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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

Commission file number: 001-35309

 

 

BSB BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Maryland   80-0752082

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S Employer

Identification No.)

2 Leonard Street

Belmont, Massachusetts

  02478
(Address of Principal Executive Officers)   (Zip Code)

(617) 484-6700

(Registrant’s telephone number, including area code)

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if smaller reporting company)    Smaller reporting company   ¨

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

The Registrant had 9,070,321 shares of common stock, par value $0.01 per share, outstanding as of May 1, 2015.

 

 

 


Table of Contents

BSB BANCORP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

         Page  

PART I. FINANCIAL INFORMATION

  

Item 1.

 

Consolidated Financial Statements

  
 

- Consolidated Balance Sheets as of March 31, 2015 (unaudited) and December 31, 2014

     3   
 

- Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014 (unaudited)

     4   
 

- Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014 (unaudited)

     5   
 

- Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2015 and 2014 (unaudited)

     6   
 

- Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 (unaudited)

     7   
 

- Notes to Unaudited Consolidated Financial Statements

     9   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     30   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     39   

Item 4.

 

Controls and Procedures

     39   

PART II. OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     40   

Item 1A.

 

Risk Factors

     40   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     40   

Item 3.

 

Defaults Upon Senior Securities

     40   

Item 4.

 

Mine Safety Disclosures

     40   

Item 5.

 

Other Information

     41   

Item 6.

 

Exhibits

     41   

 

2


Table of Contents
PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

     March 31, 2015     December 31, 2014  
     (unaudited)        

ASSETS

    

Cash and due from banks

   $ 2,001      $ 2,275   

Interest-bearing deposits in other banks

     39,091        49,492   
  

 

 

   

 

 

 

Cash and cash equivalents

  41,092      51,767   

Interest-bearing time deposits with other banks

  131      131   

Investments in available-for-sale securities

  22,197      22,079   

Investments in held-to-maturity securities (fair value of $120,876 as of March 31, 2015 (unaudited) and $119,447 as of December 31, 2014)

  119,010      118,528   

Federal Home Loan Bank stock, at cost

  15,082      13,712   

Loans, net of allowance for loan losses of $9,203 as of March 31, 2015 (unaudited) and $8,881 as of December 31, 2014

  1,231,068      1,179,399   

Premises and equipment, net

  2,929      3,066   

Accrued interest receivable

  3,065      2,977   

Deferred tax asset, net

  5,316      5,642   

Income taxes receivable

  497      321   

Bank-owned life insurance

  24,074      23,888   

Other assets

  4,182      4,040   
  

 

 

   

 

 

 

Total assets

$ 1,468,643    $ 1,425,550   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:

Noninterest-bearing

$ 174,904    $ 179,205   

Interest-bearing

  868,095      805,357   
  

 

 

   

 

 

 

Total deposits

  1,042,999      984,562   

Federal Home Loan Bank advances

  269,100      285,100   

Securities sold under agreements to repurchase

  1,632      1,392   

Other borrowed funds

  1,055      1,067   

Accrued interest payable

  1,078      961   

Deferred compensation liability

  6,000      5,751   

Other liabilities

  7,834      9,707   
  

 

 

   

 

 

 

Total liabilities

  1,329,698      1,288,540   
  

 

 

   

 

 

 

Stockholders’ Equity:

Common stock; $0.01 par value, 100,000,000 shares authorized; 9,069,808 and 9,067,792shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

  91      91   

Additional paid-in capital

  87,868      87,428   

Retained earnings

  54,977      53,603   

Accumulated other comprehensive income (loss)

  61      (22

Unearned compensation - ESOP

  (4,052   (4,090
  

 

 

   

 

 

 

Total stockholders’ equity

  138,945      137,010   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

$ 1,468,643    $ 1,425,550   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


Table of Contents

BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

 

     Three months ended
March 31,
 
     2015      2014  
     (unaudited)  

Interest and dividend income:

     

Interest and fees on loans

   $ 10,232       $ 7,893   

Interest on taxable debt securities

     741         806   

Dividends

     58         29   

Other interest income

     21         21   
  

 

 

    

 

 

 

Total interest and dividend income

  11,052      8,749   
  

 

 

    

 

 

 

Interest expense:

