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Section 1: 10-Q (10-Q)

10Q 20190331_Taxonomy2017

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 



(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 0-50275



BCB Bancorp, Inc.

(Exact name of registrant as specified in its charter)



 

New Jersey

 

26-0065262

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

I.D. No.)

 

 

104-110 Avenue C Bayonne, New Jersey

 

07002

(Address of principal executive offices)

 

(Zip Code)

(201) 823-0700

(Registrant’s telephone number, including area code)

 



Not Applicable

(Former name, former address and former fiscal year if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes       No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).       Yes       No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer, larger accelerated filer, non-accelerated filer, smaller reporting company, or emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

Large Accelerated Filer

 

  

Accelerated Filer

 

 

 

 

 

 

Non-Accelerated Filer

 

  

Smaller Reporting Company   

 

 



 

 

 

 

 

 



 

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).      Yes      No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 1, 2019, BCB Bancorp, Inc., had 16,398,459 shares of common stock, no par value, outstanding.



 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

BCBP

The Nasdaq Stock Market, LLC




 



 

BCB BANCORP INC. AND SUBSIDIARIES

INDEX

 



 

 

 

 

 

 

 

 

 

 

  

Page

 

PART I. CONSOLIDATED FINANCIAL INFORMATION

  

 

 

 

Item 1. Consolidated Financial Statements

  

 

 

 

Consolidated Statements of Financial Condition as of March 31, 2019 (unaudited) and December 31, 2018 (unaudited)

  

 

  

Consolidated Statements of Income for the three months ended March 31, 2019 and 2018 (unaudited)

  

 

  

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018 (unaudited)

  

 

 

Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2019 and 2018 (unaudited)

  

 

  

Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited)

  

 

  

Notes to Unaudited Consolidated Financial Statements

  

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

 

35 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

  

 

40 

 

Item 4. Controls and Procedures

  

 

41 

  

 

 

PART II. OTHER INFORMATION

  

 

41 

 

Item 1. Legal Proceedings

  

 

41 

  

Item 1A. Risk Factors

  

 

42 

  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  

 

42 

  

Item 3. Defaults Upon Senior Securities

  

 

42 

  

Item 4. Mine Safety Disclosures

  

 

42 

  

Item 5. Other Information

  

 

42 

  

Item 6. Exhibits

 

 

42 

 

 





 

 

 


 

PART I. CONSOLIDATED FINANCIAL INFORMATION

ITEM I. CONSOLIDATED FINANCIAL STATEMENTS

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, Except Share and Per Share Data, Unaudited)



 



 

 

 

 

 



 

 

 

 

 



March 31,

 

December 31,



2019

 

2018



 

 

 

 

 

ASSETS

 

 

 

 

 

Cash and amounts due from depository institutions

$

18,610 

 

$

18,970 

Interest-earning deposits

 

174,938 

 

 

176,294 

  Total cash and cash equivalents

 

193,548 

 

 

195,264 



 

 

 

 

 

Interest-earning time deposits

 

735 

 

 

735 

Debt securities available for sale

 

117,942 

 

 

119,335 

Equity investments

 

7,963 

 

 

7,672 

Loans held for sale

 

1,347 

 

 

1,153 

Loans receivable, net of allowance for loan losses

 

 

 

 

 

  of $23,004 and $22,359 respectively

 

2,307,140 

 

 

2,278,492 

Federal Home Loan Bank of New York stock, at cost

 

13,405 

 

 

13,405 

Premises and equipment, net

 

35,703 

 

 

20,293 

Accrued interest receivable

 

9,750 

 

 

8,378 

Other real estate owned

 

1,746 

 

 

1,333 

Deferred income taxes

 

13,302 

 

 

13,601 

Goodwill and other intangibles

 

5,584 

 

 

5,604 

Other assets

 

10,235 

 

 

9,466 

   Total Assets

$

2,718,400 

 

$

2,674,731 



 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 



 

 

 

 

 

LIABILITIES

 

 

 

 

 

Non-interest bearing deposits

$

273,370 

 

$

263,960 

Interest bearing deposits

 

1,915,263 

 

 

