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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 March 31, 2005.
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 incorporation (IRS Employer I.D. No.)
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 May 10, 2005, BCB
Bancorp, Inc., had 2,995,155 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
March 31, 2005 and December 31, 2004 (unaudited) ................ 1
Consolidated Statements of Income for the three
months ended March 31, 2005 and March 31, 2004
(unaudited)...................................................... 2
Consolidated Statement of Changes in Stockholders'
Equity for the three months ended
March 31, 2005 (unaudited)....................................... 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 2005 and March 31, 2004 (unaudited).............. 4
Notes to Unaudited Consolidated Financial Statements ............ 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................................... 8
Item 3. Qualitative and Quantitative Disclosures about
Market Risk.............................................. 12
Item 4. Controls and Procedures.................................. 14
PART II. OTHER INFORMATION ............................................... 15
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENT
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition at
March 31, 2005 and December 31, 2004
(Unaudited)
(in thousands except for share data)
At At
31-Mar-05 31-Dec-04
--------- ---------
ASSETS
- ------
Cash and amounts due from depository institutions .... $ 2,880 $ 2,353
Interest-earning deposits ............................ 1,813 2,181
--------- ---------
Total cash and cash equivalents ................... 4,693 4,534
--------- ---------
Securities held to maturity .......................... 113,947 117,036
Loans receivable ..................................... 261,677 246,380
Premises and equipment ............................... 5,642 5,679
Federal Home Loan Bank of New York stock ............. 944 944
Interest receivable, net ............................. 2,335 2,329
Deferred income taxes ................................ 837 772
Other assets ......................................... 728 615
--------- ---------
Total assets ..................................... $ 390,803 378,289
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
- -----------
Deposits ............................................. $ 344,940 337,243
Borrowed Money ....................................... 13,400 10,000
Trust Preferred Borrowing ............................ 4,124 4,124
Other Liabilities .................................... 1,158 886
--------- ---------
Total Liabilities ................................ 363,622 352,253
--------- ---------
STOCKHOLDERS' EQUITY
Common Stock, $0.08 stated value: 10,000,000 shares
authorized, 2,993,538 shares
outstanding ....................................... 239 239
Additional paid-in capital ........................... 27,725 27,725
Accumulated deficit .................................. (783) (1,928)
--------- ---------
Total stockholders' equity ....................... 27,181 26,036
--------- ---------
Total liabilities and stockholders' equity ...... $ 390,803 $ 378,289
========= =========
See accompanying notes to consolidated financial statements.
1
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Income
For the three months ended
March 31, 2005 and 2004
(Unaudited)
(in thousands except for per share data)
----------------------
Three Months Ended
----------------------
March 31,
--------- ---------
2005 2004
--------- ---------
Interest income:
Loans .............................................. $ 4,259 $ 3,277
Securities ......................................... 1,434 1,291
Other interest-earning assets ...................... 10 31
--------- ---------
Total interest income ........................... 5,703 4,599
--------- ---------
Interest expense:
Deposits:
Demand .......................................... 85 73
Savings and club ................................ 1,048 912
Certificates of deposit ......................... 682 406
--------- ---------
1,815 1,391
Borrowed money .................................... 121 92
--------- ---------
Total interest expense ........................ 1,936 1,483
--------- ---------
Net interest income .................................. 3,767 3,116
Provision for loan losses ............................ 260 200
--------- ---------
Net interest income after provision for loan losses .. 3,507 2,916
--------- ---------
Non-interest income:
Fees and service charges .......................... 121 130
Gain on sales of loans originated for sale ........ 49 17
Gain on sales of securities available for sale .... -- --
Other ............................................. 6 6
--------- ---------
Total non-interest income ...................... 176 153
--------- ---------
Non-interest expense:
Salaries and employee benefits .................... 1,025 976
Occupancy expense of premises ..................... 162 159
Equipment ......................................... 367 347
Advertising ....................................... 39 22
Other ............................................. 307 394
--------- ---------
Total non-interest expense ..................... 1,900 1,898
--------- ---------
Income before income tax provision .................. 1,783 1,171
Income tax provision ................................. 638 471
--------- ---------
Net Income ........................................... $ 1,145 $ 700
========= =========
Net Income per common share
Basic ......................................... $ 0.38 $ 0.24
========= =========
Diluted ....................................... $ 0.37 $ 0.23
========= =========
Weighted average number of common shares outstanding-
Basic ......................................... 2,994 2,900
========= =========
Diluted ....................................... 3,137 3,110
========= =========
See accompanying notes to consolidated financial statements.
