form10q-117432_bcb.htm
 
 
 
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, 2011.
 
Or
 
o
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 or organization)
  
(IRS Employer
I.D. No.)
   
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.   ý Yes    o No
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and larger accelerated filer” in Rule 12b-2 of the Exchange Act.
 
             
Large Accelerated Filer
  
o
  
Accelerated Filer
  
o
       
Non-Accelerated Filer
  
o
  
Smaller Reporting Company
  
ý
 
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).    o  Yes    ý  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ý Yes     o 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 1, 2011, BCB Bancorp, Inc., had 9,263,032 shares of common stock, no par value, outstanding.
 

 
 
 
 

 

 

 
BCB BANCORP INC. AND SUBSIDIARIES
 
INDEX
 
         
 
  
Page
  
PART I. CONSOLIDATED FINANCIAL INFORMATION
  
      
   
Item 1. Consolidated Financial Statements
  
      
   
  
  
1
  
   
  
  
2
  
   
  
  
4
  
   
  
  
5
  
   
  
  
6
  
   
  
  
28
  
   
  
  
32
  
   
  
  
33
  
   
  
  
34
  
   
  
  
34
  
   
  
  
34
  
   
  
  
34
  
   
  
  
34
  
   
  
  
34
  
   
  
  
34
  
   
  
  
34
  



 
 


 
PART I. FINANCIAL INFORMATION
 
ITEM I. FINANCIAL STATEMENTS
 
BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(In Thousands, Except Share and Per Share Data, Unaudited)
 
                 
 
  
June 30,
 2011
    
December 31,
 2010
  
     
ASSETS
  
              
Cash and amounts due from depository institutions
  
$
10,655
  
  
$
22,065
  
Interest-earning deposits
  
  
63,485
  
    
99,062
  
 
  
              
Total Cash and Cash equivalents
  
  
74,140
  
    
121,127
  
 
  
              
     
Securities available for sale
  
  
1,314
  
    
1,098
  
Securities held to maturity, fair value $221,719 and $166,785; respectively
  
  
217,983
  
    
165,572
  
Loans held for sale
  
  
2,147
  
    
5,572
  
Loans receivable, net of allowance for loan losses of $8,716 and $8,417; respectively
  
  
764,980
  
    
773,101
  
Premises and equipment
  
  
12,784
  
    
11,359
  
Property held for sale
  
  
1,017
  
    
1,017
  
Federal Home Loan Bank of New York stock
  
  
6,678
  
    
6,723
  
Interest receivable
  
  
5,387
  
    
5,203
  
Real estate owned
  
  
4,190
  
    
3,602
  
Deferred income taxes
  
  
5,925
  
    
5,785
  
Other assets
  
  
3,800
  
    
6,729
  
 
  
              
Total Assets
  
$
1,100,345
  
  
$
1,106,888
  
 
  
              
     
LIABILITIES AND STOCKHOLDERS’ EQUITY
  
              
     
LIABILITIES
  
              
Non-interest bearing deposits
  
$
69,966
  
  
$
69,471
  
Interest bearing deposits
  
  
807,647
  
    
816,817
  
 
  
              
Total deposits
  
  
877,613
  
    
886,288
  
                 
Long-term debt
  
  
114,124
  
    
114,124
  
Other Liabilities
  
  
9,096
  
    
7,502
  
 
  
              
Total Liabilities
  
  
1,000,833
  
    
1,007,914
  
 
  
              
     
STOCKHOLDERS’ EQUITY
  
              
Preferred stock; $0.01 par value; 10,000,000 shares authorized; none issued and outstanding
  
  
-
  
    
-
  
Common stock, stated value $0.064; 20,000,000 shares authorized,
  10,170,411 and 10,144,830 shares respectively, issued; 9,278,642 shares
  and 9,383,695 shares, respectively, outstanding
  
  
650
  
    
649
  
Additional paid-in capital
  
  
85,533
  
    
85,327
  
Treasury stock, at cost, 891,769 and 761,135 shares, respectively
  
  
(12,178)
      
(10,760
) 
Retained Earnings
  
  
25,372
  
    
23,753
  
Accumulated other comprehensive income, net of taxes
  
  
135
  
    
5
  
 
  
              
Total Stockholders’ equity
  
  
99,512
  
    
98,974
  
 
  
              
     
Total Liabilities and Stockholders’ equity
  
$
1,100,345
    
$
1,106,888
  
 
  
              
 
See accompanying notes to consolidated financial statements.
 