1,916,764 

 Total deposits

 

2,188,633 

 

 

2,180,724 

FHLB advances

 

245,800 

 

 

245,800 

Subordinated debt

 

36,635 

 

 

36,577 

Other liabilities and accrued interest payable

 

30,614 

 

 

11,415 

   Total Liabilities

 

2,501,682 

 

 

2,474,516 



 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

Preferred stock: $0.01 par value, 10,000,000 shares authorized;

 

 

 

 

 

   issued and outstanding 8,340 shares of series C 6%, series D 4.5%, series G 6%, (liquidation value $10,000 per share)

 

 

 

 

 

  and series F 6% (liquidation value $1,000 per share) noncumulative perpetual preferred stock

 

 

 

 

 

  at March 31, 2019 and 7,807 shares of series C 6%, series D 4.5%, (liquidation value $10,000 per share)

 

 

 

 

 

   and series F 6% (liquidation value $1,000 per share) noncumulative perpetual preferred stock at December 31, 2018

 

 -

 

 

 -

Additional paid-in capital preferred stock

 

25,016 

 

 

19,706 

Common stock: no par value; 20,000,000 shares authorized; issued 18,365,677 and 18,352,748

 

 

 

 

 

 at March 31, 2019 and December 31, 2018, respectively, outstanding 16,398,459 shares and

 

 

 

 

 

   15,889,306 shares, at March 31, 2019 and December 31, 2018, respectively

 

 -

 

 

 -

Additional paid-in capital common stock

 

176,379 

 

 

175,500 

Retained earnings

 

40,750 

 

 

38,405 

Accumulated other comprehensive (loss)

 

(3,379)

 

 

(5,076)

Treasury stock, at cost, 1,967,218 and 2,463,442 shares at March 31, 2019 and December 31, 2018, respectively

 

(22,048)

 

 

(28,320)

   Total Stockholders' Equity

 

216,718 

 

 

200,215 



 

 

 

 

 

    Total Liabilities and Stockholders' Equity

$

2,718,400 

 

$

2,674,731 



 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements

 

1


 

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, Except for Per Share Amounts, Unaudited)





 

 

 

 

 



 

 

 

 

 



Three Months Ended March 31,



 

2019

 

 

2018



 

 

 

 

 

Interest income:

 

 

 

 

 

 Loans, including fees

$

28,233 

 

$

19,521 

 Mortgage-backed securities

 

770 

 

 

699 

 Municipal bonds and other debt

 

128 

 

 

104 

 FHLB stock and other interest earning assets

 

1,347 

 

 

618 

    Total interest income

 

30,478 

 

 

20,942 



 

 

 

 

 

Interest expense:

 

 

 

 

 

 Deposits:

 

 

 

 

 

    Demand

 

1,576 

 

 

797 

    Savings and club

 

113 

 

 

97 

    Certificates of deposit

 

5,990 

 

 

2,730 



 

7,679 

 

 

3,624 

    Borrowings

 

1,897 

 

 

878 

      Total interest expense

 

9,576 

 

 

4,502 



 

 

 

 

 

Net interest income

 

20,902 

 

 

16,440 

Provision for loan losses

 

889 

 

 

1,342 



 

 

 

 

 

Net interest income after provision for loan losses

 

20,013 

 

 

15,098 



 

 

 

 

 

Non-interest income:

 

 

 

 

 

  Fees and service charges

 

883 

 

 

710 

  Gain on sales of loans

 

318 

 

 

583 

  Gain (loss) on bulk sale of impaired loans held in portfolio

 

107 

 

 

(24)

  Gain on sales of other real estate owned

 

 

 

 -

  Unrealized gain (loss) on equity investments

 

291 

 

 

(127)

  Other

 

53 

 

 

2,244 

     Total non-interest income

 

1,660 

 

 

3,386 



 

 

 

 

 

Non-interest expense:

 

 

 

 

 

  Salaries and employee benefits

 

6,915 

 

 

6,267 

  Occupancy and equipment

 

2,630 

 

 

2,062 

  Data processing and service fees

 

721 

 

 

729 

  Professional fees

 

533 

 