Interest on deposits

  1,755      1,168   

Interest on Federal Home Loan Bank advances

  531      251   

Interest on securities sold under agreements to repurchase

  1      1   

Interest on other borrowed funds

  7      8   
  

 

 

    

 

 

 

Total interest expense

  2,294      1,428   
  

 

 

    

 

 

 

Net interest and dividend income

  8,758      7,321   

Provision for loan losses

  338      388   
  

 

 

    

 

 

 

Net interest and dividend income after provision for loan losses

  8,420      6,933   
  

 

 

    

 

 

 

Noninterest income:

Customer service fees

  212      218   

Income from bank-owned life insurance

  186      99   

Net gain on sales of loans

  40      62   

Loan servicing fee income

  161      217   

Other income

  158      128   
  

 

 

    

 

 

 

Total noninterest income

  757      724   
  

 

 

    

 

 

 

Noninterest expense:

Salaries and employee benefits

  4,344      4,124   

Director compensation

  277      304   

Occupancy expense

  293      278   

Equipment expense

  145      153   

Deposit insurance

  218      184   

Data processing

  755      751   

Professional fees

  212      230   

Marketing

  252      259   

Other expense

  440      390   
  

 

 

    

 

 

 

Total noninterest expense

  6,936      6,673   
  

 

 

    

 

 

 

Income before income tax expense

  2,241      984   

Income tax expense

  867      304   
  

 

 

    

 

 

 

Net income

$ 1,374    $ 680   
  

 

 

    

 

 

 

Earnings per share

Basic

$ 0.16    $ 0.08   

Diluted

$ 0.16    $ 0.08   

The accompanying notes are an integral part of these consolidated financial statements.

 

4


Table of Contents

BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

 

     Three months ended
March 31,
 
     2015     2014  
     (unaudited)  

Net income

   $ 1,374      $ 680   

Other comprehensive income, before tax:

    

Change in fair value of securities available for sale

     136        195   

Reclassification adjustment for realized gains in net income

     —          —     
  

 

 

   

 

 

 

Other comprehensive income, before tax

  136      195   
  

 

 

   

 

 

 

Income tax expense related to items of other comprehensive income

  (53   (78
  

 

 

   

 

 

 

Other comprehensive income, net of tax

  83      117   
  

 

 

   

 

 

 

Comprehensive income

$ 1,457    $ 797   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


Table of Contents

BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(Dollars in thousands)

(Unaudited)

 

                                 Accumulated              
                   Additional             Other     Unearned     Total  
     Common Stock      Paid-In      Retained      Comprehensive     Compensation     Stockholders’  
     Shares      Amount      Capital      Earnings      (Loss) Income     ESOP     Equity  

Balance at December 31, 2013

     9,055,808       $ 91       $ 85,449       $ 49,312       $ (188   $ (4,243   $ 130,421   

Net income

     —           —           —           680         —          —          680   

Other comprehensive income

     —           —           —           —           117        —          117   

Release of ESOP stock

     —           —           25         —           —          38        63   

Stock based compensation-restricted stock awards

     —           —           245         —           —          —          245   

Stock based compensation-stock options

     —           —           232         —           —          —          232   

Tax benefit from stock based compensation

     —           —           11         —           —          —          11   

Stock option exercises

     1,682         —           —           —           —          —          —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2014

  9,057,490    $ 91    $ 85,962    $ 49,992    $ (71 $ (4,205 $ 131,769   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014

  9,067,792    $ 91    $ 87,428    $ 53,603    $ (22 $ (4,090 $ 137,010   

Net income

  —        —        —        1,374      —        —      $ 1,374   

Other comprehensive income

  —        —        —        —        83      —      $ 83   

Release of ESOP stock

  —        —        34      —        —        38    $ 72   

Stock based compensation-restricted stock awards

  —        —        208      —        —        —      $ 208   

Stock based compensation-stock options

  —        —        188      —        —        —      $ 188   

Tax benefit from stock based compensation

  —        —        10      —        —        —      $ 10   

Stock option exercises

  2,016      —        —        —        —        —      $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2015

  9,069,808    $ 91    $ 87,868    $ 54,977    $ 61    $ (4,052 $ 138,945   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6


Table of Contents

BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

     Three months ended March 31,  
     2015     2014  

Cash flows from operating activities:

    