 
1



BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands, except for per share amounts, Unaudited)
 
   
Three Months Ended
 June 30,
    
Six Months Ended
 June 30,
  
   
2011
    
2010
    
2011
    
2010
  
                       
Interest income:
                        
Loans
   $ 11,090     $ 6,369     $ 22,351     $ 12,806  
Investments, taxable
     2,129       1,328       3,882       2,832  
Investment, non-taxable
     13       -       25       -  
Other interest-earning assets
     18       21       46       40  
                                 
Total interest income
     13,250       7,718       26,304       15,678  
                                 
                                 
Interest expense:
                                
Deposits:
                                
Demand
     222       176       447       388  
Savings and club
     275       238       544       510  
Certificates of deposit
     1,638       1,380       3,305       2,893  
                                 
      2,135       1,794       4,296       3,791  
                                 
Borrowed money
     1,233       1,233       2,454       2,454  
                                 
                                 
Total interest expense
     3,368       3,027       6,750       6,245  
                                 
                                 
Net interest income
     9,882       4,691       19,554       9,433  
Provision for loan losses
     450       300       800       750  
                                 
                                 
Net interest income after provision for loan losses
     9,432       4,391       18,754       8,683  
                                 
                                 
Non-interest income:
                                
Fees and service charges
     243       240       462       400  
Gain on sales of loans originated for sale
     226       56       404       128  
Loss on sale of real estate owned
     (80 )     -       (136 )     -  
Gain on sale of securities
     18       -       18       -  
Other
     22       8       158       17  
                                 
Total non-interest income
     429       304       906       545  
                                 
                                 
Non-interest expense:
                                
Salaries and employee benefits
     2,900       1,403       5,907       2,770  
Occupancy expense of premises
     723       273       1,502       560  
Equipment
     1,068       536       2,091       1,090  
Professional Fees
     258       61       461       193  
Director Fees
     180       108       299       214  
Regulatory Assessments
     355       189       793       362  
Advertising
     106       71       178       138  
Merger related expenses
     256       144       256       344  
Other
     711       394       1,723       777  
                                 
Total non-interest expense
     6,557       3,179       13,210       6,448  
                                 
                                 
Income before income tax provision
     3,304       1,516       6,450       2,780  
Income tax provision
     1,352       594       2,577       1,140  
                                 
                                 
Net Income
   $ 1,952     $  922     $  3,873     $  1,640  
 
 
 
 
2
 
 
                         
                         
Net Income per common share
                        
Basic:
   $ 0.21     $ 0.20     $ 0.41     $ 0.35  
                                 
Diluted
   $ 0.21     $  0.20     $ 0.41     $  0.35  
                                 

Weighted average number of common shares outstanding:
                        
Basic
     9,356       4,663       9,375       4,662  
                                 
Diluted
     9,374       4,678       9,394       4,678  
                                 
 
See accompanying notes to consolidated financial statements.
 










 
3





BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders’ Equity
(In Thousands, except share and per share data, Unaudited)
 
                                                 
 
  
Common Stock
  
  
Additional
 Paid-In Capital
  
  
Treasury
 Stock
    
Retained
 Earnings
    
Accumulated
 Other
 Comprehensive
 Income
    
Total
  
Beginning Balance at December 31, 2010
  
$
649
  
  
$
85,327
  
  
$
(10,760
 )   
$
23,753
  
  
$
5
  
  
$
98,974
  
             
                                                 
Exercise of Stock Options (25,581 shares)
  
  
     1
  
  
  
206
  
  
  
—
  
    
—
  
    
—
  
    
207
  
             
Treasury Stock Purchases (130,634 shares)
  
  
—
  
  
  
—
  
  
  