 

505 

  Director fees

 

318 

 

 

201 

  Regulatory assessments

 

457 

 

 

239 

  Advertising and promotional

 

73 

 

 

85 

  Other real estate owned, net

 

(16)

 

 

31 

  Merger related costs

 

 -

 

 

145 

  Other

 

2,146 

 

 

1,747 

     Total non-interest expense

 

13,777 

 

 

12,011 



 

 

 

 

 

Income before income tax provision

 

7,896 

 

 

6,473 

Income tax provision

 

2,445 

 

 

1,841 



 

 

 

 

 

Net Income

$

5,451 

 

$

4,632 

Preferred stock dividends

 

317 

 

 

166 

Net Income available to common stockholders

$

5,134 

 

$

4,466 



 

 

 

 

 

Net Income per common share-basic and diluted

 

 

 

 

 

Basic

$

0.32 

 

$

0.30 

Diluted

$

0.32 

 

$

0.29 



 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

Basic

 

16,078 

 

 

15,048 

Diluted

 

16,111 

 

 

15,181 

See accompanying notes to unaudited consolidated financial statements.

 

 

2


 

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands, Unaudited)







 

 

 

 

 



Three Months Ended March 31,



2019

 

2018



 

 

 

 

 



 

 

 

 

 

Net Income

$

5,451 

 

$

4,632 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

Unrealized (losses) gains on available-for-sale debt securities:

 

 

 

 

 

Unrealized holding (losses) gains arising during the period

 

2,266 

 

 

(2,380)

Tax Effect

 

(569)

 

 

669 

Net of Tax Effect

 

1,697 

 

 

(1,711)

Other comprehensive (loss) income

 

1,697 

 

 

(1,711)

Comprehensive income

$

7,148 

 

$

2,921 



See accompanying notes to unaudited consolidated financial statements.

 



 

 

3


 



BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity

(In thousands, Except Share and Per Share Data, Unaudited) 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Preferred Stock

 

Common Stock

 

Additional             Paid-In Capital

 

Retained Earnings

 

Treasury Stock

 

Accumulated Other Comprehensive Income (Loss)

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

$

 -

 

$

 -

 

$

195,206 

 

$

38,405 

 

$

(28,320)

 

$

(5,076)

 

$

200,215 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 -

 

 

 -

 

 

6,239 

 

 

 -

 

 

 -

 

 

 -

 

 

6,239 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series G Preferred Stock

 

 -

 

 

 -

 

 

5,310 

 

 

 -

 

 

 -

 

 

 -

 

 

5,310 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 -

 

 

 -

 

 

190 

 

 

 -

 

 

 -

 

 

 -

 

 

190 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock allocated to Common Stock issuance

 

 -

 

 

 -

 

 

(5,707)

 

 

(565)

 

 

6,272 

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends payable on Series C 6%, Series D 4.5%, Series F 6%, and Series G 6% noncumulative perpetual preferred stock

 

 -

 

 

 -

 

 

 -

 

 

(317)

 

 

 -

 

 

 -

 

 

(317)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends on common stock ($0.14 per share declared)

 

 -

 

 

 -

 

 

 

 

 

(2,136)

 

 

 -

 

 

 -

 

 

(2,136)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend Reinvestment Plan

 

 -

 

 

 -

 

 

88 

 

 

(88)

 

 

 -

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Purchase Plan

 

 -

 

 

 -

 

 

69 

 

 

 -

 

 

 -

 

 

 -

 

 

69 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

5,451 

 

 

 -

 

 

 -

 

 

5,451 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,697 

 

 

1,697 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

$

 -

 

$

 -

 

$

201,395 

 

$

40,750 

 

$

(22,048)

 

$

(3,379)

 

$

216,718 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Preferred Stock

 

Common Stock

 

Additional             Paid-In Capital

 

Retained Earnings

 

Treasury Stock

 

Accumulated Other Comprehensive Income (Loss)

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2018

$

 -

 

$

 -

 

$

177,471 

 

$

31,241 

 

$

(29,116)

 

$

(3,142)

 

$

176,454 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exercise of stock options (200 shares)

