UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:1) Annual Report Pursuant To Section 13 or 15(d) Of The Securities Exchange Act of 1934
For the fiscal ended December 31, 2012.
(cid:3) Transition Report Pursuant To Section 13 or 15(d) Of The Securities Exchange Act of 1934
For the transition period from ______________ to ______________.
or
Commission file number: 000-50275
BCB BANCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey
(State or other jurisdiction of incorporation or organization)
26-0065262
(I.R.S. Employer Identification No.)
104-110 Avenue C, Bayonne, New Jersey
(Address of principal executive offices)
07002
(Zip Code)
Registrant's telephone number, including area code: (201) 823-0700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, no par value
Name of each exchange on which registered
The NASDAQ Stock Market, LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES (cid:3) NO (cid:1)
YES (cid:3) NO (cid:1)
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.
YES (cid:1) NO (cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)
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 such shorter period that the Registrant was required to submit and post such files).
YES (cid:1) NO (cid:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:3) Accelerated filer (cid:1) Non-accelerated filer (cid:3) Smaller reporting company (cid:3)
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES (cid:3) NO (cid:1)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, 2012, as
reported by the Nasdaq Capital Market, was approximately $75.9 million.
As of March 1, 2013, there were issued 8,473,583 shares of the Registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for the 2013 Annual Meeting of Stockholders of the Registrant (Part III).
Item
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
TABLE OF CONTENTS
Page Number
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
SELECTED CONSOLIDATED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANICAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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27
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30
31
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Table of Contents
This report on Form 10-K contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of BCB Bancorp, Inc. and
subsidiaries. This document may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally
identified by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,”
“would,” “should,” “could,” “may,” or similar expressions. Although we believe that our plans, intentions and expectations, as reflected in these forward-looking statements are
reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or realized. By identifying these statements for you in this manner, we are
alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these
forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include,
among others, those discussed below and under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. You should not place undue reliance on these forward-
looking statements, which reflect our expectations only as of the date of this report. We do not assume any obligation to revise forward-looking statements except as may be
required by law.
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Table of Contents
ITEM 1. BUSINESS
BCB Bancorp, Inc.
PART I
BCB Bancorp, Inc. (the “Company”) is a New Jersey corporation, and is the holding company parent of BCB Community Bank (the “Bank”). The Company has not
engaged in any significant business activity other than owning all of the outstanding common stock of BCB Community Bank. Our executive office is located at 104-110 Avenue
C, Bayonne, New Jersey 07002. Our telephone number is (201) 823-0700. At December 31, 2012 we had $1.17 billion in consolidated assets, $940.8 million in deposits and $91.6
million in consolidated stockholders’ equity. The Company is subject to extensive regulation by the Board of Governors of the Federal Reserve System.
BCB Community Bank
BCB Community Bank opened for business on November 1, 2000 as Bayonne Community Bank, a New Jersey chartered commercial bank. We changed our name from
Bayonne Community Bank to BCB Community Bank in April of 2007. On October 14, 2011, the Bank completed its acquisition of Allegiance Community Bank. At December
31, 2012, we operated through eleven branches in Bayonne, Jersey City, Hoboken, Monroe Township, South Orange, and Woodbridge, New Jersey and through our executive
office located at 104-110 Avenue C and our administrative office located at 591-595 Avenue C, Bayonne, New Jersey 07002. Our deposit accounts are insured by the Federal
Deposit Insurance Corporation (FDIC) and we are a member of the Federal Home Loan Bank System.
We are a community-oriented financial institution. Our business is to offer FDIC-insured deposit products and to invest funds held in deposit accounts at the Bank,
together with funds generated from operations, in investment securities and loans. We offer our customers:
•
•
•
loans, including commercial and multi-family real estate loans, one- to four-family mortgage loans, home equity loans, construction loans, consumer loans and
commercial business loans. In recent years the primary growth in our loan portfolio has been in loans secured by commercial real estate and multi-family
properties;
FDIC-insured deposit products, including savings and club accounts, non-interest bearing accounts, money market accounts, certificates of deposit and
individual retirement accounts; and
retail and commercial banking services including wire transfers, money orders, traveler’s checks, safe deposit boxes, a night depository, bond coupon
redemption and automated teller services.
Recent Development
On October 29 th and 30 th , 2012, Hurricane Sandy struck the Northeast section of the country. The Bank’s market area was significantly impacted by the storm which
resulted in widespread flooding, wind damage and power outages. The storm temporarily disrupted our branch network and our ability to service our customers, however within
one week all of our offices were fully functional. Our assessment of the underlying collateral of our loan facilities we have in those areas affected by the storm that may have
suffered damage and possible loss of value has resulted in a preliminary conclusion that while our qualitative and quantitative analysis is progressing, initial indications are that
asset balances of the Bank in the affected area are approximately $41.6 million, which encompasses roughly one hundred six properties. Additionally, we are in the process of
determining whether or not the storm has impacted our borrowers’ ability to repay their obligations to the Bank. The Bank is generally named as a loss payee on hazard and flood
insurance policies covering collateral properties and carries both mortgage impairment and business interruption insurance. These policies should mitigate losses that the Bank may
sustain due to the effects of the hurricane. Presently, that process remains on-going and it is premature to determine what, if any impact this may have on our level of loan losses or
non-performing loans. Predicated upon the completion of the aforementioned, the Company may experience increased levels of non-performing loans and losses which may
negatively impact future operating results.
At December 31, 2012, the Company closed a private placement of its Series A noncumulative perpetual preferred stock, par value $0.01 per share (“preferred stock”).
The Company sold $8.65 million to certain investors at a purchase price of $10,000 per share. The net proceeds of the private placement are expected to be used primarily to
support the capital of BCB Community Bank.
Business Strategy
Our business strategy is to operate as a well-capitalized, profitable and independent community-oriented financial institution dedicated to providing quality customer
service. Management’s and the Board of Directors’ extensive knowledge of the Hudson County market differentiates us from our competitors. Our business strategy incorporates
the following elements: maintaining a community focus, focusing on profitability, continuing our growth, concentrating on real estate based lending, capitalizing on market
dynamics, providing attentive and personalized service and attracting highly qualified and experienced personnel. As a result, our decision to sell a portion of our non-performing
loan portfolio allowed us to significantly reduce our non-performing loan balances compared to prior periods. Management’s efforts to reduce these balances remain on-going and
we continue to research and implement initiatives to further mitigate those risks associated with elevated levels of non-performing loans.
Maintaining a community focus. Our management and Board of Directors have strong ties to the communities we serve. Many members of the management team are
Bayonne natives and are active in the community through non-profit board membership, local business development organizations, and industry associations. In addition, our
board members are well established professionals and business people in the communities we serve. Management and the Board are interested in making a lasting contribution to
these communities and have succeeded in attracting deposits and loans through attentive and personalized service.
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Table of Contents
Strengthening our balance sheet while returning to profitability. For the year ended December 31, 2012, our loss on average equity was 2.26% and our loss on average
assets was 0.17%. Our loss per diluted share was $0.23 for the year ended December 31, 2012 compared to earnings per diluted share of $0.64 for the year ended December 31,
2011. Earnings per share results have come under pressure recently, primarily as a result of the pervasive economic downturn in both the national and local economy as well as
several unusual events, including the sale of non-performing loans during 2012 to strengthen our statements of financial condition, and the effects of Hurricane Sandy. During
2012, we sold $25.9 million in non-performing loans in an effort to reduce the overhang and cost associated with these non-performing assets. Management is committed to
strengthening the Bank’s statements of financial condition and returning to profitability by diversifying the products, pricing and services we offer. As a result of our efforts, our
loans delinquent over 90 days have decreased from $39.6 million at December 31, 2011 to $14.8 million at December 31, 2012.
Concentrating on real estate-based lending. A primary focus of our business strategy is to originate loans secured by commercial and multi-family properties. Such loans
provide higher returns than loans secured by one- to four-family real estate. As a result of our underwriting practices, including debt service requirements for commercial real
estate and multi-family loans, management believes that such loans offer us an opportunity to obtain higher returns, in the absence of a measurable increased level of risk.
Capitalizing on market dynamics. The consolidation of the banking industry in Hudson County, New Jersey has provided a unique opportunity for a customer focused
banking institution, such as the Bank. We believe our local roots and community focus provides the Bank with an opportunity to capitalize on the consolidation in our market area.
This consolidation has moved decision making away from local, community-based banks to much larger banks headquartered outside of New Jersey. We believe our local roots
and community focus provides the Bank with an opportunity to capitalize on the consolidation in our market area.
Providing attentive and personalized service. Management believes that providing attentive and personalized service is the key to gaining deposit and loan relationships in
Bayonne and its surrounding communities. Since we began operations, our branches have been open seven (7) days a week.
Attracting highly experienced and qualified personnel. An important part of our strategy is to hire bankers who have prior experience in the markets we serve, as well as
pre-existing business relationships. Our management team has an average of over 27 years of banking experience, while our lenders and branch personnel have significant prior
experience at community banks and regional banks throughout New Jersey. Management believes that its knowledge of these markets has been a critical element in the success of
BCB Community Bank. Management’s extensive knowledge of the local communities has allowed us to develop and implement a highly focused and disciplined approach to
lending and has enabled the Bank to attract a high percentage of low cost deposits.
Our Market Area
We are located in the City of Bayonne, Jersey City and Hoboken in Hudson County, Monroe Township and Woodbridge in Middlesex County, and South Orange in
Essex County, New Jersey. The Bank’s locations are easily accessible and provide convenient services to businesses and individuals throughout our market area. Following our
acquisition of Allegiance Community Bank in 2011 our market area expanded to include branch offices in South Orange and Woodbridge, New Jersey.
Our market area includes the City of Bayonne, Jersey City, portions of Hoboken, South Orange, Woodbridge, and Monroe Township, New Jersey. These areas are all
considered “bedroom” or “commuter” communities to Manhattan. Our market area is well-served by a network of arterial roadways including Route 440 and the New Jersey
Turnpike.
Our market area has a high level of commercial business activity. Businesses are concentrated in the service sector and retail trade areas. Major employers in our market
area include certain medical centers and local boards of education. As a result of Hurricane Sandy, a significant number of businesses in our market area sustained losses which
resulted in reduced economic activity during the last two months of 2012 and into 2013.
Competition
The banking business in New Jersey is extremely competitive. We compete for deposits and loans with existing New Jersey and out-of-state financial institutions that
have longer operating histories, larger capital reserves and more established customer bases. Our competition includes large financial service companies and other entities in
addition to traditional banking institutions such as savings and loan associations, savings banks, commercial banks and credit unions. Our larger competitors have a greater ability
to finance wide-ranging advertising campaigns through their greater capital resources. Our marketing efforts depend heavily upon referrals from officers, directors, stockholders,
selective advertising in local media and direct mail solicitations. We compete for business principally on the basis of personal service to customers, customer access to our officers
and directors and competitive interest rates and fees.
In the financial services industry in recent years, intense market demands, technological and regulatory changes and economic pressures have eroded industry
classifications that were once clearly defined. Banks have diversified their services, increased rates paid on deposits and become more cost effective as a result of competition with
one another and with new types of financial service companies, including non-banking competitors. Some of the results of these market dynamics in the financial services industry
have been a number of new bank and non-bank competitors, increased merger activity, and increased customer awareness of product and service differences among competitors.
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Table of Contents
Lending Activities
Analysis of Loan Portfolio . Set forth below is selected data relating to the composition of our loan portfolio by type of loan as a percentage of the respective portfolio.
Type of loans:
Real estate loans:
One- to four-family
Construction
Commercial and multi-family
Home equity (2)
Commercial business (1)
Consumer
Total
Less:
Deferred loan fees, net
Allowance for loan losses
Total loans, net
2012
2011
At December 31,
2010
2009
2008
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
$ 202,926
23,310
588,268
60,393
59,668
1,634
2.49
21.68 % $ 218,085
17,000
62.84 472,424
69,075
74,573
1,308
6.45
6.37
0.17
25.58 % $ 234,435
1.99
17,848
55.42 410,212
63,603
8.10
54,160
8.75
1,816
0.16
29.98 % $ 76,490
2.28
51,330
52.45 223,792
34,298
8.13
22,487
6.93
641
0.23
18.70 % $ 74,039
12.55
62,483
54.71 223,179
38,065
14,098
920
8.39
5.50
0.15
17.94 %
15.14
54.07
9.22
3.42
0.21
936,199
100.00 % 852,465
100.00 % 782,074
100.00 % 409,038
100.00 % 412,784
100.00 %
1,535
12,363
$ 922,301
1,193
10,509
$ 840,763
556
8,417
$ 773,101
522
6,644
$ 401,872
654
5,304
$ 406,826
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
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Table of Contents
Loan Maturities. The following table sets forth the contractual maturity of our loan portfolio at December 31, 2012. The amount shown represents outstanding principal
balances. Demand loans, loans having no stated schedule of repayments and no stated maturity and overdrafts are reported as being due in one year or less. Variable-rate loans are
shown as due at the time of repricing. The table does not include prepayments or scheduled principal repayments.
One- to four-family
Construction
Commercial business (1)
Commercial and multi-family
Home equity (2)
Consumer
Total amount due
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Due within 1
Year
Due after 1
through 5 Years
Due After 5
Years
Total
$
$
75 $
14,070
24,688
9,970
282
327
49,412 $
(In Thousands)
4,132 $
6,045
15,559
41,300
8,728
406
76,170 $
198,719 $
3,195
19,421
536,998
51,383
901
810,617 $
202,926
23,310
59,668
588,268
60,393
1,634
936,199
Loans with Predetermined or Floating or Adjustable Rates of Interest . The following table sets forth the dollar amount of all loans at December 31, 2012 that are due
after December 31, 2013, and have predetermined interest rates and that have floating or adjustable interest rates.
One- to four-family
Construction
Commercial business (1)
Commercial and multi-family
Home equity (2)
Consumer
Total amount due
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
4
Fixed Rates
Floating or
Adjustable Rates
(In Thousands)
Total
$
$
184,365 $
1,697
13,410
165,946
41,928
1,026
408,372 $
18,486 $
7,543
21,570
412,352
18,183
281
478,415 $
202,851
9,240
34,980
578,298
60,111
1,307
886,787
Table of Contents
Commercial and Multi-family Real Estate Loans . Our commercial and multi-family real estate loans are secured by commercial real estate (for example, shopping
centers, medical buildings, retail offices) and multi-family residential units, consisting of five or more units. Permanent loans on commercial and multi-family properties are
generally originated in amounts up to 75% of the appraised value of the property. Our commercial real estate loans are secured by improved property such as office buildings, retail
stores, warehouses, church buildings and other non-residential buildings. Commercial and multi-family real estate loans are generally made at rates that adjust above the five year
U.S. Treasury interest rate, with terms of up to 25 years, or are balloon loans with fixed interest rates which generally mature in three to five years with principal amortization for a
period of up to 30 years. Our largest commercial loan had a principal balance of $12.9 million at December 31, 2012, was secured by commercial property and was performing in
accordance with its terms on that date. Our largest multi-family loan had a principal balance of $8.0 million at December 31, 2012. This loan was performing in accordance with its
terms on that date.
Loans secured by commercial and multi-family real estate are generally larger and involve a greater degree of risk than one- to four-family residential mortgage loans.
The borrower’s creditworthiness and the feasibility and cash flow potential of the project is of primary concern in commercial and multi-family real estate lending. Loans secured
by income properties are generally larger and involve greater risks than residential mortgage loans because payments on loans secured by income properties are often dependent on
the successful operation or management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse
conditions in the real estate market or the economy. As a result of Hurricane Sandy, a number of our commercial borrowers have had diminished cash flows which may continue
over a period of time and which may impair the ability of these borrowers to comply with the terms of their commercial loans. We are monitoring these loans to identify
weaknesses, including a higher level of delinquencies. We intend to continue emphasizing the origination of loans secured by commercial real estate and multi-family properties.
One- to Four-Family Lending . Our one- to four-family residential mortgage loans are secured by property located primarily in the State of New Jersey. We generally
originate one- to four-family residential mortgage loans in amounts up to 80% of the lesser of the appraised value or selling price of the mortgaged property without requiring
mortgage insurance. We will originate loans with loan to value ratios up to 90% provided the borrowers obtain private mortgage insurance. We originate both fixed rate and
adjustable rate loans. One- to four-family loans may have terms of up to 30 years. The majority of one- to four-family loans we originate for retention in our portfolio have terms
no greater than 15 years. We offer adjustable rate loans with fixed rate periods of up to five years, with principal and interest calculated using a maximum 30-year amortization
period. We offer these loans with a fixed rate for the first five years with repricing every year after the initial period. Adjustable rate loans may adjust up to 200 basis points
annually and 600 basis points over the term of the loan. We also broker for a third party lender one- to four-family residential loans, which are primarily fixed rate loans with terms
of 30 years. Our loan brokerage activities permit us to offer customers longer-term fixed rate loans we would not otherwise originate while providing a source of fee income.
During 2012, we originated for sale $31.5 million in one- to four-family loans and recognized gains of $665,000 from the sale of such loans.
As a result of Hurricane Sandy, the homes collateralizing a number of our one-to four-family loans have been severely damaged. We are assessing the impact of the
hurricane on our borrowers’ ability to service their loans in accordance with their terms, and the impaired value of the underlying collateral. All of our one- to four-family
mortgages include “due on sale” clauses, which are provisions giving us the right to declare a loan immediately payable if the borrower sells or otherwise transfers an interest in
the property to a third party.
Property appraisals on real estate securing our single-family residential loans are made by state certified and licensed independent appraisers approved by our Board of
Directors. Appraisals are performed in accordance with applicable regulations and policies. As a result of Hurricane Sandy, we anticipate that appraised home values in our market
area will be significantly lower than would otherwise be the case. At our discretion, we obtain either title insurance policies or attorneys’ certificates of title on all first mortgage
real estate loans originated. We also require fire and casualty insurance on all properties securing our one- to four-family loans. We also require the borrower to obtain flood
insurance where appropriate. In some instances, we charge a fee equal to a percentage of the loan amount commonly referred to as points.
Construction Loans . We offer loans to finance the construction of various types of commercial and residential property. Construction loans to builders generally are
offered with terms of up to eighteen months and interest rates are tied to the prime rate plus a margin. These loans generally are offered as adjustable rate loans. We will originate
residential construction loans for individual borrowers and builders, provided all necessary plans and permits are in order. Construction loan funds are disbursed as the project
progresses. As of December 31, 2012, our largest construction loan was $4.3 million, of which $1.6 million was disbursed. This construction loan has been made for the
construction of eleven condominium units. As of December 31, 2012, this loan was performing in accordance with its terms.
Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a
construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction and development and the estimated cost
(including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be
inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the project. Additionally, if the estimate of value proves to be
inaccurate, we may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment.
Home Equity Loans and Home Equity Lines of Credit . We offer home equity loans and lines of credit that are secured by the borrower’s primary residence. Our home
equity loans can be structured as loans that are disbursed in full at closing or as lines of credit. Home equity loans and lines of credit are offered with terms up to 15 years. Virtually
all of our home equity loans are originated with fixed rates of interest and home equity lines of credit are originated with adjustable interest rates tied to the prime rate. Home
equity loans and lines of credit are underwritten under the same criteria that we use to underwrite one- to four-family loans. Home equity loans and lines of credit may be
underwritten with a loan-to-value ratio of 80% when combined with the principal balance of the existing mortgage loan. At the time we close a home equity loan or line of credit,
we file a mortgage to perfect our security interest in the underlying collateral. At December 31, 2012, the outstanding balances of home equity loans and lines of credit totaled
$60.4 million, or 6.45% of total loans.
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Commercial Business Loans . Our commercial business loans are underwritten on the basis of the borrower’s ability to service such debt from income. Our underwriting
standards for commercial business loans include a review of the applicant’s tax returns, financial statements, credit history and an assessment of the applicant’s ability to meet
existing obligations and payments on the proposed loan based on cash flow generated by the applicant’s business. Commercial business loans are generally made to small and mid-
sized companies located within the State of New Jersey. In most cases, we require collateral of real estate, equipment, accounts receivable, inventory, chattel or other assets before
making a commercial business loan. Our largest commercial business loan at December 31, 2012 was an unsecured line of credit loan to a local Board of Education for $15.0
million, of which $7.3 million was dispersed. This loan was performing in accordance with its terms as of that date.
Commercial business loans generally have higher rates and shorter terms than one- to four-family residential loans, but they may also involve higher average balances and
a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business. As a result of Hurricane Sandy, economic activity in our
market area has been disrupted and many of our commercial business borrowers have had their businesses impaired. Until our business borrowers recover from the effects of
Hurricane Sandy we may experience higher than customary levels of delinquencies and losses.
Consumer Loans . We make various types of secured and unsecured consumer loans and loans that are collateralized by new and used automobiles. Consumer loans
generally have terms of three years to ten years.
Consumer loans are advantageous to us because of their interest rate sensitivity, but they also involve more credit risk than residential mortgage loans because of the
higher potential for default, the nature of the collateral and the difficulty in disposing of the collateral.
Loan Approval Authority and Underwriting . We establish various lending limits for executive management and also maintain a loan committee. The loan committee is
comprised of the Chairman of the Board, the President, the Senior Lending Officer and a minimum of five non-employee members of the Board of Directors. The President or the
Senior Lending Officer, together with one other loan officer, have authority to approve applications for real estate loans up to $500,000, other secured loans up to $500,000 and
unsecured loans up to $25,000. The loan committee considers all applications in excess of the above lending limits and the entire board of directors ratifies all such loans.
Upon receipt of a completed loan application from a prospective borrower, a credit report is ordered. Income and certain other information is verified. If necessary,
additional financial information may be requested. An appraisal is required for the underwriting of all one- to four-family loans. We may rely on an estimate of value of real estate
performed by our Senior Lending Officer for home equity loans or lines of credit of up to $250,000. Appraisals are processed by state certified independent appraisers approved by
the Board of Directors.
An attorney’s certificate of title is required on all newly originated real estate mortgage loans. In connection with refinancing and home equity loans or lines of credit in
amounts up to $250,000, we will obtain a record owner’s search in lieu of an attorney’s certificate of title. Borrowers also must obtain fire and casualty insurance. Flood insurance
is also required on loans secured by property that is located in a flood zone.
Loan Commitments . Written commitments are given to prospective borrowers on all approved real estate loans. Generally, we honor commitments for up to 90 days from
the date of issuance. At December 31, 2012, our outstanding loan origination commitments totaled $39.1 million, standby letters of credit totaled $2.4 million, outstanding
construction loans in progress totaled $13.8 million and undisbursed lines of credit totaled $41.8 million.
Loan Delinquencies . We send a notice of nonpayment to borrowers when their loan becomes 15 days past due. If such payment is not received by month end, an
additional notice of nonpayment is sent to the borrower. After 60 days, if payment is still delinquent, a notice of right to cure default is sent to the borrower giving 30 additional
days to bring the loan current before foreclosure is commenced. If the loan continues in a delinquent status for 90 days past due and no repayment plan is in effect, foreclosure
proceedings will be initiated. In an effort to more closely monitor the performance of our loan portfolio and asset quality, the Bank has created various concentration of credit
reports, specifically as it relates to our construction and commercial real estate portfolios. These reports stress test declining property values up to and including a 25% value
deprecation to the original appraised value to determine our potential exposure.
Loans are reviewed and are placed on a non-accrual status when the loan becomes more than 90 days delinquent or when, in our opinion, the collection of additional
interest is doubtful. Once placed on non-accrual status, the accrual of interest income is discontinued. Income is subsequently recognized only to the extent that cash payments are
received until delinquency status is reduced to less than ninety days, in which case the loan is returned to accrual status. At December 31, 2012, we had $20.1 million in non-
accruing loans. Our largest exposure of non-performing loans consisted of a relationship with one borrowing entity which is collateralized by two commercial strip malls whose
balance at December 31, 2012 was $1.6 million. Presently, there is a pending contract for sale on one of the properties, which upon consummation, will reduce the outstanding
balance to approximately $600,000.00. This facility will remain in foreclosure until such time as the property is sold. While there has been a certain level of depreciation of the
underlying collateral, the Bank believes that upon conveyance and ultimate disposition of these two properties, the Bank will not incur a loss on these facilities.
A loan is considered impaired when it is probable the borrower will not repay the loan according to the original contractual terms of the loan agreement. We have
determined that first mortgage loans on one- to four-family properties and all consumer loans represent large groups of smaller-balance homogeneous loans that are collectively
evaluated. Additionally, we have determined that an insignificant delay (less than 90 days) will not cause a loan to be classified as impaired if we expect to collect all amounts due
including interest accrued at the contractual interest rate for the period of delay. We independently evaluate all loans identified as impaired. We estimate credit losses on impaired
loans based on the present value of expected cash flows or the fair value of the underlying collateral if the loan repayment will be derived from the sale or operation of such
collateral. Impaired loans, or portions of such loans, are charged off when we determine that a realized loss has occurred. Until such time, an allowance for loan losses is
maintained for estimated losses. Cash receipts on impaired loans are applied first to accrued interest receivable unless otherwise required by the loan terms, except when an
impaired loan is also a nonaccrual loan, in which case the portion of the receipts related to interest is recognized as income. At December 31, 2012, we had one hundred forty-five
loans with an unpaid principal balance totaling $47.6 million which are classified as impaired and on which loan loss allowances totaling $2.1 million have been established.
During 2012, interest income of $2.1 million was recognized on impaired loans during the time of impairment.
6
Table of Contents
The following table sets forth delinquencies in our loan portfolio as of the dates indicated:
At December 31, 2012
At December 31, 2011
60-90 Days
Greater than 90 Days
60-90 Days
Greater than 90 Days
Number
of
Loans
Principal
Balance
of Loans
Number
of
Loans
Principal
Balance
of Loans
Number
of
Loans
(Dollars in Thousands)
Principal
Balance
of Loans
Number
of
Loans
Principal
Balance
of Loans
Real estate mortgage:
One- to four-
family residential
Construction
Home equity
Commercial and multi-family
Total
Commercial business
Consumer
Total delinquent loans
Delinquent loans to total loans
Real estate mortgage:
One- to four-
family residential
Construction
Home equity
Commercial and multi-family
Total
Commercial business
Consumer
Total delinquent loans
Delinquent loans to total loans
10 $
1
7
11
29
2
—
31 $
1,941
1,174
717
5,245
9,077
152
—
9,229
0.99 %
10 $
1
12
22
45
9
—
54 $
2,348
130
1,516
9,275
13,269
1,514
—
14,783
1.58 %
8 $
1
13
14
36
—
1
37 $
2,495
130
1,018
6,340
9,983
—
10
9,993
1.17 %
38 $
8
19
56
121
11
—
132 $
11,847
3,660
1,181
21,080
37,768
1,785
—
39,553
4.64 %
At December 31, 2010
At December 31, 2009
60-90 Days
Greater than 90 Days
60-90 Days
Greater than 90 Days
Number
of
Loans
Principal
Balance
of Loans
Number
of
Loans
Principal
Balance
of Loans
Number
of
Loans
(Dollars in Thousands)
Principal
Balance
of Loans
Number
of
Loans
Principal
Balance
of Loans
9 $
—
7
9
25
4
1
30 $
3,706
—
694
5,391
9,791
456
5
10,252
1.31 %
48 $
7
20
64
139
5
4
148 $
7
15,115
2,773
1,632
21,147
40,667
861
283
41,811
5.35 %
3 $
—
2
5
10
1
—
11 $
3,973
—
517
2,729
7,219
369
—
7,588
1.86 %
5 $
7
2
8
22
1
—
23 $
1,559
4,343
251
5,280
11,433
500
—
11,933
2.92 %
Table of Contents
Real estate mortgage:
One- to four-
family residential
Construction
Home equity
Commercial and multi-family
Total
Commercial business
Consumer
Total delinquent loans
Delinquent loans to total loans
At December 31, 2008
60-90 Days
Greater Than 90 Days
Number
of Loans
Principal
Balance
of Loans
Number
of Loans
Principal
Balance
of Loans
(Dollars in Thousands)
3 $
1
—
2
6
—
—
6 $
1,507
360
—
265
2,132
—
—
2,132
0.51 %
4 $
—
—
5
9
—
—
9 $
1,213
—
—
2,515
3,728
—
—
3,728
0.90 %
8
Table of Contents
The table below sets forth the amounts and categories of non-performing assets in the Bank’s loan portfolio. Loans are placed on non-accrual status when delinquent more
than 90 days or when the collection of principal and/or interest become doubtful. Foreclosed assets include assets acquired in settlement of loans.
Non-accruing loans:
One-to four-family residential
Construction
Home equity
Commercial and multi-family
Commercial business
Consumer
Total
Accruing loans delinquent more than 90 days:
One-to four-family residential
Construction
Home equity
Commercial and multi-family
Commercial business
Consumer
Total
Total non-performing loans
Foreclosed assets
Total non-performing assets
Total non-performing assets as a percentage of total assets
Total non-performing loans as a percentage of total loans
2012
2011
At December 31,
2010
(Dollars in Thousands)
2009
2008
$
2,163 $
130
1,564
13,043
3,159
—
20,059
15,511 $
4,040
1,729
22,280
4,265
—
47,825
15,115 $
2,773
1,632
21,147
861
283
41,811
1,559 $
4,343
251
5,280
500
—
11,933
1,223
—
227
1,386
—
—
2,836
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,213
—
—
2,515
—
—
3,728
—
—
—
—
—
—
—
22,895
3,274
47,825
6,570
41,811
3,602
11,933
1,270
3,728
1,435
$
26,169 $
54,395 $
45,413 $
13,203 $
5,163
2.23 %
4.47 %
4.10 %
2.09 %
0.89 %
2.45 %
5.61 %
5.35 %
2.92 %
0.90 %
For the year ended December 31, 2012, gross interest income which would have been recorded had our non-accruing loans been current in accordance with their original
terms amounted to $1.06 million. We received and recorded $649,000 in interest income for such loans for the year ended December 31, 2012.
9
Table of Contents
Classified Assets . Our policies provide for a classification system for problem assets. When we classify problem assets, we may establish general allowances for loan
losses in an amount deemed prudent by management. General allowances represent loss allowances which have been established to recognize the inherent risk associated with
lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. A portion of general loss allowances established to cover possible
losses related to assets classified as substandard or doubtful may be included in determining our regulatory capital. Specific valuation allowances for loan losses generally do not
qualify as regulatory capital. At December 31, 2012, we had $5.7 million in assets classified as doubtful, of which $5.7 million were classified as impaired, $22.2 million in assets
classified as substandard, of which $18.6 million were classified as impaired and $25.1 million in assets classified as special mention, of which $17.3 million were classified as
impaired. The loans classified as substandard represent primarily commercial loans secured either by residential real estate, commercial real estate or heavy equipment. The loans
that have been classified substandard were classified as such primarily because either updated financial information has not been timely provided, or the collateral underlying the
loan is in the process of being revalued. As a result of Hurricane Sandy, our levels of classified assets are expected to remain elevated through at least the first half of 2013.
The Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies. The grades assigned and definitions are as
follows, and loans graded excellent, above average, good and watch list (risk ratings 1-4) are treated as “pass” for grading purposes:
5 – Special Mention- Loans currently performing but with potential weaknesses including adverse trends in borrower’s operations, credit quality, financial strength, or possible
collateral deficiency.