(1,418
 )     
—
  
    
—
  
    
(1,418
 ) 
             
Cash dividends ($0.24 per share) declared
  
  
—
  
  
  
—
  
  
  
—
  
    
(2,254
 )     
—
  
    
(2,254
)
             
Net income for the six months ended June 30, 2011
  
  
—
  
  
  
—
  
  
  
—
  
    
3,873
      
—
  
    
3,873
  
             
Unrealized gain on securities available for sale, net of deferred income tax of $(86)
  
  
—
  
  
  
—
  
  
  
—
  
    
—
  
    
130
  
  
130
  
 
  
      
  
      
  
                              
                                                 
Total Comprehensive income
  
  
—
  
  
  
—
  
  
  
—
  
    
—
  
    
—
  
    
4,003
  
 
  
      
  
      
  
                              
             
Ending Balance at June 30, 2011
  
$
650
  
  
$
85,533
  
  
$
(12,178
 )  
$
25,372
    
$
135
  
  
$
99,512
  
 
  
      
  
      
  
                              
 
See accompanying notes to consolidated financial statements.
 

 
4

 
BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands, Unaudited)
                 
 
  
Six Months Ended
 June 30,
  
 
  
2011
    
2010
  
Cash flows from operating activities:
  
              
Net Income
  
$
3,873
    
$
1,640
  
Adjustments to reconcile net income to net cash provided by operating activities:
  
              
Depreciation of premises and equipment
  
  
505
      
185
  
Amortization and accretion, net
  
  
767
      
651
  
Provision for loan losses
  
  
800
      
750
  
Deferred income tax benefit
  
  
(226
 )    
(62
 ) 
Loans originated for sale
  
  
(10,143
 )    
(10,881
 ) 
Proceeds from sale of loans originated for sale
  
  
12,447
      
11,817
  
Gain on sale of loans originated for sale
  
  
(404
 )    
(128
 ) 
Loss on sales of real estate owned
  
  
136
      
-
  
Gain on sales of securities held to maturity
  
  
(18
 )    
-
  
(Increase) decrease in interest receivable
  
  
(184
 )    
233
  
Decrease (increase) in other assets
  
  
2,929
      
(231
 ) 
(Decrease) in accrued interest payable
  
  
(34
 )    
(84
 ) 
Increase (decrease) in other liabilities
  
  
1,628
      
(619
 ) 
     
Net cash provided by operating activities
  
  
12,076
      
3,271
  
 
  
              
     
Cash flows from investing activities:
  
              
Redemption of Federal Home Loan Bank of New York stock
  
  
45
  
    
12
  
Proceeds from calls of securities held to maturity
  
  
17,322
      
66,470
  
Purchases of securities held to maturity
  
  
(90,552
 )    
(54,921
 ) 
Proceeds from repayments on securities held to maturity
  
  
17,509
      
4,808
  
Proceeds from sales of securities held to maturity
    
2.438
      
-
  
Proceeds from sales of participation interest in loans
  
  
2,437
      
-
  
Proceeds from sales of real estate owned
  
  
656
      
494
  
Purchases of loans
    
(847
 )    
-
  
Net decrease in loans receivable
  
  
6,004
      
13,253
  
Improvements to other real estate owned
  
  
(5
 )    
(20
 ) 
Additions to premises and equipment
  
  
(1,930
 )    
(185
 ) 
 
  
              
Net cash (used in) provided by investing activities
  
  
(46,923
 )    
29,911
  
 
  
              
     
Cash flows from financing activities:
  
              
Net (Decrease) increase in deposits
  
  
(8,675
 )    
20,354
  
Purchases of treasury stock
  
  
(1,418
 )    
(12
 ) 
Cash dividend paid
  
  
(2,254
 )    
(1,120
 ) 
Exercise of stock options
  
  
207
      
31
  
 
  
              
Net cash (used in) provided by financing activities
  
  
(12,140
 )    
19,253
  
 
  
              
     
Net (Decrease) increase in cash and cash equivalents
  
  
(46,987
)  
    
52,435
  
Cash and cash equivalents-beginning
  
  
121,127
  
    
67,347
  
 
  