Net income

   $ 1,374      $ 680   

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

    

Amortization of securities, net

     157        130   

Gain on sales of loans, net

     (40     (62

Loans originated for sale

     (1,834     —     

Proceeds from sales of loans

     1,874        6,117   

Provision for loan losses

     338        388   

Change in net unamortized mortgage premiums

     (104     (78

Change in net deferred loan costs

     (97     (686

ESOP expense

     72        63   

Stock based compensation expense

     396        477   

Excess tax benefit from stock based compensation

     (10     (11

Depreciation and amortization expense

     188        193   

Write off of premises and equipment

     —          3   

Deferred income tax expense

     273        110   

Increase in bank-owned life insurance

     (186     (99

Net change in:

    

Accrued interest receivable

     (88     (190

Other assets

     (142     (137

Income taxes receivable

     (166     (25

Income taxes payable

     —          (178

Accrued interest payable

     117        50   

Deferred compensation liability

     249        99   

Other liabilities

     (1,582     672   
  

 

 

   

 

 

 

Net cash provided by operating activities

  789      7,516   
  

 

 

   

 

 

 

Cash flows from investing activities:

Maturities of interest-bearing time deposits with other banks

  —        119   

Purchases of interest-bearing time deposits with other banks

  —        (131

Proceeds from maturities, payments, and calls of held-to-maturity securities

  4,523      5,642   

Purchases of held-to-maturity securities

  (5,144   (9,908

Purchases of Federal Home Loan Bank stock

  (1,370   (2,386

Recoveries of loans previously charged off

  13      5   

Loan originations and principal collections, net

  (15,782   (65,828

Purchases of loans

  (36,037   (28,432

Capital expenditures

  (51   (159

Premiums paid on bank-owned life insurance

  —        (5
  

 

 

   

 

 

 

Net cash used in investing activities

  (53,848   (101,083
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7


Table of Contents

BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

(Continued)

 

     Three months ended March 31,  
     2015     2014  

Cash flows from financing activities:

    

Net increase in demand deposits, NOW and savings accounts

     32,635        45,371   

Net increase in time deposits

     25,802        17,602   

Net proceeds from (repayments of) long-term Federal Home Loan Bank borrowings

     15,000        (1,000

Net change in short-term advances

     (31,000     50,000   

Net increase in securities sold under agreement to repurchase

     240        280   

Repayment of principal on other borrowed funds

     (12     (12

Net (decrease) increase in mortgagors’ escrow accounts

     (291     138   

Excess tax benefit from stock based compensation

     10        11   

Net cash provided by financing activities

     42,384        112,390   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

  (10,675   18,823   

Cash and cash equivalents at beginning of period

  51,767      38,035   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

$ 41,092    $ 56,858   
  

 

 

   

 

 

 

Supplemental disclosures:

Interest paid

$ 2,177    $ 1,378   

Income taxes paid

  761      397   

The accompanying notes are an integral part of these consolidated financial statements.

 

8


Table of Contents

BSB BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of BSB Bancorp, Inc. have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The consolidated financial statements of BSB Bancorp, Inc. include the balances and results of operations of BSB Bancorp, Inc., a Maryland corporation, and its wholly-owned subsidiaries, Belmont Savings Bank and BSB Funding Corporation (referred to herein as “the Company,” “we,” “us,” or “our”). Intercompany transactions and balances are eliminated in the consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position as of March 31, 2015 and December 31, 2014 and the results of operations and cash flows for the interim periods ended March 31, 2015 and 2014. All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the fiscal year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Certain previously reported amounts have been reclassified to conform to the current period’s presentation.

NOTE 2 – RECENT ACCOUNTING STANDARDS UPDATES

In January 2014, the Financial Accounting Standards Board (“FASB”) issued amendments to ASC 310-40 “Receivables-Troubled Debt Restructurings by Creditors” through issuance of Accounting Standards Update (“ASU”) 2014-4 “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The objective of the amendments in this ASU is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In April 2014, the FASB issued amendments to ASC 205 “Presentation of Financial Statements” and ASC 360 “Property, Plant, and Equipment” through issuance of ASU 2014-8 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This ASU changes the criteria for reporting discontinued operations and modifies related disclosure requirements. The new guidance is effective on a prospective basis for fiscal years beginning on or after December 15, 2014, and interim periods within those years. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued amendments to ASC 606 “Revenue from Contracts with Customers” through issuance of ASU No. 2014-09, “Revenue from Contracts with Customers.” The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The amendments in this update are effective for interim and annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