6 – Substandard - Loans that are inadequately protected by current sound worth, paying capacity, and collateral support. Loans on “nonaccrual” status. The loan needs special and
corrective attention.
7 – Doubtful - Weaknesses in credit quality and collateral support make full collection improbable, but pending reasonable factors remain sufficient to defer the loss status.
8 – Loss - Continuance as a bankable asset is not warranted. However, this does not preclude future attempts at partial recovery.
Allowances for Loan Losses . A provision for loan losses is charged to operations based on management’s evaluation of the losses that may be incurred in our loan
portfolio. In addition, our determination of the amount of the allowance for loan losses is subject to review by the New Jersey Department of Banking and Insurance and the FDIC,
as part of their examination process. After a review of the information available, our regulators might require the establishment of an additional allowance. Any increase in the loan
loss allowance required by regulators would have a negative impact on our earnings. 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 allowance for impaired loans, a specific allowance 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 into two divisions. Loans that are performing and loans that are impaired. Loans which are performing are
evaluated homogeneously by loan class or loan type. The allowance of performing loans is evaluated based on historical loan 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 more than 60 days 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 feasibility and bases the loan loss provision accordingly. As of December 31, 2012, non-accrual loans differed from the amount of total loans past due greater than 90
days due to troubled debt restructuring of loans which are maintained on non-accrual status for a minimum of six months until the borrower has demonstrated their ability to satisfy
the terms of the restructured loan. The Company also maintains an unallocated allowance. The unallocated allowance is used to cover any factors or conditions which may cause a
potential loan loss but are not specifically identifiable. It is prudent to maintain an unallocated portion of the allowance because no matter how detailed an analysis of potential
loan losses is performed, these estimates lack some element of precision. Management must make estimates using assumptions and information that is often subjective and subject
to change.
10
Table of Contents
The following table sets forth an analysis of the Bank’s allowance for loan losses.
Balance at beginning of period
Charge-offs:
One- to four-family residential
Construction
Commercial business (1)
Commercial and multi-family
Home equity (2)
Consumer
Total charge-offs
Recoveries
Net charge-offs
Provisions charge to operations
Ending balance
Ratio of non-performing assets to total assets at the end of period
Allowance for loan losses as a percent of total loans outstanding
Ratio of net charge-offs during the period to total loans outstanding at end of the period
Ratio of net charge-offs during the period to non-performing loans
2012
2011
Years Ended December 31,
2010
(Dollars in Thousands)
2009
2008
$
10,509 $
8,417 $
6,644 $
5,304 $
4,065
793
292
612
1,360
24
—
3,081
122
687
24
1,173
—
27
2,033
35
3,046
4,900
12,363 $
25
2,008
4,100
10,509 $
$
2.23 %
1.32 %
0.33 %
13.30 %
4.47 %
1.23 %
0.24 %
4.20 %
—
15
351
323
—
—
689
12
677
2,450
8,417 $
4.10 %
1.08 %
0.09 %
1.62 %
—
—
—
205
—
7
212
2
210
1,550
6,644 $
2.09 %
1.62 %
0.05 %
1.79 %
—
90
3
—
—
8
101
40
61
1,300
5,304
0.89 %
1.28 %
0.01 %
1.64 %
_____________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
11
Table of Contents
Allocation of the Allowance for Loan Losses . The following table illustrates the allocation of the allowance for loan losses for each category of loan. The allocation of the
allowance to each category is not necessarily indicative of future loss in any particular category and does not restrict our use of the allowance to absorb losses in other loan
categories.
2012
2011
At December 31,
2010
2009
2008
Percent of
Loans in
each
Category in
Total Loans Amount
Percent of
Loans in
each
Category in
Total Loans Amount
Percent of
Loans in
each
Category in
Total Loans Amount
Percent of
Loans in
each
Category in
Total Loans Amount
Percent of
Loans in
each
Category in
Total Loans
Amount
(Dollars in Thousands)
Type of loan:
One- to four-family
Construction
Home equity
Commercial and multi-family
Commercial business
Consumer
Unallocated
Total
$ 1,967
959
475
8,051
820
59
32
$ 12,363
21.68 % $ 2,679
304
2.49
677
6.45
5,798
62.84
1,041
6.37
10
0.17
—
—
100.00 % $ 10,509
25.58 % $
1.99
8.10
55.42
8.75
0.16
—
171
426
204
6,179
1,286
18
133
100.00 % $ 8,417
29.98 % $
2.28
8.13
52.45
6.93
0.23
—
430
1,437
186
4,184
365
42
—
100.00 % $ 6,644
18.70 % $
12.55
8.39
54.71
5.50
0.15
—
688
941
167
3,175
216
117
—
100.00 % $ 5,304
17.94 %
15.14
9.22
54.07
3.42
0.21
—
100.00 %
12
Table of Contents
Investment Activities
Investment Securities . We are required under federal regulations to maintain a minimum amount of liquid assets that may be invested in specified short-term securities
and certain other investments. The level of liquid assets varies depending upon several factors, including: (i) the yields on investment alternatives, (ii) our judgment as to the
attractiveness of the yields then available in relation to other opportunities, (iii) expectation of future yield levels, and (iv) our projections as to the short-term demand for funds to
be used in loan origination and other activities. Investment securities, including mortgage-backed securities, are classified at the time of purchase, based upon management’s
intentions and abilities, as securities held-to-maturity or securities available for sale. Debt securities acquired with the intent and ability to hold to maturity are classified as held-to-
maturity and are stated at cost and adjusted for amortization of premium and accretion of discount, which are computed using the level yield method and recognized as adjustments
of interest income. All other debt and equity securities are classified as available for sale to serve principally as a source of liquidity.
Current regulatory and accounting guidelines regarding investment securities require us to categorize securities as held-to-maturity, available for sale or trading. As of
December 31, 2012, the amortized cost of securities classified as held-to-maturity was $164.6 million. We had $1.2 million in securities classified as available for sale, and no
securities classified as trading. Securities classified as available for sale are reported for financial reporting purposes at the fair value with net changes in the fair value from period
to period included as a separate component of stockholders’ equity, net of income taxes. As of December 31, 2012, our securities classified as held-to-maturity had a fair value of
$171.6 million. Changes in the fair value of securities classified as held-to-maturity or available for sale do not affect our income, unless we determine there to be an other-than-
temporary impairment for those securities in an unrealized loss position. As of December 31, 2012, management concluded that all unrealized losses were temporary in nature
since they are related to interest rate fluctuations rather than any underlying credit quality of the issuers. Additionally, the Company has no plans to sell these securities and has
concluded that it is unlikely it would have to sell these securities prior to the anticipated recovery of the unrealized losses. 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 year ended December 31, 2012, proceeds from sales of securities held to maturity totaled approximately $30.6 million and resulted in gross gains of $405,000 and
gross losses of $56,000.
As of December 31, 2012, our investment policy allowed investments in instruments such as: (i) U.S. Treasury obligations; (ii) U.S. federal agency or federally sponsored
agency obligations; (iii) mortgage-backed securities; and (iv) certificates of deposit. The Board of Directors may authorize additional investments. As of December 31, 2012, we
no longer had a U.S. Government agency securities portfolio. The decrease during 2012 reflects the exercise of call options of $6.3 million in U.S. government agency securities.
As a source of liquidity and to supplement our lending activities, we have invested in residential mortgage-backed securities. Mortgage-backed securities generally yield
less than the loans that underlie such securities because of the cost of payment guarantees or credit enhancements that reduce credit risk. Mortgage-backed securities can serve as
collateral for borrowings and, through repayments, as a source of liquidity. Mortgage-backed securities represent a participation interest in a pool of single-family or other type of
mortgages. Principal and interest payments are passed from the mortgage originators, through intermediaries (generally government-sponsored enterprises) that pool and repackage
the participation interests in the form of securities, to investors, like us. The government-sponsored enterprises guarantee the payment of principal and interest to investors and
include Freddie Mac, Ginnie Mae, and Fannie Mae.
Mortgage-backed securities typically are issued with stated principal amounts. The securities are backed by pools of mortgage loans that have interest rates that are within
a set range and have varying maturities. The underlying pool of mortgages can be composed of either fixed rate or adjustable rate mortgage loans. Mortgage-backed securities are
generally referred to as mortgage participation certificates or pass-through certificates. The interest rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate or
adjustable rate) and the prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security is equal to the life of the underlying
mortgages. Expected maturities will differ from contractual maturities due to scheduled repayments and because borrowers may have the right to call or prepay obligations with or
without prepayment penalties.
13
Table of Contents
Securities Portfolio . The following table sets forth the carrying value of our securities portfolio and FHLB stock at the dates indicated.
Securities available for sale:
Equity securities
Securities held to maturity:
U.S. Government and Agency securities
Mortgage-backed securities
Corporate subordinated notes
Municipal obligations
Trust originated preferred security
Total securities held to maturity
FHLB stock
Total investment securities
2012
At December 31,
2011
(In Thousands)
2010
$
1,240 $
1,045 $
1,098
—
162,909
—
1,363
376
164,648
7,698
173,586 $
6,315
198,877
—
1,370
403
206,965
7,498
215,508 $
30,838
126,955
6,000
1,376
403
165,572
6,723
173,393
$
14
Table of Contents
The following table shows our securities held-to-maturity purchase sale and repayment activities for the periods indicated.
Securities acquired through merger
Purchases:
Fixed-rate
Total purchases
Sales:
Fixed-rate
Total sales
Principal Repayments:
Repayment of principal
(Decrease) in other items, net
Net (decrease) increases
2012
Years Ended December 31,
2011
(In Thousands)
2010
— $
34,969 $
86,770
57,331 $
57,331 $
95,537 $
95,537 $
104,997
104,997
30,235 $
30,235 $
2,420 $
2,420 $
—
—
(67,489 ) $
(1,924 )
(42,317 ) $
(85,088 ) $
(1,605 )
41,393 $
(156,757 )
(2,082 )
32,928
$
$
$
$
$
$
$
15
Table of Contents
Maturities of Securities Portfolio . The following table sets forth information regarding the scheduled maturities, carrying values, estimated market values, and weighted
average yields for the Bank’s debt securities portfolio at December 31, 2012 by contractual maturity. The following table does not take into consideration the effects of scheduled
repayments or the effects of possible prepayments.
Within one year
More than One to
five years
More than five to ten
years
More than ten years
Carrying
Value
Average
Yield
Carrying
Value
Average
Yield
Carrying
Value
Average
Yield
Carrying
Value
Average
Yield
December 31, 2012
(Dollars in Thousands)
Total investment securities
Carrying
Fair
Value
Value
Average
Yield
Mortgage-backed securities
Municipal obligations
Trust originated preferred security
$
Total investment securities
$
—
—
—
—
—% $
—
—
—% $
4
—
—
4
5.86 % $
—
—
5.86 % $
9,480
388
—
9,868
2.28 % $ 153,425
975
4.96
376
—
2.39 % $ 154,776
3.04 % $ 169,771 $ 162,909
1,363
1,456
5.64
7.68
376
376
3.07 % $ 171,603 $ 164,648
3.01 %
5.45
7.68
3.03 %
16
Table of Contents
Sources of Funds
Our major external source of funds for lending and other investment purposes are deposits. Funds are also derived from the receipt of payments on loans, prepayment of
loans, maturities of investment securities and mortgage-backed securities and borrowings. Scheduled loan principal repayments are a relatively stable source of funds, while
deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions.
Deposits . Consumer and commercial deposits are attracted principally from within our primary market area through the offering of a selection of deposit instruments
including demand, NOW, savings and club accounts, money market accounts, and term certificate accounts. Deposit account terms vary according to the minimum balance
required, the time period the funds must remain on deposit, and the interest rate.
The interest rates paid by us on deposits are set at the direction of our senior management. Interest rates are determined based on our liquidity requirements, interest rates
paid by our competitors, our growth goals, and applicable regulatory restrictions and requirements. As of December 31, 2012 and December 31, 2011 we had $6.8 million and $9.2
million in brokered deposits, respectively.
Deposit Accounts . The following table sets forth the dollar amount of deposits in the various types of deposit programs we offered as of the dates indicated.
Demand
NOW
Savings and club accounts
Money market
Certificates of deposit
Total
__________
(1) Represents the average rate paid during the year.
2012
December 31,
2011
Weighted
Average
Rate (1)
Amount
Weighted
Average
Rate (1)
Amount
2010
Weighted
Average
Rate (1)
Amount
(Dollars in Thousands)
—% $
0.25
0.18
0.39
1.33
0.78 % $
85,950
120,765
256,769
63,834
413,468
940,786
—% $
0.54
0.40
0.68
1.50
1.00 % $
78,589
112,605
265,546
67,592
453,291
977,623
—% $
0.85
0.73
0.85
1.77
1.33 % $
69,471
80,775
245,951
55,676
434,415
886,288
17
Table of Contents
The following table sets forth our deposit flows during the periods indicated.
Years Ended December 31,
2011
2010
2012
(Dollars in Thousands)
Beginning of period
Net deposits (1)
Interest credited on deposit accounts
Total (decrease) increase in deposit accounts
Ending balance
Percent (decrease) increase
__________
(1) Includes deposits totaling $111,365 received in 2011 in connection with the Allegiance Community Bank acquisition and $435,810 in 2010 received in connection with the
Pamrapo Bancorp, Inc., acquisition.
886,288 $
83,010
8,325
91,335
977,623 $
10.31 %
977,623
(43,702 )
6,865
(36,837 )
940,786
463,738
414,034
8,516
422,550
886,288
$
(3.77 )%
91.12 %
$
$
$
Jumbo Certificates of Deposit . As of December 31, 2012, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was
approximately $234.6 million. The following table indicates the amount of our certificates of deposit of $100,000 or more by time remaining until maturity.
Maturity Period
Within three months
Three through twelve months
Over twelve months
Total
The following table presents, by rate category, our certificate of deposit accounts as of the dates indicated.
At December 31, 2012
(In Thousands)
$
$
56,670
96,874
81,034
234,578
Certificate of deposit rates:
0.00% - 0.99%
1.00% - 1.99%
2.00% - 2.99%
3.00% - 3.99%
4.00% - 4.99%
5.00% - 5.99%
Total
2012
At December 31,
2011
2010
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in Thousands)
$
$
210,897
108,379
53,719
39,757
36
680
413,468
51.01 % $
26.21
12.99
9.62
0.01
0.16
100.00 % $
165,931
172,983
58,390
52,382
2,884
721
453,291
36.60 % $
38.16
12.88
11.56
0.64
0.16
100.00 % $
—
312,597
74,265
41,004
5,531
1,018
434,415
—%
71.96
17.1
9.44
1.27
0.23
100.00 %
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The following table presents, by rate category, the remaining period to maturity of certificate of deposit accounts outstanding as of December 31, 2012.
Interest rate:
0.00% - 0.99%
1.00% - 1.99%
2.00% - 2.99%
3.00% - 3.99%
4.00% - 4.99%
5.00% - 5.99%
Total
1 Year
or Less
Over 1
Maturity Date
Over 2
to 2 Years
to 3 Years
Over
3 Years
Total
(In Thousands)
$
$
196,511 $
69,255
10,192
9,523
—
680
286,161 $
14,272 $
29,398
19,883
30,234
36
—
93,823 $
111 $
2,528
15,639
—
—
—
18,278 $
3 $
7,198
8,005
—
—
—
15,206 $
210,897
108,379
53,719
39,757
36
680
413,468
Borrowings . Beginning September 7, 2010, the Federal Home Loan Bank of New York (“FHLBNY”) replaced the existing Overnight Repricing Advance Program and
its associated companion products, the Overnight Line of Credit (“OLOC”), OLOC Plus, OLOC Companion, and OLOC Companion Plus with the new Overnight Advance. The
new Overnight Advance permits the Bank to borrow overnight up to its maximum borrowing capacity at the FHLBNY. The Bank is no longer restricted to the previous borrowing
limits of 10% (OLOC) or up to 20% (OLOC Plus) of total assets. At December 31, 2012, the Bank’s total credit exposure cannot exceed 50% of its total assets, or $585.7 million,
based on the borrowing limitations outlined in the Federal Home Loan Bank of New York’s member products guide. The total credit exposure limit to 50% of total assets is
recalculated each quarter. Additionally, at December 31, 2012 we had a floating rate junior subordinated debenture of $4.1 million which has been callable at the Company’s
option since June 17, 2009, and quarterly thereafter.
The following table sets forth information concerning balances and interest rates on our short-term borrowings at the dates and for the periods indicated.
At or For the Years Ended December 31,
2011
2010
2012
Balance at end of period
Average balance during period
Maximum outstanding at any month end
Weighted average interest rate at end of period
Average interest rate during period
Employees
(Dollars in Thousands)
$
$
$
17,000 $
1,710 $
17,000 $
0.31 %
0.31 %
— $
— $
— $
—%
—%
—
—
—
—%
—%
At December 31, 2012, we had 206 full-time equivalent and 63 part-time employees. None of our employees is represented by a collective bargaining group. We believe
that our relationship with our employees is good.
Subsidiaries
We have three non-bank subsidiaries. BCB Holding Company Investment Corp. was established in 2004 for the purpose of holding and investing in securities. Only
securities authorized to be purchased by BCB Community Bank are held by BCB Holding Company Investment Corp. At December 31, 2012, this company held $138.0 million in
securities. With the merger with Pamrapo Bancorp. Inc., we acquired Pamrapo Service Corporation which has been inactive since May 2010. BCB New York Management, Inc.
was established in October 2012 for the purpose of holding and investing in various loan products and investing in securities. For the period ended December 31, 2012, there was
no activity related to this subsidiary.
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Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal and state law. These laws and regulations are intended to protect depositors, not
shareholders. The description below is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes
and regulations and their effects on the Company or the Bank.
As further described below under the heading “The Dodd-Frank Act”, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), will
significantly change the current bank regulatory structure described in this section and will affect the lending, investment, trading and operating activities of financial institutions
and their holding companies. These and any other changes in applicable laws or regulations, whether by Congress or regulatory agencies, may have a material effect on the
business and prospects of the Company and the Bank.
The Dodd-Frank Act
The Dodd-Frank Act has changed the current bank regulatory structure and is affecting the lending, investment, trading and operating activities of financial institutions
and their holding companies. The Dodd-Frank Act eliminated the Office of Thrift Supervision and requires that federal savings associations be regulated by the Office of the
Comptroller of the Currency (the primary federal regulator for national banks). The Dodd-Frank Act also authorizes the Board of Governors of the Federal Reserve Board
(“Federal Reserve”) to supervise and regulate all savings and loan holding companies.
The Dodd-Frank Act requires the Federal Reserve to set minimum capital levels for bank holding companies that are as stringent as those required for insured depository
institutions, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. In
addition, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding
companies with less than $15 billion of assets. The legislation also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect
today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months. These new leverage and capital requirements must take
into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.
The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer
Financial Protection Bureau has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to
prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings
institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The new
legislation also weakens the federal preemption available for national banks and federal savings associations, and gives the state attorneys general the ability to enforce applicable
federal consumer protection laws.
The Dodd-Frank Act also broadens the base for FDIC insurance assessments. In accordance with the Dodd-Frank Act, the FDIC has promulgated rules under which
assessments are based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum
amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and non-interest bearing transaction
accounts had unlimited deposit insurance through December 31, 2012. Lastly, the Dodd-Frank Act increases stockholder influence over boards of directors by requiring companies
to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and by authorizing the Securities and Exchange Commission to
promulgate rules that would allow stockholders to nominate and solicit votes for their own candidates using a company’s proxy materials. The legislation also directs the Federal
Reserve to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded.
Bank Holding Company Regulation
As a bank holding company registered under the Bank Holding Company Act of 1956, as amended, the Company is subject to the regulation and supervision applicable to
bank holding companies by the Federal Reserve. The Company is also subject to the provisions of the New Jersey Banking Act of 1948 (the “New Jersey Banking Act”) and the
regulations of the Commissioner of the New Jersey Department of Banking and Insurance (“Commissioner”). The Company is required to file reports with the Federal Reserve and
the Commissioner regarding its business operations and those of its subsidiaries.
Federal Regulation. The Bank Holding Company Act requires, among other things, the prior approval of the Federal Reserve in any case where a bank holding company
proposes to (i) acquire all or substantially all of the assets of any other bank, (ii) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of
any bank (unless it owns a majority of such company’s voting shares) or (iii) merge or consolidate with any other bank holding company. The Federal Reserve will not approve
any acquisition, merger, or consolidation that would have a substantially anti-competitive effect, unless the anti-competitive impact of the proposed transaction is clearly
outweighed by a greater public interest in meeting the convenience and needs of the community to be served. The Federal Reserve also considers capital adequacy and other
financial and managerial resources and future prospects of the companies and the banks concerned, together with the convenience and needs of the community to be served, when
reviewing acquisitions or mergers.
The Bank Holding Company Act generally prohibits a bank holding company, with certain limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which is not a bank or bank holding company, or (ii) engaging directly or indirectly in activities other
than those of banking, managing or controlling banks, or performing services for its subsidiaries, unless such non-banking business is determined by the Federal Reserve to be so
closely related to banking or managing or controlling banks as to be properly incident thereto.
The Bank Holding Company Act has been amended to permit bank holding companies and banks, which meet certain capital, management and Community Reinvestment
Act standards, to engage in a broader range of non-banking activities. In addition, bank holding companies which elect to become financial holding companies may engage in
certain banking and non-banking activities without prior Federal Reserve approval. At this time, the Company has elected not to become a financial holding company, as it does
not engage in any activities not permissible for banks.
There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by law and regulatory policy that are
designed to minimize potential loss to the depositors of such depository institutions and the FDIC insurance funds in the event the depository institution is in danger of default.
Under a policy of the Federal Reserve with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its
subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such policy. The Federal Reserve also has
the authority under the Bank Holding Company Act to require a bank holding company to terminate any activity or to relinquish control of a non-bank subsidiary upon the Federal
Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company.
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The Federal Reserve has adopted risk-based capital guidelines for bank holding companies. The risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank holding companies, to account for off-balance sheet exposure, and to minimize disincentives for
holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and off-balance sheet items.
The Company is subject to regulatory capital requirements and guidelines imposed by the Federal Reserve, which are substantially similar to those imposed by the FDIC
on depository institutions within their jurisdictions. At December 31, 2012, the Company, was considered to be a well capitalized Bank Holding Company.
The Federal Reserve may set higher capital requirements for holding companies whose circumstances warrant it. For example, holding companies experiencing internal
growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible
assets.
As noted above, the Dodd-Frank Act requires the Federal Reserve to set minimum capital levels for bank holding companies that are as stringent as those required for
insured depository institutions, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured
depository institutions. In June 2012, proposed rules were issued that would implement these directives. Such changes when finalized, and others that may be proposed and
implemented in the future, may affect the Company’s capital ratios and risk-adjusted assets.
New Jersey Regulation. Under the New Jersey Banking Act, a company owning or controlling a savings bank is regulated as a bank holding company and must file
certain reports with the Commissioner and is subject to examination by the Commissioner. Under the New Jersey Banking Act, as well as Federal law, no person may acquire
control of the Company or the Bank without first obtaining approval of such acquisition of control from the Federal Reserve and the Commissioner.
Bank Regulation
As a New Jersey-chartered commercial bank, the Bank is subject to the regulation, supervision, and examination of the Commissioner. As an FDIC-insured institution, the
Bank is subject to the regulation, supervision and examination of the FDIC. The regulations of the FDIC and the Commissioner impact virtually all of our activities, including the
minimum level of capital we must maintain, our ability to pay dividends, our ability to expand through new branches or acquisitions and various other matters.
Insurance of Deposit Accounts. The FDIC insures deposits at FDIC insured financial institutions such as the Bank. Deposit accounts in the Bank are insured by the FDIC
generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts.
Under the FDIC’s current risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory
capital levels and certain other risk factors. Assessments are based on an institution’s risk category and certain specified adjustments with higher assessments applying to
institutions deemed most risky.
As part of its plan to restore the Deposit Insurance Fund in the wake of the large number of bank failures following the financial crisis, the FDIC imposed a special
assessment of 5 basis points for the second quarter of 2009. In addition, the FDIC required all insured institutions to prepay their quarterly risk-based assessments for the fourth
quarter of 2009, and for all of 2010, 2011 and 2012. As part of this prepayment, the FDIC assumed a 5% annual growth in the assessment base and applied a 3 basis point increase
in assessment rates effective January 1, 2011. As of December 31, 2012 our prepaid FDIC premium assessment was fully utilized.
In February 2011, the FDIC published a final rule under the Dodd-Frank Act to reform the deposit insurance assessment system. The rule redefined the assessment base
used for calculating deposit insurance assessments effective April 1, 2011. Under the new rule, assessments are based on an institution’s average consolidated total assets minus
average tangible equity as opposed to total deposits. Since the new base is much larger than the current base, the FDIC also lowered assessment rates so that the total amount of
revenue collected from the industry is not significantly altered. The new rule is expected to benefit smaller financial institutions, which typically rely more on deposits for funding,
and shift more of the burden for supporting the insurance fund to larger institutions, which have greater access to non-deposit sources of funding.
The Dodd-Frank Act also extended the unlimited deposit insurance on non-interest bearing transaction accounts through December 31, 2012. Unlike the FDIC’s
Temporary Liquidity Guarantee Program, the insurance provided under the Dodd-Frank Act did not extend to low-interest NOW accounts, and there was no separate assessment
on covered accounts.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition or violation
that may lead to termination of our deposit insurance.
In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated
payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds
issued by the FICO are due to mature in 2017 through 2019. For the year ended December 31, 2012, we paid $72,000 in FICO assessments.
Capital Adequacy Guidelines . The FDIC has promulgated risk-based capital rules, which are designed to make regulatory capital requirements more sensitive to
differences in risk profile among banks, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Under these rules, assets and off-balance
sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-
balance sheet items. These rules are substantially similar to the Federal Reserve rules discussed above.
In addition to the risk-based capital rules, the FDIC has adopted a minimum Tier 1 capital (leverage) ratio. This measurement is substantially similar to the Federal
Reserve leverage capital measurement discussed above. At December 31, 2012, the Bank’s ratio of total capital to risk-weighted assets was 14.03%. Our Tier 1 capital to risk-
weighted assets was 12.78%, and our Tier 1 capital to average assets was 8.38%.
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As noted above, the Dodd-Frank Act establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the
federal banking regulators to implement new leverage and capital requirements within 18 months. These new leverage and capital requirements must take into account off-balance
sheet activities and other risks, including risks relating to securitized products and derivatives. In June 2012, the Federal Bank Regulators issued proposed rules that would
implement the Dodd-Frank Act’s directives as well as recommendations of the international Basel Committee on Banking Supervision. The proposed rules would substantially
revise capital requirements including establishing a new common equity Tier 1 requirement, certain raised risk-based requirement, and certain increased risk weights. It is not
known when the rule will be finalized.
Transactions with Affiliates. Transactions between banks and their related parties or affiliates are limited by Sections 23A and 23B of the Federal Reserve Act. An
affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. In a holding company context, the parent bank holding
company and any companies which are controlled by such parent holding company are affiliates of the bank. Generally, Sections 23A and 23B of the Federal Reserve Act and
Regulation W (i) limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of such institution’s
capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20.0% of such institution’s capital stock and surplus and
(ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to non-affiliates. The term
“covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and other similar transactions. In addition, loans or other extensions of credit by the
financial institution to the affiliate are required to be collateralized in accordance with the requirements set forth in Section 23A of the Federal Reserve Act. The Sarbanes-Oxley
Act of 2002 generally prohibits loans by a company to its executive officers and directors. However, the law contains a specific exception for loans by a depository institution to its
executive officers and directors in compliance with federal banking laws assuming such loans are also permitted under the law of the institution’s chartering state. Under such
laws, the Bank’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such person’s control, is limited. The law limits
both the individual and aggregate amount of loans the Bank may make to insiders based, in part, on the Bank’s capital position and requires certain board approval procedures to
be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of
repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give
preference to insiders over other employees. Loans to executive officers are further limited by specific categories.
The Dodd-Frank Act requires that the Federal Reserve make certain changes to the regulations governing transactions with affiliates described above. It is uncertain when
such changes will become effective.
Dividends . The Bank may pay dividends as declared from time to time by the Board of Directors out of funds legally available, subject to certain restrictions. Under the
New Jersey Banking Act of 1948, as amended, the Bank may not pay a cash dividend unless, following the payment, the Bank’s capital stock will be unimpaired and the Bank will
have a surplus of no less than 50% of the Bank capital stock or, if not, the payment of the dividend will not reduce the surplus. In addition, the Bank cannot pay dividends in
amounts that would reduce the Bank’s capital below regulatory imposed minimums.
Federal Securities Laws
The Company’s common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (“Exchange Act”). The Company is subject to the
information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
Under the Exchange Act, we are required to conduct a comprehensive review and assessment of the adequacy of our existing financial systems and controls. For the year
ended December 31, 2012, our auditors are required to audit our internal control over financial reporting.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), contains a broad range of legislative reforms intended to address corporate and accounting fraud. In addition to the
establishment of a new accounting oversight board that will enforce auditing, quality control and independence standards and will be funded by fees from all publicly traded
companies, Sarbanes-Oxley places certain restrictions on the scope of services that may be provided by accounting firms to their public company audit clients. Any non-audit
services being provided to a public company audit client will require preapproval by the company’s audit committee. In addition, Sarbanes-Oxley makes certain changes to the
requirements for audit partner rotation after a period of time. Sarbanes-Oxley requires chief executive officers and chief financial officers, or their equivalent, to certify to the
accuracy of periodic reports filed with the Securities and Exchange Commission, subject to civil and criminal penalties if they knowingly or willingly violate this certification
requirement. The Company’s Chief Executive Officer and Chief Financial Officer have signed certifications to this Form 10-K as required by Sarbanes-Oxley. In addition, under
Sarbanes-Oxley, counsel will be required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or
its chief legal officer, and, if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the
board itself.
Under Sarbanes-Oxley, longer prison terms will apply to corporate executives who violate federal securities laws; the period during which certain types of suits can be
brought against a company or its officers is extended; and bonuses issued to top executives prior to restatement of a company’s financial statements are now subject to
disgorgement if such restatement was due to corporate misconduct. Executives are also prohibited from trading the company’s securities during retirement plan “blackout” periods,
and loans to company executives (other than loans by financial institutions permitted by federal rules and regulations) are restricted. In addition, a provision directs that civil
penalties levied by the Securities and Exchange Commission as a result of any judicial or administrative action under Sarbanes-Oxley be deposited to a fund for the benefit of
harmed investors. The Federal Accounts for Investor Restitution provision also requires the Securities and Exchange Commission to develop methods of improving collection
rates. The legislation accelerates the time frame for disclosures by public companies, as they must immediately disclose any material changes in their financial condition or
operations. Directors and executive officers must also provide information for most changes in ownership in a company’s securities within two business days of the change.