              
     
Cash and cash equivalents-ending
  
$
74,140
  
  
$
119,782
  
 
  
              
     
Supplemental disclosure of cash flow information:
  
              
Cash paid during the year for:
  
              
Income taxes
  
$
54
    
$
1,487
  
Interest
  
$
6,784
    
$
6,329
  
     
     Non-cash items:
  
              
Transfer of loans to other real estate owned
  
$
2,316
    
$
1,193
  
Loans to facilitate sale of other real estate owned
  
$
942
    
$
-
  
Reclassification of loans originated for sale to held to maturity
  
$
1,524
    
$
2,151
  
 
See accompanying notes to consolidated financial statements.
 

 
5

BCB Bancorp Inc. and Subsidiaries
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, BCB Community Bank (the “Bank”), BCB Holding Company Investment Company, and Pamrapo Service Corporation. 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 Regulation S-X 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, 2011 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2011 or any other future interim period. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from these estimates.
 
These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2010, which are included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
 
In preparing these consolidated financial statements, BCB Bancorp, Inc., evaluated the events and transactions that occurred between June 30, 2011, and the date these consolidated financial statements were issued.
 
Note 2 – Acquisition
 
Allegiance Community Bank
 
On April 5, 2011, BCB Bancorp, Inc. (the Company), its wholly owned New Jersey Bank subsidiary, BCB Community Bank and Allegiance Community Bank (“Allegiance”), headquartered in South Orange, New Jersey, jointly announced the signing of an agreement and plan of merger, dated as of April 4, 2011 (the “merger agreement”) pursuant to which Allegiance will merge with and into BCB Community Bank. At December 31, 2010, Allegiance had total assets of approximately $121.3 million, including $84.2 million in loans, and deposits of approximately $100.1 million in two branches in South Orange and Woodbridge, New Jersey. Under the terms of the merger agreement, each outstanding share of Allegiance common stock will be converted into the right to receive 0.35 shares of common stock of the Company, subject to adjustment as disclosed in the merger agreement. The merger is expected to close sometime in the second half of 2011, pending regulatory approvals, approval of the merger agreement by shareholders of Allegiance and the satisfaction of other customary closing conditions.
 

 


 
6


 
 
 

 Note 3 – Pension and Other Postretirement Plans
 
The Company acquired, through the merger with Pamrapo Bancorp, Inc., a non-contributory defined benefit pension plan covering all eligible employees of Pamrapo Savings Bank. Effective January 1, 2010, the defined benefit pension plan (“Pension Plan”), was frozen by Pamrapo Savings Bank. All benefits for eligible participants accrued in the “Pension Plan” to the freeze date have been retained. Accordingly, no employees are permitted to commence participation in the Pension Plan and future salary increases and future years of credited service are not considered when computing an employee’s benefits under the Pension Plan. The Pension Plan is funded in conformity with the funding requirements of applicable government regulations. The Company also acquired through the merger with Pamrapo Bancorp, Inc. a supplemental executive retirement plan (“SERP”) in which certain former employees of Pamrapo Savings Bank are covered. A SERP is an unfunded non-qualified deferred retirement plan. Participants who retire at the age of 65 ( the “Normal Retirement Age”), are entitled to an annual retirement benefit equal to 75% of compensation reduced by their retirement plan annual benefits. Participants retiring before the Normal Retirement Age receive the same benefits reduced by a percentage based on years of service to the Company and the number of years prior to the Normal Retirement Age that participants retire.