2
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
For the three months ended March 31, 2005
(Unaudited)
(in thousands)
Additional Accumulated
Common Stock Paid-In Capital Deficit Total
------------ --------------- ----------- ---------
Balance, December 31, 2004 .............. $ 239 $ 27,725 $ (1,928) $ 26,036
Exercise of Stock Options ............... --
Net income for the three months ended
March 31, 2005 ..................... -- -- 1,145 1,145
------------ --------------- ----------- ---------
Balance, March 31, 2005 ................. $ 239 $ 27,725 $ (783) $ 27,181
------------ --------------- ----------- ---------
See accompanying notes to consolidated financial statements.
3
BCB BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the three months ended
March 31, 2005 and 2004
(Unaudited)
(in thousands)
Three Months Ended
March 31,
--------------------
2005 2004
-------- --------
Cash flows from operating activities:
Net Income .................................................. $ 1,145 $ 700
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation .......................................... 86 82
Amortization and accretion, net ....................... (110) (21)
Provision for loan losses ............................. 260 200
Loans originated for sale ............................. (3,353) (1,445)
Proceeds of sales of loans originated for sale ........ 3,402 1,462
Gain on sales of loans originated for sale ............ (49) (17)
Deferred income tax ................................... (65) (56)
Increase in interest receivable ....................... (6) (200)
Increase in other assets .............................. (113) (162)
Increase in other liabilities ......................... 272 163
-------- --------
Net cash provided by operating activities ...... 1,469 706
-------- --------
Cash flows from investing activities:
Purchases of securities held to maturity ................. (12,315) (10,374)
Proceeds from call of security held to maturity .......... 13,755 --
Proceeds from repayments on securities held to maturity .. 1,658 1,342
Net (increase) in loans receivable ....................... (15,456) (15,936)
Additions to premises and equipment ...................... (49) (130)
-------- --------
Net cash (used in) investing activities ........... (12,407) (25,098)
-------- --------
Cash flows from financing activities:
Net increase in deposits ................................. 7,697 35,275
Net change in short-term borrowings ...................... 3,400 --
Stock options exercised .................................. -- 1,066
-------- --------
Net cash provided by financing activities ......... 11,097 36,341
-------- --------
Net increase in cash and cash equivalents ...................... 159 11,949
Cash and cash equivalents-begininng ............................ 4,534 11,786
-------- --------
Cash and cash equivalents-ending ............................... $ 4,693 $ 23,735
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes .......................................... $ 1 $ 261
======== ========
Interest .............................................. $ 1,906 $ 1,458
======== ========
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
subsidiaries, Bayonne Community Bank (the "Bank") and BCB Holding Company
Investment Corp., (the "Investment Company") a New Jersey Investment Company.
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 months ended
March 31, 2005 are not necessarily indicative of the results to be expected for
the fiscal year ended December 31, 2005 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, 2004, 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 AND STOCK-BASED COMPENSATION PLANS
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, under plans approved by its stockholders in 2003 and 2002, has
granted stock options to employees and outside directors. The Company accounts
for options granted using the intrinsic value method, in accordance with
Accounting Principles Board (APB), Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations. No compensation expense has been
reflected in net income for the options granted as all such grants have an
exercise price equal to the market price of the underlying stock at the date of
the grant. The following table provides information as to net income and
earnings per share as if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", as amended, to all option grants.
5
Three Months Ended March 31,
----------------------------
2005 2004
----------- -----------
(In Thousands, Except for Per Share Amounts)
Net Income as reported $ 1,145 $ 700
Less: Total stock-based compensation expense
net of income taxes, included in reported
net income -- --
Add: Total stock-based compensation expense,
net of income taxes, that would have been
included in the determination of net income
if the fair value method had been applied to
all grants (121) (94)
----------- -----------
Pro forma net income $ 1,024 $ 606
----------- -----------
Net income per common share, as reported:
Basic $ 0.38 $ 0.24
Diluted 0.37 0.23
----------- -----------
Pro forma net income per common share:
Basic $ 0.34 $ 0.21
Diluted 0.33 0.19
----------- -----------
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement No. 123 (revised), "Share-Based Payment." Statement No. 123 (revised)
replaces Statement No. 123 and supersedes APB Opinion No. 25. Statement No. 123
(revised) requires compensation costs related to share based payment
transactions to be recognized in the financial statements over the period that
an employee provides service in exchange for the award. Public companies are
required to adopt the new standard using a modified prospective method and may
elect to restate prior periods using the modified retrospective method. Under
the modified prospective method, companies are required to record compensation
cost for new and modified awards over the related vesting period of such awards
prospectively and record compensation cost prospectively for the unvested
portion at the date of adoption, of previously issued and outstanding awards
over the remaining vesting period of such awards. No change to prior periods
presented is permitted under the modified prospective method. Under the modified
retrospective method, companies record compensation costs for prior periods
retroactively through restatement of such periods using the exact pro forma
amounts disclosed in the companies' footnotes. Also, in the period of adoption
and after, companies record compensation cost based on the modified prospective
method.