Sarbanes-Oxley also increases the oversight of, and codifies certain requirements relating to, audit committees of public companies and how they interact with the
company’s “registered public accounting firm.” Audit Committee members must be independent and are absolutely barred from accepting consulting, advisory or other
compensatory fees from the issuer. In addition, companies must disclose whether at least one member of the committee is a “financial expert” (as such term is defined by the
Securities and Exchange Commission) and if not, why not. Under Sarbanes-Oxley, a company’s registered public accounting firm is prohibited from performing statutorily
mandated audit services for a company if such company’s chief executive officer, chief financial officer, comptroller, chief accounting officer or any person serving in equivalent
positions had been employed by such firm and participated in the audit of such company during the one-year period preceding the audit initiation date. Sarbanes-Oxley also
prohibits any officer or director of a company or any other person acting under their direction from taking any action to fraudulently influence, coerce, manipulate or mislead any
independent accountant engaged in the audit of the company’s financial statements for the purpose of rendering the financial statements materially misleading. Sarbanes-Oxley
also requires the Securities and Exchange Commission to prescribe rules requiring inclusion of any internal control report and assessment by management in the annual report to
shareholders. Sarbanes-Oxley requires the company’s registered public accounting firm that issues the audit report to report on the company’s internal control over financial
planning.
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Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to conduct a comprehensive review and assessment of the adequacy of our existing financial systems and
controls.
AVAILABILITY OF ANNUAL REPORT
Our Annual Report is available on our website, www.bcbbancorp.com. We will also provide our Annual Report on Form 10-K free of charge to shareholders who write to
the Corporate Secretary at 104-110 Avenue C, Bayonne, New Jersey 07002.
ITEM 1A. RISK FACTORS
The effects of Hurricane Sandy impacted our operations and potentially affected loan facilities in those areas affected by the storm. Consequently, our profitability will
be adversely affected.
On October 29 th and 30 th , 2012, Hurricane Sandy struck the Northeast section of the country. The Bank’s market area was significantly impacted by the storm which
resulted in widespread flooding, wind damage and power outages. We are assessing whether the underlying collateral of any loan facilities we have in those areas affected by the
storm have suffered damage and possible loss of value. Additionally, we are determining whether or not the storm has impacted our borrowers’ ability to repay their obligations to
the Bank. The Bank is generally named as a loss payee on hazard and flood insurance policies covering collateral properties and carries both mortgage impairment and business
interruption insurance. These policies could mitigate losses that the Bank may sustain due to the effects of the hurricane. Presently, that process remains on-going and it is
premature to determine what, if any impact this may have on our level of loan losses or non-performing loans. Predicted upon the completion of the aforementioned, the Company
may experience increased levels of non-performing loans and loan losses which may negatively impact future operating results.
Our loan portfolio consists of a high percentage of loans secured by commercial real estate and multi-family real estate. These loans are riskier than loans secured by
one- to four-family properties.
At December 31, 2012, $588.3 million, or 62.84% of our loan portfolio consisted of commercial and multi-family real estate loans. We intend to continue to emphasize
the origination of these types of loans. These loans generally expose a lender to greater risk of nonpayment and loss than one- to four-family residential mortgage loans because
repayment of the loans often depends on the successful operation and income stream of the borrower’s business. Such loans typically involve larger loan balances to single
borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Consequently, an adverse development with respect to one loan or one credit
relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan.
We may not be able to successfully maintain and manage our growth.
Our growth since July 2010 has primarily been driven by acquisitions. Our ability to continue to grow depends, in part, upon our ability to expand our market presence,
successfully attract core deposits, identify attractive commercial lending opportunities, and identify potential acquisitions and complete such acquisitions.
We cannot be certain as to our ability to manage increased levels of assets and liabilities. We may be required to make additional investments in equipment and personnel
to manage higher asset levels and loans balances, which may adversely impact our efficiency ratio, earnings and shareholder returns.
If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.
Our loan customers may not repay their loans according to the terms of their loans, and the collateral securing the payment of their loans may be insufficient to assure
repayment. We may experience significant credit losses, which could have a material adverse effect on our operating results. We make various assumptions and judgments about
the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of
many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic
conditions. If our assumptions prove to be incorrect, our allowance for loan losses may not cover losses in our loan portfolio at the date of the financial statements. Material
additions to our allowance would materially decrease our net income. At December 31, 2012, our allowance for loan losses totaled $12.4 million, representing 1.32% of total loans.
While we have only been operating for twelve years, we have experienced significant growth in our loan portfolio, particularly our loans secured by commercial real
estate. Although we believe we have underwriting standards to manage normal lending risks, and although we had $26.2 million, or 2.23% of total assets consisting of non-
performing assets at December 31, 2012, it is difficult to assess the future performance of our loan portfolio due to the relatively recent origination of many of these loans. We can
give you no assurance that our non-performing loans will not increase or that our non-performing or delinquent loans will not adversely affect our future performance.
In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our allowance for loan losses or recognize further
loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our results of
operations and financial condition.
We depend primarily on net interest income for our earnings rather than fee income.
Net interest income is the most significant component of our operating income. We do not rely on traditional sources of fee income utilized by some community banks,
such as fees from sales of insurance, securities or investment advisory products or services. For the years ended December 31, 2012 and 2011, our net interest income was $41.7
million and $39.6 million, respectively. The amount of our net interest income is influenced by the overall interest rate environment, competition, and the amount of interest-
earning assets relative to the amount of interest-bearing liabilities. In the event that one or more of these factors were to result in a decrease in our net interest income, we do not
have significant sources of fee income to make up for decreases in net interest income.
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If Our Investment in the Federal Home Loan Bank of New York is Classified as Other-Than-Temporarily Impaired, Our Earnings and Stockholders’ Equity Could
Decrease.
We own common stock of the Federal Home Loan Bank of New York. We hold the FHLBNY common stock to qualify for membership in the Federal Home Loan Bank
System and to be eligible to borrow funds under the FHLBNY’s advance program. The aggregate cost and fair value of our FHLBNY common stock as of December 31, 2012 was
$7.7 million based on its par value. There is no market for our FHLBNY common stock.
Recent published reports indicate that certain member banks of the Federal Home Loan Bank System may be subject to accounting rules and asset quality risks that could
result in materially lower regulatory capital levels. In an extreme situation, it is possible that the capitalization of a Federal Home Loan Bank, including the FHLBNY, could be
substantially diminished or reduced to zero. Consequently, we believe that there is a risk that our investment in FHLBNY common stock could be deemed other-than-temporarily
impaired at some time in the future, and if this occurs, it would cause our earnings and stockholders’ equity to decrease by the after-tax amount of the impairment charge.
Fluctuations in interest rates could reduce our profitability.
We realize income primarily from the difference between the interest we earn on loans and investments and the interest we pay on deposits and borrowings. The interest
rates on our assets and liabilities respond differently to changes in market interest rates, which means our interest-bearing liabilities may be more sensitive to changes in market
interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates change, this “gap” between the amount of interest-earning assets and interest-
bearing liabilities that reprice in response to these interest rate changes may work against us, and our earnings may be negatively affected.
We are unable to predict fluctuations in market interest rates, which are affected by, among other factors, changes in the following:
•
•
•
•
inflation rates;
business activity levels;
money supply; and
domestic and foreign financial markets.
The value of our investment portfolio and the composition of our deposit base are influenced by prevailing market conditions and interest rates. Our asset-liability
management strategy, which is designed to mitigate the risk to us from changes in market interest rates, may not prevent changes in interest rates or securities market downturns
from reducing deposit outflow or from having a material adverse effect on our results of operations, our financial condition or the value of our investments.
Adverse events in New Jersey, where our business is concentrated, could adversely affect our results and future growth.
Our business, the location of our branches and the real estate collateralizing our real estate loans are concentrated in New Jersey. As a result, we are exposed to geographic
risks. The occurrence of an economic downturn in New Jersey, or adverse changes in laws or regulations in New Jersey, could impact the credit quality of our assets, the business
of our customers and our ability to expand our business.
Our success significantly depends upon the growth in population, income levels, deposits and housing in our market area. If the communities in which we operate do not
grow or if prevailing economic conditions locally or nationally are unfavorable, our business may be negatively affected. In addition, the economies of the communities in which
we operate are substantially dependent on the growth of the economy in the State of New Jersey. To the extent that economic conditions in New Jersey are unfavorable or do not
continue to grow as projected, the economy in our market area would be adversely affected. Moreover, we cannot give any assurance that we will benefit from any market growth
or favorable economic conditions in our market area if they do occur.
In addition, the market value of the real estate securing loans as collateral could be adversely affected by unfavorable changes in market and economic conditions. As of
December 31, 2012, approximately 93.5% of our total loans were secured by real estate. Adverse developments affecting commerce or real estate values in the local economies in
our primary market areas could increase the credit risk associated with our loan portfolio. In addition, substantially all of our loans are to individuals and businesses in New Jersey.
Our business customers may not have customer bases that are as diverse as businesses serving regional or national markets. Consequently, any decline in the economy of our
market area could have an adverse impact on our revenues and financial condition. In particular, we may experience increased loan delinquencies, which could result in a higher
provision for loan losses and increased charge-offs. Any sustained period of increased non-payment, delinquencies, foreclosures or losses caused by adverse market or economic
conditions in our market area could adversely affect the value of our assets, revenues, results of operations and financial condition.
We operate in a highly regulated environment and may be adversely affected by changes in federal, state and local laws and regulations.
We are subject to extensive regulation, supervision and examination by federal and state banking authorities. Any change in applicable regulations or federal, state or local
legislation could have a substantial impact on us and our operations. Additional legislation and regulations that could significantly affect our powers, authority and operations may
be enacted or adopted in the future, which could have a material adverse effect on our financial condition and results of operations. Further, regulators have significant discretion
and authority to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank holding companies in the performance of their supervisory and
enforcement duties. The exercise of regulatory authority may have a negative impact on our results of operations and financial condition.
Like other bank holding companies and financial institutions, we must comply with significant anti-money laundering and anti-terrorism laws. Under these laws, we are
required, among other things, to enforce a customer identification program and file currency transaction and suspicious activity reports with the federal government. Government
agencies have substantial discretion to impose significant monetary penalties on institutions which fail to comply with these laws or make required reports. Because we operate our
business in the highly urbanized greater Newark/New York City metropolitan area, we may be at greater risk of scrutiny by government regulators for compliance with these laws.
24
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Failure to achieve and maintain effective internal control over financial reporting in accordance with rules of the Securities and Exchange Commission promulgated
under Section 404 of the Sarbanes-Oxley Act could harm our business and operating results and/or result in a loss of investor confidence in our financial reports, which
could in turn have a material adverse effect on our business and stock price.
Under rules of the Securities and Exchange Commission promulgated under Section 404 of the Sarbanes-Oxley Act of 2002, we were required to furnish a report by our
management on our internal control over financial reporting in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. In the course of our assessment of
the effectiveness of our internal control over financial reporting as of December 31, 2011, which assessment was conducted during the fourth quarter of 2011 and the first quarter
of 2012 in connection with the preparation of 2011 audited consolidated financial statements and our Annual Report on Form 10-K, we identified a material weakness in our
internal control over financial reporting resulting from (i) a failure to document that monitoring controls were in place with respect to outside service organizations, and that (ii) we
failed to test the operating effectiveness of such controls as of December 31, 2011. The Company did test the operating effectiveness of its monitoring controls subsequent to
December 31, 2011 and found them to be effective. The material weakness in our internal control over financial reporting, as described in Item 9A, Controls and Procedures, of our
Annual Report on Form 10-K for the year ended December 31, 2011, as well as any other weaknesses or deficiencies that may exist or hereafter arise or be identified, could harm
our business and operating results, and could result in adverse publicity and a loss in investor confidence in the accuracy and completeness of our financial reports, which in turn
could have a material adverse effect on our stock price, and, if such weaknesses are not properly remediated, could adversely affect our ability to report our financial results on a
timely basis.
As a result of the foregoing our independent registered public accounting firm identified a material weakness in the Company’s internal controls and procedures citing the
Company’s failure to document monitoring controls over the use of outside service organizations and to test the operating effectiveness of such controls as of December 31, 2011.
The material weakness was considered in determining the nature, timing and extent of audit tests applied in the independent public accounting firm’s audit of our 2011
consolidated financial statements. Consequently, our independent registered public accounting firm concluded that the Company did not maintain effective internal control over
financial reporting as of December 31, 2011.
Although we believe that we have identified the material weakness, identified in Item 9A. Controls and Procedures, of this report, we cannot assure you that additional
deficiencies or weaknesses in our internal control over financial reporting will not be identified. In addition, we have as of the date of this filing revised our internal control over
financial reporting to ensure that the material deficiency noted above does not occur in the future.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
25
Table of Contents
ITEM 2. PROPERTIES
The Bank conducts its business through an executive office, one administrative office, and eleven branch offices. Six offices have drive-up facilities. The Bank has eleven
automatic teller machines at its branch facilities and two other off-site locations. The following table sets forth information relating to each of the Bank’s offices as of December
31, 2012. The total net book value of the Bank’s premises and equipment at December 31, 2012 was $13.6 million.
Location
Executive Office
104-110 Avenue C
Bayonne, New Jersey
Administrative Office
591-597 Avenue C
Bayonne, New Jersey
Branch Offices
860 Broadway
Bayonne, New Jersey
510 Broadway
Bayonne, New Jersey
401 Washington St.
Hoboken, New Jersey
987 Broadway
Bayonne, New Jersey
473 Spotswood Englishtown Rd
Monroe Township, New Jersey
611 Avenue C
Bayonne, New Jersey
181 Avenue A
Bayonne, New Jersey
211-A Washington Street
Jersey City, New Jersey
200 Valley Street
S. Orange, New Jersey
34 Main Street
Woodbridge, New Jersey
3499 Route 9 North Suite 2A
Freehold, New Jersey
Net book value of properties
Furnishings and equipment
Total premises and equipment
(1) Leased Property
(2) Includes off-site ATM’s
26
Year Office Opened Net Book Value
(In Thousands)
2003
$
2,743
2010
2000
2003
2010
2010
2010
2010
2010
2010
2011
2011
2012
2,628
814 (1)
269 (1)
76 (1)
706
194
2,797
62 (1)
52 (1)
1,517
227 (1)
40 (1)
12,125
1,443 (2)
13,568
$
Table of Contents
ITEM 3. LEGAL PROCEEDINGS
We are involved, from time to time, as plaintiff or defendant in various legal actions arising in the normal course of business. Other than as set forth below, as of
December 31, 2012, we were not involved in any material legal proceedings, the outcome of which, if determined in a manner adverse to the Company, would have a material
adverse affect on our financial condition or results of operations.
The Company is a named defendant in the lawsuit Kontos v. Robbins, et al., filed in the Superior Court of New Jersey on May 15, 2012. The lawsuit alleges that Mr.
Robbins, the former Chairman of the Board of Allegiance Community Bank and currently a director of the Company, and others defrauded Mr. Kontos with respect to his
investment in a real estate project and induced Mr. Kontos to borrow money from Allegiance Community Bank, also a named defendant. The lawsuit seeks an unspecified dollar
amount of damages, as well as equitable and other relief. Insurance coverage is currently in effect. The Company has filed its Answer to the lawsuit. The Company, after
preliminary review, believes the lawsuit is without merit and frivolous. The Company intends to vigorously defend its interests in this litigation.
The Company is the successor to Pamrapo Bancorp, Inc., a named defendant in the lawsuit Brian Campbell v. Pamrapo Bancorp, Inc., et al , filed in the Superior Court of
New Jersey in December 2010. The lawsuit alleges that Mr. Campbell sustained personal injuries in an automobile accident while on a work-related trip and should be
compensated for his injuries. Insurance coverage is currently in effect. The Company believes that the lawsuit is without merit and it intends to vigorously defend its interests.
The Company, as the successor to Pamrapo Bancorp, Inc., and in its own corporate capacity, is a named defendant in a shareholder derivative lawsuit, Kube, et al., v.
Pamrapo Bancorp, Inc., et al., filed in the Superior Court of New Jersey, Hudson County, Chancery Division, General Equity. On May 9, 2012, the Company obtained partial
summary judgment, dismissing three of the five Counts of the Complaint. On May 9, 2012, plaintiff’s counsel was awarded interim legal fees of approximately $350,000. The
Company’s obligation to pay that amount has been stayed. The Company’s motion for leave to file an interlocutory appeal of that award was denied by the Appellate Division of
the Superior Court of New Jersey. The Company is vigorously defending its interests in the litigation.
The Company is a named defendant in the lawsuit Armstrong v. BCB Bancorp, Inc., and Brian M. Campbell, which was filed in the Superior Court of New Jersey,
Atlantic County, Law Division, on September 27, 2011. The Company is a named defendant as the successor to Pamrapo Bancorp, Inc. The lawsuit accuses Brian Campbell, the
former Managing Director of Pamrapo Services Corporation, a wholly-owned subsidiary of Pamrapo Bancorp, Inc., of various violations of federal and state securities laws, fraud,
breach of fiduciary duty and negligence. Prime Capital, Inc., and other entities have been named as additional, potentially-responsible parties by the Company and/or the plaintiff.
The case has been transferred to FINRA arbitration. The arbitration is in its early stages. The plaintiff is seeking unspecified damages. Insurance coverage is currently in effect for
the Company. The Company intends to vigorously defend its interests in this litigation.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
27
Table of Contents
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
BCB Bancorp, Inc.’s common stock trades on the Nasdaq Global Market under the symbol “BCBP.” In order to list common stock on the Nasdaq Global Market, the
presence of at least three registered and active market makers is required and BCB Bancorp, Inc. has at least three market makers.
The following table sets forth the high and low closing prices for BCB Bancorp, Inc. common stock for the periods indicated. As of December 31, 2012, there were
8,496,508 shares of BCB Bancorp, Inc. common stock outstanding. At December 31, 2012, BCB Bancorp, Inc. had approximately 2,000 stockholders of record.
Fiscal 2012
Quarter Ended December 31, 2012
Quarter Ended September 30, 2012
Quarter Ended June 30, 2012
Quarter Ended March 31, 2012
Fiscal 2011
Quarter Ended December 31, 2011
Quarter Ended September 30, 2011
Quarter Ended June 30, 2011
Quarter Ended March 31, 2011
High
$
Low
10.74 $
10.80
10.99
10.60
10.65 $
11.68
11.45
12.00
Cash Dividend Declared
0.12
0.12
0.12
0.12
8.71 $
10.05
9.80
9.68
Cash Dividend Declared
0.12
0.12
0.12
0.12
8.55 $
8.75
10.21
9.90
High
$
Low
Please see “Item 1. Business—Bank Regulation—Dividends” for a discussion of restrictions on the ability of the Bank to pay the Company dividends.
Compensation Plans
Set forth below is information as of December 31, 2012 regarding equity compensation plans that have been approved by shareholders. The Company has no equity based
benefit plans that were not approved by shareholders.
Plan
Equity compensation plans approved by shareholders
Equity compensation plans not approved by shareholders
Total
_____________________________
Number of securities to be
issued upon exercise of
outstanding options and rights
Number of securities remaining
available for issuance under
plan
Weighted average
Exercise price(2)
11.97
—
11.97
274,296 (1) $
—
274,296
$
845,469
-0-
845,469
(1) Consists of options to purchase (i) 27,319 shares of common stock under the 2002 Stock Option Plan and (ii) 173,977 shares of common stock under the 2003 Stock Option
Plan and (iii) 19,000 shares of common stock under the 2003 Stock Option Plan from the former Pamrapo Bancorp, Inc., converted to options to purchase shares of common
stock of BCB Bancorp under the terms of the merger agreement and 54,000 under the 2011 Stock Option Plan.
(2) The weighted average exercise price reflects the exercise prices ranging from $9.34 to $15.65 per share for options granted under the 2003 Stock Option Plan and ranging
from $10.18 to $15.65 per share for options under the 2002 Stock Option Plan and ranging from $18.41 to $29.25 per share for options under the 2003 Stock Option Plan from
the former Pamrapo Bancorp, Inc., converted to options to purchase shares of common stock of BCB Bancorp under the terms of the merger agreement and at $8.93 per share
for options under the 2011 Stock Option Plan.
28
Table of Contents
Set forth hereunder is a stock performance graph comparing (a) the cumulative total return on the common stock for the period beginning with the closing sales price on
January 1, 2008 through December 31, 2012, (b) the cumulative total return on all publicly traded commercial bank stocks over such period, and (c) the cumulative total return of
Nasdaq Market Index over such period. Cumulative return assumes the reinvestment of dividends, and is expressed in dollars based on an assumed investment of $100.
BCB BANCORP, INC.
Index
BCB Bancorp, Inc.
NASDAQ Composite
SNL Bank
12/31/07
100.00
100.00
100.00
12/31/08
68.87
60.02
57.06
Period Ending
12/31/09
62.71
87.24
56.47
12/31/10
72.03
103.08
63.27
12/31/11
77.61
102.26
49.00
12/31/12
76.13
120.42
66.13
29
Table of Contents
On May 9, 2012, the Company announced a sixth stock repurchase plan to repurchase 5% or 462,800 shares of the Company’s common stock. On June 28, 2012, the
Company announced a seventh stock repurchase plan to repurchase 5% of 440,000 shares of the Company’s common stock. The Company’s stock purchases for three months
ended December 31, 2012 are as follows:
Period
October 1-31, 2012
November 1-30, 2012
December 1-31, 2012
Total
Total number of shares
purchased
Average price per
share paid
Total number of shares
purchased as part of a
publicly announced
program
Number of shares
remaining to be purchased
under program
24,276
23,371
—
47,647
10.52
9.99
—
10.34
24,276
47,647
—
47,647
223,968
200,597
—
200,597
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected consolidated historical financial and other data of BCB Bancorp, Inc. at and for the years ended December 31, 2012, 2011, 2010,
2009 and 2008. The information is derived in part from, and should be read together with, the audited Consolidated Financial Statements and Notes thereto of BCB Bancorp, Inc.
Per share data has been adjusted for all periods to reflect the common stock dividends paid by the Company.
2012
Selected financial condition data at December 31,
2010
2009
2011
2008
Total assets
Cash and cash equivalents
Securities, held to maturity
Loans receivable
Deposits
Borrowings
Stockholders’ equity
Net interest income
Provision for loan losses
Non-interest income (loss)
Non-interest expense
Income tax (benefit) expense
Net (loss) income
Net (loss) income per share:
Basic
Diluted
Dividends declared per share
(In Thousands)
$
1,171,358 $
35,133
164,648
922,301
940,786
131,124
91,581
1,216,908 $
117,087
206,965
840,763
977,623
129,531
100,048
1,106,888 $
121,127
165,572
773,101
886,288
114,124
98,974
631,503 $
67,347
132,644
401,872
463,738
114,124
51,391
578,624
6,761
141,280
406,826
410,503
116,124
49,715
Selected operating data for the year ended December 31,
2010
2009
2011
2012
(In thousands, except for per share amounts)
41,700 $
4,900
(7,225 )
33,889
(2,252 )
(2,062 ) $
(0.23 ) $
(0.23 ) $
0.48 $
39,582 $
4,100
2,448
28,506
3,373
6,051 $
0.64 $
0.64 $
0.48 $
26,432 $
2,450
14,207
22,358
1,505
14,326 $
2.06 $
2.05 $
0.48 $
19,384 $
1,550
931
12,396
2,621
3,748 $
0.81 $
0.80 $
0.48 $
$
$
$
$
$
30
2008
19,960
1,300
(2,054 )
11,314
1,820
3,472
0.75
0.74
0.41
Table of Contents
Selected Financial Ratios and Other Data:
Return (loss) on average assets (ratio of net income to average total assets)
Return (loss) on average stockholders’ equity (ratio of net income to average stockholders’ equity)
Non-interest income (loss) to average assets
Non-interest expense to average assets
Net interest rate spread during the period
Net interest margin (net interest income to average interest earning assets)
Ratio of average interest-earning assets to average interest-bearing liabilities
Cash dividend payout ratio
Asset Quality Ratios:
Non-performing loans to total loans at end of period
Allowance for loan losses to non-performing loans at end of period
Allowance for loan losses to total loans at end of period
Capital Ratios:
Stockholders’ equity to total assets at end of period
Average stockholders’ equity to average total assets
Tier 1 capital to average assets
Tier 1 capital to risk weighted assets
At or for the Years Ended December 31,
2012
2011
2010
2009
2008
(0.17 )%
(2.26 )
(0.61 )
2.86
3.44
3.60
115.23
(208.7 )
0.54 %
6.14
0.22
2.52
3.40
3.60
116.03
75.00
1.62 %
22.67
1.61
2.53
2.81
3.05
115.05
23.30
0.61 %
7.34
0.15
2.03
2.88
3.24
114.07
59.26
0.60 %
7.00
(0.36 )
1.97
3.09
3.54
115.05
54.67
2.45
54.00
1.32
7.82
7.72
8.38
12.78
5.61
21.97
1.23
5.35
20.13
1.08
2.92
55.68
1.62
0.90
142.27
1.28
8.22
8.73
8.66
15.34
8.94
7.14
9.16
14.95
8.14
8.35
8.68
13.11
8.59
8.61
9.22
13.38
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This discussion, and other written material, and statements management may make, may contain certain forward-looking statements regarding the Company’s prospective
performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, and is including this statement for purposes of said safe harbor provisions.
Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of
factors, which include, but are not limited to, factors discussed in the Company’s Annual Report on Form 10-K and in other documents filed by the Company with the Securities
and Exchange Commission. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are
generally identified by the use of the words “plan,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “may,” “will,” “should,” “could,” “predicts,” “forecasts,”
“potential,” or “continue” or similar terms or the negative of these terms. The Company’s ability to predict results or the actual effects of its plans or strategies is inherently
uncertain. Accordingly, actual results may differ materially from anticipated results.
Factors that could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in market interest rates,
general economic conditions, legislation, and regulation; changes in monetary and fiscal policies of the United States Government, including policies of the United States Treasury
and Federal Reserve Board; changes in the quality or composition of the loan or investment portfolios; changes in deposit flows, competition, and demand for financial services,
loans, deposits and investment products in the Company’s local markets; changes in accounting principles and guidelines; war or terrorist activities; and other economic,
competitive, governmental, regulatory, geopolitical and technological factors affecting the Company’s operations, pricing and services.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this discussion. Although the Company believes
that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements.
Except as required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur
after the date on which such statements were made.
31
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Critical Accounting Policies
Critical accounting policies are those accounting policies that can have a significant impact on the Company’s financial position and results of operations that require the
use of complex and subjective estimates based upon past experiences and management’s judgment. Because of the uncertainty inherent in such estimates, actual results may differ
from these estimates. Below are those policies applied in preparing the Company’s consolidated financial statements that management believes are the most dependent on the
application of estimates and assumptions. For additional accounting policies, see Note 2 of “Notes to Consolidated Financial Statements.”
Allowance for Loan Losses
Loans receivable are presented net of an allowance for loan losses. In determining the appropriate level of the allowance, management considers a combination of factors,
such as economic and industry trends, real estate market conditions, size and type of loans in portfolio, nature and value of collateral held, borrowers’ financial strength and credit
ratings, and prepayment and default history. The calculation of the appropriate allowance for loan losses requires a substantial amount of judgment regarding the impact of the
aforementioned factors, as well as other factors, on the ultimate realization of loans receivable. In addition, our determination of the amount of the allowance for loan losses is
subject to review by the New Jersey Department of Banking and Insurance and the FDIC, as part of their examination process. After a review of the information available, our
regulators might require the establishment of an additional allowance. Any increase in the loan loss allowance required by regulators would have a negative impact on our
earnings.
Other-than-Temporary Impairment of Securities
If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all securities with unrealized losses quarterly to
determine if such impairments are “temporary” or “other-than-temporary” in accordance with Accounting Standards Codification (“ASC”) Topic 320,
Investments – Debt and Equity Securities.
Accordingly, temporary impairments are accounted for based upon the classification of the related securities as either available for sale or held to maturity. Temporary
impairments on available for sale securities are recognized, on a tax-effected basis, through Other Comprehensive Income (“OCI”) with offsetting entries adjusting the carrying
value of the securities and the balance of deferred taxes. Conversely, the carrying values of held to maturity securities are not adjusted for temporary impairments. Information
concerning the amount and duration of temporary impairments on both available for sale and held to maturity securities is generally disclosed in the notes to the consolidated
financial statements.
Other-than-temporary impairments are accounted for based upon several considerations. First, other-than-temporary impairments on equity securities and on debt
securities that the Company has decided to sell as of the close of a fiscal period, or will, more likely than not, be required to sell prior to the full recovery of fair value to a level
equal to or exceeding amortized cost, are recognized in earnings. If neither of these conditions regarding the likelihood of the sale of debt securities are applicable, then the other-
than-temporary impairment is bifurcated into credit-related and noncredit-related components. A credit-related impairment represents the amount by which the present value of the
cash flows that are expected to be collected on a debt security fall below its amortized cost. The noncredit-related component represents the remaining portion of the impairment
not otherwise designated as credit-related. Credit-related other-than-temporary impairments are recognized in earnings and noncredit-related other-than-temporary impairments are
recognized in OCI. Equity securities on which there is an unrealized loss that is deemed other-than-temporary are written down to fair value with the write-down recognized in
earnings.
Deferred Income Taxes
The Company records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax
consequences of events that have been recognized in the consolidated financial statements or the consolidated and separate entity tax returns; (ii) are attributable to differences
between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates
expected to apply in the years when those temporary differences are expected to be recovered or settled.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will not be
realized. In making this assessment, management considers the profitability of current core operations, future market growth, forecasted earnings, future taxable income, and
ongoing, feasible and permissible tax planning strategies. Deferred tax assets have been reduced by a valuation allowance for all portions determined not likely to be realized. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment. The valuation allowance is adjusted, by a charge
or credit to income tax expense, as changes in facts and circumstances warrant.
Fair Value Measurements
Management uses its best judgment in estimating fair value measurements of the Company’s financial instruments; however, there are inherent weaknesses in any
estimation technique. Management utilized various inputs to determine fair value including but not limited to the use of, valuation techniques based on various assumptions,
including, but not limited to cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, quoted market prices, and appraisals. Therefore, for
substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the
dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these consolidated
financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be
different than the amounts reported at each year-end.
32
Table of Contents
Financial Condition
Comparison at December 31, 2012 and at December 31, 2011
Total assets decreased by $45.6 million or 3.7% to $1.171 billion at December 31, 2012 from $1.217 billion at December 31, 2011. The decrease in total assets occurred
primarily as a result of decreases in securities held to maturity of $42.3 million, loans held for sale of $4.3 million and cash and cash equivalents of $82.0 million which more than
offset the increases in loans receivable of $81.5 million and other assets of $5.2 million. Management is concentrating on controlled balance sheet growth and maintaining
adequate liquidity in anticipation of funding loans in the loan pipeline as well as seeking opportunities in the secondary market that provide reasonable returns. During the second
and third quarters, the Bank sold a portion of the non-performing loan portfolio which totaled approximately $25.9 million resulting in a pre-tax loss of $10.8 million. Management
continues to evaluate its non-performing loans, and based upon market conditions and the ability to obtain satisfactory pricing may consider future sales of a portion of its non-
performing loan portfolio. It is our intention to grow our assets at a measured pace consistent with our capital levels and as business opportunities permit.