 
 
Periodic pension and SERP cost, which is recorded as part of salaries and employee benefits expense in our Consolidated Statements of Income, is comprised of the following, (In Thousands):
 
                         
   
Three months ended
June 30
    
Six Months ended
 June 30
  
   
2011
    
2010
    
2011
    
2010
  
                         
Pension plan:
                        
Interest cost
   $ 117     $ -     $ 234     $ -  
Expected return on plan assets
     (94 )     -       (188 )     -  
                                 
         
Net periodic pension cost
   $ 23     $ -     $ 46     $ -  
                                 
         
SERP plan:
                                
Interest cost
   $ 7     $ -     $ 14     $ -  
                                 
         
Net periodic postretirement cost
   $ 7     $ -     $ 14     $ -  
                                 
 
 
Stock-Based Compensation Plan
 
The Company, under the plan approved by its shareholders on April 28, 2011 (“2011 Stock Plan”), authorized the issuance of up to 900,000 shares of common stock of BCB Bancorp, Inc. pursuant to grants of stock options. Employees and directors of BCB Bancorp, Inc. and BCB Community Bank are eligible to participate in the 2011 Stock Plan. All stock options will be granted in the form of either "incentive" stock options or "non-qualified" stock options. Incentive stock options have certain tax advantages that must comply with the requirements of Section 422 of the Internal Revenue Code.  Only employees are permitted to receive incentive stock options. No grants of stock options have been issued under the 2011 Stock Plan.
 

 
Note 4 – Earnings Per Share
 
Basic net income per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding. The diluted net income per common share is computed by adjusting the weighted average number of shares of common stock outstanding to include the effects of outstanding stock options, if dilutive, using the treasury stock method. For the three and six months ended June 30, 2011 and 2010, the weighted average of outstanding options considered to be anti-dilutive were 180,684 and 230,264, respectively, and were therefore, excluded from diluted net income per common share calculation.
 

 
 

 
7

 
 
 
Note 5 – Securities Available for Sale
 
                                 
 
  
June 30, 2011
  
 
  
Cost
  
  
Gross
 Unrealized
 Gains
  
  
Gross
 Unrealized
 Losses
  
  
Fair
 Value
  
 
  
(In Thousands)
  
         
Equity Securities-Financial Institutions
  
$
1,097
  
  
$
217
  
  
$
-
  
  
$
1,314
  
 
  
                              
   
 
  
December 31, 2010
  
 
  
Cost
  
  
Gross
 Unrealized
 Gains
  
  
Gross
 Unrealized
 Losses
  
  
Fair
 Value
  
 
  
(In Thousands)
  
         
Equity Securities-Financial Institutions
  
$
1,097
  
  
$
32
  
  
$
31
  
  
$
1,098
  
 
  
      
  
      
  
      
  
      
 

 
There were no sales of securities available for sale for the six months ended June 30, 2011 and 2010.
 

 
 

 
The unrealized losses, categorized by the length of time of continuous loss position, and fair value of related securities available for sale were as follows:
 
                                                 
 
  
Less than 12 Months
  
  
More than 12 Months
  
  
Total
  
 
  
Fair
 Value
  
  
Unrealized
 Losses
  
  
Fair
 Value
  
  
Unrealized
 Losses
  
  
Fair
 Value
  
  
Unrealized
 Losses
  
 
  
(In Thousands)
  
June 30, 2011
  
      
  
      
  
      
  
      
  
      
  
      
Equity Securities-Financial Institutions
  
$
—
  
  
$
—
  
  
$
—
  
  
$
—
  
  
$
—
  
  
$
—
  
 
  
      
  
      
  
      
  
      
  
      
  
      
             
December 31, 2010
  
      
  
      
  
      
  
      
  
      
  
      
Equity Securities-Financial Institutions
  
$
65
  
  
$
31
  
  
$
—
  
  
$
—
  
  
$
65
  
  
$
31
  
 
  
      
  
      
  
      
  
      
  
      
  
      
 

 
8



 
 
Note 6 – Securities Held to Maturity
 
                                 
 
  
June 30, 2011
  
 
  
Amortized
 Cost
  
  
Gross
 Unrealized
 Gains
  
  
Gross
 Unrealized
 Losses
  
  
Fair Value
  
 
  
(In Thousands)
  
         
U.S. Government Agencies:
  
      
  
      
  
      
  
      
Due within one year
  
$
3,315
  
  
$
113
  
  
$
-
  
  
$
3,428
  
Due after ten years
  
  
25,495
  
  
  
179
  
  
  
19
  
  
  
25,655
  
 
  
      
  
      
  
      
  
      
         
 
  
  
28,810
  
  
  