 

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In June 2014, the FASB issued amendments to ASC 860 “Transfers and Servicing” through issuance of ASU 2014-11 “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” These amendments change the accounting for repurchase-to-maturity transactions which are repurchase agreements where the maturity of the security transferred as collateral matches the maturity of the repurchase agreement. Under ASU 2014-11, all repurchase-to-maturity transactions will be accounted for as secured borrowing transactions in the same way as other repurchase agreements rather than as sales of a financial asset and forward commitment to repurchase. The amendments also change the accounting for repurchase financing arrangements which are transactions involving the transfer of a financial asset to a counterparty executed contemporaneously with a reverse repurchase agreement with the same counterparty. Under ASU 2014-11, all repurchase financings will now be accounted for separately, which will result in secured borrowing accounting for the reverse repurchase agreement. ASU 2014-11 also introduces new disclosure requirements regarding repurchase agreements and securities lending transactions as well as certain other transactions which involve the transfer of financial assets accounted for as sales and where the transferor retains substantially all of the exposure to the economic return on the transferred assets. ASU 2014-11 is effective for interim or annual periods beginning after December 15, 2014 with early adoption prohibited. As of adoption date, the accounting for all outstanding repurchase-to-maturity transactions and repurchase financing arrangements is adjusted by means of a cumulative-effect adjustment to the balance sheet and retained earnings. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In June 2014, the FASB issued amendments to ASC 718 “Compensation—Stock Compensation” through the issuance of ASU 2014-12 “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” The amendments clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In August 2014, the FASB issued amendments to ASC 810 “Consolidation” through the issuance of ASU 2014-13, “Consolidation: Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity.” This ASU applies to entities that meet the following criteria:

1. they are required to consolidate a collateralized entity under the Variable Interest Entities guidance;

2. they measure all of the financial assets and the financial liabilities of that consolidated collateralized financing entity at fair value in the consolidated financial statements based on other FASB rules; and

3. those changes in fair value are reflected in earnings.

Under ASU 2014-13, entities that meet these criteria are provided an alternative under which they can choose to eliminate the difference between the fair value of financial assets and financial liabilities of a consolidated collateralized financing entity. If that alternative is not elected, then ASU 2014-13 indicates that the fair value of the financial assets and the fair value of the financial liabilities of the consolidated collateralized financing entity should be measured in accordance with ASC 820. Differences between the fair value of the financial assets and the financial liabilities of that consolidated collateralized financing entity should be reflected in earnings and attributed to the reporting entity in the consolidated statement of income or loss. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In August 2014, the FASB issued amendments to ASC 310-40, “Receivables - Troubled Debt Restructurings by Creditors” through issuance of ASU 2014-14: “Classification of Certain Government - Guaranteed Mortgage Loans upon Foreclosure.” The amendments in this ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:

1. the loan has a government guarantee that is not separable from the loan before foreclosure;

2. at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and

3. at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.

Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

 

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In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40).” The amendments in this ASU provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” The objective of this ASU is to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments issued in the form of a share. The amendments in this ASU apply to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share. The amendments in this ASU do not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. Furthermore, the amendments clarify that no single term or feature would necessarily determine the economic characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. In addition, the amendments in this ASU clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features when considering how to weight those terms and features. Specifically, the assessment of the substance of the relevant terms and features should incorporate a consideration of (1) the characteristics of the terms and features themselves, (2) the circumstances under which the hybrid financial instrument was issued or acquired, and (3) the potential outcomes of the hybrid financial instrument, as well as the likelihood of those potential outcomes. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In November 2014, the FASB issued ASU 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” The amendments in this ASU provide guidance on whether and at what threshold an acquired entity that is a business or nonprofit activity may elect to apply pushdown accounting in its separate financial statements upon a change-in-control event in which an acquirer obtains control of the acquired entity. The amendments in this ASU are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. However, if the financial statements for the period in which the most recent change-in-control event occurred already have been issued or made available to be issued, the application of this guidance would be a change in accounting principle. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” The amendments in this ASU eliminate the concept of extraordinary items. Eliminating the concept of extraordinary items will save time and reduce costs for preparers because they will not have to assess whether a particular event or transaction event is extraordinary (even if they ultimately would conclude it is not). This also alleviates uncertainty for preparers, auditors, and regulators because auditors and regulators no longer will need to evaluate whether a preparer treated an unusual and/or infrequent item appropriately. The presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” The amendments in this ASU affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