Total cash and cash equivalents decreased by $82.0 million or 70.0% to $35.1 million at December 31, 2012 from $117.1 million at December 31, 2011. The decrease in
cash and cash equivalents resulted primarily from funding new loans and deposit outflow. Investment securities classified as held-to-maturity decreased by $42.3 million or 20.4%
to $164.6 million at December 31, 2012 from $207.0 million at December 31, 2011. This decrease in investment securities resulted primarily from purchases of $57.3 million
offset by allowable sales of $30.6 million of mortgage-backed securities from the held-to-maturity portfolio, $61.2 million of repayments and prepayments in the mortgage-backed
securities portfolio, $3.3 million in maturities of certain Government Sponsored Enterprise bonds and $3.0 million of call options exercised on certain callable agency securities
during the year ended December 31, 2012.
Loans receivable increased by $81.5 million or 9.7% to $922.3 million at December 31, 2012 from $840.8 million at December 31, 2011. The increase resulted primarily
from a $107.0 million increase in real estate mortgages comprising residential, commercial and multi-family, construction and participation loans with other financial institutions
partially offset by a $14.9 million decrease in commercial loans comprising business loans and commercial lines of credit, net of amortization, and a $8.4 million decrease in
consumer loans, net of amortization partially offset by a $1.9 million increase in the allowance for loan losses. The increase was partially off-set by the sale of certain commercial
loans obtained as part of the Allegiance Community Bank acquisition in April 2011 totaling approximately $10.8 million. The sale of the aforementioned in loans receivable
resulted in a gain on sale of loans of approximately $286,000. Further, during the year ended December 31, 2012, the Bank sold approximately $25.9 million of loans that were
classified as non-performing loans. The $25.9 million of non-performing loans sold included $9.1 million of residential mortgage loans, $14.6 million of commercial and multi-
family loans, $1.1 million of home equity loans, $781,000 of commercial business loans, and $313,000 of construction loans. The primary reason for this transaction was the
elimination of ongoing carrying costs associated with these non-interest earning assets. The sale of this sub-set of the non-performing loan portfolio resulted in a pre-tax loss of
approximately $10.8 million. As of December 31, 2012, the allowance for loan losses was $12.4 million or 54.0% of non-performing loans and 1.32% of gross loans. As a result of
the loans acquired in the business combination transactions being recorded at their fair value, the balance in the allowance for loan losses that were on the balance sheet of the
former Pamrapo Bancorp, Inc., and Allegiance Community Bank are precluded from being reported in the allowance balance previously discussed, consistent with generally
accepted accounting principles.
Deposit liabilities decreased by $36.8 million or 3.8% to $940.8 million at December 31, 2012 from $977.6 million at December 31, 2011. The decrease resulted primarily
from a $39.8 million decrease in certificate of deposits, a decrease of $8.7 million in savings and club deposits and a decrease of $3.8 million in money market interest bearing
deposits which more than offset a $7.4 million increase in non-interest bearing deposits and an increase of $8.2 million in NOW deposits. During the year ended December 31,
2012, the Federal Open Market Committee (FOMC) has continued its mindset of a continuing accommodative monetary policy. This has resulted in historically low short term
market rates that have further resulted in low time deposit account yields which in turn has had the effect of decreasing interest expense.
Long-term borrowed money decreased by $15.4 million or 11.9% to $114.1 million at December 31, 2012 from $129.5 million at December 31, 2011. The decrease in
borrowed money resulted primarily from the pre-payment of $15.4 million in Federal Home Loan Bank advances that were acquired in the business combination transaction with
Allegiance Community Bank. As a result, a pre-payment penalty of $49,000 was recognized as interest expense. Short-term borrowed money increased by $17.0 million to $17.0
million at December 31, 2012 compared to no corresponding amount at December 31, 2011. The purpose of the borrowings reflects the use of long term and short term Federal
Home Loan Bank advances to augment deposits as the Bank’s funding source for originating loans and investing in investment securities.
Stockholders’ equity decreased by $8.4 million or 8.4% to $91.6 million at December 31, 2012 from $100.0 million at December 31, 2011. The decrease in stockholders’
equity is primarily attributable to the repurchase of 1,046,726 shares of the Company’s common stock at a cost of $10.9 million, as well as the payment of cash dividends during
the year totaling $4.3 million, along with a net loss for the year ended December 31, 2012 of $2.1 million, partially offset by the issuance of $8.6 million of Series A 6%
noncumulative perpetual preferred stock in the fourth quarter of 2012 and an increase of $109,000 resulting from the exercise of stock options totaling 29,661 shares. As of
December 31, 2012, the Bank’s Tier 1, Tier 1 Risk-Based and Total Risk Based Capital Ratios were 8.38%, 12.78% and 14.03% respectively.
33
Table of Contents
Analysis of Net Interest Income
Net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income depends on
the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them, respectively.
The following tables set forth balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average
balances. The yields set forth below include the effect of deferred fees, discounts and premiums, which are included in interest income.
Interest-earning assets:
Loans receivable (1)
Investment securities(2)
Interest-earning deposits
Total interest-earning assets
Interest-earning liabilities:
Total interest-bearing
demand deposits
Money market deposits
Savings deposits
Certificates of deposit
Borrowings
Total interest-bearing liabilities
Net interest income
Interest rate spread(3)
Net interest margin(4)
Ratio of interest-earning assets to
interest-bearing liabilities
At December 31, 2012
Year ended December 31, 2012
Year ended December 31, 2011
Actual
Balance
Actual
Yield/
Cost
Average
Balance
Interest
earned/paid
Average
Yield/Cost
(5)
Average
Balance
Interest
earned/paid
Average
Yield/Cost
(5)
(Dollars in Thousands)
$ 934,664
173,586
28,891
1,137,141
5.10 % $ 864,561 $
3.33 204,417
0.39
88,798
4.71 % 1,157,776
47,756
5,779
112
53,647
5.52 % $ 804,026 $
2.83 217,444
0.13
78,814
4.63 % 1,100,284
45,023
7,769
87
52,879
5.60 %
3.57
0.11
4.81 %
$ 120,765
63,834
256,769
413,468
131,124
985,960
0.25 % $ 119,175 $
0.42
67,825
0.19 260,314
1.42 439,757
3.86 117,651
1.21 % 1,004,722
297
267
477
5,849
5,057
11,947
92,624 $
0.25 % $
0.39
51,553
0.18 257,065
1.33 429,375
4.30 117,642
1.19 % 948,259
500
349
1,020
6,421
5,007
13,297
$
41,700
$
39,582
3.50 %
3.66 %
3.44 %
3.60 %
115.33 %
115.23 %
116.03 %
0.54 %
0.68
0.40
1.50
4.26
1.41 %
3.40 %
3.60 %
___________________________
(1) Excludes allowance for loan losses.
(2) Includes Federal Home Loan Bank of New York stock.
(3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of average interest-earning assets.
(5) Average yields are computed using annualized interest income and expense for the periods.
34
Table of Contents
Analysis of Net Interest Income (Continued)
Interest-earning assets:
Loans receivable (1)
Investment securities(2)
Interest-earning deposits
Total interest-earning assets
Interest-earning liabilities:
Interest-bearing demand deposits
Money market deposits
Savings deposits
Certificates of deposit
Borrowings
Total interest-bearing liabilities
Net interest income
Interest rate spread(3)
Net interest margin(4)
Ratio of interest-earning assets to interest-bearing liabilities
$
$
Year ended December 31, 2010
(Dollars in Thousands)
605,269 $
153,006
107,369
865,644
34,502
5,481
117
40,100
65,169 $
45,195
179,020
348,229
114,778
752,391
553
385
1,304
6,220
5,206
13,668
$
26,432
115.05 %
5.70 %
3.58
0.11
4.63 %
0.85 %
0.85
0.73
1.77
4.54
1.82 %
2.81 %
3.05 %
___________________________
(1) Excludes allowance for loan losses.
(2) Includes Federal Home Loan Bank of New York stock.
(3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of average interest-earning assets.
(5) Average yields are computed using annualized interest income and expense for the periods.
35
Table of Contents
Rate/Volume Analysis
The table below sets forth certain information regarding changes in our interest income and interest expense for the periods indicated. For each category of interest-
earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in average volume (changes in average volume multiplied by old rate);
(ii) changes in rate (change in rate multiplied by old average volume); (iii) changes due to combined changes in rate and volume; and (iv) the net change.
Interest income:
Loans receivable
Investment securities
Interest-earning deposits
with other banks
Total interest-earning assets
Interest expense:
Interest-bearing demand accounts
Money market
Savings and club
Certificates of Deposits
Borrowed funds
Total interest-bearing liabilities
Change in net interest income
2012 vs. 2011
Increase (Decrease) Due to
2011 vs. 2010
Increase (Decrease) Due to
Years Ended December 31,
Volume Rate
Rate/Volume
Total
Increase
(Decrease) Volume Rate
Rate/Volume
Total
Increase
(Decrease)
(In thousands)
$
3,390 $
(465 )
(611 ) $
(1,622 )
(46 ) $
97
2,733 $ 11,330 $
2,308
(1,990 )
(609 ) $
(14 )
(200 ) $ 10,521
2,288
(6 )
11
2,936
12
(2,221 )
2
53
25
(31 )
768 13,607
1
(622 )
—
(206 )
(30 )
12,779
143
110
13
155
—
(269 )
(146 )
(549 )
(710 )
50
(77 )
(46 )
(7 )
(17 )
—
(203 )
(82 )
(543 )
(572 )
50
233
54
569
1,449
130
(201 )
(79 )
(594 )
(1,012 )
(321 )
(85 )
(11 )
(259 )
(236 )
(8 )
(53 )
(36 )
(284 )
201
(199 )
421
2,515 $
(1,624 )
(597 ) $
$
(147 )
200 $
(1,350 )
2,435
2,118 $ 11,172 $
(2,207 )
1,585 $
(599 )
(371 )
393 $ 13,150
36
Table of Contents
Results of Operations for the Years Ended December 31, 2012 and 2011
We experienced a net loss of $2.06 million for the year ended December 31, 2012 compared with net income of $6.05 million for the year ended December 31, 2011. The
net loss was due to a decrease in the non-interest income primarily associated with losses incurred from the sale of non-performing loans in 2012, and increases in the provision for
loans losses and in non-interest expense, partially offset by an increase in net interest income and a decrease in income taxes.
Net interest income increased by $2.12 million or 5.4% to $41.70 million for the year ended December 31, 2012 from $39.58 million for the year ended December 31,
2011. This increase in net interest income resulted primarily from an increase of $57.5 million or 5.3% in the average balance of interest earning assets to $1.16 billion for the year
ended December 31, 2012 from $1.10 billion for the year ended December 31, 2011, partially offset by a decrease in the average yield on interest earning assets to 4.63% for the
year ended December 31, 2012 from 4.81% for the year ended December 31, 2011. The average balance of interest bearing liabilities increased by $56.5 million or 6.0% to $1.01
billion for the year ended December 31, 2012 from $948.3 million for the year ended December 31, 2011, while the average cost of interest bearing liabilities decreased to 1.19%
for the year ended December 31, 2012 from 1.41% for the year ended December 31, 2011. As a consequence of the aforementioned, our net interest margin remained static at
3.60% for the years ended December 31, 2012 and December 31, 2011. The increase in the average balance of interest earning assets and the average balance of interest bearing
liabilities reflects the completion of the acquisition of Allegiance Community Bank.
Interest income on loans receivable increased by $2.73 million or 6.1% to $47.76 million for the year ended December 31, 2012 from $45.02 million for the year ended
December 31, 2011. The increase was primarily attributable to an increase in the average balance of loans receivable of $60.6 million or 7.5% to $864.6 million for the year ended
December 31, 2012 from $804.0 million for the year ended December 31, 2011, partially offset by a decrease in the average yield on loans receivable to 5.52% for the year ended
December 31, 2012 from 5.60% for the year ended December 31, 2011. The increase in the average balance of loans is primarily attributable to the completion of the acquisition of
Allegiance Community Bank. The decrease in average yield reflects the competitive price environment prevalent in the Bank’s primary market area on loan facilities as well as the
repricing downward of variable rate loans.
Interest income on securities decreased by $1.99 million or 25.6% to $5.78 million for the year ended December 31, 2012 from $7.77 million for the year ended
December 31, 2011. This decrease was due to a decrease in the average balance of securities held-to-maturity of $13.0 million or 6.0% to $204.4 million for the year ended
December 31, 2012 from $217.4 million for the year ended December 31, 2011, along with a decrease in the average yield of securities held-to-maturity to 2.83% for the year
ended December 31, 2012 from 3.57% for the year ended December 31, 2011. The decrease in the average yield reflects the low interest rate environment during the year ended
December 31, 2012.
Interest income on other interest-earning assets increased by $25,000 or 28.7% to $112,000 for the year ended December 31, 2012 from $87,000 for the year ended
December 31, 2011. This increase was primarily due to an increase of $10.0 million or 12.7% in the average balance of other interest-earning assets to $88.8 million for the year
ended December 31, 2012 from $78.8 million for the year ended December 31, 2011. The average yield on other interest-earning assets remained relatively static at 0.13% for the
year ended December 31, 2012 and 0.11% for the year ended December 31, 2011. The static nature of the average yield on other interest-earning assets reflects the current
philosophy by the FOMC of keeping short term interest rates at historically low levels for the last several years. The increased balance of other interest earning assets reflects
management’s decision to have higher liquid investments affording the Bank the latitude of capitalizing on advantageous market opportunities.
Total interest expense decreased by $1.35 million or 10.2% to $11.95 million for the year ended December 31, 2012 from $13.30 million for the year ended December 31,
2011. The decrease resulted primarily from a decrease in the average cost of interest-bearing liabilities of twenty-one basis points to 1.19% for the year ended December 31, 2012
from 1.40% for the year ended December 31, 2011, partially offset by an increase in the balance of average interest-bearing liabilities of $56.5 million or 5.9% to $1.01 billion for
the year ended December 31, 2012 from $948.3 million for the year ended December 31, 2011. The increase in the balance of average interest- bearing liabilities is primarily
attributable to the completion of the acquisition of Allegiance Community Bank. The decrease in the average cost reflects the lower short term interest rate environment and our
ability to reduce our pricing on a select number of retail deposit products.
The provision for loan losses totaled $4.9 million and $4.1 million for the years ended December 31, 2012 and 2011, respectively. The provision for loan losses is
established based upon management’s review of the Bank’s loans and consideration of a variety of factors including, but not limited to, (1) the risk characteristics of the loan
portfolio, (2) current economic conditions, (3) actual losses previously experienced, (4) the dynamic activity and fluctuating balance of loans receivable, and (5) the existing level
of reserves for loan losses that are probable and estimable. During the year ended December 31, 2012, the Bank experienced $3.05 million in net charge-offs (consisting of $3.08
million in charge-offs and $35,000 in recoveries). During the year ended December 31, 2011, the Bank experienced $2.01 million in net charge-offs (consisting of $2.03 million in
charge-offs and $25,000 in recoveries). The Bank had non-performing loans totaling $22.9 million or 2.45% of gross loans at December 31, 2012 and $47.8 million or 5.61% of
gross loans at December 31, 2011. The decrease in non-performing loans resulted primarily from the sales of approximately $25.9 million in non-performing loans during the
second quarter and third quarters of 2012. The primary reason for this transaction was the elimination of carrying and legacy costs associated with these non-interest earning assets.
These sales resulted in a pre-tax loss of approximately $10.8 million. The allowance for loan losses was $12.4 million or 1.32% of gross loans at December 31, 2012 as compared
to $10.5 million or 1.23% of gross loans at December 31, 2011. Despite the decrease in non-performing loans, the provision and allowance for loan losses increased in recognition
of the growth in the loan portfolio and due to uncertainty regarding the impact of Hurricane Sandy. 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 both December 31, 2012 and 2011.
Total non-interest income (loss) was a loss of ($7.23) million for the year ended December 31, 2012 compared with income of $2.45 million for the year ended December
31, 2011. The decrease in non-interest income resulted primarily from the aforementioned $10.8 million loss on sale of non-performing loans partially offset by an increase of
$333,000 or 37.5% in gain on sale of loans originated for sale to $1.22 million for the year ended December 31, 2012 from $887,000 for the year ended December 31, 2011. The
increase in gain on sale of loans originated for sale occurred primarily as a result of the active local market for refinancing one-four family residential mortgages, aided in large
part by the low interest rate environment. In addition, the Bank sold approximately $10.6 million of commercial business loans acquired in the Allegiance Community Bank
acquisition which resulted in a gain of approximately $286,000. Gain on sale of securities held to maturity increased by $331,000 or 1,838.9% to $349,000 for the year ended
December 31, 2012 from $18,000 for the year ended December 31, 2011. Fees and service charges and other non-interest income increased by $627,000 or 57.2% to $1.72 million
for the year ended December 31, 2012 primarily due to increases in deposit account service charges, loan application fees, and late charges from $1.10 million for the year ended
December 31, 2011.
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Table of Contents
Total non-interest expense increased by $5.38 million or 18.9% to $33.89 million for the year ended December 31, 2012 from $28.51 million for the year ended
December 31, 2011. Unless specified otherwise, the increase in the categories of non-interest expense occurred primarily as a result of the acquisition of Allegiance Community
Bank. Salaries and employee benefits expense increased by $2.34 million or 18.5% to $15.02 million for the year ended December 31, 2012 from $12.68 million for the year ended
December 31, 2011. Occupancy expense increased by $519,000 or 17.1% to $3.56 million for the year ended December 31, 2012 from $3.04 million for the year ended December
31, 2011. Equipment expense increased by $606,000 or 14.2% to $4.91 million for the year ended December 31, 2012 from $4.30 million for the year ended December 31, 2011.
The primary component of this expense item is data service provider expense which increases with the growth of the Bank’s assets. In addition, system conversion costs following
the acquisition of Allegiance Community Bank totaled approximately $250,000. Professional fees increased by $1.2 million or 93.5% to $2.49 million for the year ended
December 31, 2012 from $1.29 million for the year ended December 31, 2011. The increase is primarily due to several legacy lawsuits that arose as a result of the business
combination transaction with Pamrapo Bancorp, Inc. Director fees increased by $39,000 or 5.7% to $728,000 for the year ended December 31, 2012 from $689,000 for the year
ended December 31, 2011. Regulatory assessments decreased by $9,000 or 0.85% to $1.17 million for the year ended December 31, 2012 from $1.18 million for the year ended
December 31, 2011 primarily due to the new assessment base methodology pursuant to the Dodd-Frank Act which lowered the Bank’s insurance premiums. Advertising expense
increased by $85,000 or 21.3% to $484,000 for the year ended December 31, 2012 from $399,000 for the year ended December 31, 2011. Merger related expenses decreased by
$538,000, as we had no such expenses for the year ended December 31, 2012. Other real estate owned expenses increased by $732,000 or 60.8% to $1.94 million for the year
ended December 31, 2012 from $1.20 million for the year ended December 31, 2011. The increase was primarily due to an increase in write-downs of OREO properties of
$455,000 or 89.2% to $965,000 for the year ended December 31, 2012 compared to $510,000 for the year ended December 31, 2011, along with increases in losses on sales of
OREO properties by $183,000 or 36.5% to $681,000 for the year ended December 31, 2012 compared to $498,000 for the year ended December 31, 2011. Other non-interest
expense increased by $409,000 or 12.83% to $3.6 million for the year ended December 31, 2012 from $3.19 million for the year ended December 31, 2011. Other non-interest
expense is comprised of loan expense, stationary, forms and printing, check printing, correspondent bank fees, telephone and communication, and other fees and expenses. Also
included in other non-interest expense were settlements in the amount of $353,000 relating to several lawsuits that arose as a result of the business combination transaction with
Pamrapo Bancorp, Inc and during normal course of business.
We had an income tax benefit of $2.25 million for the year ended December 31, 2012 compared with a tax provision of $3.37 million for the year ended December 31,
2011. The tax benefit resulted from the pre-tax loss we experienced during the year ended December 31, 2012. The consolidated effective tax rate for the year ended December 31,
2012 was a tax benefit of 52.2% compared to tax provision of 35.8% for the year ended December 31, 2011.
38
Table of Contents
Results of Operations for the Years Ended December 31, 2011 and 2010
Net income decreased by $8.28 million or 57.8% to $6.05 million for the year ended December 31, 2011 from $14.33 million for the year ended December 31, 2010. The
decrease in net income resulted primarily from a decrease in non-interest income and increases in the provision for loan losses, non-interest expense and income taxes, partially
offset by an increase in net interest income.
Net interest income increased by $13.2 million or 50.0% to $39.6 million for the year ended December 31, 2011 from $26.4 million for the year ended December 31,
2010. The increase in net interest income resulted primarily from an increase in the average balance of interest earning assets of $234.4 million or 27.1% to $1.1 billion for the year
ended December 31, 2011 from $865.6 million for the year ended December 31, 2010, and an increase in the average yield on interest earning assets to 4.81% for the year ended
December 31, 2011 from 4.63% for the year ended December 31, 2010. The average balance of interest bearing liabilities increased by $195.9 million or 26.0 % to $948.3 million
at December 31, 2011 from $752.4 million at December 31, 2010 while the average cost of interest bearing liabilities decreased to 1.40% for the year ended December 31, 2011
from 1.82% for the year ended December 31, 2010. As a result of the aforementioned, our net interest margin increased to 3.60% for the year ended December 31, 2011 from
3.05% for the year ended December 31, 2010.
The decrease in non-interest income resulted primarily from a decrease in the gain on bargain purchase of $11.4 million or 90.5% to $1.2 million for the year ended
December 31, 2011 from $12.6 million for the year ended December 31, 2010. The gain on bargain purchase of $1.2 million recorded for the year ended December 31, 2011 was
associated with the completion of the acquisition of Allegiance Community Bank. The gain on bargain purchase of $12.6 million for the year ended December 31, 2010 was
associated with the completion of the acquisition of Pamrapo Bancorp, Inc. A bargain purchase is defined as a business combination in which the total acquisition-date fair value of
the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any non-controlling interest in the acquisition, and it requires the acquiror to
recognize that excess in earnings as a gain attributable to the acquisition.
Interest income on loans receivable increased by $10.5 million or 30.4% to $45.0 million for the year ended December 31, 2011 from $34.5 million for the year ended
December 31, 2010. The increase was primarily due to an increase in average loans receivable of $198.7 million or 32.8% to $804.0 million for the year ended December 31, 2011
from $605.3 million for the year ended December 31, 2010, partially offset by a decrease in the average yield on loans receivable to 5.60% for the year ended December 31, 2011
from 5.70% for the year ended December 31, 2010. The increase in the average balance of loans is primarily attributable to the effect of a full year of the balances of the Pamrapo
Bancorp, Inc. acquisition impacting our balance sheet and the completion of the acquisition of Allegiance Community Bank during 2011. The decrease in average yield reflects the
competitive price environment prevalent in the Bank’s primary market area on loan facilities as well as the repricing downward of variable rate loans, partially offset by the
inclusion of the loan portfolio from Allegiance Community Bank whose average yield was 6.42%.
Interest income on securities increased by $2.3 million or 41.8% to $7.8 million for the year ended December 31, 2011 from $5.5 million for the year ended December 31,
2010. The increase was primarily attributable to an increase in the average balance of securities of $64.4 million or 42.1% to $217.4 million for the year ended December 31, 2011
from $153.0 for the year ended December 31, 2010, partially offset by a slight decrease in the average yield on securities to 3.57% for the year ended December 31, 2011 from
3.58% for the year ended December 31, 2010. The relatively static yield reflects the persistent lower long term interest rate environment prevalent for investment securities over
the last several years. The increase in the average balance is primarily attributable to the effect of a full year of the balances of the Pamrapo Bancorp, Inc. acquisition impacting our
balance sheet and the completion of the acquisition of Allegiance Community Bank as well as the purchase of $95.5 million of investment securities during 2011, partially offset
by repayments, prepayments and call options exercised on investment securities of $85.1 million as well as $2.4 million in proceeds from the sale of certain investment securities.
Interest income on other interest-earning assets consisting primarily of interest earning demand deposits decreased by $30,000 or 25.6% to $87,000 for the year ended
December 31, 2011 from $117,000 for the year ended December 31, 2010. This decrease was primarily due to a decrease in the average balance of other interest earning assets of
$28.6 million or 26.6% to $78.8 million for the year ended December 31, 2011 from $107.4 million for the year ended December 31, 2010. The average yield on other interest-
earning assets remained stable at 0.11% for the years ended December 31, 2011 and December 31, 2010. As a result of the lower interest rate environment for overnight deposits
during the year ended December 31, 2011, a decrease in the average balance resulted, as management deployed funds into loans and investment securities in an effort to achieve
higher returns and funding an outflow of retail deposits. The static nature of the average yield on other interest earning assets reflects the current philosophy by the FOMC of
keeping short term interest rates at historically low levels for the last several years.
Total interest expense decreased by $371,000 or 2.7% to $13.3 million for the year ended December 31, 2011 from $13.7 million for the year ended December 31, 2010.
This decrease resulted primarily from a decrease in the average cost of interest bearing liabilities to 1.41% for the year ended December 31, 2011 from 1.82% for the year ended
December 31, 2010, partially offset by an increase in the average balance of total interest bearing liabilities of $195.9 million or 26.0% to $948.3 million for the year ended
December 31, 2011 from $752.4 million for the year ended December 31, 2010. The decrease in the average cost reflects the Company’s ability to reduce the pricing on a select
number of retail deposit products. The increase in the balance of average interest bearing liabilities is primarily attributable to the effect of a full year of the balances of the
Pamrapo Bancorp, Inc. acquisition impacting our balance sheet and the completion of the acquisition of Allegiance Community Bank.
The provision for loan losses totaled $4.1 million and $2.45 million for the years ended December 31, 2011 and 2010, respectively. The provision for loan losses is
established based upon management’s review of the Bank’s loans and consideration of a variety of factors including, but not limited to, (1) the risk characteristics of the loan
portfolio, (2) current economic conditions, (3) actual losses previously experienced, (4) the significant level of loan growth and (5) the existing level of reserves for loan losses that
are probable and estimable. During 2011, the Bank experienced $2.01 million in net charge-offs (consisting of $2.04 million in charge-offs and $30,000 in recoveries). During
2010, the Bank experienced $677,000 in net charge-offs (consisting of $689,000 in charge-offs and $12,000 in recoveries). The Bank had non-accrual loans totaling $47.8 million
at December 31, 2011 and $41.8 million at December 31, 2010. The allowance for loan losses stood at $10.5 million or 1.23% of gross total loans at December 31, 2011 as
compared to $8.4 million or 1.08% of gross total loans at December 31, 2010. 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 both December 31, 2011 and 2010.
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Table of Contents
Total non-interest income decreased by $11.76 million or 82.8% to $2.45 million for the year ended December 31, 2011 from $14.21 million for the year ended December
31, 2010. The decrease in non-interest income resulted primarily from a decrease in the gain on bargain purchase of $11.4 million or 90.5% to $1.2 million for the year ended
December 31, 2011 from $12.6 million for the year ended December 31, 2010. The gain on bargain purchase of $1.2 million recorded for the year ended December 31, 2011 was
associated with the completion of the acquisition of Allegiance Community Bank. The gain on bargain purchase of $12.6 million for the year ended December 31, 2010 was
associated with the completion of the acquisition of Pamrapo Bancorp, Inc. The decrease in non-interest income also reflects a $716,000 decrease in losses from write-downs and
the sales of fixed assets and property held for sale to a loss of $716,000 for the year ended December 31, 2011 from no such corresponding entries for the year ended December 31,
2010. This decrease occurred primarily as a result of the closing of one of our Hoboken offices and the realization of the full amortization of the remaining life of the fixed assets
remaining on our balance sheet at the time of closing which totaled $592,000. Additionally, the sale of a former branch site resulted in a loss on the sale of that property of
$124,000. Fees and service charges decreased by $61,000 or 6.7% to $846,000 for the year ended December 31, 2011 from $907,000 for the year ended December 31, 2010. Other
fees and service charges decreased by $172,000 or 40.7% to $251,000 for the year ended December 31, 2011 from $423,000 for the year ended December 31, 2010. This decrease
resulted primarily as a result of three items occurring in 2010 for a total of $345,500 where no such items occurred in 2011. Those items were as a result of a $237,500 litigation
settlement with the Bayonne Medical Center, a $50,000 recovery from a previous charge-off regarding a check kiting incident and a $67,000 recovery received through litigation
on a real estate facility where insurance proceeds were improperly retained by a third party. These decreases in non-interest income were partially offset by an increase in gain on
sale of loans originated for sale of $592,000 or 200.7% to $887,000 for the year ended December 31, 2011 from $295,000 for the year ended December 31, 2010. The increase in
gain on sale of loans originated for sale occurred primarily as a result of the active local market for refinancing one-to four-family residential mortgages aided in large part by the
low interest rate environment. Additionally, during 2011 the Bank engaged in the underwriting and sale of certain Small Business Administration, (SBA) loans. Fees generated
through this activity in 2011 totaled $479,000, as opposed to no such corresponding gain in 2010. Gain on sale of securities totaled $18,000 for the year ended December 31, 2011.
No such corresponding gain occurred for the year ended December 31, 2010.
Total non-interest expense increased by $6.15 million or 27.6% to $28.51 million for the year ended December 31, 2011 from $22.36 million for the year ended
December 31, 2010. Unless specified otherwise, the increase in the categories of non-interest expense occurred primarily as a result of the effect of a full year of the expenses of
the combined institution subsequent to the completion of the acquisition of Pamrapo Bancorp, Inc. and the completion of the acquisition of Allegiance Community Bank. Salaries
and employee benefits expense increased by $1.9 million or 17.6% to $12.7 million for the year ended December 31, 2011 from $10.8 million for the year ended December 31,
2010. This increase occurred primarily as a result of an increase in the number of full time equivalent employees to two hundred six (206) at December 31, 2011 from one hundred
sixty nine (169) at December 31, 2010 and from eighty-eight (88) at December 31, 2009. Equipment expense increased by $1.0 million or 30.3% to $4.3 million for the year ended
December 31, 2011 from $3.3 million for the year ended December 31, 2010. The primary component of this expense item is data service provider expense which increases as the
Bank’s assets increase. Occupancy expense increased by $1.1 million or 57.9% to $3.0 million for the year ended December 31, 2011 from $1.9 million for the year ended
December 31, 2010. Occupancy expense increased primarily as a result of the beginning of the amortization of significant renovations completed on certain offices that were
acquired as a result of the acquisition of Pamrapo Bancorp, Inc. Advertising expense increased by $63,000 or 18.8% to $399,000 for the year ended December 31, 2011 from
$336,000 for the year ended December 31, 2010. Professional fees increased by $507,000 or 65.0% to $1.3 million for the year ended December 31, 2011 from $780,000 for the
year ended December 31, 2010. The increase in professional fees resulted primarily from an increase in legal fees in conjunction with various representations of legal issues
encountered in the normal course of a growing franchise. Directors’ fees increased by $136,000 or 24.6% to $689,000 for the year ended December 31, 2011 from $553,000 for the
year ended December 31, 2010. The increase in directors’ fees resulted primarily from an increase in the number of board and committee meetings, facilitating directorial
awareness of the challenging operating, regulatory and compliance environment. Other real estate owned expenses increased by $859,000 or 249.0% to $1.2 million for the year
ended December 31, 2011 from $345,000 for the year ended December 31, 2010. The increase was primarily due to an increase in loss on sales of OREO properties of $153,000 or
41.4% to $498,000 for the year ended December 31, 2012 compared to $345,000 for the year ended December 31, 2010 along with an increase in write-downs of an OREO
property of $510,000 or 100% to $510,000 compared to no corresponding entry for December 31, 2010. Other non-interest expense increased by $702,000 or 28.24% to $3.2
million for the year ended December 31, 2011 from $2.5 million for the year ended December 31, 2010. The increase in other non-interest expense occurred primarily as a result of
an increase in loan expense and fees associated with the collection process on certain delinquent loan facilities. Additionally, other non-interest expense is comprised of stationary,
forms and printing, check printing, correspondent bank fees, telephone and communication, shareholder relations and other fees and expenses. The aforementioned increases in
non-interest expense were partially offset by a decrease in regulatory assessments of $23,000 or 1.9% to $1.18 million for the year ended December 31, 2011 from $1.20 million
for the year ended December 31, 2010. Merger related expenses decreased by $106,000 or 16.5% to $538,000 for the year ended December 31, 2011 from $644,000 for the year
ended December 31, 2010. The decrease in merger related expenses occurred primarily as a result of the acquisition of Allegiance Community Bank being completed over a
shorter time frame than the acquisition of Pamrapo Bancorp, Inc.