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 -

 

 

 -

 

 

85 

 

 

 -

 

 

 -

 

 

 -

 

 

85 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends payable on Series C 6% and Series D 4.5% noncumulative perpetual preferred stock

 

 -

 

 

 -

 

 

 -

 

 

(166)

 

 

 -

 

 

 -

 

 

(166)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends on common stock ($0.14 per share declared)

 

 -

 

 

 -

 

 

 -

 

 

(2,025)

 

 

 -

 

 

 -

 

 

(2,025)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend Reinvestment Plan

 

 -

 

 

 -

 

 

80 

 

 

(80)

 

 

 -

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Purchase Plan

 

 -

 

 

 -

 

 

115 

 

 

 -

 

 

 -

 

 

 

 

 

115 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

4,632 

 

 

 -

 

 

 -

 

 

4,632 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of unrealized gains on AFS equity securities

 

 -

 

 

 -

 

 

 -

 

 

126 

 

 

 -

 

 

(126)

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,711)

 

 

(1,711)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2018

$

 -

 

$

 -

 

$

177,753 

 

$

33,728 

 

$

(29,116)

 

$

(4,979)

 

$

177,386 

See accompanying notes to unaudited consolidated financial statements.

 

4


 

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands, Unaudited)







 

 

 

 

 



Three Months Ended March 31,



2019

 

2018

Cash Flows from Operating Activities :

 

 

 

 

 

  Net Income

$

5,451 

 

$

4,632 

  Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

        Depreciation of premises and equipment

 

716 

 

 

600 

        Amortization and accretion, net

 

(765)

 

 

(266)

        Provision for loan losses

 

889 

 

 

1,342 

        Deferred income tax (benefit)

 

(270)

 

 

(331)

        Loans originated for sale

 

(4,240)

 

 

(4,747)

        Proceeds from sales of loans

 

4,364 

 

 

6,417 

        Gain on sales of loans originated for sale

 

(318)

 

 

(583)

        Gains on sales of other real estate owned

 

(8)

 

 

 -

        Fair value adjustment of OREO

 

 -

 

 

        Unrealized (gain) loss on equity investments

 

(291)

 

 

127 

        (Gain) loss on bulk sale of impaired loans held in portfolio

 

(107)

 

 

24 

        Stock-based compensation expense

 

190 

 

 

85 

        (Increase) decrease in interest receivable

 

(1,372)

 

 

101 

        (Increase) decrease in other assets

 

(769)

 

 

172 

        (Decrease) increase in accrued interest payable

 

(264)

 

 

77 

        Increase in other liabilities

 

3,404 

 

 

1,484 

Net Cash Provided by Operating Activities

 

6,610 

 

 

9,135 

Cash flows from investing activities:

 

 

 

 

 

        Proceeds from repayments, calls, and maturities on securities available for sale

 

3,614 

 

 

7,330 

        Purchases of securities available for sale

 

 -

 

 

(14,645)

        Proceeds from sales of other real estate owned

 

142 

 

 

 -

        Proceeds from bulk sale of impaired loans held

 

402 

 

 

250 

        Net increase in loans receivable

 

(29,451)

 

 

(123,078)

        Additions to premises and equipment

 

(107)

 

 

(127)

        Purchase of Federal Home Loan Bank of New York stock

 

 -

 

 

(675)

Net Cash Used In Investing Activities

 

(25,400)

 

 

(130,945)

Cash flows from financing activities:

 

 

 

 

 

        Net increase in deposits

 

7,909 

 

 

121,983 

        Proceeds from Federal Home Loan Bank of New York advances

 

 -

 

 

60,000 

        Repayments of Federal Home Loan Bank of New York advances

 

 -

 

 

(45,000)

        Cash dividends paid on common stock

 

(2,136)

 

 

(2,025)

        Cash dividends paid on preferred stock

 

(317)

 

 

(166)

        Net proceeds from issuance of common stock

 

6,308 

 

 

115 

        Net proceeds from issuance of preferred stock

 

5,310 

 

 

 -

        Exercise of stock options

 

 -

 

 

Net Cash Provided by Financing Activities

 