 

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In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The ASU is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. The guidance should be applied on a retrospective basis. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05, “Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

NOTE 3 - INVESTMENTS IN SECURITIES

The amortized cost of available-for-sale (AFS) and held-to-maturity (HTM) securities and their approximate fair values were as follows at the dates indicated (in thousands):

 

     March 31, 2015      December 31, 2014  
     Amortized
Cost
Basis
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
     Amortized
Cost
Basis
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 
     (unaudited)                             

Available-for-sale securities:

                     

Corporate debt securities

   $ 22,181       $ 157       $ (141   $ 22,197       $ 22,199       $ 86       $ (206   $ 22,079   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
$ 22,181    $ 157    $ (141 $ 22,197    $ 22,199    $ 86    $ (206 $ 22,079   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Held-to-maturity securities:

U.S. government sponsored mortgage-backed securities

$ 101,446    $ 1,536    $ (95 $ 102,887    $ 100,977    $ 1,019    $ (227 $ 101,769   

Corporate debt securities

  17,564      425      —        17,989      17,551      164      (37   17,678   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
$ 119,010    $ 1,961    $ (95 $ 120,876    $ 118,528    $ 1,183    $ (264 $ 119,447   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

The amortized cost basis and estimated fair value of debt securities by contractual maturity at March 31, 2015 is as follows (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

     March 31, 2015  
     Available-for-Sale      Held-to-Maturity  
     Amortized
Cost Basis
     Fair
Value
     Amortized
Cost Basis
     Fair
Value
 
     (unaudited)      (unaudited)  

Due within one year

   $ —         $ —         $ 41       $ 42   

Due after one year through five years

     12,803         12,925         7,180         7,274   

Due after five years through ten years

     9,378         9,272         63,116         64,069   

Due after ten years

     —           —           48,673         49,491   
  

 

 

    

 

 

    

 

 

    

 

 

 
$ 22,181    $ 22,197    $ 119,010    $ 120,876   
  

 

 

    

 

 

    

 

 

    

 

 

 

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. During the three months ended March 31, 2015 (unaudited) and March 31, 2014, there were no sales of available-for-sale securities.

 

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Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position follows (in thousands):

 

     Less than 12 Months      12 Months or longer  
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 

March 31, 2015 (unaudited):

           

Available-for-sale

           

Corporate debt securities

   $ —         $ —         $ 4,238       $ (141

Held-to-maturity

           

Corporate debt securities

     —           —           —           —     

U.S. government sponsored mortgage backed securities

     4,957         (18      6,745         (77
  

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

$ 4,957    $ (18 $ 10,983    $ (218
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014:

Available-for-sale

Corporate debt securities

$ —      $ —      $ 4,185    $ (206

Held-to-maturity

Corporate debt securities

  4,691      (37   —        —     

U.S. government sponsored mortgage backed securities

  10,974      (34   15,637      (193
  

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

$ 15,665    $ (71 $ 19,822    $ (399
  

 

 

    

 

 

    

 

 

    

 

 

 

The investment securities portfolio is generally evaluated for other-than-temporary impairment under ASC 320-10, “Investments - Debt and Equity Securities.”

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. At March 31, 2015 (unaudited), 12 debt securities were in an unrealized loss position. When there are securities in an unrealized loss position, consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Based on the Company’s March 31, 2015 (unaudited) quarterly review of securities in the investment portfolio, management has determined that unrealized losses related to 12 debt securities with aggregate depreciation of 1.46% from the Company’s amortized cost basis were caused primarily by changes in market interest rates. The contractual terms of these investments do not permit the companies to settle the security at a price less than the par value of the investment. The Company currently does not believe it is probable that it will be unable to collect all amounts due according to the contractual terms of the investments. Therefore, it is expected that the securities would not be settled at a price less than the par value of the investment. Because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis, it does not consider these investments to be other-than-temporarily impaired at March 31, 2015.