Income tax expense increased by $1.86 million or 123.2% to $3.37 million for the year ended December 31, 2011 from $1.51 million for the year ended December 31,
2010. Net income decreased during the year ended December 31, 2011 as compared to the year ended December 31, 2010, as the majority of income recorded for the year ended
December 31, 2010 was primarily attributable to the gain on bargain purchase related to the completion of the acquisition of Pamrapo Bancorp, Inc. which was considerably larger
than the gain associated with the Allegiance Community Bank in 2011. As the gains associated with these transactions are non-taxable, the income tax provision for the year ended
December 31, 2011 and December 31, 2010 was calculated exclusive of these gains. Conversely, a portion of the expenses associated with the consummation of the Pamrapo
Bancorp, Inc. and Allegiance Community Bank transactions categorized as merger related expenses are not deductible for income tax purposes. The consolidated effective income
tax rates for the years ended December 31, 2011 and 2010 were 35.8% and 9.5%, respectively.
Contractual Obligations and Commitments
The following table sets forth our contractual obligations and commercial commitments at December 31, 2012.
Contractual obligations
Benefit Plans
Borrowed money
Lease obligations
Certificates of deposit
Total
Total
Less than 1 Year 1-3 Years
More than 3-5
Years
More than 5
Years
Payments due by period
$
10,444 $
649 $
1,300 $
1,309 $
7,186
(In Thousands)
131,124
17,000
—
110,000
4,124
7,960
1,007
1,641
1,400
3,912
413,468
286,161
93,823
33,286
198
$
562,996 $
304,817 $
96,764 $
145,995 $
15,420
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Recent Accounting Pronouncements
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income, to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. The amendments in this ASU do not change the current
requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed
elsewhere in the financial statements under U.S. GAAP.
The new amendments will require an organization to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items
of net income of significant amounts reclassified out of accumulated other comprehensive income, but only if the item reclassified is required under U.S. GAAP to be reclassified
to net income in its entirety in the same reporting period. The new amendments will also require an organization to present cross-references to other disclosures currently required
under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period.
This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g. pension-
related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these
amendments for all reporting periods (interim and annual). Nonpublic companies are required to meet the reporting requirements of the amended paragraphs about the roll forward
of accumulated other comprehensive income for both interim and annual reporting periods. However, private companies are only required to provide the information about the
impact of reclassifications on line items of net income for annual reporting periods, not for interim reporting periods.
The amendments of ASU 2013-02 are effective for reporting periods beginning after December 15, 2012, for public companies and are effective for reporting periods
beginning after December 15, 2013, for nonpublic companies. The Company does not believe this pronouncement, when adopted, will have a material impact on operations or
financial position.
In December 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for
Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This standard
indefinitely defers certain provisions of ASU 2011-05 (described below). The amendments are effective for fiscal years, and interim periods within those years, beginning after
December 15, 2011. The adoption of this guidance did not result in a change in financial condition or operations, but did result in the presentation of comprehensive income in a
separate Statements of Comprehensive Income (Loss) in the Company’s consolidated financial statements.
In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income. The ASU eliminates the option to present components of other
comprehensive income as part of the statement of changes in stockholders’ equity and will require it be presented either in a single continuous statement of comprehensive income
or in two separate but consecutive statements. The single statement format would include the traditional income statement and the components of total other comprehensive
income as well as total comprehensive income. In the two statement approach, the first statement would be the traditional income statement which would be immediately followed
by a separate statement which includes the components of other comprehensive income, total other comprehensive income and total comprehensive income. The amendments in
this ASU will be applied retrospectively. For public companies, they are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.
Early adoption is permitted. Adoption of ASU 2011-05 did not have a significant impact on the Company’s consolidated financial statements.
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs. The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and International
Financial Reporting Standards (IFRS). Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and
for disclosing information about fair value measurements. Some of the amendments in this update clarify the FASB’s intent about the application of existing fair value
measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value
measurements. This update is effective during interim and annual periods beginning on or after December 15, 2011 and is to be applied prospectively and early adoption is not
permitted. Adoption of ASU 2011-04 did not have a significant impact on the Company’s consolidated financial statements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management of Market Risk
Qualitative Analysis. 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.
Quantitative Analysis. 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, 2012. 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 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 Company’s estimated value of assets and estimated value of liabilities assuming no change in interest rates. The NPV for a decrease of 200 to 300 basis points has been
excluded since it would not be meaningful in the interest rate environment as of December 31, 2012. The following sets forth the Company’s NPV as of December 31, 2012.
Change in calculation
Net Portfolio Value $ Change from PAR % Change from PAR
NPV Ratio
Change
NPV as a % of Assets
$
+300bp
+200bp
+100bp
PAR
-100bp
100,075 $
121,760
135,347
141,489
147,570
(41,414 ) $
(19,729 )
(6,142 )
—
6,081
(29.27 )%
(13.94 )
(4.34 )
—
4.30
8.81 %
10.40
11.26
11.51
11.82
(270 ) bps
(111 ) bps
(25 ) bps
— bps
31 bps
_________
bp-basis points
The table above indicates that at December 31, 2012, in the event of a 100 basis point increase in interest rates, we would experience a 4.34% 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-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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements identified in Item 15(a)(1) hereof are included as Exhibit 13 and are incorporated hereunder.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The required disclosure is incorporated by reference to the BCB Bancorp, Inc. Proxy Statement for the 2013 Annual Meeting of Stockholders.
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ITEM 9A. (T) CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2012 (the “Evaluation
Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were
effective in timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic SEC filings.
(b) Management’s Annual Report on Internal Control over Financial Reporting.
Management of BCB Bancorp, Inc., and subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting.
The Company’s system of internal control is designed under the supervision of management, including our Chief Executive Officer and Chief Financial Officer, to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of consolidated financial statements
in accordance with GAAP, and that receipts and expenditures are made only in accordance with the authorization of management and the Board of Directors; and provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on our
consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections on any
evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with
policies and procedures may deteriorate.
As of December 31, 2012, management assessed the effectiveness of the Company’s internal control over financial reporting based upon the framework established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon its assessment, management
believes that the Company’s internal control over financial reporting as of December 31, 2012 is effective using these criteria.
(c) Changes in Internal Controls over Financial Reporting.
There were no significant changes made in our internal controls during the fourth quarter of 2012 or, to our knowledge, in other factors that has materially affected or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
See the Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
ITEM 9B. OTHER INFORMATION
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The Company has adopted a Code of Ethics that applies to the Company’s chief executive officer, chief financial officer or, controller or persons performing similar
functions. The Code of Ethics is available for free by writing to: President and Chief Executive Officer, BCB Bancorp, Inc., 104-110 Avenue C, Bayonne, New Jersey 07002. The
Code of Ethics was filed as an exhibit to the Form 10-K for the year ended December 31, 2004.
The “Proposal I—Election of Directors” section of the Company’s definitive Proxy Statement for the Company’s 2013 Annual Meeting of Stockholders (the “2013 Proxy
Statement”) is incorporated herein by reference in response to the disclosure requirements of Items 401, 405, 406, 407(d)(4) and 407(d)(5) of Regulation S-K.
The information concerning directors and executive officers of the Company under the caption “Proposal I-Election of Directors” and information under the captions
“Section 16(a) Beneficial Ownership Compliance” and “The Audit Committee” of the 2013 Proxy Statement is incorporated herein by reference.
There have been no changes during the last year in the procedures by which security holders may recommend nominees to the Company’s board of directors.
ITEM 11. EXECUTIVE COMPENSATION
The “Executive Compensation” section of the Company’s 2013 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The “Proposal I—Election of Directors” section of the Company’s 2013 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The “Transactions with Certain Related Persons” section and “Proposal I-Election of Directors—Board Independence” of the Company’s 2013 Proxy Statement is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by Item 14 is incorporated by reference to the Company’s Proxy Statement for the 2013 Annual Meeting of Stockholders, “Proposal II-Ratification
of the Appointment of Independent Auditors—Fees Paid to ParenteBeard LLC.”
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The exhibits and financial statement schedules filed as a part of this Form 10-K are as follows:
(A)
Report of Independent Registered Public Accounting Firm
PART IV
(B)
(C)
Consolidated Statements of Financial Condition as of December 31, 2012 and 2011
Consolidated Statements of Operations for each of the Years in the Three-Year period ended December 31, 2012
(D)
Consolidated Statements of Comprehensive Income (Loss) for each of the Years in the Three-Year period ended December 31, 2012
(E)
(F)
Consolidated Statements of Changes in Stockholders’ Equity for each of the Years in the Three-Year period ended December 31, 2012
Consolidated Statements of Cash Flows for each of the Years in the Three-Year period ended December 31, 2012
(G)
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated statements or the notes thereto.
(b)
Exhibits
44
Table of Contents
3.1
3.2
3.3
Certificate of Incorporation of BCB Bancorp, Inc. (1)
Bylaws of BCB Bancorp, Inc. (2)
Specimen Stock Certificate (3)
10.1
BCB Community Bank 2002 Stock Option Plan (4)
10.2
BCB Community Bank 2003 Stock Option Plan (5)
10.3
Amendment to 2002 and 2003 Stock Option Plans (6)
10.4
2005 Director Deferred Compensation Plan (7)
10.5
Employment Agreement with Donald Mindiak (8)
10.6
Employment Agreement with Thomas M. Coughlin (9)
10.7
Employment Agreement with Kenneth Walter (10)
10.8
Executive Agreement with Donald Mindiak (11)
10.9
Executive Agreement with Thomas M. Coughlin (12)
10.10 Executive Agreement with Kenneth Walter (13)
10.11 Consulting Agreement with Dr. August Pellegrini, Jr. (14)
10.12 Consulting Agreement with James E. Collins (15)
10.13 BCB Bancorp, Inc. 2011 Stock Option Plan (16)
10.14 Employment Agreement with Amer Saleem
10.15 Executive Agreement with Amer Saleem
13
14
21
23
Consolidated Financial Statements
Code of Ethics (17)
Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)
(2)
(3)
(4)
Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended, (Commission File Number 333-128214) originally filed with
the Securities and Exchange Commission on September 9, 2005.
Incorporated by reference to Exhibit 3 to the Form 8-K filed with the Securities and Exchange Commission on October 12, 2007.
Incorporated by reference to Exhibit 4 to the Form 8-K-12g3 filed with the Securities and Exchange Commission on May 1, 2003.
Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on January 26, 2004.
45
Table of Contents
(5)
(6)
(7)
(8)
(9)
Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on January 26, 2004.
Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2006.
Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1, as amended, (Commission File Number 333-128214) originally filed
with the Securities and Exchange Commission on September 9, 2005.
Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the Securities and Exchange Commission on July 30, 2012.
Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the Securities and Exchange Commission on July 30, 2012.
(10)
Incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the Securities and Exchange Commission on July 8, 2010.
(11)
Incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the Securities and Exchange Commission on December 15, 2008.
(12)
Incorporated by reference to Exhibit 10.5 to the Form 8-K filed with the Securities and Exchange Commission on December 15, 2008.
(13)
Incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the Securities and Exchange Commission on July 8, 2010.
(14)
Incorporated by reference to Exhibit 10.7 to the Form 8-K filed with the Securities and Exchange Commission on July 8, 2010.
(15)
Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the Securities and Exchange Commission on September 1, 2010.
(16)
Incorporated by reference to Appendix A to the proxy statement for the Company’s Annual Meeting of Shareholders (File No. 000-50275), filed by the Company with the
Securities and Exchange Commission on Schedule 14A on March 28, 2011.
(17)
Incorporated by reference to Exhibit 14 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 2004.
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Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 18, 2013
BCB BANCORP, INC.
By:
Donald Mindiak
Donald Mindiak
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signatures
/s/ Donald Mindiak
Donald Mindiak
/s/ Kenneth D. Walter
Kenneth D. Walter
/s/ Mark D. Hogan
Mark D. Hogan
/s/ Robert Ballance
Robert Ballance
/s/ Judith Q. Bielan
Judith Q. Bielan
/s/ Joseph J. Brogan
Joseph J. Brogan
/s/ James. E. Collins
James. E. Collins
/s/ Thomas Coughlin
Thomas Coughlin
/s/ Robert A. Hughes
Robert A. Hughes
/s/ Joseph Lyga
Joseph Lyga
/s/ Alexander Pasiechnik
Alexander Pasiechnik
/s/ Spencer B. Robbins
Spencer B. Robbins
/s/ Gary S. Stetz
Gary S. Stetz
Title
Date
President, Chief Executive Officer, and Director
March 18, 2013
Chief Financial Officer and Director
March 18, 2013
Chairman of the Board
March 18, 2013
Director
Director
Director
Director
March 18, 2013
March 18, 2013
March 18, 2013
March 18, 2013
Chief Operating Officer and Director
March 18, 2013
Director
Director
Director
Director
Director
47
March 18, 2013
March 18, 2013
March 18, 2013
March 18, 2013
March 18, 2013
EXHIBIT 13
CONSOLIDATED FINANCIAL STATEMENTS
BCB Bancorp, Inc. and Subsidiaries
Consolidated Financial Report
December 31, 2012
Table of Contents
Reports of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Consolidated Statements of Financial Condition
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
1
2
3
4
5
7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
BCB Bancorp, Inc.
Bayonne, New Jersey
We have audited the accompanying consolidated statements of financial condition of BCB Bancorp, Inc. and Subsidiaries (collectively the “Company”) as of December
31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BCB Bancorp, Inc. and
Subsidiaries as of December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December
31, 2012, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over
financial reporting as of December 31, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated March 18, 2013, expressed an unqualified opinion thereon.
/s/ Parente Beard LLC
Clark, New Jersey
March 18, 2013
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
BCB Bancorp, Inc.
Bayonne, New Jersey
We have audited BCB Bancorp, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). BCB Bancorp, Inc.’s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Report on Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition and
the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows of the Company, and our report dated March 18,
2013 expressed an unqualified opinion.
/s/ Parente Beard LLC
ParenteBeard LLC
Clark, New Jersey
March 18, 2013
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
ASSETS
Cash and amounts due from depository institutions
Interest-earning deposits
Total cash and cash equivalents
Securities available for sale
Securities held to maturity, fair value $171,603 and $213,903;
respectively
Loans held for sale
Loans receivable, net of allowance for loan losses of $12,363 and
$10,509; respectively
Premises and equipment
Federal Home Loan Bank of New York stock
Interest receivable
Other real estate owned
Deferred income taxes
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Non-interest bearing deposits
Interest bearing deposits
Total deposits
Short-term Debt
Long-term Debt
Other Liabilities
Total Liabilities
STOCKHOLDERS' EQUITY
Preferred stock: $0.01 per value, 10,000,000 shares authorized,
issued and outstanding 865 shares of series A 6% noncumulative perpetual
preferred stock (liquidation preference value $10,000 per share) at December 31, 2012
and none at December 31, 2011
Additional paid-in capital preferred stock
Common stock; $0.064 stated value; 20,000,000 shares authorized,
10,841,079 and 10,817,901 shares, respectively, issued;
8,496,508 shares and 9,520,056 shares, respectively outstanding
Additional paid-in capital common stock
Treasury stock, at cost, 2,344,571 and 1,297,845 shares, respectively
Retained earnings
Accumulated other comprehensive loss, net of taxes
Total Stockholders' Equity
December 31,
2012
2011
(In Thousands, Except For Per Share Data)
$
$
$
$
6,242
28,891
35,133
1,240
164,648
1,602
922,301
13,568
7,698
4,063
3,274
10,053
7,778
1,171,358
85,950
854,836
940,786
17,000
114,124
7,867
1,079,777
$
$
—
8,570
694
91,846
(27,177 )
18,883
(1,235 )
91,581
8,692
108,395
117,087
1,045
206,965
5,856
840,763
13,576
7,498
4,997
6,570
9,940
2,611
1,216,908
78,589
899,034
977,623
—
129,531
9,706
1,116,860
—
—
692
91,715
(16,327 )
25,255
(1,287 )
100,048
Total Liabilities and Stockholders' Equity
$
1,171,358
$
1,216,908
See accompanying notes to consolidated financial statements.
1
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations
Interest income:
Loans
Investments, taxable
Investments, non-taxable
Other interest-earning assets
Total interest income
Interest expense:
Deposits:
Demand
Savings and club
Certificates of deposit
Borrowed money
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income (loss):
Fees and service charges
Gain on sales of loans originated for sale
Gain on sale of SBA loans acquired
Loss on bulk sale of impaired loans held in portfolio
Loss on sale of property held for sale
Loss on write-down of fixed assets
Gain on sale of securities held to maturity
Gain on bargain purchase
Other
Total non-interest (loss) income
Non-interest expense:
Salaries and employee benefits
Occupancy expense of premises
Equipment
Professional fees
Director fees
Regulatory assessments
Advertising
Merger related expenses
Other real estate owned
Other
Total non-interest expense
Income (loss) before income tax (benefit) provision
Income tax (benefit) provision
Net Income (loss)
Preferred stock dividends
Net Income (loss) available to common stockholders
Net Income (loss) per common share-basic and diluted
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
See accompanying notes to consolidated financial statements.
2
Years Ended December 31,
2011
(In Thousands, Except for Per Share Data)
2010
2012
$
47,756 $
5,730
49
112
53,647
45,023 $
7,720
49
87
52,879
564
477
5,849
6,890
5,057
11,947
849
1,020
6,421
8,290
5,007
13,297
41,700
4,900
39,582
4,100
34,502
5,457
24
117
40,100
938
1,304
6,220
8,462
5,206
13,668
26,432
2,450
36,800
35,482
23,982
1,595
1,220
286
(10,804 )
—
—
349
—
129
(7,225 )
15,017
3,558
4,907
2,490
728
1,172
484
—
1,936
3,597
33,889
(4,314 )
(2,252 )
(2,062 ) $
—
(2,062 ) $
846
887
—
—
(124 )
(592 )
18
1,162
251
2,448
12,680
3,039
4,301
1,287
689
1,181
399
538
1,204
3,188
28,506
9,424
3,373
6,051 $
—
6,051 $
907
295
—
—
—
12,582
423
14,207
10,785
1,932
3,293
780
553
1,204
336
644
345
2,486
22,358
15,831
1,505
14,326
—
14,326
(0.23 ) $
(0.23 ) $
0.64 $
0.64 $
2.06
2.05
8,943
8,943
9,417
9,433
6,968
6,983
$
$
$
$
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
Net Income (Loss)
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale arising during the period
Unrealized holding (losses) gains arising during the period
Less: reclassification adjustment for (gains) losses included in net income (loss)
Benefit plans
Income tax effect
Comprehensive income (loss)
See accompanying notes to consolidated financial statements.
3
2012
Years Ended December 31,
2011
(In Thousands)
2010
$
(2,062 ) $
6,051 $
14,326
195
—
(107 )
88
(36 )
52
(2,010 ) $
(52 )
—
(2,129 )
(2,181 )
889
(1,292 )
4,759 $
(21 )
—
7
(14 )
6
(8 )
14,318
$
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
Preferred Stock Common Stock Paid In Capital Stock
Earnings Income (Loss) Total
(Dollars in Thousands, except per share amounts)
Treasury Retained Comprehensive
Accumulated
Other
Balance at December 31, 2009
$
— $
332 $
46,926 $ (8,719 ) $ 12,839
13 51,391
Common Stock issued for the acquisition of Pamrapo Bancorp, Inc.
(4,935,495 shares, including 30,000 shares transferred to treasury)
Exercise of Stock Options (13,677 shares)
Treasury Stock Purchases (193,383 shares)
Cash dividend ($0.48 per share) declared
Net income
Other comprehensive loss
—
—
—
—
—
316
1
—
—
—
38,329
72
—
—
—
—
(235 )
—
—
—
(1,806 )
(3,412 )
—
— 14,326
— 38,410
73
— (1,806 )
— (3,412 )
— 14,326
(8 )
(8 )
Balance at December 31, 2010
—
649
85,327 (10,760 ) 23,753
5 98,974
Common stock issued for the acquisition of Allegiance Community Bank
(issued 644,434 shares)
Exercise of Stock Options (28,637 shares)
Stock compensation expense
Tax benefit on stock compensation
Treasury Stock Purchases (536,710 shares)
Cash dividends ($0.48 per share) declared
Net income
Other comprehensive loss
—
—
—
—
—
—
—
41
2
—
—
—
—
—
6,126
235
12
15
—
—
—
—
—
—
—
(5,567 )
—
—
—
—
—
—
—
(4,549 )
6,051
— 6,167
237
—
12
—
—
15
— (5,567 )
— (4,549 )
— 6,051
(1,292 ) (1,292 )
Balance at December 31, 2011
—
692
91,715 (16,327 ) 25,255
(1,287 ) 100,048
Proceeds from issuance of series A stock,
net of issuance costs of $80
Exercise of Stock Options (29,661 shares)
Stock compensation expense
Treasury Stock Purchases (1,046,726 shares)
Cash dividends ($0.48 per share) declared
Net Loss
Other comprehensive income
—
—
—
—
—
—
2
—
—
—
—
—
8,570
—
107
24
—
— (10,850 )
—
—
—
—
—
—
—
—
—
(4,310 )
(2,062 )
—
8,570
109
—
—
24
— (10,850 )
— (4,310 )
— (2,062 )
52
52
Balance at December 31, 2012
$
— $
694 $
100,416 $ (27,177 ) $ 18,883 $
(1,235 ) $ 91,581
See accompanying notes to consolidated financial statements.
4
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Cash flows from Operating Activities :
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation of premises and equipment
Amortization and accretion, net
Provision for loan losses
Deferred income tax benefit
Loans originated for sale
Proceeds from sale of loans originated for sale
Gain on sales of loans originated for sale
Loss on sales of other real estated owned
Loss on donated other real estate owned property
Loss on sale of property held for investment
Loss on leasehold improvements on branch closing
Write down of other real estate owned
Gain on bargain purchase
Gain on sales of securities held to maturity
Gain on sales of SBA loans acquired
Loss on bulk sale of impaired loans held in portfolio
Stock compensation expense
Decrease in interest receivable
(Increase) decrease in other assets
(Decrease) increase in accrued interest payable
(Decrease) in other liabilities
Net Cash Provided by (Used In) Operating Activities
Cash flows from Investing Activities:
Proceeds from repayments, calls, and maturities on securities held to maturity
Purchases of securities held to maturity
Proceeds from sales of securities held to maturity
Proceeds from sales of SBA loans acquired
Proceeds from sales of participation interests in loans
Proceeds from sales of other real estate owned
Proceeds from bulk sale of impaired loans held in portfolio
Proceeds from sale of property held for investment
Purchases of loans
Net (increase) decrease in loans receivable
Improvements to other real estate owned
Additions to premises and equipment
Purchase of Federal Home Loan Bank of New York stock
Redemption of Federal Home Loan Bank of New York stock
Cash acquired in acquisition
2012
Years Ended December 31,
2011
(In Thousands)
2010
$
(2,062 ) $
6,051 $
14,326
1,143
1,453
4,900
(149 )
(30,137 )
32,724
(1,220 )
681
128
—
—
965
—
(349 )
(286 )
10,804
24
934
(5,167 )
(24 )
(1,922 )
12,440
67,489
(57,331 )
30,584
10,836
—
4,223
15,093
—
(31,064 )
(91,105 )
(59 )
(1,135 )
(833 )
633
—
1,055
1,306
4,100
(1,845 )
(31,950 )
30,884
(887 )
498
—
124
592
510
(1,162 )
(18 )
—
—
12
649
5,227
26
(937 )
14,235
85,089
(95,537 )
2,438
—
4,777
2,722
—
511
(2,292 )
10,325
(113 )
(2,246 )
—
44
5,901
642
1,877
2,450
(341 )
(26,142 )
19,433
(295 )
345
—
—
—
—
(12,582 )
—
—
—
—
501
(1,207 )
(239 )
(1,159 )
(2,391 )
156,757
(104,997 )
—
—
1,708
1,260
—
—
—
39,551
(32 )
(704 )
—
1,869
22,979
Net Cash (Used In) Provided by Investing Activities
(52,669 )
11,619
118,391
Cash flows from Financing Activities:
Net decrease in deposits
Repayment of long-term debt
Net change in short term debt
Purchase of treasury stock
Cash dividends paid
Net proceeds from issuance of common stock
Net proceeds from issuance of preferred stock
Tax benefit from exercise of stock options
Net Cash (Used In) Financing Activities
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents-Begininng
Cash and Cash Equivalents-Ending
5
(36,837 )
(15,407 )
17,000
(10,850 )
(4,310 )
109
8,570
—
(20,030 )
—
—
(5,567 )
(4,549 )
237
—
15
(13,260 )
(43,815 )
—
(1,806 )
(3,412 )
73
—
—
(41,725 )
(29,894 )
(62,220 )
(81,954 )
(4,040 )
53,780
117,087
35,133 $
121,127
117,087 $
67,347
121,127
$
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Supplementary Cash Flow Information
Cash paid during the year for:
Income taxes
Interest
Non-cash items:
Transfer of loans to other real estate owned
Loans to facilitate sales of other real estate owned
Reclassification of loans originated for sale to held to maturity
Reclassification of property held for sale to real estate owned
Acquisition of noncash assets and liabilities
Assets acquired
Liabilities assumed
6
$
$
$
$
$
$
$
$
3,979 $
11,971 $
4,549 $
13,271 $
2,252
13,907
4,463 $
1,821 $
2,887 $
— $
7,145 $
942 $
1,669 $
382 $
6,887
3,771
5,707
—
— $
— $
129,235 $
127,807 $
514,523
486,275
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Organization and Stock Offerings
BCB Bancorp, Inc. (the “Company”) is incorporated in the State of New Jersey and is a bank holding company. The common stock of the Company is listed on the Nasdaq
Electronic Bulletin Board and trades under the symbol “BCBP.”
On December 20, 2012, the Company amended its Restated Certificate of Incorporation to include a new Article V, Part (C) which establishes a Series A 6% Noncumulative
Perpetual Preferred Stock and sets forth the number of shares to be included in such series, and to fix the designation, powers, preferences, and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. Such amendment to the Restated Certificate of Incorporation was approved by the directors of BCB Bancorp, Inc.
on October 10, 2012.
On December 31, 2012, the Company closed a private placement of Series A Noncumulative Perpetual Preferred Stock, resulting in the issuance of 865 shares of Series A 6%
Non-Cumulative Perpetual Preferred Shares for gross proceeds of $8.65 million. The costs associated with the private placement were approximately $80,000. The shares issued
are callable by the Company after December 31, 2015, at $10,000 per share (liquidation preference value). There is no ability to convert the preferred shares to common shares.
Dividends on the preferred shares, if and when declared, will be paid quarterly in arrears.
On November 20, 2007, the Company announced a stock repurchase plan which provided for the repurchase of 5% or 234,002 shares of the Company’s common stock. This plan
was completed during 2010. On July 14, 2010, the Company announced a stock repurchase plan to repurchase 5% or 479,965 shares of the Company’s common stock. This plan
was completed during 2010. On December 20, 2010, the Company entered into an agreement with a broker to administer a Rule 10b5-1 trading plan on behalf of the Company.
The Rule 10b5-1 trading plan will permit the broker to purchase up to 450,000 shares of Company common stock at designated prices during periods when the Company would
otherwise be unable to purchase its common stock. The Board authorized the Rule 10b5-1 trading plan on December 16, 2010. On December 14, 2011, the Company announced a
stock repurchase plan to repurchase 5% or 462,225 shares of the Company’s common stock. This plan was completed during 2012. On May 9, 2012, the Company announced a
stock repurchase plan to repurchase 5% or 462,800 shares of the Company’s common stock. This plan was completed during 2012. On June 28, 2012, the Company announced a
stock repurchase plan to repurchase 5% or 440,000 shares of the Company’s common stock. During 2012, 2011 and 2010, a total of 1,046,726, 536,710 and 193,383 shares of the
Company’s common stock was repurchased under these plans at a cost of approximately $10.9 million, $5.6 million and $1.8 million or $10.37, $10.37 and $9.34 per share,
respectively.
The Company’s primary business is the ownership and operation of BCB Community Bank (the “Bank”). The Bank is a New Jersey commercial bank which, as of December 31,
2012, operated at eleven locations in Bayonne, Hoboken, Jersey City, Monroe Township, South Orange, and Woodbridge New Jersey, and is subject to regulation, supervision, and
examination by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. The Bank is principally engaged in the business of attracting
deposits from the general public and using these deposits, together with borrowed funds, to invest in securities and to make loans collateralized by residential and commercial real
estate and, to a lesser extent, consumer loans. BCB Holding Company Investment Corp. (the “New Jersey Investment Company”) was organized in January 2005 under New
Jersey law as a New Jersey investment company primarily to hold investment and mortgage-backed securities. Pamrapo Service Corporation was organized in 1975 under New
Jersey law to engage in the purchase and sale of real estate. In the 1990’s, the Service Corporation was engaged in the business of selling non-financial products, (annuities, mutual
funds and stocks) to the public. The Pamrapo Service Corporation has been inactive since May 2010. BCB New York Management, Inc. (the “New York Management Company”)
was organized in October 2012 under New York law as a New York investment company primarily to hold various loan products, investment and mortgage-backed securities.
BCB New York Management, Inc. was inactive in 2012.
On July 6, 2010, the Company acquired all of the outstanding common shares of Pamrapo Bancorp, Inc. (“Pamrapo”), the parent company of Pamrapo Savings Bank, and thereby
acquired all of Pamrapo Savings Bank’s 10 branch locations. Under the terms of the merger agreement, Pamrapo stockholders received 1.0 share of BCB Bancorp, Inc. common
stock in exchange for each share of Pamrapo common stock, resulting in the Company issuing 4.9 million common shares of BCB Bancorp, Inc. common stock with an acquisition
date fair value of $38.6 million. See Note 19 for further details.