6
On April 14, 2005, the Securities and Exchange Commission ("SEC") adopted a new
rule that amends the compliance dates for Statement No. 123 (revised). Under the
new rule, the Company is required to adopt Statement No. 123 (revised) in the
first annual period beginning after June 15, 2005. The Company has not yet
determined the method of adoption or the effect of adopting Statement No. 123
(revised), and it has not determined whether the adoption will result in amounts
that are similar to the current pro forma disclosures under Statement No. 123.
Early application of Statement No. 123 (revised) is encouraged, but not
required.
NOTE 3 - SIGNIFICANT EVENTS
In June 2004, the Company participated in the issuance of a Pooled Trust
Preferred Security in the amount of $4.1 million. The primary purpose for the
Company's participation in the issuance of this instrument was an effort to
augment capital including Tier 1 capital, thereby allowing additional growth of
the Company's assets without diluting present shareholder percentage ownership.
The Investment Company commenced operations in January 2005. Under New Jersey
tax law, the Investment Company is subject to a 3.6% state income tax rate as
compared to the 9.0% rate to which the Company and the Bank are subject. The
Investment Company was brought into existence in order to reduce the overall tax
burden of the consolidated Company. The presence of the Investment Company in
the current year quarter resulted in an income tax savings of approximately
$51,000.
On April 27, 2005, the Company announced that the Board of Directors had
approved a stock repurchase program for the repurchase of up to 5% of the
Company's outstanding common stock equal to approximately 150,000 shares. The
repurchase will be made from time to time as market conditions warrant.
7
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
Total assets increased by $12.5 million or 3.3% to $390.8 million at March 31,
2005 from $378.3 million at December 31, 2004 as the Bank continued to grow
assets through the origination of real estate loans, funded primarily through
cash flow provided by retail deposit growth, repayments and prepayments of loans
as well as the mortgage backed security portfolio and the utilization of Federal
Home Loan Bank advances. Asset growth has stabilized as management is
concentrating on loan growth as opposed to investment growth primarily as a
result of yields in loan products offering a more competitive return than that
of investments. We intend to grow at a measured pace consistent with our capital
levels and as business opportunities permit.
Total cash and cash equivalents increased by $159,000 or 3.5% to $4.7 million at
March 31, 2005 from $4.5 million at December 31, 2004. Investment securities
classified as held-to-maturity decreased by $3.1 million or 2.6% to $113.9
million at March 31, 2005 from $117.0 million at December 31, 2004. This
decrease was primarily attributable to call options exercised on $13.8 million
of callable agency securities and $1.7 million of mortgage backed security
repayments and prepayments, partially offset by the purchase of $12.3 million of
callable agency securities during the three months ended March 31, 2005.
Loans receivable increased by $15.3 million or 6.2% to $261.7 million at March
31, 2005 from $246.4 million at December 31, 2004. The increase resulted
primarily from a $15.5 million increase in real estate mortgages comprising
residential, commercial and construction loans, net of amortization and a $2.3
million increase in consumer loans, net of amortization partially offset by a
$2.3 million decrease in loan participations with other financial institutions,
net of amortization. At March 31, 2005, the allowance for loan losses was $2.7
million.
Deposit liabilities increased by $7.7 million or 2.3% to $344.9 million at March
31, 2005 from $337.2 million at December 31, 2004. The increase resulted
primarily from an increase of $9.3 million in time deposit accounts and a $2.5
million increase in transaction accounts, partially offset by a $4.1 million
decrease in savings and club accounts as the Bank has experienced some
disintermediation with savings and club balances being reduced in favor of time
deposits as short term time deposit rates have increased over the last several
months.
Other borrowings increased by $3.4 million or 24.1% to $17.5 million at March
31, 2005 from $14.1 million at December 31, 2004. The increase in other
borrowings reflects the use of Federal Home Loan Bank advances to augment
deposit growth in an effort to grow the balance sheet by continuing to close
loans in the Bank's loan pipeline.
8
Stockholders' equity increased by $1.145 million or 4.4% to $27.2 million at
March 31, 2005 from $26.0 million at December 31, 2004. This increase in
stockholders' equity reflects net income by the Company for the three months
ended March 31, 2005. At March 31, 2005 the Company's Tier 1, Tier 1 Risk-Based
and Total Risk Based Capital Ratios were 8.11%, 11.38% and 12.37% respectively.
