, 2003. The amount of the allowance is based
on estimates and the ultimate losses may vary from such estimates. Management
assesses the allowance for loan losses on a quarterly basis and makes
provisions for loan losses as necessary in order to maintain the adequacy of
the allowance. While management uses available information to recognize losses
on loans, future loan loss provisions may be necessary based on changes in the
aforementioned criteria. In addition various regulatory agencies, as an
integral part of their examination process, periodically review the allowance
for loan losses and may require the Bank to recognize additional provisions
based on their judgment of information available to them at the time of their
examination. Management believes that the allowance for loan losses was
adequate at June 30, 2004, March 31, 2004 and June 30, 2003.
Total non-interest income increased by $112,000 to $288,000 for the six months
ended June 30, 2004 from $176,000 for the six months ended June 30, 2003. The
increase in non-interest income resulted primarily from a $103,000 increase in
fees and service charges to $270,000 from $167,000 for the six-months ended
June 30, 2004 and 2003, respectively, an increase of $63,000 in gains derived
from the sale of loans originated for sale to various investors and a $2,000
increase in other income for the comparative six month time periods, partially
offset by a $56,000 loss on sale of loans in the current period as the Bank,
after a risk assessment of the loan portfolio, decided to sell an
underperforming portion of the loan portfolio at a slight discount and redeploy
that cash flow to commercial real estate loans.
Total operating expenses increased by $1.7 million or 73.9% to $4.0 million for
the six months ended June 30, 2004 from $2.3 million for the six months ended
June 30, 2003. The increase in the six-month period in 2004 was primarily due
to an increase of
12
$821,000 in salaries and employee benefits expense to $2.0 million for the six
months ended June 30, 2004 from $1.2 million for the six months ended June 30,
2003 as the Bank had a total of 78 full-time equivalent employees staffing three
offices at June 30, 2004 as compared to 57 full-time equivalent employees
staffing two offices at June 30, 2003. Equipment expense increased $286,000 to
$711,000 for the six months ended June 30, 2004 from $425,000 for the six months
ended June 30, 2003. The primary component of this expense is data service
provider expense which increases with the growth of the Bank's balance sheet.
Occupancy expense increased by $147,000 to $323,000 for the six months ended
June 30, 2004 from $176,000 for the six months ended June 30, 2003 as the Bank
is incurring higher costs for the three facilities currently operational.
Advertising expense decreased $11,000 to $51,000 for the six months ended June
30, 2004 from $62,000 for the six months ended June 30, 2003. Other non-interest
expense increased by $451,000 to $901,000 for the six months ended June 30, 2004
from $456,000 for the six months ended June 30, 2003. Other non-interest expense
is comprised of director fees, stationary, forms and printing, professional
fees, legal fees, check printing, correspondent bank fees, telephone and
communication, shareholder relations and other fees and expenses. The increase
in other non-interest expense is primarily attributable to increased legal,
professional and shareholder relation expense as, during the six months ended
June 30, 2004, the Bank incurred expenses associated with a proxy contest
initiated by an opposing slate of directors.
Income tax expense increased $226,000 to $983,000 for the six months ended June
30, 2004 from $757,000 for the six months ended June 30, 2003 reflecting
increased pre-tax income earned during the current six months ended June 30,
2004.
13
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Management of Market Risk
General. The majority of our assets and liabilities are monetary in nature.
Consequently, one of our most significant forms of market risk is interest rate
risk. Our assets, consisting primarily of mortgage loans, have longer
maturities than our liabilities, consisting primarily of deposits. As a result,
a principal part of our business strategy is to manage interest rate risk and
reduce the exposure of our net interest income to changes in market interest
rates. Accordingly, our Board of Directors has established an Asset/Liability
Committee which is responsible for evaluating the interest rate risk inherent
in our assets and liabilities, for determining the level of risk that is
appropriate given our business strategy, operating environment, capital,
liquidity and performance objectives, and for managing this risk consistent
with the guidelines approved by the Board of Directors. Senior management
monitors the level of interest rate risk on a regular basis and the
Asset/Liability Committee, which consists of senior management and outside
directors operating under a policy adopted by the Board of Directors, meets as
needed to review our asset/liability policies and interest rate risk position.