On October 14, 2011, the Company acquired all of the outstanding common shares of Allegiance Community Bank (“Allegiance”) and thereby acquired all of Allegiance
Community Bank’s two branch locations. Under the terms of the merger agreement, Allegiance stockholders received 0.35 of a share of BCB Bancorp, Inc. common stock at a
price of $9.57 per share in exchange for each share of Allegiance common stock, resulting in BCB Bancorp, Inc. issuing 644,434 common shares of BCB Bancorp, Inc. common
stock with an acquisition date fair value of $6.2 million. See Note 19 for further details.
7
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies
Basis of Consolidated Financial Statement Presentation
The consolidated financial statements which include the accounts of the Company and its wholly-owned subsidiaries, the Bank, the Investment Company and Pamrapo Service
Corporation, have been prepared in conformity with accounting principles generally accepted in the United States of America. All significant intercompany accounts and
transactions have been eliminated in consolidation.
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of
the date of the consolidated statement of financial condition and revenues and expenses for the periods then ended. Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance for loan losses, the identification of other-than-temporary impairment of securities, the determination as to
whether deferred tax assets are realizable, and the determination of the fair value of financial instruments. Management believes that the allowance for loan losses is adequate;
no securities in unrealized loss positions are other-than-temporarily impaired; net deferred tax assets have been reduced to an amount which is more-likely-than-not realizable,
and the fair values of financial instruments are appropriate. While management uses available information to recognize losses on loans, future additions to the allowance for
loan losses may be necessary based on changes in economic conditions in the market area. Management’s assessment regarding impairment of securities is based on future
projections of cash flow which are subject to change. The realizability of deferred tax assets is partially based on projections of future taxable income, which is subject to
change. The determination of fair value requires the use of various inputs which are subject to frequent and ongoing changes.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require
the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
In preparing these consolidated financial statements, the Company evaluated the events that occurred between December 31, 2012 and the date these consolidated financial
statements were issued.
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due from depository institutions and interest-bearing deposits in other banks having original maturities of three months or
less.
Securities Available for Sale and Held to Maturity
Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized
cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair
value, with unrealized holding gains and losses included in earnings. Debt and equity securities not classified as trading securities or as held to maturity securities are
classified as available for sale securities (“AFS”) and reported at fair value, with unrealized holding gains or losses, net of applicable deferred income taxes, reported in the
accumulated other comprehensive income (loss) component of stockholders’ equity.
If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all securities with unrealized losses quarterly to
determine if such impairments are “temporary” or “other-than-temporary” in accordance with Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and
Equity Securities. Accordingly, temporary impairments are accounted for based upon the classification of the related securities as either available for sale or held to maturity.
Temporary impairments on available for sale securities are recognized, on a tax-effected basis, through Other Comprehensive Income (“OCI”) with offsetting entries adjusting
the carrying value of the securities and the balance of deferred taxes. Conversely, the carrying values of held to maturity securities are not adjusted for temporary impairments.
Information concerning the amount and duration of temporary impairments on both available for sale and held to maturity securities is disclosed in the notes to the
consolidated financial statements.
Other-than-temporary impairments are accounted for based upon several considerations. First, other-than-temporary impairments on equity securities and on debt securities
that the Company has decided to sell as of the close of a fiscal period, or will, more likely than not, be required to sell prior to the full recovery of fair value to a level equal to
or exceeding amortized cost, are recognized in earnings. If neither of these conditions regarding the likelihood of the sale of debt securities are applicable, then the other-than-
temporary impairment is bifurcated into credit-related and noncredit-related components. A credit-related impairment generally represents the amount by which the present
value of the cash flows that are expected to be collected on a debt security fall below its amortized cost. The noncredit-related component represents the remaining portion of
the impairment not otherwise designated as credit-related. Credit-related, other-than-temporary impairments are recognized in earnings and noncredit-related, other-than-
temporary impairments are recognized in OCI. Equity securities on which there is an unrealized loss that is deemed other-than-temporary are written down to fair value with
the write-down recognized in earnings.
Premiums and discounts on all securities are amortized/accreted to maturity using the interest method. Interest and dividend income on securities, which includes amortization
of premiums and accretion of discounts, are recognized in the consolidated financial statements when earned. Gains or losses on sales are recognized based on the specific
identification method.
Loans Held For Sale
Loans held for sale consist primarily of residential mortgage loans intended for sale and are carried at the lower of cost or estimated fair market value using the aggregate
method. These loans are generally sold with servicing rights released. Gains and losses recognized on loan sales are based upon the cash proceeds received and the cost of the
related loans sold.
8
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies (Continued )
Loans Receivable
Loans receivable are stated at unpaid principal balances, less net deferred loan origination fees and the allowance for loan losses. Loan origination fees and certain direct loan
origination costs are deferred and amortized/accreted, as an adjustment of yield, over the contractual lives of the related loans.
The accrual of interest on loans that are contractually delinquent more than ninety days is discontinued and the related loans placed on nonaccrual status. Income is
subsequently recognized only to the extent that cash payments are received until delinquency status is reduced to less than ninety days, in which case the loan is returned to
accrual status.
Acquired Loans
Loans that were acquired in acquisitions are recorded at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves
estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.
The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining
life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the
nonaccretable discount. The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the
expected cash flows require an evaluation to determine the need for an allowance for credit losses. Subsequent improvements in expected cash flows result in the reversal of a
corresponding amount of the nonaccretable discount which is then reclassified as accretable discount that is recognized into interest income over the remaining life of the loan
using the interest method. The evaluation of the amount of future cash flows that is expected to be collected is performed in a similar manner as that used to determine our
allowance for credit losses. Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment.
Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is
contractually delinquent, if we can reasonably estimate the timing and amount of the expected cash flows on such loans and if we expect to fully collect the new carrying value
of the loans. As such, we may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable
discount. We have determined that we cannot reasonably estimate future cash flows on any such acquired loans that are past due 90 days or more and continue to treat them as
non-accrual.
Allowance for Loan Losses
The allowance for loan losses is increased through provisions charged to operations and by recoveries, if any, on previously charged-off loans and reduced by charge-offs on
loans which are determined to be a loss in accordance with Bank policy.
The allowance for loan losses is maintained at a level considered adequate to absorb loan losses. Management, in determining the allowance for loan losses, considers the risks
inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Bank utilizes a
two tier approach: (1) identification of impaired loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on
the remainder of its loan portfolio. The Bank maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potentially
impaired loans. Such a system takes into consideration, but is not limited to, delinquency status, size of loans, types and value of collateral, and financial condition of the
borrowers. Specific loan loss allowances are established for impaired loans based on a review of such information and/or appraisals of the underlying collateral. General loan
loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic
conditions, and management’s judgment.
Although management believes that adequate specific and general allowances for loan losses are established, actual losses are dependent upon future events and, as such,
further additions to the level of specific and general loan loss allowances may be necessary.
Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, at the loan’s
observable market price or the fair value of the collateral if the loan is collateral dependent. A loan evaluated for impairment is deemed to be impaired when, based on current
information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as
impaired are evaluated independently. The Bank does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to accrued
interest receivable and then to principal.
Concentration of Risk
Financial instruments which potentially subject the Company and its subsidiaries to concentrations of credit risk consist of cash and cash equivalents, investment and
mortgage-backed securities and loans.
Cash and cash equivalents include amounts placed with highly rated financial institutions. Securities include securities backed by the U.S. Government and other highly rated
instruments. The Bank’s lending activity is primarily concentrated in loans collateralized by real estate in the State of New Jersey. As a result, credit risk related to loans is
broadly dependent on the real estate market and general economic conditions in the State.
9
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies (Continued )
Premises and Equipment
Land is carried at cost. Buildings, building improvements, leasehold improvements and furniture, fixtures and equipment are carried at cost, less accumulated depreciation and
amortization. Significant renovations and additions are charged to the property and equipment account. Maintenance and repairs are charged to expense in the period incurred.
Depreciation charges are computed on the straight-line method over the following estimated useful lives of each type of asset.
Buildings
Building improvements
Furniture, fixtures and equipment
Leasehold improvements
Years
40
7 - 40
3 - 5
Shorter of useful life or
term of lease
Federal Home Loan Bank (“FHLB”) of New York Stock
Federal law requires a member institution of the FHLB system to hold stock of its district FHLB according to a predetermined formula. Such stock is carried at cost.
Management evaluates the FHLB of New York stock for impairment in accordance with guidance on accounting by entities that lend to or finance the activities of others.
Management’s determination of whether this investment is impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing
temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the
decline in net assets of the FHLB of New York as compared to the capital stock amount for the FHLB of New York and the length of time this situation has persisted, (2)
commitments by the FHLB of New York to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB
of New York, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB of New York.
No impairment charges were recorded related to the FHLB of New York stock during 2012, 2011, or 2010.
Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosures are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new
cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to
sell. Costs relating to development and improvement of property are capitalized, whereas costs relating to the holding of property are expensed. At December 31, 2012, the
Bank owned twelve properties totaling $3,274,000. At December 31, 2011, the Bank owned fifteen properties totaling $6,570,000.
Interest Rate Risk
The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to make loans secured by
real estate and to purchase securities. The potential for interest-rate risk exists as a result of the difference in duration of the Bank’s interest-sensitive liabilities compared to its
interest-sensitive assets. For this reason, management regularly monitors the maturity structure of the Bank’s interest-earning assets and interest-bearing liabilities in order to
measure its level of interest-rate risk and to plan for future volatility.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to the Company and its subsidiaries based upon their respective
income or loss included in the consolidated income tax return. Separate state income tax returns are filed by the Company and its subsidiaries.
Federal and state income tax expense has been provided on the basis of reported income. The amounts reflected on the tax returns differ from these provisions due principally
to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted
for as deferred taxes applicable to future periods. Deferred income tax expense or (benefit) is determined by recognizing deferred tax assets and liabilities for the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The
realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not more likely than not to be realized.
10
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies (Continued )
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements in accordance with ASC Topic 740, Income Taxes , which
prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax
return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. A tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount
recognized is the largest amount of tax benefit that has a likelihood of being realized on examination of more than 50 percent. For tax positions not meeting the “more likely
than not” test, no tax benefit is recorded. Under the “more-likely-than-not” threshold guidelines, the Company believes no significant uncertain tax positions exist, either
individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. The Company recognizes interest and penalties on unrecognized tax
benefits in income taxes expense in the Consolidated Statement of Operations. The Company did not recognize any interest in 2011, however the Company did recognize
$11,000 for penalties assessed during an audit of prior periods. The Company did not recognize any interest and penalties for the years ended December 31, 2012 and 2010.
The tax years subject to examination by the taxing authorities are the years ended December 31, 2011, 2010, and 2009.
Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) less dividends on preferred stock by the weighted average number of shares of common
stock outstanding. The diluted net income (loss) 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. Dilution is not applicable in periods of net loss. For the years ended December 31, 2011
and 2010, the difference in the weighted average number of basic and diluted common shares was due solely to the effects of outstanding stock options. No adjustments to net
income (loss) were necessary in calculating basic and diluted net income (loss) per share. For the years ended December 31, 2011 and 2010, the weighted average number of
outstanding options considered to be anti-dilutive was 209,441, and 243,884.
Stock-Based Compensation Plans
The Company, under plans approved by its stockholders in 2011, 2003 and 2002, has granted stock options to employees and outside directors. See note 12 for additional
information as to option grants. Compensation expense recognized for all option grants is net of estimated forfeitures and is recognized over the awards’ respective requisite
service periods. The fair values relating to all options granted are estimated using a Black-Scholes option pricing model. Expected volatilities are based on historical volatility
of our stock and other factors, such as implied market volatility using this options expected term. The Company used the mid-point of the original vesting period and original
option life to estimate the options’ expected term, which represents the period of time that the options granted are expected to be outstanding. The risk-free rate for periods
within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company recognizes compensation expense for the fair
values of these option awards, which have graded vesting, on a straight-line basis over the requisite service period of these awards.
Benefit 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 (the “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. The benefits are based on years of service and employee’s compensation. The defined benefit plan is funded in
conformity with funding requirements of applicable government regulations. Prior service costs for the defined benefit plan generally are amortized over the estimated
remaining service periods of employees. Additionally, with the merger with Pamrapo Bancorp, Inc., certain former employees of Pamrapo Bank are covered under a
Supplemental Executive Retirement Plan (“SERP”), 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.
Comprehensive Income (Loss)
The Company records unrealized gains and losses, net of deferred income taxes, on securities available for sale in accumulated other comprehensive income (loss). Realized
gains and losses, if any, are reclassified to non-interest income upon sale of the related securities or upon the recognition of an impairment loss. Accumulated other
comprehensive income (loss) also includes benefit plan amounts recognized in accordance with ASC 715, Compensation-Retirement Benefits , which reflect, net of tax, the
unrecognized gains (losses) on the benefit plans.
Reclassification
Certain amounts as of and for the years ended December 31, 2011 and 2010 have been reclassified to conform to the current year’s presentation. These changes had no effect
on the Company’s results of operations or financial position.
11
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies (Continued )
Recent Accounting Pronouncements
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income, to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. The amendments in this ASU do not change the current
requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed
elsewhere in the consolidated financial statements under U.S. GAAP.
The new amendments will require an organization to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of
net income of significant amounts reclassified out of accumulated other comprehensive income, but only if the item reclassified is required under U.S. GAAP to be reclassified
to net income in its entirety in the same reporting period. The new amendments will also require an organization to present cross-reference to other disclosures currently
required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same
reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet
account (e.g. pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments
for all reporting periods (interim and annual). Nonpublic company are required to meet the reporting requirements of the amended paragraphs about the roll forward of
accumulated other comprehensive income for both interim and annual reporting periods. However, private companies are only required to provide the information about the
impact of reclassifications on line items of net income for annual reporting periods, not for interim reporting periods.
The amendments of ASU 2013-02 are effective for reporting periods beginning after December 15, 2012, for public companies and are effective for reporting periods
beginning after December 15, 2013, for nonpublic companies. The Company does not believe this pronouncement, when adopted, will have a material impact on operations or
financial position.
In December 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for
Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This
standard indefinitely defers certain provisions of ASU 2011-05 (described below). The amendments are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2011. The adoption of this guidance did not result in a change in the presentation of comprehensive income in the Company’s consolidated
financial statements.
In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income. The ASU eliminates the option to present components of other
comprehensive income as part of the statement of changes in stockholders’ equity and will require it be presented either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. The single statement format would include the traditional income statement and the components of total other
comprehensive income as well as total comprehensive income. In the two statement approach, the first statement would be the traditional income statement which would be
immediately followed by a separate statement which includes the components of other comprehensive income, total other comprehensive income and total comprehensive
income. The amendments in this ASU will be applied retrospectively. For public companies, they are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2011. Adoption of ASU 2011-05 did not have a significant impact on the Company’s consolidated financial statements.
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs. The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and
International Financial Reporting Standards (IFRS). Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for
measuring fair value and for disclosing information about fair value measurements. Some of the amendments in this update clarify the FASB’s intent about the application of
existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair
value measurements. This update is effective during interim and annual periods beginning on or after December 15, 2011 and is to be applied prospectively. Adoption of
ASU 2011-04 did not have a significant impact on the Company’s consolidated financial statements.
Note 3 - Related Party Transactions
The Bank leases a property from NEW BAY LLC (“NEW BAY”), a limited liability corporation 100% owned by a majority of the Directors and officers of the Bank. In
conjunction with the lease, NEW BAY substantially removed the pre-existing structure on the site and constructed a new building suitable to the Bank for its banking
operations. Under the terms of the lease, the cost of this project was reimbursed to NEWBAY by the Bank. The amount reimbursed, which occurred during the year 2000, was
$943,000, and is included in property and equipment under the caption “Building and improvements” (see Note 7).
On May 1, 2006, the Bank renegotiated the lease to a twenty-five year term. The Bank paid NEW BAY $165,000 a year ($13,750 per month) for the first 60 months which is
included in the consolidated statements of operations for 2012, 2011, and 2010 within occupancy expense of premises. The rent shall be reset every five years thereafter at the
fair market rental value at the end of each preceding five year period. The Bank expects to pay NEW BAY $165,000 for the year 2013.
On February 8, 2012, the Bank entered into a two year lease of a warehouse with a Director of the Bank. The purpose of the lease is to store documents, consumable supplies,
equipment, and furniture not currently in use by the Bank. The Bank paid $18,700 in the year 2012, which is reflected in the 2012 Consolidated Statement of Operations
within occupancy expense of premises. The Bank expects to pay $20,400 for the year 2013.
The Bank leases a property in Woodbridge, New Jersey from ACB Development LLC, owned by the former Directors of Allegiance Community Bank, including Director
Gary Stetz and Director Spencer Robbins. The Bank paid $108,000 in rent in the year 2012, which is reflected in the 2012 Consolidated Statement of Operations within
occupancy expense of premises. The Bank expects to pay $110,000 for the year 2013.
12
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4- Securities Available for Sale
Equity Securities-Financial Institutions
$
1,097 $
143 $
— $
1,240
December 31, 2012
Gross
Gross
Unrealized Unrealized
Cost
Gains
Losses
Fair
Value
(In Thousands)
December 31, 2011
Gross
Gross
Unrealized Unrealized
Cost
Gains
Losses
Fair
Value
(In Thousands)
Equity Securities-Financial Institutions
$
1,097 $
70 $
122 $
1,045
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:
December 31, 2012
Equity Securities-Financial Institutions
December 31, 2011
Equity Securities-Financial Institutions
Less than 12 Months
Fair
Value
Unrealized
Losses
More than 12 Months
Fair
Value
Unrealized
Losses
Fair
Value
Total
Unrealized
Losses
(In Thousands)
$
— $
— $
— $
— $
— $
—
$
878 $
122 $
— $
— $
878 $
122
13
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 5 – Securities Held to Maturity
Residential mortgage-backed securities:
Due within one year
Due after one year through five years
Due after five years through ten years
Due after ten years
Municipal obligations:
Due after five to ten years
Due after ten years
Trust originated preferred security:
Due after ten years
December 31, 2012
Gross
Amortized Unrealized Unrealized
Gains
Losses
Gross
Cost
Fair Value
$
— $
4
9,480
153,425
162,909
388
975
1,363
(In Thousands)
— $
—
171
6,747
6,918
28
65
93
— $
—
18
38
56
—
—
—
—
4
9,633
160,134
169,771
416
1,040
1,456
376
164,648 $
$
—
7,011 $
—
56 $
376
171,603
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. As of December 31, 2012
and December 31, 2011, all residential mortgage backed securities held in the portfolio were Government Sponsored Enterprise securities.
In 2012 and 2011, management decided to sell certain mortgage-backed securities 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 years ended December 31, 2012 and 2011, proceeds from
sales of securities held to maturity totaled approximately $30.6 million and $2.4 million, respectively, and resulted in gross gains of approximately $405,000 and $25,000,
respectively, and gross losses of approximately $56,000 and $7,000, respectively.
14
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 5 – Securities Held to Maturity (Continued)
U.S. Government Agencies:
Due within one year
Due after ten years
Residential mortgage-backed securities:
Due within one year
Due after one year through five years
Due after five years through ten years
Due after ten years
Municipal obligations:
Due after five to ten years
Due after ten years
Trust originated preferred security:
Due after ten years
December 31, 2011
Gross
Amortized Unrealized Unrealized
Gains
Losses
Gross
Cost
Fair Value
(In Thousands)
$
3,315 $
3,000
38 $
12
— $
—
3,353
3,012
6,315
50
—
6,365
9
1,325
37,034
160,509
198,877
391
979
1,370
—
32
417
6,464
6,913
30
59
89
—
3
44
73
120
—
—
—
9
1,354
37,407
166,900
205,670
421
1,038
1,459
403
206,965 $
$
6
7,058 $
—
120 $
409
213,903
15
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 5 – 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:
December 31, 2012
Residential mortgage-backed securities
December 31, 2011
Residential mortgage-backed securities
Less than 12 Months
Fair
Value
Unrealized
Losses
More than 12 Months
Fair
Value
Unrealized
Losses
Fair
Value
Total
Unrealized
Losses
(In Thousands)
$
$
$
$
14,093 $
56 $
— $
— $
14,093 $
14,093 $
56 $
— $
— $
14,093 $
16,949 $
82 $
5,942 $
38 $
22,891 $
16,949 $
82 $
5,942 $
38 $
22,891 $
56
56
120
120
At December 31, 2012, management concluded that the unrealized losses above (which related to 16 mortgage-backed securities) are temporary in nature since they are related to
interest rate fluctuations rather than any underlying credit quality of the issuers. Additionally, the Company has not decided to sell these securities and has concluded that it is
unlikely it would be required to sell these securities prior to the anticipated recovery of the unrealized losses.
16
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses
The following table presents the recorded investment in loans receivable at December 31, 2012 and December 31, 2011 by segment and class.
Real estate mortgage:
Residential
Commercial and multi-family
Construction
Commercial:
Business loans
Lines of credit
Consumer:
Passbook or certificate
Home equity lines of credit
Home equity
Automobile
Personal
Deposit overdrafts
Total Loans
Deferred loan fees, net
Allowance for loan losses
Net Loans
December 31, 2012 December 31, 2011
(In Thousands)
$
$
202,926 $
588,268
23,310
814,504
20,415
39,253
59,668
736
17,841
42,552
37
567
61,733
294
936,199
(1,535 )
(12,363 )
(13,898 )
922,301 $
218,085
472,424
17,000
707,509
30,290
44,283
74,573
809
18,923
50,152
103
301
70,288
95
852,465
(1,193 )
(10,509 )
(11,702 )
840,763
At December 31, 2012 and 2011, loans serviced by the Bank for the benefit of others, which consist of participation interests in loans originated by the Bank, totaled approximately
$11.6 million and $6.3 million, respectively.
17
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table presents unpaid principal balance and the related recorded investment in loans acquired via acquisitions of other companies included in our Consolidated
Statements of Financial Condition.
Unpaid principal balance
Recorded investment
The following table presents changes in the accretable discount on loans acquired during the periods indicated:
December 31, December 31,
2012
2011
(In Thousands) (In Thousands)
410,057
$
405,951
330,090 $
326,717
Beginning Balance
Acquisitions
Accretion
Ending Balance
2012
December 31,
2011
(In Thousands) (In Thousands) (In Thousands)
—
$
229,805
(24,314 )
205,491
205,491 $
17,318
(42,087 )
180,722 $
180,722 $
—
(44,513 )
136,209 $
2010
$
No interest income is being recognized on loans acquired where the fair value of the loan was based on the cash flows expected to be received from the foreclosure and sale of the
underlying collateral. The carrying value of these loans at December 31, 2012, December 31, 2011, and December 31, 2010 was $6.4 million, $13.3 million, and $11.7 million,
respectively.
18
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The Bank grants loans to its officers and directors and to their associates. Related party loans are made on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. The activity with respect to loans to
directors, officers and associates of such persons, is as follows:
Balance – beginning
Loans originated
Changes in related party status
Collections of principal
Balance - ending
Allowance for Loan Losses
Years Ended December 31,
2012
2011
(In Thousands)
$
8,509 $
400
—
(854 )
7,270
613
1,105
(479 )
$
8,055 $
8,509
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 into two divisions. Loans that are performing and loans that are impaired. Loans which are performing are
evaluated homogeneously by loan class or loan type. The allowance of performing loans is evaluated based on historical loan 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 more than 90 days
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 feasibility and bases the loan loss provision accordingly.
The loan portfolio is segmented into the following loan classes, where the risk level for each class is analyzed when determining the allowance for loan losses:
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 may be affected by a number of factors including, but not necessarily limited to, job loss, divorce, illness and personal
bankruptcy of the borrower.
19
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
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, including lines of credit, 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. In many cases, the Bank’s position in these loans is as a junior lien holder to another institution’s
superior lien. 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.
Other 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 an adequate source of repayment of the outstanding loan.
The Company also maintains an unallocated allowance. The unallocated allowance is used to cover any factors or conditions which may cause a potential loan loss but
are not specifically identifiable. It is prudent to maintain an unallocated portion of the allowance because no matter how detailed an analysis of potential loan losses is performed,
these estimates lack some element of precision. Management must make estimates using assumptions and information that is often subjective and changing rapidly.
Classified Assets. Our policies provide for a classification system for problem assets. Under this classification system, problem assets are classified as “substandard,”
“doubtful,” “loss” or “special mention.” An asset is considered substandard if it is inadequately protected by its current net worth and paying capacity of the borrower or of the
collateral pledged, if any. Substandard assets include those characterized by the “distinct possibility” that “some loss” will be sustained if the deficiencies are not corrected. Assets
classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weakness present makes “collection or liquidation in
full” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as loss are those considered “uncollectible” and of
such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted, and the loan, or a portion thereof, is charged-off. Assets may
be designated special mention because of potential weaknesses that do not currently warrant classification in one of the aforementioned categories.
When we classify problem assets, we may establish general allowances for loan losses in an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. A portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in
determining our regulatory capital. Specific valuation allowances for loan losses generally do not qualify as regulatory capital. As of December 31, 2012, we had $5.7 million in
assets classified as doubtful, of which $5.7 million were classified as impaired, $22.2 million in assets classified as substandard, of which $18.6 million were classified as impaired
and $25.1 million in assets classified as special mention, of which $17.3 million were classified as impaired. The loans classified as substandard represent primarily commercial
loans secured either by residential real estate, commercial real estate or heavy equipment. The loans that have been classified substandard were classified as such primarily because
either updated financial information has not been timely provided, or the collateral underlying the loan is in the process of being revalued. As a result of Hurricane Sandy, our
levels of classified assets are expected to remain elevated through at least the first half of 2013. As of December 31, 2011, we had $576,000 in assets classified as loss, all of which
is considered impaired, $7.1 million in assets classified as doubtful, of which $4.3 million was classified as impaired, $36.5 million in assets classified as substandard, of which
$24.3 million was classified as impaired and $28.2 million in assets classified as special mention, of which $15.5 million was classified as impaired. The loans classified as
substandard represent primarily commercial loans secured either by residential real estate, commercial real estate or heavy equipment. The loans that have been classified
substandard were classified as such primarily because either updated financial information has not been timely provided, or the collateral underlying the loan is in the process of
being revalued.
The Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies. The grades assigned and definitions are as
follows, and loans graded excellent, above average, good and watch list (risk ratings 1-4) are treated as “pass” for grading purposes:
5 – Special Mention- Loans currently performing but with potential weaknesses including adverse trends in borrower’s operations, credit quality, financial strength, or possible
collateral deficiency.
6 – Substandard - Loans that are inadequately protected by current sound worth, paying capacity, and collateral support. Loans on “nonaccrual” status. The loan needs special and
corrective attention.
7 – Doubtful - Weaknesses in credit quality and collateral support make full collection improbable, but pending reasonable factors remain sufficient to defer the loss status.
8 – Loss - Continuance as a bankable asset is not warranted. However, this does not preclude future attempts at partial recovery.
20
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table sets forth the activity in the Bank’s allowance for loan losses for the year ended December 31, 2012 and recorded investment in loans receivable at December
31, 2012. The table also details the amount of total loans receivable, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for
loan losses that is allocated to each loan class (In Thousands):
Allowance for credit losses:
Beginning balance
Charge-offs
Recoveries
Provisions
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
Ending balance: loans acquired with
deteriorated credit quality
Loans receivables:
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
Ending balance: loans acquired with
deteriorated credit quality
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Commercial &
Commercial Home
Residential Multi-family Construction Business (1) equity (2) Consumer Unallocated Total
$
2,679 $
5,798 $
304 $
1,041 $
677 $
10 $
— $ 10,509
$
$
$
793 $
— $
81 $
1,360 $
35 $
3,578 $
292 $
— $
947 $
612 $
— $
391 $
24 $
— $
(178 ) $
— $
— $
49 $
— $ 3,081
— $
35
32 $ 4,900
$
1,967 $
8,051 $
959 $
820 $
475 $
59 $
32 $ 12,363
$
392 $
1,061 $
96 $
353 $
113 $
— $
— $ 2,015
$
1,470 $
6,990 $
863 $
467 $
362 $
59 $
32 $ 10,243
$
105 $
— $
— $
— $
— $
— $
— $
105
$ 202,926 $
588,268 $
23,310 $
59,668 $ 60,393 $
1,634 $
— $ 936,199
$
13,785 $
27,030 $
130 $
3,928 $ 2,697 $
— $
— $ 47,570
$ 186,205 $
557,795 $
23,180 $
55,499 $ 57,556 $
1,634 $
— $ 881,869
$
2,936 $
3,443 $
— $
241 $
140 $
— $
— $ 6,760
21
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table sets forth the activity in the Bank’s allowance for loan losses for the year ended December 31, 2011 and recorded investment in loans receivable at December
31, 2011. The table also details the amount of total loans receivable, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for
loan losses that is allocated to each loan class (In Thousands):
Allowance for credit losses:
Beginning balance
Charge-offs
Recoveries
Provisions
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
Ending balance: loans acquired with
deteriorated credit quality
Loans receivables:
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
Ending balance: loans acquired with
deteriorated credit quality
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Commerical
Commercial Home
Residential & Multi-family Construction Business (1) equity (2) Consumer Unallocated Total
$
$
$
$
171 $
6,179 $
426 $
1,286 $
204 $
18 $
133 $ 8,417
122 $
— $
2,630 $
1,173 $
25 $
767 $
687 $
— $
565 $
24 $
— $
(221 ) $
— $
— $
473 $
27 $
— $
19 $
— $ 2,033
25
— $
(133 ) $ 4,100
$
2,679 $
5,798 $
304 $
1,041 $
677 $
10 $
— $ 10,509
$
550 $
2,674 $
— $
95 $
72 $
— $
— $ 3,391
$
1,548 $
2,654 $
189 $
792 $
572 $
10 $
— $ 5,765
$
581 $
470 $
115 $
154 $
33 $
— $
— $ 1,353
$ 218,085 $
472,424 $
17,000 $
74,573 $ 69,075 $
1,308 $
— $ 852,465
$ 14,006 $
39,461 $
1,513 $
4,307 $ 1,850 $
— $
— $ 61,137
$ 194,862 $
429,355 $
13,236 $
70,012 $ 66,613 $
1,308 $
— $ 775,386
$
9,217 $
3,608 $
2,251 $
254 $
612 $
— $
— $ 15,942
22
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table sets forth the Bank’s allowance for credit losses and recorded investment in financing receivables for the year ended December 31, 2010. The following table
also details the amount of total loans receivable, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is
allocated to each loan type (In Thousands):
Allowance for credit losses:
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
Ending balance: loans acquired with
deteriorated credit quality
Loans receivables:
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
Ending balance: loans acquired with
deteriorated credit quality
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Commerical
Commercial Home
Residential & Multi-family Construction Business (1) equity (2) Consumer Unallocated Total
$
171 $
6,179 $
426 $
1,286 $
204 $
18 $
133 $ 8,417
$
— $
1,656 $
— $
449 $
2 $
— $
— $ 2,107
$
171 $
4,523 $
426 $
837 $
202 $
18 $
133 $ 6,310
$
— $
— $
— $
— $
— $
— $
— $
—
$ 234,435 $
410,212 $
17,848 $
54,160 $ 63,603 $
1,816 $
— $ 782,074
$
89 $
27,422 $
2,910 $
2,809 $
372 $
— $
— $ 33,602
$ 219,795 $
379,907 $
14,938 $
51,275 $ 63,231 $
1,816 $
— $ 730,962
$ 14,551 $
2,883 $
— $
76 $
— $
— $
— $ 17,510
23
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table sets forth the activity in the Bank’s allowance for credit losses for the year ended December 31, 2010 (In Thousands):
Balance at beginning of period
Charge-offs
Recoveries
Net charge-offs
Provisions charged to operations
Ending balance
24
Year Ended December 31,
2010
$
$
6,644
689
12
677
2,450
8,417
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The table below sets forth the amounts and types of non-accrual loans in the Bank’s loan portfolio, at December 31, 2012 and 2011 , respectively. Loans are placed on non-accrual
status when they become more than 90 days delinquent, or when the collection of principal and/or interest become doubtful. As of December 31, 2012 and 2011, non-accrual loans
differed from the amount of total loans past due greater than 90 days due to troubled debt restructuring of loans which are maintained on non-accrual status for a minimum of six
months until the borrower has demonstrated its ability to satisfy the terms of the restructured loan.