Results of Operations
Net income increased by $445,000 or 63.6% to $1,145,000 for the three months
ended March 31, 2005 from $700,000 for the three months ended March 31, 2004.
The increase in net income reflects increases in net interest income and
non-interest income, partially offset by increases in the provision for loan
losses, non-interest expense and income taxes. Net interest income increased by
$651,000 or 20.9% to $3.8 million for the three months ended March 31, 2005 from
$3.1 million for the three months ended March 31, 2004. This increase resulted
primarily from an increase in average interest earning assets of $65.4 million
or 21.2% to $373.3 million for the three months ended March 31, 2005 from $307.9
million for the three months ended March 31, 2004, funded primarily through an
increase in average interest bearing liabilities of $55.0 million or 19.9% to
$330.9 million for the three months ended March 31, 2005 from $275.9 million for
the three months ended March 31, 2004, partially offset by a slight decrease in
the net interest margin to 4.04% for the three months ended March 31, 2005 from
4.06% for the three months ended March 31, 2004.
Interest income on loans receivable increased by $1.0 million or 30.3% to $4.3
million for the three months ended March 31, 2005 from $3.3 million for the
three months ended March 31, 2004. The increase was primarily attributable to an
increase in the balance of average loans receivable of $59.7 million or 30.4% to
$256.1 million for the three months ended March 31, 2005 from $196.4 million for
the three months ended March 31, 2004, while the average yield on loans
receivable decreased slightly to 6.65% for the three months ended March 31, 2005
from 6.68% for the three months ended March 31, 2004. The increase in average
loans reflects management's philosophy to deploy funds in higher yielding
instruments, specifically commercial real estate loans in an effort to achieve
higher returns.
Interest income on securities held-to-maturity increased by $143,000 or 11.1% to
$1.4 million for the three months ended March 31, 2005 from $1.3 million for the
three months ended March 31, 2004. The increase was primarily attributable to an
increase in the average balance of securities held-to-maturity of $18.5 million
or 19.6% to $113.0 million for the three months ended March 31, 2005 from $94.5
million for the three months ended March 31, 2004, partially offset by a
decrease in the average yield on securities to 5.08% for the three months ended
March 31, 2005 from 5.46% for the three months ended March 31, 2004. The
increase in average balance reflects management's philosophy to deploy funds in
higher yielding instruments in an effort to achieve higher returns. The decrease
in average yield reflects a reduction in the balance of higher yielding callable
agency securities as call options on those securities were exercised
9
thereby decreasing that balance with the proceeds being reinvested in securities
having prevailing rates of a lower scale.
Interest income on other interest-earning assets decreased by $21,000 or 67.7%
to $10,000 for the three months ended March 31, 2005 from $31,000 for the three
months ended March 31, 2004. The decrease was primarily due to an decrease in
the average balance of other interest-earning assets to $4.2 million for the
three months ended March 31, 2005 from $17.0 million for the three months ended
March 31, 2004, partially offset by an increase in the average yield on other
interest-earning assets to 0.96% for the three months ended March 31, 2005 from
0.73% for the three months ended March 31, 2004. The increase in the average
yield reflects the higher short-term interest rate environment for overnight
deposits in 2005 as compared to 2004. The decrease in the average balance
reflects management's philosophy to deploy funds in higher yielding assets,
primarily commercial real estate loans.
Total interest expense increased by $453,000 or 30.5% to $1.9 million for the
three months ended March 31, 2005 from $1.5 million for the three months ended
March 31, 2004. The increase resulted primarily from an increase in average
interest bearing liabilities of $55.0 million or 19.9% to $330.9 million for the
three months ended March 31, 2005 from $275.9 million for the three months ended
March 31, 2004, as well as an increase in the average cost of interest bearing
liabilities to 2.34% for the three months ended March 31, 2005 from 2.15% for
the three months ended March 31, 2004.
The provision for loan losses totaled $260,000 and $200,000 for the three-month
periods ended March 31, 2005 and 2004 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. The Bank had non-performing loans totaling $352,000 or 0.13% of gross
loans at March 31, 2005, $1.0 million or 0.40% of gross loans at December 31,
2004 and $1.05 million or 0.51% of gross loans at March 31, 2004. The allowance
for loan losses stood at $2.7 million or 1.01% of gross loans at March 31, 2005,
$2.5 million or 1.01% of gross total loans at December 31, 2004 and $2.3 million
or 1.12% of gross loans at March 31, 2004. 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 March 31, 2005,
December 31, 2004 and March 31, 2004.