17,074 

 

 

134,909 



 

 

 

 

 

Net (Decrease) Increase In Cash and Cash Equivalents

 

(1,716)

 

 

13,099 

Cash and Cash Equivalents-Beginning

 

195,264 

 

 

124,235 



 

 

 

 

 

Cash and Cash Equivalents-Ending

$

193,548 

 

$

137,334 



 

 

 

 

 

Supplementary Cash Flow Information:

 

 

 

 

 

     Cash paid during the year for:

 

 

 

 

 

        Income taxes

$

218 

 

$

143 

        Interest

$

9,840 

 

$

4,425 

Non-cash items:

 

 

 

 

 

        Transfer of loans to other real estate owned

$

547 

 

$

881 



See accompanying notes to unaudited consolidated financial statements

 

5


 

BCB Bancorp Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Note 1 – Basis of Presentation



The accompanying unaudited consolidated financial statements include the accounts of BCB Bancorp, Inc. (the “Company”) and the Company’s wholly owned subsidiaries, BCB Community Bank (the “Bank”), BCB Holding Company Investment Company, BCB New York Asset Management, Inc., Pamrapo Service Corporation, REO Special Asset I, LLC., and REO Special Asset II, LLC. The Company’s business is conducted principally through the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.



The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and, therefore, do not necessarily include all information that would be included in audited consolidated financial statements. The information furnished reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of consolidated financial condition and results of operations. All such adjustments are of a normal recurring nature. These results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2019 or any other future period. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.



These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2018, which are included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission. In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred between March 31, 2019, and the date these consolidated financial statements were issued.



Recent Accounting Pronouncements



In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which will supersede the current lease requirements in Topic 840. The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of income. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new guidance became effective for the Company in 2019. The standard has been applied using a modified retrospective transition method. The right-of-use asset and lease liability are reported on the Company’s consolidated statement of financial condition. The adoption of the provisions of this update did not have a significant impact to our consolidated statements of income.



In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the consolidated financial statements. The amendments are effective for the Company in 2020. The Company is evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and results of operations. The effect of this change cannot be ascertained at this point, and will depend upon factors including asset components, asset quality and market conditions at the adoption date.



In January 2016, the FASB issued ASU 2016-01, Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance amends existing guidance to improve accounting standards for financial instruments including clarification and simplification of accounting and disclosure requirements and the requirement for public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2017. The Company recorded a cumulative effect adjustment to the balance sheet as of January 1, 2018 in the amount of $126,000, representing the unrealized gain of $175,000 at December 31, 2017 net of taxes of $49,000.  The Company recorded a gain to the income statement in the amount of $291,000 for the three months ended March 31, 2019 and a loss of $127,000 for the three months ended March 31, 2018.



In January 2017, FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350). The main objective of this ASU is to simplify the accounting for goodwill impairment by requiring impairment charges be based upon the first step in the current two-step impairment test under Accounting Standards Codification (ASC) 350. Currently, if the fair value of a reporting unit is lower than its carrying amount (Step 1), an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). This ASU’s objective is to simplify how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is currently evaluating the impact of the pending adoption on its consolidated financial statements.



In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement as a result of a broader disclosure project. The Update amends the disclosure requirements for fair value measurements to improve the effectiveness of the disclosure. The Update removes and modifies certain disclosure requirements, as well as adds requirements for public business entities. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the Update and delay adoption of the additional disclosures until their effective date. This ASU will affect the Company’s disclosures only and will not have a financial statement impact.



 

6


 

Note 2 – Acquisition of IA Bancorp, Inc.



On April 17, 2018, the Company completed its acquisition of IA Bancorp, Inc. (“IAB”) and its wholly-owned subsidiary, Indus-American Bank, of Edison, New Jersey. IAB shareholders received 0.189 shares of the Company’s common stock for each share of IAB common stock they owned as of the effective date of the acquisition. In addition, the Company issued two series of preferred stock, Series E and F, in exchange for two outstanding series, Series C and D, respectively, of IAB preferred stock. The two series of Company preferred shares have terms substantially similar to the terms of the two series of IAB preferred stock. The aggregate consideration paid to IAB shareholders was $20.0 million. The results of IAB’s operations are included in the Company’s unaudited consolidated statements of income beginning April 17, 2018, the date of the acquisition.