At December 31, 2014, twenty one debt securities had unrealized losses with aggregate depreciation of 1.31% from the Company’s amortized cost basis. The Company’s unrealized losses on investments in corporate bonds and mortgage backed securities are primarily caused by changes in market interest rates.

In addition to the securities listed above, the Company holds securities in a Rabbi Trust that are used to fund the executive and director non-qualified deferred compensation plan. These Rabbi Trust investments are included in other assets and consist primarily of cash and cash equivalents and actively traded mutual funds, and are recorded at fair value. The fair value of these Rabbi Trust investments at March 31, 2015 (unaudited) and December 31, 2014 was $2.4 million and $2.3 million, respectively. For the three month periods ending March 31, 2015 and March 31, 2014, the net gain on Rabbi Trust investments still held at the reporting date was $39,000 and $22,000, respectively. Refer to Note 7 – Employee and Director Benefit Plans, for more information.

 

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NOTE 4 – LOANS, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, deferred fees or costs on originated loans, and any premiums or discounts on purchased loans.

Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on all loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Payments received on impaired loans are applied to reduce the recorded investment in the loan principal to the extent necessary to eliminate doubt as to the collectability of the net carrying amount of the loan. Some or all of the payments received on impaired loans are recognized as interest income if the remaining net carrying amount of the loan is deemed to be fully collectible. When recognition of interest income on an impaired loan on a cash basis is appropriate, the amount of income that is recognized is limited to that which would have been accrued on the net carrying amount of the loan at the contractual interest rate. Any cash interest payments received in excess of the limit and not applied to reduce the net carrying amount of the loan are recorded as recoveries of charge-offs until the charge-offs are fully recovered.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of general, allocated and unallocated components, as further described below.

General Component:

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential real estate, home equity lines of credit, commercial real estate, construction, commercial, indirect auto and other consumer. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. There were no changes in the Company’s policies or methodology pertaining to the general component of the allowance for loan losses during the three months ended March 31, 2015 or during fiscal year 2014.

The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate loans and home equity lines of credit – The Company generally does not originate or purchase loans with a loan-to-value ratio greater than 80 percent and generally does not grant subprime loans. Loans in this segment are generally collateralized by owner-occupied residential real estate and repayment is dependent on the cash flow and credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Commercial real estate loans – Loans in this segment are primarily secured by income-producing properties in eastern Massachusetts. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy and increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management generally obtains rent rolls annually and continually monitors the cash flows of these borrowers.

Construction loans – Loans in this segment primarily include speculative real estate development loans for which payment is derived from sale and/or lease up of the property. Credit risk is affected by cost overruns, time to sell, or lease at adequate prices, and market conditions.

 

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Commercial loans – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer and business spending, will have an effect on the credit quality in this segment.

Indirect auto loans – Loans in this segment are secured installment loans that are originated through a network of select regional automobile dealerships. The Company’s interest in the vehicle is secured with a recorded lien on the state title of each automobile. Repayment is primarily dependent on the credit worthiness and the cash flow of the individual borrower and secondarily, liquidation of the collateral.

Other consumer loans - Loans in this segment include secured and unsecured consumer loans including passbook loans, consumer lines of credit and overdraft protection, and consumer unsecured loans. Repayment is dependent on the credit quality and the cash flow of the individual borrower.

Allocated Component:

The allocated component relates to loans that are classified as impaired. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”). All TDRs are classified as impaired.

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. Generally, TDRs are measured for impairment using the discounted cash flow method except in instances where foreclosure is probable in which case the fair value of collateral method is used. When the fair value of the impaired loan is determined to be less than the recorded investment in the loan, the impairment is recorded through the valuation allowance. However, for collateral dependent loans, the amount of the recorded investment in a loan that exceeds the fair value of the collateral is charged-off against the allowance for loan losses in lieu of an allocation of a specific allowance amount when such an amount has been identified definitively as uncollectable.

Unallocated Component:

An unallocated component may be maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio. At March 31, 2015 (unaudited) and December 31, 2014, the Company had unallocated reserves of $177,000 and $171,000, respectively.