292
  
  
  
19
  
  
  
29,083
  
 
  
      
  
      
  
      
  
      
         
Residential mortgage-backed securities:
  
      
  
      
  
      
  
      
Due within one year
  
$
12
  
  
$
-
  
  
$
­-
  
  
$
12
  
Due after one year through five years
  
  
910
  
  
  
36
  
  
  
-
  
  
  
946
  
Due after five years through ten years
  
  
44,217
  
  
  
563
  
  
  
22
  
  
  
44,758
  
Due after ten years
  
  
136,258
  
  
  
2,981
  
  
  
110
  
  
  
139,129
  
 
  
      
  
      
  
      
  
      
         
 
  
  
181,397
      
    3,580
      
132
      
184,845
  
 
  
      
  
      
  
      
  
      
         
Subordinated notes:
  
      
  
      
  
      
  
      
Due within one year
  
$
6,000
  
  
$
-
  
  
$
-
  
  
$
6,000
  
Municipal obligations:
  
                              
Due after ten years
  
  
1,373
  
  
  
10
  
  
  
-
  
  
 
1,383
  
Trust originated preferred security:
  
                              
Due after ten years
  
  
403
  
  
  
5
  
  
  
-
  
  
  
408
  
 
  
      
  
      
  
      
  
      
         
 
  
  
7,776
  
  
  
15
  
  
  
       -
  
  
  
7,791
  
 
  
      
  
      
  
      
  
      
         
 
  
$
217,983
  
  
$
3,887
  
  
$
151
  
  
$
221,719
  
 
  
      
  
      
  
      
  
      
 

 
9
 

Note 6 – Securities Held to Maturity (Continued)
 

                                 
 
  
December 31, 2010
  
 
  
Amortized
 Cost
  
  
Gross
 Unrealized
 Gains
  
  
Gross
 Unrealized
 Losses
  
  
Fair Value
  
 
  
(In Thousands)
  
         
U.S. Government Agencies:
  
      
  
      
  
      
  
      
Due after one through five years
  
$
3,315
  
  
$
180
  
  
$
—
  
  
$
3,495
  
Due after ten years
  
  
27,523
  
  
  
14
  
  
  
62
  
  
  
27,475
  
 
  
      
  
      
  
      
  
      
         
 
  
  
30,838
  
  
  
194
  
  
  
62
  
  
  
30,970
  
 
  
      
  
      
  
      
  
      
         
Residential mortgage-backed securities:
  
      
  
      
  
      
  
      
Due within one year
  
$
6
  
  
$
—
  
  
$
—
  
  
$
6
  
Due after one year through five years
  
  
775
  
  
  
24
  
  
  
1
  
  
  
798
  
Due after five years through ten years
  
  
54,629
  
  
  
374
  
  
  
357
  
  
  
54,646
  
Due after ten years
  
  
71,545
  
  
  
1,552
  
  
  
493
  
  
  
72,604
  
 
  
      
  
      
  
      
  
      
         
 
  
  
126,955
  
  
  
1,950
  
  
  
851
  
  
  
128,054
  
 
  
      
  
      
  
      
  
      
         
Subordinated notes:
  
      
  
      
  
      
  
      
Due within one year
  
$
6,000
    
$
—
  
  
$
—
  
  
$
   6,000
  
Municipal obligations:
  
      
  
      
  
      
  
      
Due after ten years
  
  
1,376
      
—
  
  
  
21
  
  
  
1,355
  
Trust originated preferred security:
  
      
  
      
  
      
  
      
Due after ten years
  
  
403
      
3
  
  
  
—
  
  
  
406
  
                                 
 
  
$
165,572
  
  
$
2,147
  
  
$
934
  
  
$
166,785
  
 
  
      
  
      
  
      
  
      
 
The amortized cost and carrying values shown above are by contractual final maturity. Actual maturities will differ from contractual final maturities due to scheduled monthly payments related to mortgage–backed securities and due to the borrowers having the right to prepay obligations with or without prepayment penalties. At June 30, 2011 and December 31, 2010, all residential mortgage backed securities held in the portfolio were Government Sponsored Enterprise securities.
 