Indus-American Bank was founded primarily to meet the banking needs of the South Asian-American community. The Company plans to operate BCB-Indus-American Bank, a division of BCB Community Bank, and it will continue to specialize in core business banking products for small- to medium-sized companies, with an emphasis on real estate-based lending. This transaction will allow the combined entities to further develop our existing markets in Jersey City and Edison, and will provide further opportunities in Parsippany, Plainsboro and Hicksville, New York, three new, attractive markets for the Company.



The acquisition of IAB was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the acquisition date. The $5.2 million excess consideration paid over the fair value of net assets acquired has been reported as goodwill in the Company’s consolidated statements of financial condition as of March 31, 2019.    



The assets acquired and liabilities assumed and consideration paid in the acquisition of IAB were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. While the fair values are not expected to be materially different from the estimates, any material adjustments to the estimates will be reflected, retroactively, as of the date of the acquisition. The items most susceptible to adjustment are the credit fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition. 



In connection with the acquisition, the consideration paid and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table:







 

 



Estimated Fair Value



At April 17, 2018



(in thousands)

Consideration paid:

 

 

   Common stock issued in acquisition

$

9,952 

   Cash paid for exchange of IAB shares

 

2,550 

   Preferred stock

 

7,453 

    Total consideration paid

 

19,955 



 

 

Assets acquired:

 

 

   Cash and cash equivalents

 

7,597 

   Investment securities available for sale

 

13,811 

   Restricted investment in bank stocks

 

1,163 

   Loans

 

182,578 

   Premises and equipment, net

 

2,834 

   Other real estate owned, net

 

328 

   Accrued interest receivable

 

612 

   Core deposit intangible

 

430 

   Deferred tax asset

 

5,843 

   Other assets

 

1,122 

          Total assets acquired

 

216,318 



 

 

Liabilities assumed:

 

 

   Deposits

 

178,436 

   Borrowings

 

20,015 

   Accrued interest payable

 

120 

   Other liabilities

 

3,024 

           Total liabilities assumed

 

201,595 

                       Net assets acquired

 

14,723 



 

 

Goodwill recorded in acquisition

$

5,232 

 

7


 

Note 2 – Acquisition of IA Bancorp, Inc. (continued)



Acquired loans (impaired and non-impaired) are initially recorded at their acquisition-date fair values using Level 3 inputs. Fair values are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, expected lifetime losses, environmental factors, collateral values, discount rates, expected payments and expected prepayments. Specifically, the Company has prepared three separate loan fair value adjustments that it believes a market participant might employ in estimating the entire fair value adjustment necessary under ASC 820-10 for the acquired loan portfolio. The three separate valuation methodologies employed are: (i) an interest rate loan fair value adjustment, (ii) a general credit fair value adjustment, and (iii) a specific credit fair value adjustment for purchased credit impaired loans subject to ASC 310-30 provisions. The acquired loans were recorded at fair value at the acquisition date without carryover of IAB’s previously established allowance for loan losses.



The table below illustrates the fair value adjustments made to the amortized cost basis to present a fair value of the loans acquired.







 

 



At April 17, 2018



(in thousands)



 

 

Gross principal balance

$

192,437 

Fair value adjustment on pools of homogeneous loans

 

(5,895)

Fair value adjustment on acquired impaired loans

 

(3,964)

Fair value of acquired loans

$

182,578 



The credit adjustment on acquired impaired loans is derived in accordance with ASC 310-30 and represents the portion of the loan balances that have been deemed uncollectible based on the Company’s expectations of future cash flows for each respective loan.