Non-accruing loans:
Residential
Construction
Commerical business
Commercial and multi-family(1)
Home equity(2)
Consumer
Total
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Years Ended December 31,
2012
2011
(Dollars in Thousands)
$
$
2,163 $
130
3,159
13,043
1,564
—
20,059 $
15,511
4,040
4,265
22,280
1,729
—
47,825
Had non-accrual loans been performing in accordance with their original terms, the interest income recognized for the years ended December 31, 2012, 2011 and 2010 would have
been approximately $1.06 million, $2.85 million and $1.95 million, respectively. Interest income recognized on such loans was approximately $649,000, $968,000 and $280,000
respectively. The Bank is not committed to lend additional funds to the borrowers whose loans have been placed on a nonaccrual status. At December 31, 2012, there were $2.84
million in loans which were more than ninety days past due and still accruing interest.
During 2012, the Bank sold approximately $25.9 million of non-performing loans for the purposes of eliminating future carrying costs associated with these non-interest earning
assets and improving the overall quality of the loan portfolio. The sale of this sub-set of the non-performing loan portfolio for approximately $15.1 million in cash proceeds
resulted in a pre-tax loss of approximately $10.8 million. The loans sold consisted of $14.6 million of commercial and multi-family real estate loans, $9.1 million in residential
mortgage loans, $1.1 million of home equity loans, $781,000 of commercial business loans, and $313,000 of construction loans.
25
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table summarizes information in regards to impaired loans by loan portfolio class for the year ended December 31, 2012 and average recorded investment and actual
interest income recognized for the twelve months ended December 31, 2012 (In Thousands):
Recorded Unpaid Principle Related
Investment Recognized
Allowance
Avearge Recorded Interest Income
Investment
Recognized
With no related allowance recorded:
Residential Mortgages
Commercial and Multi-family
Construction
Commercial Business (1)
Home Equity (2)
Consumer
With an allowance recorded:
Residential Mortgages
Commercial and Multi-family
Construction
Commercial Business (1)
Home Equity (2)
Consumer
Total:
Residential Mortgages
Commercial and Multi-family
Construction
Commercial Business (1)
Home Equity (2)
Consumer
Total:
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
$
$
$
$
$
6,147 $
13,827
—
2,550
1,959
—
24,483 $
7,638 $
13,203
130
1,378
738
—
6,147 $
13,827
—
2,550
1,959
—
24,483 $
7,638 $
13,203
130
1,378
738
—
— $
—
—
—
—
—
— $
497 $
1,061
96
353
113
—
5,684 $
20,230
1,174
2,559
1,927
2
31,576 $
8,817 $
12,886
180
2,330
616
48
23,087 $
23,087 $
2,120 $
24,877 $
13,785 $
27,030
130
3,928
2,697
—
13,785 $
27,030
130
3,928
2,697
—
497 $
1,061
96
353
113
—
14,501 $
33,116
1,354
4,889
2,543
50
$
47,570 $
47,570 $
2,120 $
56,453 $
215
503
102
69
43
—
932
480
588
6
31
28
—
1,133
695
1,091
108
100
71
—
2,065
26
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table summarizes information in regards to impaired loans by loan portfolio class for the year ended December 31, 2011 and average recorded investment and actual
interest income recognized for the twelve months ended December 31, 2011 (In Thousands):
Recorded Unpaid Principle Related
Investment Recognized
Allowance
Avearge Recorded Interest Income
Recognized
Investment
With no related allowance recorded:
Residential Mortgages
Commercial and Multi-family
Construction
Commercial Business (1)
Home Equity (2)
Consumer
With an allowance recorded:
Residential Mortgages
Commercial and Multi-family
Construction
Commercial Business (1)
Home Equity (2)
Consumer
Total:
Residential Mortgages
Commercial and Multi-family
Construction
Commercial Business (1)
Home Equity (2)
Consumer
Total:
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
$
$
$
$
$
6,142 $
23,417
1,513
2,366
1,301
—
34,739 $
7,864 $
16,044
—
1,941
549
—
6,142 $
23,417
1,513
2,366
1,301
—
34,739 $
7,864 $
16,044
—
1,941
549
—
— $
—
—
—
—
—
— $
550 $
2,674
—
95
72
—
3,370 $
22,910
2,415
1,653
711
—
31,059 $
3,945 $
15,447
330
2,019
411
—
26,398 $
26,398 $
3,391 $
22,152 $
14,006 $
39,461
1,513
4,307
1,850
—
14,006 $
39,461
1,513
4,307
1,850
—
550 $
2,674
—
95
72
—
7,315 $
38,357
2,745
3,672
1,122
—
157
793
19
94
52
—
1,115
303
582
—
24
19
—
928
460
1,375
19
118
71
—
$
61,137 $
61,137 $
3,391 $
53,211 $
2,043
During the year ended December 31, 2010, the average balance of impaired loans was $29.5 million and interest income recognized on impaired loans was $2.11 million.
27
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
A troubled debt restructuring (“TDR”) is a loan that has been modified whereby the Bank has agreed to make certain concessions to a borrower to meet the needs of both the
borrower and the Bank to maximize the ultimate recovery of a loan. TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is
modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted are generally included, but not limited to interest rate
reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.
The following table summarizes information in regards to troubled debt restructurings for the years ended December 31, 2012 and 2011, (In thousands):
Year Ended December 31, 2012
Residential
Commercial and multi-family
Commercial business
Home equity
Year Ended December 31, 2011
Residential
Commercial and multi-family
Home equity
Number of Contracts Recorded Investments
Recorded Investments
Pre-Modification Outstanding Post-Modification Outstanding
13
14
1
6
$
$
$
$
4,440 $
8,384 $
531 $
534 $
4,440
8,384
531
534
Number of Contracts Recorded Investments
Recorded Investments
Pre-Modification Outstanding Post-Modification Outstanding
20
12
2
$
$
$
5,985 $
5,368 $
470 $
5,985
5,368
470
The loans included above are considered TDRs as a result of the Bank implementing one or more of the following concessions: granting a material extension of time, issuing a
forbearance agreement, adjusting the interest rate to a below market rate, accepting interest only for a period of time or a change in amortization period. As of December 31, 2012
and 2011, TDRs totaled $13.9 million and $11.8 million, respectively. All TDRs were considered impaired and therefore were individually evaluated for impairment in the
calculation of the allowance for loan losses. Prior to their classification as TDRs, certain of these loans had been collectively evaluated for impairment in the calculation of the
allowance for loan losses.
28
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table summarizes information in regards to troubled debt restructurings for which there was a payment default, within twelve months of restructuring, (In
thousands):
Year Ended December 31, 2012
Number of Contracts Recorded Investment
Residential
Commercial and multi-family
Year Ended December 31, 2011
Residential
Commercial and multi-family
3
2
$
$
395
1,109
Number of Contracts Recorded Investment
2
2
$
$
506
1,429
29
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table sets forth the delinquency status of total loans receivable at December 31, 2012.
As of December 31, 2012
30-59 Days 60-90 Days Greater Than Total Past
Past Due
Past Due
90 Days
Due
Current
Loans Receivable
Total Loans
Receivable and Accruing
>90 Days
Residential
Commercial and multi-family
Construction
Commercial business (1)
Home equity (2)
Consumer
Total
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
(In Thousands)
$
$
7,566 $
23,816
2,537
1,495
1,380
—
36,794 $
1,941 $
5,245
1,174
152
717
—
9,229 $
2,348 $
9,275
130
1,514
1,516
—
14,783 $
11,855 $
38,336
3,841
3,161
3,613
—
60,806 $
191,071 $
549,932
19,469
56,507
56,780
1,634
875,393 $
202,926 $
588,268
23,310
59,668
60,393
1,634
936,199 $
1,223
1,386
—
—
227
—
2,836
The following table sets forth the delinquency status of total loans receivable at December 31, 2011.
Residential
Commercial and multi-family
Construction
Commercial business (1)
Home equity (2)
Consumer
Total
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
30-59 Days 60-90 Days Greater Than Total Past
Past Due
Past Due
90 Days
Due
Current
(In Thousands)
Loans Receivable
Total Loans
Receivable
>90 Days
and Accruing
As of December 31, 2011
$
$
6,166 $
16,977
3,688
536
2,474
33
29,894 $
2,495 $
6,340
130
—
1,018
10
9,993 $
11,847 $
21,080
3,660
1,785
1,181
—
39,553 $
20,508 $
44,417
7,478
2,321
4,673
43
79,440 $
197,557 $
428,077
9,522
72,252
64,402
1,265
773,025 $
218,085 $
472,424
17,000
74,573
69,075
1,308
852,465 $
—
—
—
—
—
—
—
30
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and Allowance for Loan Losses (Continued)
The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful, and loss within
the Company’s internal risk rating system as of December 31, 2012:
Residential
Commercial and multi-family
Construction
Commercial business (1)
Home equity (2)
Consumer
Total
Pass
Special Mention Substandard Doubtful
Loss
Total
$
$
190,054 $
556,814
22,739
54,100
57,857
1,598
883,162 $
6,300 $
15,036
—
2,696
1,091
—
25,123 $
5,653 $
13,206
441
1,452
1,445
36
22,233 $
919 $
3,212
130
1,420
—
—
5,681 $
— $
—
—
—
—
—
— $
202,926
588,268
23,310
59,668
60,393
1,634
936,199
The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful, and loss within
the Company’s internal risk rating system as of December 31, 2011:
Residential
Commercial and multi-family
Construction
Commercial business (1)
Home equity (2)
Consumer
Total
Pass
Special Mention Substandard Doubtful
Loss
Total
$
$
203,317 $
426,983
13,697
67,593
67,126
1,308
780,024 $
5,316 $
19,620
—
2,827
468
—
28,231 $
7,632 $
23,618
2,619
1,245
1,412
—
36,526 $
1,437 $
2,203
684
2,784
—
—
7,108 $
383 $
—
—
124
69
—
576 $
218,085
472,424
17,000
74,573
69,075
1,308
852,465
31
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7 - Premises and Equipment
Land
Buildings and improvements
Leasehold improvements
Furniture, fixtures and equipment
Accumulated depreciation and amortization
$
December 31,
2012
2011
(In Thousands)
1,837 $
11,490
1,208
4,031
1,837
11,080
1,053
3,462
18,566
(4,998 )
17,432
(3,856 )
$
13,568 $
13,576
Buildings and improvements include a building constructed on property leased from a related party (see Note 3).
Rental expenses related to the occupancy of premises and related shared costs for common areas totaled $1,229,000, $987,000 and $693,000 for the years ended December 31,
2012, 2011, and 2010, respectively. The minimum obligation under non-cancelable lease agreements expiring through April 30, 2031, for each of the years ended December 31 is
as follows (in thousands):
Note 8 - Interest Receivable
Loans
Securities
2013
2014
2015
2016
2017
Thereafter
32
$
$
1,007
916
725
737
663
3,912
7,960
December 31,
2012
2011
(In Thousands)
3,509 $
554
4,181
816
$
$
4,063 $
4,997
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 9 - Deposits
Demand:
Non-interest bearing
NOW
Money market
Savings and club
Certificates of deposit
December 31,
2012
2011
(In Thousands)
$
85,950 $
120,765
63,834
270,549
78,589
112,605
67,592
258,786
256,769
413,468
265,546
453,291
$
940,786 $
977,623
At December 31, 2012 and 2011, certificates of deposit of $100,000 or more totaled approximately $234.6 million and $255.2 million respectively.
The scheduled maturities of certificates of deposit at December 31, 2012, were as follows (In thousands):
2013
2014
2015
2016
2017
Thereafter
33
Amount
$ 286,161
72,881
20,942
18,278
15,008
198
$ 413,468
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 10 - Short-Term Borrowings and Long-Term Debt
Long-term debt consists of the following:
Federal Home Loan Bank Advances:
(1) Fair Value Adjustments
December 31,
2012
Weighted
Average Rate
2011
Weighted
Amount
Average Rate Amount
Maturing by December 31,
2013
2016
2017
2018
0.31 $ 17,000,000
4.28 55,000,000
4.39 55,000,000
—
—
— $
—
4.28 57,000,000
4.37 56,500,000
2.51 10,500,000
3.75 % 127,000,000
4.33 % 124,000,000
—
1,406,986
$ 127,000,000
$ 125,406,986
(1) Fair value adjustments represents the difference between the fair market value and the book value of the $10.5 million of FHLB advances acquired from Allegiance
Community Bank acquisition based on pricing from the Federal Home Loan Bank of New York at date of acquisition. The adjustment is being amortized over the life of
the acquired advances. During the first quarter of 2012, this advance was prepaid along with a prepayment penalty of $49,000.
Beginning September 7, 2010, the Federal Home Loan Bank of New York (“FHLBNY”) replaced the existing Overnight Repricing Advance Program and its associated
companion products, the Overnight Line of Credit (“OLOC”), OLOC Plus, OLOC Companion, and OLOC Companion Plus with the new Overnight Advance. The new Overnight
advance permits the Bank to borrow overnight up to its maximum borrowing capacity at the FHLBNY. The Bank is no longer restricted to the previous borrowing limits of 10%
(OLOC) or up to 20% (OLOC Plus) of total assets. At December 31, 2012, the Bank’s total credit exposure cannot exceed 50% of its total assets, or $585,679,000, based on the
borrowing limitations outlined in the Federal Home Loan Bank of New York’s member products guide. The total credit exposure limit of 50% of total assets is recalculated each
quarter.
Trust preferred junior subordinated debenture:
2012
2011
Coupon Rate
Amount
Coupon Rate Amount
Maturing by December 31,
$ 4,124,000
The Trust Preferred floating rate junior subordinated debenture matures on June 17, 2034; interest rate adjusts quarterly to LIBOR plus 2.65%, the rate paid as of December 31,
2012 was 2.958%.
$ 4,124,000
2034
2.958 %
3.21 %
34
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 10 - Short-Term Borrowings and Long-Term Debt (Continued)
The trust preferred debenture became callable, at the Company’s option, on June 17, 2009, and quarterly thereafter.
Additional information regarding short-term borrowings is as follows:
Average balance outstanding during the year
Highest month-end balance during the year
Average interest rate during the year
Weighted average interest rate at year-end
2012
December 31,
2011
(In Thousands)
2010
$
$
145 $
17,000 $
0.31 % $
0.31 % $
— $
— $
— $
— $
—
—
—
—
At December 31, 2012 and 2011 securities held to maturity with carrying values of approximately $133.9 million and $139.2 million, respectively, were pledged to secure the
above noted Federal Home Loan Bank of New York borrowings. In addition, there was a blanket pledge on the residential mortgage portfolio at December 31, 2011.
Note 11 - Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors. The Holding Company’s capital adequacy guidelines are not materially different than the capital adequacy
guidelines for the Bank.
Quantitative measures, established by regulation to ensure capital adequacy, require the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in
the regulations), to risk-weighted assets, (as defined), and of Tier 1 capital to average assets (as defined). The following table presents information as to the Bank’s capital levels.
35
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 11 - Regulatory Matters (Continued)
As of December 31, 2012:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to average assets)
As of December 31, 2011:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to average assets)
Actual
Amount
Ratio
For Capital Adequacy
Purposes
Amount
Ratio
(Dollars in Thousands)
To be Well Capitalized
under Prompt Corrective
Action Provisions
Amount
Ratio
105,233
95,845
95,845
14.03 % $
12.78
8.38
> 59,991
> 29,995
> > > > 45,741
> 8.00 % $
> 4.00
> 4.00
> > > > 74,988
> > > > 44,993
> > > > 57,177
> 10.00 %
> > > > 6.00
> > > > 5.00
112,802
105,376
105,376
16.42 % $
15.34
8.66
> 54,960
> 27,480
> 48,646
> 8.00 % $
> 4.00
> 4.00
> 68,699
> 41,219
> 60,808
> 10.00 %
> 6.00
> 5.00
$
$
As of December 31, 2012 and 2011, the most recent notification from the Bank’s regulators categorized the Bank as “well capitalized” under the regulatory framework for prompt
corrective action. There are no conditions or events occurring since that notification that management believes have changed the Bank’s category.
36
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12- Benefits Plans
Pension Plan
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. The benefits are based on years of service and employee’s compensation. The Pension Plan is funded in conformity with funding
requirements of applicable government regulations. Prior service costs for the Pension Plan generally are amortized over the estimated remaining service periods of employees.
37
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Benefits Plans
The following tables set forth the Plan's funded status at December 31, 2012 and 2011 and components of net periodic pension cost for the years ended December 31, 2012 and
2011:
Change in Benefit Obligation:
Benefit obligation, beginning of year
Interest Cost
Actuarial loss
Benefits paid
Settlements
Benefit obligation, ending
Change in Plan Assets:
Fair value of assets, beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Settlements
Fair value of assets, ending
Reconciliation of Funded Status:
Accumulated benefit obligation
Projected benefit obligation
Fair value of assets
Funded status, included in other liabilities
Valuation assumptions used to determine
benefit obligation at period end:
Discount rate
Salary Increase Rate
38
$
$
$
December 31,
2012
2011
(In Thousands)
10,338 $
444
454
(514 )
(752 )
9,970 $
8,723
469
1,807
(503 )
(158 )
10,338
4,973 $
597
2,700
(514 )
(752 )
4,746
76
812
(503 )
(158 )
$
7,004 $
4,973
$
$
9,970 $
10,338
9,970 $
10,338
(7,004 )
(4,973 )
$
(2,996 ) $
(5,365 )
4.05 %
4.40 %
N/A
N/A
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Benefits Plans (Continued)
Net Periodic Pension Expense:
Interest cost
Expected return on assets
Amortization of net (gain) or loss
Settlement loss
Net Periodic Pension Cost
Valuation assumptions used to determine net periodic benefit cost for the year:
Discount rate
Long term rate of return on plan assets
Salary Increase Rate
December 31,
2012
2011
(In Thousands)
$
444 $
(463 )
63
164
$
208 $
469
(375 )
—
—
94
4.40 %
8.00 %
N/A
5.54 %
8.00 %
N/A
At December 31, 2012 and December 31, 2011, unrecognized net loss of $(2,187,000) and $(2,094,000), respectively, was included, net of deferred income tax, in accumulated
other comprehensive loss in accordance with ASC 715-20 and ASC 715-30. We expect $73,000 of the unrecognized net loss to be recognized in net periodic pension expense for
the year ended December 31, 2013.
39
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Benefits Plan (Continued)
Plan Assets
Investment Policies and Strategies
The primary long-term objective for the Plan is to maintain assets at a level that will sufficiently cover future beneficiary obligations. The Plan will be structured to include a
volatility reducing component (the fixed income commitment) and a growth component (the equity commitment).
To achieve the Plan Sponsor’s long-term investment objectives, the Trustee will invest the assets of the Plan in a diversified combination of asset classes, investment strategies,
and pooled vehicles. The asset allocation guidelines in the table below reflect the Bank’s risk tolerance and long-term objectives for the Plan. These parameters will be reviewed on
a regular basis and subject to change following discussions between the Bank and the Trustee.
Initially, the following asset allocation targets and ranges will guide the Trustee in structuring the overall allocation in the Plan’s investment portfolio. The Bank or the Trustee
may amend these allocations to reflect the most appropriate standards consistent with changing circumstances. Any such fundamental amendments in strategy will be discussed
between the Bank and the Trustee prior to implementation.
Based on the above considerations, the following asset allocation ranges will be implemented:
Equity
Large-Cap U.S.
Mid/Small-Cap U.S.
Non-U.S.
Total-Equity
Fixed Income
Long Duration
Money Market/Certificates of Deposit
Total-Fixed Income
Asset Allocation Parameters by Asset Class
Minimum
40%
40%
Target
26%
12%
12%
50%
47%
3%
50%
Maximum
60%
60%
The parameters for each asset class provide the Trustee with the latitude for managing the Plan within a minimum and maximum range. The Trustee will have full discretion to
buy, sell, invest and reinvest in these asset segments based on these guidelines which includes allowing the underlying investments to fluctuate within the stated policy ranges. The
Plan will maintain a cash equivalents component (not to exceed 3% under normal circumstances) within the fixed income allocation for liquidity purposes.
The Trustee will monitor the actual asset segment exposures of the Plan on a regular basis and, periodically, may adjust the asset allocation within the ranges set forth above as it
deems appropriate. Periodic reallocations of assets will be based on the Trustee’s perception of the changing risk/return opportunities of the respective asset classes.
Determination of Long-Term Rate–of Return
The long-term rate-of-return-on assets assumption was set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future
returns as applied to the plan’s target allocation of asset classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 5-9% and 2-6%,
respectively. The long-term inflation rate was estimated to be 3%. When these overall return expectations are applied to the Plan’s target allocation, the result is an expected rate of
return of 7% to 11%.
40
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Benefits Plan (Continued)
The fair values of the Company’s pension plan assets at December 31, 2012, by asset category (see Note 16 for the definitions of levels), are as follows:
Asset Category
Mutual funds-Equity
Large-Cap Value (a)
Mid-Cap Value (b)
Small-Cap Value (c)
Foreign Large Growth (d)
Mutual Funds-Fixed Income
World Bond (e)
Intermediate Government (f)
Inflation Protected (g)
Mutual Funds-Asset Allocation/Balanced
Conservative Allocation (h)
World Allocation (i)
Stock
BCB Common Stock
Cash Equivalents
Money Market
Total
Total
(Level 1)
(Level 2)
(Level 3)
$
766,221 $
385,766
367,800
230,043
766,221 $
385,766
367,800
230,043
793,273
727,626
666,735
793,273
727,626
666,735
2,219,131
340,332
2,219,131
340,332
$
—
—
—
—
—
—
—
—
477,225
477,225
—
$
30,348 $
30,348 $
— $
$
7,004,500 $
7,004,500 $
— $
—
—
—
—
—
—
—
—
—
—
—
41
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Benefits Plan (Continued)
(a) Large-value portfolios invest primarily in big U.S. companies that are less expensive or growing more slowly than other large-cap stocks. Stocks in the top 70% of the
capitalization of the U.S. equity market are defined as large cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth
(low growth rates for earnings, sales, book value, and cash flow.
(b) Some mid-cap value portfolios focus on medium-size companies while others land here because they own a mix of small-, mid-, and large-cap stocks. All look for U.S.
stocks that are less expensive or growing more slowly than the market. The U.S. mid-cap range for market capitalization typically falls between $1 billion and $8 billion
and represents 20% of the total capitalization of the U.S. equity market. Value is defined based on low valuations (low price ratios and high dividend yields) and slow
growth (low growth rates for earnings, sales, book value, and cash flow).
(c) Small-value portfolios invest in small U.S. companies with valuations and growth rates below other small-cap peers. Stocks in the bottom 10% of the capitalization of
the U.S. equity market are defined as small cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates
for earnings, sales, book value, and cash flow).
(d) Foreign large-growth portfolios focus on high-priced growth stocks, mainly outside of the United States. Most of these portfolios divide their assets among a dozen or
more developed markets, including Japan, Britain, France, and Germany. These portfolios primarily invest in stocks that have market caps in the top 70% of each
economically integrated market (such as Europe or Asia ex-Japan). Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash
flow) and high valuations (high price ratios and low dividend yields). These portfolios typically will have less than 20% of assets invested in U.S. stocks.
(e) World-bond portfolios invest 40% or more of their assets in foreign bonds. Some world-bond portfolios follow a conservative approach, favoring high-quality bonds
from developed markets. Others are more adventurous and own some lower-quality bonds from developed or emerging markets. Some portfolios invest exclusively
outside the U.S., while others regularly invest in both U.S. and non- U.S. bonds.
(f) Intermediate-government portfolios have at least 90% of their bond holdings in bonds backed by the U.S. government or by government-linked agencies. This backing
minimizes the credit risk of these portfolios, as the U.S. government is unlikely to default on its debit. These portfolios have durations typically between 3.5 and 6.0
years. Consequently, the group’s performance-and its level of volatility- tends to fall between that of the short government and long government bond categories.
(g) Inflation-protected bond portfolios invest primarily in debt securities that adjust their principal values in line with the rate of inflation. These bonds can be issued by any
organization, but the U.S. Treasury is currently the largest issuer for these types of securities.
(h) Conservative-allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. These portfolios tend
to hold smaller positions in stocks than moderate-allocation portfolios. These portfolios typically have 20% to 50% of assets in equities and 50% to 80% of assets in
fixed income and cash.
(i) World-allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. While these portfolios do
explore the whole world, most of them focus on the U.S., Canada, Japan, and the larger markets in Europe. It is rare for such portfolios to invest more than 10% of their
assets in emerging markets. These portfolios typically have at least 10% of assets in bonds, less than 70% of assets in stocks, and at least 40% of assets in non-U.S.
stocks or bonds.
The Company expects to contribute, based upon actuarial estimates, approximately $330,000 to the pension plan in 2013.
Benefit payments are expected to be paid for the years ended December 31 as follows (In thousands):
2013
2014
2015
2016
2017
2018-2022
42
$ 587
591
586
596
590
2,977
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Benefits Plan (Continued)
The fair values of the Company’s pension plan assets at December 31, 2011, by asset category (see Note 16 for the definitions of levels), are as follows:
Asset Category
Mutual funds-Equity
Large-Cap Value (a)
Large-Cap Core (b)
Mid-Cap Core (c)
Small-Cap Core (d)
International Cap (e)
Mutual Funds-Fixed Income
US Core (f)
Core Plus (g)
Common/Collective Trusts-Equity
Large-Cap Value (i)
Large-Cap Growth (j)
International Core (k)
Exchange Traded Funds
Fixed Income (h)
Stock
BCB Common Stock
Cash Equivalents
Money Market
BCB Bank CD
Total
Total
(Level 1)
(Level 2)
(Level 3)
$
266,863 $
327,673
—
158,806
277,059
266,863 $
327,673
—
158,806
277,059
519,981
—
519,981
—
$
—
—
—
—
—
—
286,944
525,035
272,948
—
—
—
286,944
525,035
272,948
537,986
537,986
—
494,410
494,410
—
14,637
1,290,457 $
$
14,637
— $
—
1,290,457 $
$
4,972,799 $
2,597,415 $
2,375,384 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(a) This category consists of a mutual fund holding 100-160 stocks, designed to track and outperform the Russell 1000 Value Index.
(b) This category contains stocks of the S&P 500 Index. The stocks are maintained in approximately the same weightings as the index.
(c) This category contains stocks of the MSCI U.S. Mid Cap 450 Index. The stocks are maintained in approximately the same weightings as the index.
(d) This category consists of 400 or more small and micro-cap companies, with as much as 25% invested in non-U.S. equities.
(e) This category consists of investments with long-term growth potential located primarily in Europe and the Pacific Basin, with a smaller portion located in developing
economies.
(f) This category consists of mutual funds that invest in long-term treasury and investment grade corporate bond securities with a dollar-weighted average maturity of 15 to
30 years.
(g) This category consists of a diversified portfolio of bonds and other fixed income securities, including mortgage-related and asset backed securities. Up to 15% may be
invested in below investment grade domestic and foreign securities.
(h) This category consists of an exchange traded fund (ETF) that seeks to approximate the total rate of return of the Barclays Capital U.S. 20+ Year Treasury Bond Index.
(i) This category contains large-cap stocks with above-average yield. The portfolio typically holds between 60 and 70 stocks.
(j) This category consists of a portfolio of between 45 and 65 stocks that will typically overweight technology and health care.
(k) This category consists of a portfolio of over 200 stocks in non-U.S. domiciled companies, with up to 35% invested in emerging markets.
43
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Benefits Plan (Continued)
Supplemental Executive Retirement Plan
The Company acquired through the merger with Pamrapo Bancorp, Inc. a supplemental executive retirement plan (“SERP”) in which certain former employees of Pamrapo 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.
The following tables set forth the SERP's funded status and components of net periodic SERP cost:
Change in Benefit Obligation:
Benefit obligation, beginning of year
Interest Cost
Actuarial loss
Benefits paid
Benefit obligation, ending
Change in Plan Assets:
Fair value of assets, beginning of year
Employer contributions
Benefits paid
Fair value of assets, ending
Reconciliation of Funded Status:
Accumulated benefit obligation
Projected benefit obligation
Fair value of assets
Funded status, included in other liabilities
Valuation assumptions used to determine
benefit obligation at period end:
Discount rate
Salary Increase Rate
44
December 31,
2012
2011
(In Thousands)
$
$
$
511 $
21
16
(74 )
474 $
— $
74
(74 )
$
— $
$
$
474 $
474 $
—
$
474 $
596
29
25
(139 )
511
—
139
(139 )
—
511
511
—
511
4.05 %
4.40 %
N/A
N/A
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Benefits Plan (Continued)
Net Periodic SERP Expense:
Interest Cost
Net Periodic SERP Cost
Valuation assumptions used to determine net periodic benefit cost for the year:
Discount rate
Rate of increase in compensation
December 31,
2012
2011
(In Thousands)
$
$
21 $
21 $
29
29
4.40 %
5.54 %
N/A
N/A %
At December 31, 2012 and December 31, 2011, unrecognized net loss of $46,000 and $30,000, respectively, was included, net of deferred income tax, in accumulated other
comprehensive income in accordance with ASC 715-20 and ASC 715-30. None of the unrecognized net loss is expected to be recognized in net periodic SERP cost for the year
ended December 31, 2012.
The Company expects to contribute, based upon actuarial estimates, approximately $62,000 to the SERP plan in 2013.
Benefit payments are expected to be paid for the years ended December 31 as follows (In thousands):
2013
2014
2015
2016
2017
2018-2022
45
$
62
62
62
62
62
218
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Benefits Plan (Continued)
Stock Options
The Company has three stock-related compensation plans, the 2002 Stock Option Plan, 2003 Stock Option Plan, and the 2011 Stock Option Plan (the “Plans”). All stock
options granted have a ten year term. For the 2002 Stock Option Plan and the 2003 Stock Option Plan all shares granted have vested and all but 5,469 options authorized under
the Plans have been granted as of December 31, 2012. For the 2011 Stock Option Plan, stock option awards vest at a rate of 10% per year, over ten years commencing on the
first anniversary of the grant date. As of December 31, 2012, 60,000 options had been granted, with 840,000 shares authorized under the Plan remaining to be granted. During
the years ended December 31, 2012 and 2011, the Company recorded $24,000 and $12,000, respectively, as stock option compensation expense. During the year ended
December 31, 2010, the Company recorded no share-based compensation expense.