During the second quarter of 2011, management decided to sell its collateralized mortgage obligations that were issued by the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). While these securities were classified as held to maturity, ASC 320 (formerly FAS 115) allows sales of securities so designated, provided that a substantial portion (at least 85%) of the principal balance has been amortized prior to the sale. During the three and six months ended June 30, 2011, proceeds from sales of securities held to maturity totaled approximately $2,438,000 and resulted in gross gains of approximately $25,000 and gross losses of approximately $7,000.
 
There were no sales of securities held to maturity for the six months ended June 30, 2010.

 
10

 

Note 6 – Securities Held to Maturity (Continued)


The unrealized losses, categorized by the length of time of continuous loss position, and fair value of related securities held to maturity were as follows:
 
                                                 
 
  
Less than 12 Months
  
  
More than 12 Months
  
  
Total
  
 
  
Fair
 Value
  
  
Unrealized
 Losses
  
  
Fair
 Value
  
  
Unrealized
 Losses
  
  
Fair
 Value
  
  
Unrealized
 Losses
  
 
  
(In Thousands)
  
June 30, 2011
  
      
  
      
  
      
  
      
  
      
  
      
U.S. Government Agencies
  
$
2,981
  
  
$
19
  
  
$
—
  
  
$
—
  
  
$
2,981
  
  
$
19
  
Residential mortgage-backed securities
  
  
20,823
  
  
  
132
  
  
  
—
  
  
  
 —
  
  
  
20,823
  
  
  
132
  
 
  
      
  
      
  
      
  
      
  
      
  
      
 
  
$
23,804
  
  
$
151
  
  
$
—
  
  
$
—
  
  
$
23,804
   
  
$
151
  
 
  
      
  
      
  
      
  
      
  
      
  
      
             
December 31, 2010
  
      
  
      
  
      
  
      
  
      
  
      
U.S. Government Agencies
  
$
20,328
  
  
$
62
  
  
$
—
  
  
$
—
  
  
$
20,328
  
  
$
62
  
            Residential mortgage-backed securities
  
  
74,899
  
  
  
851
  
  
  
—
  
  
  
—
  
  
  
74,899
  
  
  
851
  
Municipal obligations
  
  
1,355
  
  
  
21
  
  
  
—
  
  
  
—
  
  
  
1,355
  
  
  
21
  
 
  
      
  
      
  
      
  
      
  
      
  
      
 
  
$
96,582
  
  
$
934
  
  
$
—
  
  
$
—
  
  
$
96,582
  
  
$
934
  
 
  
      
  
      
  
      
  
      
  
      
  
      
 
Management does not believe that any of the unrealized losses at June 30, 2011, (which are related to one U.S. Government Agency bonds and thirteen residential mortgage-backed securities) represent an other-than-temporary impairment as they are primarily related to market interest rates and not related to the underlying credit quality of the issuers of the securities as all these securities were issued by U.S. Agencies. Additionally, the Company has the ability, and management has the intent, to hold such securities for the time necessary to recover cost and does not have the intent to sell the securities, and it is more likely than not that it will not have to sell the securities before recovery of their cost.
 

 

 

 
 
11

 

 

Note 7 - Loans Receivable and Allowance for Loan Losses
 
The following table presents the recorded investment in Loans receivable at June 30, 2011 and December 31, 2010.
 

       
   
June 30, 2011
  
December 31, 2010
  
   
(In Thousands)
  
Real estate mortgage:
            
Residential
   $ 224,896     $ 234,435  
Commercial and multi-family
     406,866       410,212  
Construction
     14,266       17,848  
                 
      646,028       662,495  
                 
Commercial:
                
Business loans
     23,383       13,932  
Lines of credit
     45,489       40,228  
                 
      68,872       54,160  
                 
Consumer:
                
Passbook or certificate
     889       1,004  
Home equity lines of credit
     9,948       10,228  
Home equity
     47,873       53,375  
Automobile
     140       178  
Personal
     437       554  
                 
      59,287       65,339  
                 
Deposit overdrafts
     75       80  
                 
Total Loans
     774,262       782,074  
                 
Deferred loan fees, net
     (566 )     (556 )
Allowance for loan losses
     (8,716 )     (8,417 )
                 
      (9,282 )     (8,973 )
                 
    $ 764,980     $ 773,101  




 
12





Allowance for Loan Losses

Management reviews the adequacy of the allowance on at least a quarterly basis to ensure that the provision for loan losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is adequate based on management’s assessment of probable estimated losses.  The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements.  These elements include a general allocated reserve for impaired loans, a specific reserve for impaired loans and an unallocated portion.  