 

 



At April 17, 2018



(in thousands)



 

 

Contractually required principal and interest at acquisition

$

18,732 

Contractual cash flows not expected to be collected (non-accretable

 

 

    discount, includes principal and interest)

 

(4,750)

Expected cash flows at acquisition

 

13,982 

Interest component of expected cash flows (accretable discount)

 

(1,338)

Fair value of loans acquired accounted for under ASC 310-30

 

12,644 



For loans acquired without evidence of credit quality deterioration, the Company prepared interest rate loan fair value and credit fair value adjustments. Loans were grouped into homogeneous pools by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various internal and external data sources and reviewed for reasonableness. A present value approach was utilized to calculate the interest rate fair value discount of $1.9 million. Additionally, for loans acquired without credit deterioration, a credit fair value adjustment was calculated using a two-part credit fair value analysis: (i) expected lifetime credit migration losses, and (ii) estimated fair value adjustment for certain qualitative credit factors. The expected lifetime losses were calculated using historical losses observed at IAB. The environmental factor represents potential discount which may arise due to general credit and economic factors. A credit fair value discount of $3.9 million was determined. The fair value adjustment related to loans acquired without evidence of credit quality deterioration will be substantially recognized as interest income over the expected life of the loans. 



In connection with the acquisition of IAB, the Company recorded a net deferred income tax asset of $5.8 million related to IAB’s net operating loss carryforward, as well as other tax attributes of the acquired company, along with the effects of fair value adjustments resulting from applying the acquisition method of accounting.



The fair value of savings and transaction deposit accounts acquired from IAB provide value to the Company as a source of below market rate funds. The fair value of the core deposit intangible was determined based on a discounted cash flow analysis using a discount rate based on the estimated cost of capital for a market participant. To calculate cash flows, the sum of deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the cost of alternative funding sources available to the Company. The expected cash-flows of the deposit base included estimated attrition rates. The core deposit intangible was valued at $430,000. The core deposit intangible asset is being amortized on an accelerated basis over ten years. Amortization from the April 17, 2018 acquisition date through March 31, 2019 was $78,000.  



The fair value of certificate of deposit accounts was determined by compiling individual account data into groups of equal remaining maturities with corresponding calculated weighted average rates. Each maturity group’s weighted average rate was compared to market rates for similar maturities and then priced to yield market rates. This valuation adjustment was determined to be a $751,000 premium and is being amortized in line with the expected cash flows driven by the maturities of these deposits, primarily over five years.



Fair Value Measurement of Assets Acquired and Liabilities Assumed



The methods used to determine the fair value of the assets acquired and the liabilities assumed in the IAB acquisition were as follows. Refer to Note 10, Fair Value Measurements, for a discussion of the fair value hierarchy.



Investment Securities



The estimated fair values of investment securities were calculated utilizing Level 2 inputs. The securities acquired are bought and sold in active markets. Prices for these instruments were determined using 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.    



Direct costs related to the merger were accrued and expensed as incurred. During the three months ended March 31, 2018, the Company incurred $145,000 in merger-related expenses, and there were no such expenses incurred for the three months ended March 31, 2019.

 

8


 

Note 2 – Acquisition of IA Bancorp, Inc. (continued)



Supplemental Pro Forma Financial Information



The following table presents unaudited condensed pro forma financial information assuming the IAB acquisition had been completed as of January 1, 2018 and for the three months ended March 31, 2018. The table has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred at the beginning of the periods presented, nor is it indicative of future results.



Furthermore, the unaudited pro forma financial information includes merger-related expenses but does not reflect management’s estimate of any revenue-enhancing opportunities, cost savings or the impact of conforming certain accounting policies of IAB to the Company’s policies that may have occurred as a result of the integration and consolidation of IAB’s operations. The combined pro forma information reflects adjustments related to certain purchase accounting fair value adjustments and amortization of the core deposit intangibles. 







 

 

 

 

 



 

Actual Combined

 

 

Pro forma Combined



 

Three Months Ended

 

 

Three Months Ended



 

March 31, 2019

 

 

March 31, 2018



 

 

 

 

 



 

 

 

 

 

Interest income

$

30,478 

 

$

23,534 

Interest expense

 

9,576 

 

 

5,236 

Provision for loan losses

 

889 

 

 

1,342 

Non-interest income

 

1,660 

 

 

3,433 

Non-interest expense

 

13,777 

 

 

13,395 

Income Taxes

 

2,445 

 

 

1,997 

Net Income

 

5,451 

 

 

4,997 



 

 

 

 

 

Earnings per diluted share

$

0.32 

 

$

0.32 



 

Note 3 – Reclassification



Certain amounts as of December 31, 2018 and for the three month period ended March 31, 2018 have been reclassified to conform to the current period’s presentation. These changes had no effect on the Company’s results of operations or financial position.