A summary of stock option activity, adjusted to retroactively reflect subsequent stock dividends, follows:
Outstanding at December 31, 2010
Options forfeited
Options exercised
Options granted
Options expired
Number of Options
Range of
Exercise Price
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value (000's)
289,613 $5.29-$29.25 $
12.00
(3,000 )
(28,637 )
60,000
—
29.25
8.26
8.93
—
29.25
8.26
8.93
—
$
70
Outstanding at December 31, 2011
317,976 $5.29-$29.25
11.61 4.46 years
231
Options forfeited
Options exercised
Options granted
Options expired
Outstanding at December 31, 2012
Exercisable at December 31, 2012
(11,000 ) 8.93-29.25
(29,661 ) 5.29-9.34
—
—
(3,019 ) 5.29-15.11
17.06
6.01
—
11.80
274,296 $8.93-$29.25
11.97 2.96 years
224,796 $8.93-$29.25
12.64 1.71 years
131
34
6
46
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Benefits Plan (Continued)
The key valuation assumptions and fair value of stock options granted during the year ended December 31, 2011 were:
Expected life
Risk-free interest rate
Volatility
Dividend yield
Fair value
7.25 years
1.44%
29.80%
4.71%
$1.49
It is Company policy to issue new shares upon share option exercise. Expected future compensation expense relating to the 49,500 unexercisable options outstanding as of
December 31, 2012 is $54,000 over a weighted average period of 8.75 years.
47
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 13 - Dividend Restrictions
Payment of cash dividends on common stock is conditional on earnings, financial condition, cash needs, capital considerations, the discretion of the Board of Directors, and
compliance with regulatory requirements. State and federal law and regulations impose substantial limitations on the Bank’s ability to pay dividends to the Company. Under New
Jersey law, the Bank is permitted to declare dividends on its common stock only if, after payment of the dividend, the capital stock of the Bank will be unimpaired and either the
Bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the Bank’s surplus. During 2012, 2011 and 2010, the Bank paid the
Company total dividends of $15,745,000, $9,611,000, and $5,334,000 respectively. The Company’s ability to declare dividends is dependent upon the amount of dividends
declared by the Bank.
48
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 14 - Income Taxes
The components of income tax (benefit) expense are summarized as follows:
Current income tax expense (benefit):
Federal
State
Deferred income tax expense (benefit):
Federal
State
2012
Years Ended December 31,
2011
(In Thousands)
2010
$
(2,366 ) $
263
4,382 $
836
1,982
(136 )
(2,103 )
5,218
1,846
802
(951 )
(1,592 )
(253 )
(149 )
(1,845 )
5
(346 )
(341 )
Total Income Tax (Benefit) Expense
$
(2,252 ) $
3,373 $
1,505
49
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 14 - Income Taxes (Continued)
The tax effects of existing temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are as follows:
Deferred income tax assets:
Allowance for loan losses
Other real estate owned expenses
Depreciation
Other than temporary impairment on security
Non-accrual interest
Benefit Plans
Benefit Plan-accumulated other comprehensive loss
Valuation adjustment on loans receivable acquired
Valuation adjustment on securities
Valuation adjustment on time deposits acquired
Valuation adjustment on borrowings acquired
Net operating loss carry forwards (net of valuation allowances)
Unrealized loss on securities available for sale
Other
Deferred income tax liabilities:
Unrealized gain on securities available for sale
Valuation adjustment on securities
Valuation adjustment on premises and equipment acquired
$
December 31,
2012
2011
5,537 $
435
137
1,191
455
424
912
812
371
138
—
1,069
—
134
4,822
—
199
1,191
397
1,530
868
1,677
—
347
575
345
21
318
11,615
12,290
59
—
1,503
—
748
1,602
1,562
2,350
Net Deferred Tax Asset
$
10,053 $
9,940
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
In making this assessment, management has considered the profitability of current core operations, future market growth, forecasted earnings, future taxable income, and ongoing,
feasible and permissible tax planning strategies. If the Company was to determine that it would not be able to realize a portion of its net deferred tax asset in the future for which
there is currently no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made. Conversely, if the
Company was to make a determination that it is more likely than not that the deferred tax assets for which there is a valuation allowance would be realized, the related valuation
allowance would be reduced and a benefit to earnings would be recorded. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which temporary differences are deductible and carry forwards are available.
At December 31, 2012, gross deferred tax assets related to net operating loss carry forwards totaled $1,128,000, consisting of $345,000 of federal assets acquired in the 2011
acquisition of Allegiance, $724,000 in state assets related to the Bank, and $59,000 in state assets related to the stand-alone Company. Comparable amounts at December 31, 2011,
were gross deferred tax assets of $432,000 consisting of $345,000 of federal assets acquired in the Allegiance acquisition, $37,000 in state assets related to the Bank, and $50,000
in state assets related to the stand-alone Company.
At December 31, 2012 and 2011, the stand-alone Company had $1.0 million and $863,000, respectively, of state net operating loss carry forwards, with related gross deferred tax
assets of $59,000 and $50,000, respectively. Due to the uncertainty regarding the ability to realize these carry forwards within the statutory time limits, the related deferred tax
asset has been fully offset by valuation allowances of $59,000 and $50,000, respectively, at December 31, 2012 and 2011.
In conjunction with the Company’s acquisition of Allegiance in 2011, the Company acquired a federal net operating loss carry forward of $1.2 million. This carry forward is
available for use through 2030; however, in accordance with Internal Revenue Code Section 382, usage of the carry forward is limited to $235,000 annually on a cumulative basis
(portions of the $235,000 not used in a particular year may be added to subsequent usage). At December 31, 2012 and 2011, the Company had approximately $987,000 remaining
of this federal net operation loss carry forward available to offset future taxable income for federal tax reporting purposes; Based on the current profitability or core operations and
expectations that such profitability will continue, the Company’s expects to fully utilize this federal net operation loss carry forward by 2016 ($470,000 in 2013, $235,000 in both
2014 and 2015, and $87,000 in 2016).
50
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 14 - Income Taxes (Continued)
At December 31, 2012 and 2011, the Bank had $12.4 million and $635,000, respectively, of state net operating loss carry forwards; the $635,000 at December 31, 2011, which is
also included in the December 31, 2012 balance, relates to 2010 and is expected to be recoverable in full via carry forward to a to-be-amended 2011 state tax return. The additional
$11.7 million at December 31, 2012, was generated in 2012 and will expire, to the extent not utilized, in 2032. The Bank’s 2012 state net operating loss was the largely the result
of two planned transactions designed to enhance the future operations of the Company and the Bank; as discussed in Note 6, the Bank engaged in two bulk sales of impaired loans
at a realized loss of $10.8 million. Similar transactions in future periods are not contemplated or anticipated. The Bank, when consolidated with its investment company subsidiary,
has generated consistently strong core earnings and projects similarly strong results going forward. The Bank currently employs a state tax planning strategy designed to reduce
state taxes by taking advantage of the lower corporate tax rates applicable to investment companies. Accordingly, most of the state taxable income of the consolidated Bank resides
in its investment company subsidiary. In order to utilize the 2012 net operating loss of the stand-alone Bank, a portion of the existing strategy will be reversed to increase the level
of Bank-consolidated taxable income that will reside in the stand-alone Bank. The expected continuance of the profitable core operations of the consolidated Bank along with the
available, feasible and currently in use tax planning strategy will allow full utilization of this net operating loss carry forward.
The following table presents a reconciliation between the reported income tax expense and the income tax expense which would be computed by applying the normal federal
income tax rate of 35% in 2012 and 2011 and 34% in 2010 to income before income tax expense:
Federal income tax (benefit) expense at statutory rate
Increases (reductions) in income taxes resulting from:
State income tax (benefit), net of federal income tax effect
Merger related items
Other items, net
Effective Income Tax
Effective Income Tax Rate
51
2012
Years Ended December 31,
2011
(In Thousands)
2010
$
(1,510 )
$
3,298 $
5,382
(451 )
—
(291 )
380
(219 )
(86 )
(318 )
(4,066 )
507
$
(2,252 )
$
3,373 $
1,505
(52.2 )%
35.8 %
9.5 %
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 15- Commitments and Contingencies
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments
primarily include commitments to extend credit. The Bank’s exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments
to extend credit, is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
Outstanding loan related commitments were as follows:
Loan origination
Standby letters of credit
Construction loans in process
Unused lines of credit
December 31,
2012
2011
(In Thousands)
$
39,093 $
2,414
13,774
41,824
39,133
1,538
3,588
29,261
$
97,105 $
73,520
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, total
commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but primarily
includes residential real estate properties.
The Company and its subsidiaries also have, in the normal course of business, commitments for services and supplies. Management does not anticipate losses on any of these
transactions.
The Company and its subsidiaries, from time to time, may be party to litigation which arises primarily in the ordinary course of business. In the opinion of management, the
ultimate disposition of such litigation should not have a material effect on the consolidated financial statements. As of December 31, 2012, the Company and its subsidiaries were
not parties to any material litigation.
52
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 16 - Fair Value Measurements and Fair Values of Financial Instruments
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.
Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales
transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of
these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting
dates may be different than the amounts reported at each year-end.
ASC Topic 820, Fair Value Measurements and Disclosures , establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 :
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 :
Level 3 :
Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or
liability.
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or
no market activity).
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
For assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy are as follows:
53
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 16 - Fair Value Measurements and Fair Values of Financial Instruments (Continued)
(Level 1)
(Level 2)
For assets and liabilities measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy are as follows:
(Level 1)
(Level 2)
Description
As of December 31, 2012:
Securities available for sale — Equity Securities
As of December 31, 2011:
Securities available for sale — Equity Securities
Description
As of December 31, 2012:
Impaired loans
Other Real estate owned
As of December 31, 2011:
Impaired Loans
Other Real estate owned
Quoted Prices in Significant
Active Markets
for Identical
Assets
Significant
Observable Unobservable
(Level 3)
Inputs
Other
Total
$
1,240 $
1,240 $
— $
$
1,045 $
1,045 $
— $
Inputs
—
—
(Level 3)
Quoted Prices in Significant
Active Markets
for Identical
Assets
Significant
Observable Unobservable
Inputs
Inputs
Other
Total
$
$
20,967 $
2,215 $
— $
— $
— $
— $
20,967
2,215
$
$
23,007 $
300 $
— $
— $
— $
— $
23,007
300
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized adjusted Level
3 inputs to determine fair value, (Dollars in thousands):
Quantitative Information about Level 3 Fair Value Measurements
Fair Value
Estimate
Valuation
Techniques
December 31, 2012:
Impaired Loans
Other Real Estate Owned
$
$
20,967
Appraisal of collateral (1)
2,215
Appraisal of collateral (1)
Unobservable
Input
Appraisal adjustments (2)
Liquidation expenses (3)
Appraisal adjustments (2)
Range
0%-10%
0%-10%
0%-20%
(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.
(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and
other appraisal adjustments are presented as a percent of the appraisal.
(3) Includes qualitative adjustments by management and estimated liquidation expenses.
54
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 16 - Fair Value Measurements and Fair Values of Financial Instruments (Continued)
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the
Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s
disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial
instruments at December 31, 2012 and 2011:
Cash and Cash Equivalents (Carried at Cost)
The carrying amounts reported in the consolidated statements of financial condition for cash and short-term instruments approximate those assets’ fair values.
Securities
The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on
nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities
without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.
Loans Held for Sale (Carried at Lower of Cost or Fair Value)
The fair value of loans held for sale is determined, when possible, using quoted secondary-market prices. If no such quoted prices exist, the fair value of a loan is determined
using quoted prices for a similar loan or loans, adjusted for specific attributes of that loan. Loans held for sale are carried at their cost.
Loans Receivable (Carried at Cost)
The fair values of loans, except for certain impaired loans, are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit
and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of
principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.
Impaired Loans (Generally Carried at Fair Value)
Impaired loans are those for which the Company has measured and recorded an impairment generally based on the fair value of the loan’s collateral. Fair value is generally
determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3
fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value at December 31, 2012 and 2011 consists of the loan balances
of $23,087,000 and $26,398,000, net of a valuation allowance of $2,120,000 and $3,391,000, respectively.
FHLB of New York Stock (Carried at Cost)
The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.
Interest Receivable and Payable (Carried at Cost)
The carrying amount of interest receivable and interest payable approximates its fair value.
Deposits (Carried at Cost)
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and money market accounts) are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Long-Term Debt (Carried at Cost)
Fair values of long-term debt are estimated using discounted cash flow analysis, based on quoted prices for new long-term debt with similar credit risk characteristics, terms
and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a
third party.
Off-Balance Sheet Financial Instruments (Disclosed at Cost)
Fair values for the Bank’s off-balance sheet financial instruments (lending commitments and unused lines of credit) are based on fees currently charged in the market to enter
into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these commitments was deemed
immaterial and is not presented in the accompanying table.
55
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 16 - Fair Value Measurements and Fair Values of Financial Instruments (Continued)
The carrying values and estimated fair values of financial instruments were as follows at December 31, 2012 and 2011:
Quoted Prices
in Active
Markets for
(Level 1)
Significant Significant
Unobservable
Other
(Level 2)
(Level 3)
Fair Value
Carrying
Value
Financial assets:
Cash and cash equivalents
Securities available for sale
Securities held to maturity
Loans held for sale
Loans receivable
FHLB of New York stock
Interest receivable
Financial liabilities:
Deposits
FHLB Borrowings
Interest payable
Financial assets:
Cash and cash equivalents
Securities available for sale
Securities held to maturity
Loans held for sale
Loans receivable
FHLB of New York stock
Interest receivable
Financial liabilities:
Deposits
Long-term debt
Interest payable
(In Thousands)
$
35,133 $
1,240
164,648
1,602
922,301
7,698
4,063
35,133 $
1,240
171,603
1,637
975,835
7,698
4,063
35,133 $
1,240
—
—
—
—
—
— $
—
171,603
1,637
—
7,698
4,063
—
—
—
—
975,835
—
—
940,786
131,124
789
944,960
144,211
789
527,318
—
—
417,642
144,211
789
—
—
—
December 31,
2011
Carrying
Value
Fair Value
$
117,087 $
1,045
206,965
5,856
840,763
7,498
4,997
117,087
1,045
213,903
6,020
890,215
7,498
4,997
977,623
129,531
813
982,500
141,108
813
56
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 17- Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss included in stockholders' equity are as follows:
Net unrealized gain (loss) on securities available for sale
Tax effect
Net of tax amount
Benefit plan adjustments
Tax effect
Net of tax amount
Accumualted other comprehensive loss
57
At December 31,
2012
2011
(In Thousands)
$
143 $
(59 )
84
(2,231 )
912
(1,319 )
(52 )
21
(31 )
(2,124 )
868
(1,256 )
$
(1,235 ) $
(1,287 )
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 18- Parent Only Condensed Financial Information
STATEMENTS OF FINANCIAL CONDITION
Assets
Cash and due from banks
Investment in subsidiaries
Restricted common stock
Other assets
Total assets
Liabilities and Stockholders' Equity
Liabilities
Long-term debt
Other Liabilities
Total Liabilities
Stockholder's Equity
Total Liabilities and Stockholders' Equity
58
Years Ended December 31,
2012
2011
(In Thousands)
$
1,052 $
95,037
124
58
—
104,088
124
36
96,271
104,248
$
4,124 $
566
4,124
76
4,690
4,200
91,581
100,048
$
96,271 $
104,248
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 18- Parent Only Condensed Financial Information (Continued)
STATEMENTS OF OPERATIONS
Dividends from Bank subsidiary
Total Income
Interest expense, borrowed money
Other
Total Expense
Income before Income Tax Expense (Benefit) and Equity in
Undistributed Earnings (Losses) of Subsidiaries
Income tax expense (benefit)
Income before Equity in Undistributed (Losses) Earnings of Subsidiaries
Equity in undistributed (losses) earnings of Subsidiaries
2012
Years Ended December 31,
2011
(In Thousands)
2010
$
15,745 $
15,745
9,611 $
9,611
5,334
5,334
128
37
165
120
(17 )
103
122
60
182
15,580
(55 )
9,508
97
5,152
120
15,635
9,411
5,032
(17,697 )
(3,360 )
9,294
Net (Loss) Income
$
(2,062 ) $
6,051 $
14,326
59
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 18 - Parent Only Condensed Financial Information (Continued)
STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities
Net (Loss) Income
Adjustments to reconcile net (loss) income to net cash provided by operating activites:
Equity in undistributed losses (earnings) of subsidiaries
Decrease (increase) in other assets
Increase (decrease) in other liabilities
Net Cash Provided By Operating Activities
Cash Flows from Investing Activities
Cash acquired in acquisition
Additional investment in subsidiary
Net Cash (Used In) Provided By Investing Activities
Cash Flows from Financing Activities
Proceeds from issuance of preferred stock
Proceeds from issuance of common stock
Cash dividends paid
Purchase of treasury stock
Net Cash (Used in) Financing Activities
Net Increase (decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending
Non-Cash Items:
Transfer of securities available for sale to treasury stock
60
2012
Years Ended December 31,
2011
(In Thousands)
2010
$
(2,062 ) $
6,051 $
14,326
17,697
(22 )
490
3,360
95
18
(9,294 )
171
(129 )
16,103
9,524
5,074
—
(8,570 )
—
—
$
(8,570 ) $
— $
31
—
31
8,570
109
(4,310 )
(10,850 )
—
237
(4,549 )
(5,567 )
—
73
(3,412 )
(1,806 )
(6,481 )
(9,879 )
(5,145 )
1,052
(355 )
— $
355 $
1,052 $
— $
(40 )
395
355
— $
— $
235
$
$
$
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 19 – Acquisitions
On October 14, 2011, the Company acquired all of the outstanding common shares of Allegiance Community Bank (“Allegiance”) and thereby acquired all of Allegiance
Community Bank’s two branch locations. Under the terms of the merger agreement, Allegiance stockholders received 0.35 of a share of BCB Bancorp, Inc. common stock at a
price of $9.57 per share in exchange for each share of Allegiance common stock, resulting in BCB Bancorp, Inc. issuing 644,434 common shares of BCB Bancorp, Inc. common
stock with an acquisition date fair value of $6.2 million.
The results of Allegiance’s operations are included in our Consolidated Statements of Operations from the date of acquisition. In connection with the merger, the consideration
paid and the net assets acquired were recorded at the estimated fair value on the date of acquisition, as summarized in the following table (In thousands).
Consideration paid
BCB Community Bancorp, Inc. common stock issued
Cash paid on fractional shares
Estimated amounts of identifiable assets acwquired and liabilities assumed, at fair value
Cash and cash equivalents
Investment securities
Loans receivable
Federal Home Loan Bank of New York stock
Premises and equipment
Interest Receivable
Deferred income taxes
Other assets
Deposits
Borrowings
Other liabilities
Total identifiable net assets
$
$
$
6,167
1
6,168
5,902
34,969
88,911
819
1,618
443
1,418
1,057
(111,365 )
(15,458 )
(984 )
7,330
Gain on bargain purchase recognized in non-interest income
$
1,162
ASC 805 “Business Combinations,” permits the use of provisional amounts for the assets acquired and liabilities assumed when the information at acquisition date is incomplete.
During the measurement period, which is one year from the acquisition date, amounts provisionally assigned to the acquisition may be adjusted based on new information obtained
during the measurement period. Under no circumstances may the measurement period exceed one year from the acquisition date. No adjustments were made during 2012.
The securities portfolio acquired consisted primarily of FHLMC and FNMA mortgage backed securities which were valued as of October 14, 2011 based on matrix pricing, which
is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying
on the securities’ relationship to other benchmark quoted prices.
We estimated the fair value for most loans acquired from Allegiance by utilizing a methodology wherein loans with comparable characteristics were aggregated by type of
collateral, remaining maturity and repricing terms. Cash flows for each pool were estimated using an estimate of future credit losses and an estimated rate of prepayments.
Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. To estimate the fair value of the remaining loans, we
analyzed the value of the underlying collateral of the loans, assuming the fair values of the loans are derived from the eventual sale of the collateral. The value of the collateral was
based on recently completed appraisals adjusted to the valuation date based on recognized industry indicies. We discounted these values using market derived rates of return with
consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of Allegiance’s allowance for credit
losses associated with the loans we acquired in accordance with applicable accounting guidance. Information about the acquired Allegiance loan portfolio as of October 14, 2011 is
as follows (in thousands):
Contractually required principal and interest at acquisition
Contractual cash flows not expected to be collected (nonaccretabale discount)
Expected cash flows at acquisition
Interest component of expected cash flows (accretable discount)
Fair value of acquired loans
61
$
$
107,760
(1,531 )
106,229
17,318
88,911
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 19 – Acquisitions (Continued)
The fair value of the office buildings and land is based upon independent third-party appraisals of the properties.
The fair value of savings and transaction deposit accounts acquired from Allegiance was assumed to approximate the carrying value as these accounts have no stated maturity and
are payable on demand. Certificates of deposit accounts were valued by calculating the discounted cash flow. The discounted cash flows, at an individual account level, were then
aggregated together by category type to determine the market value of each time deposit category. The market values of all time deposit categories were added together to
determine the total market value of the time deposit portfolio. The discount rate utilized for the discounted cash flow of each time deposit category was calculated based upon the
median interest rate for market time deposits nearest the weighted average remaining maturity for that time deposit category.
The fair value of borrowings assumed was determined by estimating projected future cash outflows and discounting them at the current market rate of interest for similar type of
borrowings.
Direct costs related to the acquisition were expensed as incurred. During the year ended December 31, 2011, we incurred $538,000 in merger related expenses related to the
transaction, including $533,000 in professional services and $5,000 in other non-interest expenses.
On July 6, 2010, the Company acquired all of the outstanding common shares of Pamrapo Bancorp, Inc. (“Pamrapo”), the parent company of Pamrapo Savings Bank, and thereby
acquired all of Pamrapo Savings Bank’s 10 branch locations. Under the terms of the merger agreement, Pamrapo stockholders received 1.0 share of BCB Bancorp, Inc. common
stock in exchange for each share of Pamrapo common stock, resulting in us issuing 4.9 million common shares of BCB Bancorp, Inc. common stock with an acquisition date fair
value of $38.6 million. Also under the terms of the merger agreement, Pamrapo stock options were converted to BCB Bancorp, Inc. stock options. There were 28,000 Pamrapo
options outstanding that had a fair value of $0.00 on the date of acquisition. The strike price of the options acquired ranged from $18.41-$29.25.
The merger with Pamrapo presents a unique opportunity to merge with a leading community financial institution that will strengthen the earning power of BCB Bancorp, as well as
the added scale to undertake and solidify leadership positions in key business lines.
The results of Pamrapo’s operations are included in our Consolidated Statements of Operations from the date of acquisition. In connection with the merger, the consideration paid
and the net assets acquired were recorded at estimated fair value on the date of acquisition, as summarized in the following table, (in thousands).
Consideration paid
BCB Community Bancorp, Inc. common stock issued
Recognized amounts of identifiable assets acquired and liabilities assumed, at fair value
Cash and cash equivalents
Investment securities
Loans receivable
Federal Home Loan Bank of New York stock
Property held for sale
Premises and equipment
Other real estate owned
Interest receivable
Deferred income taxes
Other assets
Deposits
Borrowings
Other liabilities
Total identifiable net assets
$
38,645
$
22,979
86,770
412,142
2,878
1,017
5,938
789
1,905
1,820
1,264
(435,810 )
(43,815 )
(6,650 )
51,227
Gain on bargain purchase recognized in non-interest income
$
12,582
The securities portfolio acquired consisted primarily of FHLMC and FNMA mortgage backed securities which were valued as of July 6, 2010 based on matrix pricing, which is a
mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on
the securities’ relationship to other benchmark quoted prices.
62
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 19 – Acquisitions (Continued)
We estimated the fair value for most loans acquired from Pamrapo by utilizing a methodology wherein loans with comparable characteristics were aggregated by type of collateral,
remaining maturity and repricing terms. Cash flows for each pool were estimated using an estimate of future credit losses and an estimated rate of prepayments. Projected monthly
cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. To estimate the fair value of the remaining loans, we analyzed the value of the
underlying collateral of the loans, assuming the fair values of the loans are derived from the eventual sale of the collateral. The value of the collateral was based on recently
completed appraisals adjusted to the valuation date based on recognized industry indicies. We discounted these values using market derived rates of return with consideration given
to the period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of Pamrapo’s allowance for credit losses associated with the
loans we acquired in accordance with applicable accounting guidance. Information about the acquired Pamrapo loan portfolio as of July 6, 2010 is as follows (in thousands):
Contractually required principal and interest at acquisition
Contractual cash flows not expected to be collected (nonaccretabale discount)
Expected cash flows at acquisition
Interest component of expected cash flows (accretable discount)
Fair value of acquired loans
Fair value of acquired loans
The fair value of the office buildings and land is based upon independent third-party appraisals of the properties.
The fair value of other real estate owned is based upon independent third-party appraisals of the properties.
$
$
649,871
(7,924 )
641,947
229,805
412,142
The fair value of savings and transaction deposit accounts acquired from Pamrapo was assumed to approximate the carrying value as these accounts have no stated maturity and
are payable on demand. Certificates of deposit accounts were valued by calculating the discounted cash flow. The discounted cash flows, at an individual account level, were then
aggregated together by category type to determine the market value of each time deposit category. The market values of all time deposit categories were added together to
determine the total market value of the time deposit portfolio. The discount rate utilized for the discounted cash flow of each time deposit category was calculated based upon the
median interest rate for market time deposits nearest the weighted average remaining maturity for that time deposit category.
The fair value of borrowings assumed was determined by estimating projected future cash outflows and discounting them at the current market rate of interest for similar type of
borrowings.
Direct costs related to the acquisition were expensed as incurred. During the twelve months ended December 31, 2010, we incurred $644,000 in merger related expenses related to
the transaction, including $622,000 in professional services and $22,000 in other non-interest expenses.
The following table presents unaudited pro forma information, (in thousands), as if the acquisition of Allegiance had occurred on January 1, 2010. This pro forma information
gives effect to certain adjustments, including purchase accounting fair value adjustments, amortization of fair value adjustments and related income tax effects. The pro forma
information does not necessarily reflect the results of operations that would have occurred had the Company merged with Allegiance at the beginning of 2011 or 2010. In
particular, potential cost savings are not reflected in the unaudited pro forma amounts.
Net interest income
Noninterest income
Noninterest expense
Net income
Pro forma
Twelve months ended
December 31, 2011 December 31, 2010
$
41,734 $
2,452
30,864
6,237
28,363
15,480
25,203
14,475
The amounts of revenue and earnings attributable to Allegiance since the acquisition date included in the consolidated statement of income for the year ended December 31, 2011
are not disclosed due to the fact that the information is impracticable to provide.
63
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 20 - Quarterly Financial Data (Unaudited)
Interest income
Interest expense
Net Interest Income
Provision for loan losses
Net Interest Income after Provision for loan losses
Non-interest income (loss)
Non-interest expense
Income (loss) before Income Taxes
Income taxes (benefit)
Net Income (Loss)
Net income (loss) per common share:
Basic
Diluted
Dividends per common share
Interest income
Interest expense
Net Interest Income
Provision for loan losses
Net Interest Income after Provision for loan losses
Non-interest income
Non-interest expense
Income before Income Taxes
Income taxes
Net Income (Loss)
Net income per common share:
Basic
Diluted
Dividends per common share
Year Ended December 2012
First Quarter Second Quarter Third Quarter Fourth Quarter
$
$
$
$
$
13,549 $
3,252
10,297
600
9,697
1,282
8,382
2,597
1,009
1,588 $
0.17 $
0.17 $
0.12 $
13,322 $
3,074
10,248
1,200
9,048
(6,311 )
7,999
(5,262 )
(1,900 )
(3,362 ) $
(0.37 ) $
(0.37 ) $
0.12 $
13,108 $
2,853
10,255
1,600
8,655
(2,739 )
9,001
(3,085 )
(1,740 )
(1,345 ) $
(0.15 ) $
(0.15 ) $
0.12 $
13,668
2,768
10,900
1,500
9,400
543
8,507
1,436
379
1,057
0.12
0.12
0.12
Year Ended December 2011
First Quarter Second Quarter Third Quarter Fourth Quarter
$
$
$
$
$
13,054 $
3,382
9,672
350
9,322
533
6,709
3,146
1,225
1,921 $
0.20 $
0.20 $
0.12 $
13,250 $
3,368
9,882
450
9,432
509
6,637
3,304
1,352
1,952 $
0.21 $
0.21 $
0.12 $
12,728 $
3,334
9,394
800
8,594
303
6,869
2,028
840
1,188 $
0.13 $
0.13 $
0.12 $
13,847
3,213
10,634
2,500
8,134
1,103
8,291
946
(44 )
990
0.10
0.10
0.12
64
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following is a list of the Subsidiaries of BCB Bancorp, Inc.
Subsidiaries of the Registrant
Name
Bayonne Community Bank
BCB Holding Company Investment Corp.
Pamrapo Service Corp.
BCB New York Management, Inc.
State of Incorporation
New Jersey
New Jersey
New Jersey
New York
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-177502) Forms S-8 (Nos. 333-112201, 333-165127, 333-
169337, 333-174639, and 333-175545) of BCB Bancorp, Inc. of our reports dated March 18, 2013, relating to the Company’s consolidated financial statements and the
effectiveness of the Company’s internal control over financial reporting , which appear in this Form 10-K for the year ended December 31, 2012.
/s/ ParenteBeard LLC
ParenteBeard LLC
Clark, New Jersey
March 18, 2013
EXHIBITS 31.1 AND 31.2
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
1.
2.
3.
4.
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Donald Mindiak, certify that:
I have reviewed this Annual Report on Form 10-K of BCB Bancorp, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
March 18, 2013
Date
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
/s/ Donald Mindiak
Donald Mindiak
President and Chief Executive Officer
Exhibit 31 . 2
1.
2.
3.
4.
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kenneth Walter, certify that:
I have reviewed this Annual Report on Form 10-K of BCB Bancorp, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
March 18, 2013
Date
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
/s/ Kenneth Walter
Kenneth Walter
Chief Financial Officer
EXHIBIT 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32
Donald Mindiak, President, Chief Executive Officer and Kenneth D. Walter, Chief Financial Officer of BCB Bancorp, Inc. (the “Company”) each certify in his capacity as an
officer of the Company that he has reviewed the annual report of the Company on Form 10-K for the fiscal year ended December 31, 2012 and that to the best of his knowledge:
(1)
(2)
the report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.
The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of
2002.
March 18, 2013
Date
March 18, 2013
Date
/s/ Donald Mindiak
Donald Mindiak
President and Chief Executive Officer
/s/ Kenneth Walter
Kenneth Walter
Chief Financial Officer