The Company consistently applies the following comprehensive methodology.  During the quarterly review of the allowance for loan losses, the Company considers a variety of factors that include:
 
 
●
General economic conditions.

 
●
Trends in charge-offs.

 
●
Trends and levels of delinquent loans.

 
●
Trends and levels of non-performing loans, including loans over 90 days delinquent.

 
●
Trends in volume and terms of loans.

 
●
Levels of allowance for specific classified loans.

 
●
Credit concentrations.

The methodology includes the segregation of the loan portfolio by loans that are performing and loans that are impaired. Loans which are performing are evaluated collectively by loan class or loan type. The allowance for performing loans is evaluated based on historical loan loss experience, including consideration of peer loss analysis, with an adjustment for qualitative factors due to economic conditions in the market. Impaired loans are loans which are 60 days or more delinquent or troubled debt restructured. These loans are individually evaluated for loan loss either by current appraisal, estimated economic factor, or net present value. Management reviews the overall estimate for reasonableness and bases the loan loss provision accordingly.

The portfolio of performing loans is segmented into the following loan types, where the risk level for each type is analyzed when determining the allowance for these loans:

Residential single family real estate loans involve certain risks such as interest rate risk and risk of non-repayment. Adjustable-rate residential family real estate loans decreases the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. Repayment risk can be affected by job loss, divorce, illness and personal bankruptcy of the borrower.

Construction lending is generally considered to involve a high risk due to the concentration of principal in a limited number of loans and borrowers and the effects of the general economic conditions on developers and builders. Moreover, a construction loan can involve additional risks because of the inherent difficulty in estimating both a property’s value at completion of the project and the estimated cost (including interest) of the project. The nature of these loans is such that they are generally difficult to evaluate and monitor. In addition, speculative construction loans to a builder are not necessarily pre-sold and thus pose a greater potential risk to the Bank than construction loans to individuals on their personal residence.

Commercial and multi-family real estate lending entails significant additional risks as compared with residential family property lending. Such loans typically involve large loan balances to single borrowers or groups of related borrowers. The payment experience on such loans is typically dependent on the successful operation of the real estate project. The success of such projects is sensitive to changes in supply and demand conditions in the market for commercial real estate as well as economic conditions generally.

Commercial business lending is generally considered higher risk due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on the business. Commercial business loans are primarily secured by inventories and other business assets. In most cases, any repossessed collateral for a defaulted commercial business loans will not provide an adequate source of repayment of the outstanding loan balance.

Home equity lending entails certain risks such as interest rate risk and risk of non-repayment. The marketability of the underlying property may be adversely affected by higher interest rates, decreasing the collateral securing the loan. Repayment risk can be affected by job loss, divorce, illness and personal bankruptcy of the borrower.

Home equity line of credit lending entails securing an equity interest in the borrower’s home. The risk associated with this type of lending is the marketability of the underlying property may be adversely affected by higher interest rates. Repayment risk can be affected by job loss, divorce, illness and personal bankruptcy of the borrower. This type of lending is often priced on an adjustable rate basis with the rate set at or above a predefined index. Adjustable-rate loans decreases the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default

Consumer loans generally have more credit risk because of the type and nature of the collateral and, in certain cases, the absence of collateral. Consumer loans generally have shorter terms and higher interest rates than other lending. In addition, consumer lending collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely effected by job loss, divorce, illness and personal bankruptcy. In most cases, any repossessed collateral for a defaulted consumer loan will not provide and adequate source of repayment of the outstanding loan.



 
13