 

Note 4 – Pension and Equity Incentive Plans



Pension Plan



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



Net periodic pension cost (benefit) for the three months ended March 31, 2019 and March 31, 2018 was $40,000 and ($10,000), respectively. Net periodic postretirement cost for the SERP plan for each of the three months ended March 31, 2019 and March 31, 2018 was $3,000. 



Equity Incentive Plans



The Company, under the plan approved by its shareholders on April 26, 2018 (“2018 Equity Incentive Plan”), authorized the issuance of up to 1,000,000 shares of common stock of the Company pursuant to grants of stock options and restricted stock units. Employees and directors of the Company and the Bank are eligible to participate in the 2018 Stock Plan. All stock options will be granted in the form of either "incentive" stock options or "non-qualified" stock options. Incentive stock options have certain tax advantages that must comply with the requirements of Section 422 of the Internal Revenue Code. Only employees are permitted to receive incentive stock options. On December 14, 2018, a grant of 300,000 options was declared for members of the Board of Directors of the Bank and the Company which vest at a rate of 50% per year, over two years, commencing on the first anniversary of the grant date. The exercise price was recorded as of close of business on December 14, 2018 and a Form 4 was filed for each Director who received a grant with the Securities and Exchange Commission consistent with their filing requirements. On December 14, 2018, an award of 54,000 shares of restricted stock was declared for members of the Board of Directors of the Bank and the Company, which vest over a 2-year period, commencing on the anniversary of the award date. On December 14, 2018, an award of 13,321 shares of restricted stock was declared for certain executive officers of the Bank and the Company, which vest over a 2-year period, commencing on the anniversary of the award date.



The Company, under the plan approved by its shareholders on April 28, 2011 (“2011 Stock Plan”), authorized the issuance of up to 900,000 shares of common stock of the Company pursuant to grants of stock options. Employees and directors of the Company and the Bank are eligible to participate in the 2011 Stock Plan. All stock options will be granted in the form of either "incentive" stock options or "non-qualified" stock options. Incentive stock options have certain tax advantages that must comply with the requirements of Section 422 of the Internal Revenue Code. Only employees are permitted to receive incentive stock options. On September 13, 2017, a grant of 275,000 options was declared for certain members of the Board of Directors of the Bank and the Company which vest at a rate of 10% per year, over ten years commencing on the first anniversary of the grant date. The exercise price was recorded as of the close of business on September 13, 2017 and a Form 4 was filed for each Director who received a grant with the Securities and Exchange Commission consistent with their filing requirements. There were 75,000 stock options granted to employees in the fourth quarter of 2017 which vests at a rate of 20% per year.







 

9


 



Note 4 – Pension and Equity Incentive Plans (continued)



The following table presents a summary of the status of the Company’s restricted shares as of March, 31, 2019.





 

 

 



Number of Shares Awarded

 

Weighted Average Grant Date Fair Value

Non-vested at December 31, 2018

67,321 

$

11.26 

  Granted

 -

 

 

  Vested

 -

 

 

  Forfeited

 -

 

 

Non-vested at March 31, 2019

67,321 

$

11.26 



Expected future expenses relating to the non-vested restricted shares outstanding as of March 31, 2019 was $624,000 over a weighted average period of 1.71 years.



The following tables present a summary of the status of the Company’s outstanding stock option awards as of March 31, 2019 and March 31, 2018.





 

 

 

 

 

 

 

 



  

Number of  Option Shares

 

 

Range of Exercise Prices

 

 

Weighted Average Exercise Price



 

 

 

 

 

 

 

 

Outstanding at December 31, 2018

 

1,104,600 

 

$

8.93 - 13.32

 

$

11.36 



 

 

 

 

 

 

 

 

Options granted                                         

 

 -