10
Total non-interest income increased by $23,000 or 15.0% to $176,000 for the
three months ended March 31, 2005 from $153,000 for the three months ended March
31, 2004. The increase in non-interest income resulted primarily from a $32,000
increase in gains derived from the sale of loans originated for sale to various
investors to $49,000 for the three months ended March 31, 2005 from $ 17,000 for
the three months ended March 31, 2004, partially offset by a $9,000 decrease in
general fees and service charges to $121,000 for the three months ended March
31, 2005 from $130,000 for the three months ended March 31, 2004.
Total non-interest expense remained stable at $1.9 million for the three month
periods ended March 31, 2005 and 2004. Salaries and employee benefits expense
increased by $49,000 or 5.0% to $1.03 million for the three months ended March
31, 2005 from $976,000 for the three months ended March 31, 2004. This increase
was primarily attributable to annual salary increases in conjunction with annual
reviews, partially offset by a reduction in fees paid to the Board of Directors
and a decrease in the number of full-time equivalent employees to 73 for the
three months ended March 31, 2005 from 75 for the three months ended March 31,
2004. Equipment expense increased by $20,000 to $367,000 for the three months
ended March 31, 2005 from $347,000 for the three months ended March 31, 2004.
The primary component of this expense item is data service provider expense
which increases with the growth of the Bank's balance sheet. Occupancy expense
increased by $3,000 to $162,000 for the three months ended March 31, 2005 from
$159,000 for the three months ended March 31, 2004. Advertising expense
increased by $17,000 to $39,000 for the three months ended March 31, 2005 from
$22,000 for the three months ended March 31, 2004. Other non-interest expense
decreased by $87,000 to $307,000 for the three months ended March 31, 2005 from
$394,000 for the three months ended March 31, 2004. The decrease in other
non-interest expense is primarily attributable to decreased legal, professional
and shareholder relation expense as during the three months ended March 31,
2004, the Company incurred expenses associated with a proxy contest initiated by
an opposing slate of directors. Other non-interest expense is comprised of
directors fees, stationary, forms and printing, professional fees, legal fees,
check printing, correspondent bank fees, telephone and communication,
shareholder relations and other fees and expenses.
Income tax expense increased $167,000 to $638,000 for the three months ended
March 31, 2005 from $471,000 for the three months ended March 31, 2004
reflecting increased income earned during the three month time period ended
March 31, 2005 partially offset by the inception of BCB Holding Company
Investment Corp., (the "Investment Company"). The Investment Company, a New
Jersey Investment Company wholly-owned by the Bank, is subject to a state income
tax rate of 3.6% as compared to the 9.0% rate paid by the Company and the Bank.
The Investment Company was funded by a transfer of securities from the Bank. The
presence of the Investment Company during the quarter ended March 31, 2005,
reduced consolidated income tax expenses by approximately $51,000 and reduced
the consolidated effective income tax rate to 35.8% as compared to 40.1% for the
quarter ended March 31, 2004.
11
Item 3. Qualitative and Quantitative Analysis of Market Risk
Management of Market Risk
General. The majority of our assets and liabilities are monetary in nature.
Consequently, one of 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 Company'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 December 31, 2004, the latest data for which this
information is available. Assumptions have been made by the Company 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 were
made in 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 Company's estimated value of assets
and estimated value of liabilities assuming no change in interest rates. The NPV
for a decrease of 300 basis points has been excluded since it would not be
meaningful, in the interest rate environment as of December 31, 2004. The
following sets forth the Company's NPV as of December 31, 2004.
12
NPV as a % of Assets
Change in Net Portfolio $ Change from % Change from --------------------
Calculation Value PAR PAR NPV Ratio Change
- ----------------- ------------- ------------- ------------- --------------------
+300bp $ 28,230 $ (21,295) -43.00% 8.35% -474 bps
+200bp 36,460 (13,065) -26.38 10.39 -269 bps
+100bp 43,545 (5,980) -12.07 11.95 -113 bps
PAR 49,525 ----- ----- 13.08 --- bps
- -100bp 48,734 (791) -1.60 12.60 -49 bps
- -200bp 45,256 (4,269) -8.62 11.52 -157 bps
bp - basis points
The table above indicates that at December 31, 2004, in the event of a 100 basis
point decrease in interest rates, we would experience a 1.60% decrease in NPV.
In the event of a 100 basis point increase in interest rates, we would
experience a 12.07% 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.
13
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.
14
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
On June 17, 2004 the Company sold $4.1 million in debentures in connection with
its participation in a pooled trust preferred offering. The proceeds of the
offering were used to fund asset growth and qualify as regulatory capital.
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 three 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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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.
15