The following table presents the Bank's net portfolio value ("NPV"). These
calculations were based upon assumptions believed to be fundamentally sound,
although they may vary from assumptions utilized by other financial
institutions. The information set forth below is based on data that included
all financial instruments as of March 31, 2004. Assumptions have been made by
the Bank relating to interest rates, loan prepayment rates, core deposit
duration, and the market values of certain assets and liabilities under the
various interest rate scenarios. Actual maturity dates were used for fixed rate
loans and certificate accounts. Investment securities were scheduled at either
the maturity date or the next scheduled call date based upon management's
judgment of whether the particular security would be called in the current
interest rate environment and under assumed interest rate scenarios. Variable
rate loans were scheduled as of their next scheduled interest rate repricing
date. Additional assumptions made in the preparation of the NPV table include
prepayment rates on loans and mortgage-backed securities, core deposits without
stated maturity dates were scheduled with an assumed term of 48 months, and
money market and noninterest bearing accounts were scheduled with an assumed
term of 24 months. The NPV at "PAR" represents the difference between the
Bank's estimated value of assets and estimated value of liabilities assuming no
change in interest rates. The NPV for a decrease of 200 and 300 basis points
has been excluded since it would not be meaningful, in the interest rate
environment as of March 31, 2004. The following sets forth the Bank's NPV as of
March 31, 2004.
Change in Net Portfolio $ Change from %Change from NPV as a % of Assets
--------------------
Calculation Value PAR PAR NPV Ratio Change
- ----------- ----- --- --- ------------------
+300bp $ 29,919 $ (10,132) -25.30% 9.82% -188 bps
+200bp 33,251 (6,800) -16.98 10.50 -120 bps
+100bp 36,795 (3,256) -8.13 11.17 -53 bps
PAR 40,052 ------ ------- 11.70 ---- bps
- -100bp 45,342 5,290 13.21 12.97 127 bps
bp -- basis points
14
The Table above indicates that at March 31, 2004, in the event of a 100 basis
point decrease in interest rates, we would experience a 13.21% increase in NPV.
In the event of a 100 basis point increase in interest rates, we would
experience an 8.13% decrease in NPV.
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurement. Modeling changes in NPV require making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV
table presented assumes that the composition of our interest rate sensitive
assets and liabilities existing at the beginning of a period remains constant
over the period being measured and assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
or repricing of specific assets and liabilities. Accordingly, although the NPV
table provides an indication of our interest rate risk exposure at a particular
point in time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes in market interest rates on our net
interest income, and will differ from actual results.
15
ITEM 4.
Controls and Procedures
Under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer, the Company
has evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this quarterly report.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the end of the period covered by this quarterly
report, the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed in the reports that the
Company files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. There has been no change
in the Company's internal control over financial reporting during the most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND STOCK
REPURCHASES
Securities sold within the past three years without registering the securities
under the Securities Act of 1933
The Company has not sold any securities during the past three years. In
connection with the Plan of Acquisition completed on May 1, 2003 the Bank
reorganized into the holding company form of ownership and each share of Bank
common stock became a share of Company common stock. No new capital was
received in the reorganization. Lastly, during the last six months the Company
did not engage in any stock repurchases.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Bank's Annual Meeting of Shareholders occurred on May 11, 2004. At this
meeting there were two items put to a vote of security holders; Election of
Directors and the Ratification of the Independent Auditors. The number of
shares outstanding was 2,394,319, the number of shares entitled to vote was
2,394,319 and the number of shares present at the meeting or by proxy was
2,246,445.
1. The vote with respect to the election of ten directors was as
follows:
NAME FOR WITHHELD ABSTAIN
- ---- --- -------- -------
Robert Ballance 1,362,025 733 5,724
Judith Q. Bielan 1,361,359 1,399 5,724
Joseph Brogan 1,362,025 733 5,724
James E. Collins 1,362,025 733 5,724
Thomas M. Coughlin 1,362,025 733 5,724
Mark D. Hogan 1,362,025 733 5,724
Joseph Lyga 1,362,025 733 5,724
Donald Mindiak 1,362,025 733 5,724
Alexander Pasiechnik 1,362,025 733 5,724
Dr. August Pellegrini, Jr. 1,362,025 733 5,724
17
Donald S. Cymbor 876,753 1,210 -0-
Robert G. Doria 876,753 1,210 -0-
Phyllis W. Garelick 876,753 1,210 -0-
John J. Hughes 876,753 1,210 -0-
Gary R. Maita 876,753 1,210 -0-
H. Mickey McCabe 876,753 1,210 -0-
Kenneth R. Poesl 876,753 1,210 -0-
Joseph Tagliareni 876,753 1,210 -0-
Susan Ferraro 876,753 1,210 -0-
Virginia Boele Kemp 876,753 1,210 -0-
2. The vote with respect to the ratification of Radics & Co., LLC as
Independent Auditors for the Company for the year ending December
31, 2004 was:
FOR AGAINST ABSTAIN
--- ------- -------
2,234,274 2,643 9,528
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.
Exhibit 31.1 and 31.2 Officers' Certification filed pursuant to section 302 of
the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Officers' Certification filed pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
BCB Bancorp Inc.
Date: August 9, 2004 By: /s/ Donald Mindiak
------------------
Donald Mindiak
President & Chief Executive Officer
Date: August 9, 2004 By: /s/ Thomas Coughlin
-------------------
Thomas Coughlin
CFO/COO
19