 

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Loans consisted of the following (dollars in thousands):

 

     March 31, 2015     December 31, 2014  
     Amount      Percent     Amount      Percent  
     (unaudited)               

Mortgage loans:

          

Residential one-to-four family

   $ 476,913         38.69   $ 450,572         38.16

Commercial real estate loans (1)

     410,944         33.34        395,178         33.47   

Home equity

     134,781         10.94        131,628         11.15   

Construction loans

     40,421         3.28        31,389         2.66   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total mortgage loans

  1,063,059      86.25      1,008,767      85.44   
  

 

 

    

 

 

   

 

 

    

 

 

 

Commercial loans

  36,192      2.94      39,161      3.32   

Consumer loans:

Indirect auto loans

  132,716      10.77      131,961      11.17   

Other consumer loans

  486      0.04      774      0.07   
  

 

 

    

 

 

   

 

 

    

 

 

 
  169,394      13.75      171,896      14.56   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total loans

  1,232,453      100.00   1,180,663      100.00
     

 

 

      

 

 

 

Net deferred loan costs

  5,165      5,068   

Net unamortized mortgage premiums

  2,653      2,549   

Allowance for loan losses

  (9,203   (8,881
  

 

 

      

 

 

    

Total loans, net

$ 1,231,068    $ 1,179,399   
  

 

 

      

 

 

    

 

(1) Includes multi-family real estate loans.

The following tables (in thousands) present the activity in the allowance for loan losses by portfolio class for the three months ended March 31, 2015 and 2014 (unaudited); and the balances of the allowance for loan losses and recorded investment in loans by portfolio class based on impairment method at March 31, 2015 (unaudited) and December 31, 2014. The recorded investment in loans in any of the following tables does not include accrued and unpaid interest or any deferred loan fees or costs, as amounts are not significant.

 

     Three Months Ended March 31, 2015  
     Beginning balance      Provision (benefit)     Charge-offs     Recoveries      Ending balance  

Residential one-to-four family

   $ 2,364       $ 215      $ —        $ —         $ 2,579   

Commercial real estate

     4,043         (8     —          —           4,035   

Construction

     228         245        —          —           473   

Commercial

     458         (42     —          —           416   

Home equity

     828         (88     —          —           740   

Indirect auto

     778         6        (26     12         770   

Other consumer

     11         4        (3     1         13   

Unallocated

     171         6        —          —           177   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total

$ 8,881    $ 338    $ (29 $ 13    $ 9,203   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
     Three Months Ended March 31, 2014  
     Beginning balance      Provision (benefit)     Charge-offs     Recoveries      Ending balance  

Residential one-to-four family

   $ 2,189       $ (143   $ —        $ —         $ 2,046   

Commercial real estate

     3,621         502        —          —           4,123   

Construction

     134         27        —          —           161   

Commercial

     419         (12     —          —           407   

Home equity

     681         (80     —          —           601   

Indirect auto

     749         86        (3     1         833   

Other consumer

     26         (6     (6     4         18   

Unallocated

     139         14        —          —           153   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total

$ 7,958    $ 388    $ (9 $ 5    $ 8,342   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

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Table of Contents
     March 31, 2015  
     Individually evaluated for impairment      Collectively evaluated for impairment      Total  
     Loan balance      Allowance      Loan balance      Allowance      Loan balance      Allowance  

Residential one-to-four family

   $ 6,226       $ 179       $ 470,687       $ 2,400       $ 476,913       $ 2,579   

Commercial real estate

     3,837         5         407,107         4,030         410,944         4,035   

Construction

     —           —           40,421         473         40,421         473   

Commercial

     —           —           36,192         416         36,192         416   

Home equity

     296         —           134,485         740         134,781         740   

Indirect auto

     —           —           132,716         770         132,716         770   

Other consumer

     —           —           486         13         486         13   

Unallocated

     —           —           —           177         —           177   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 10,359    $ 184    $ 1,222,094    $ 9,019    $ 1,232,453    $ 9,203   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     Individually evaluated for impairment      Collectively evaluated for impairment      Total  
     Loan balance      Allowance      Loan balance      Allowance      Loan balance      Allowance  

Residential one-to-four family

   $ 6,256       $ 188       $ 444,316       $ 2,176       $ 450,572       $ 2,364   

Commercial real estate

     3,882         5         391,296         4,038         395,178         4,043   

Construction

     —           —           31,389         228         31,389         228   

Commercial

     —           —           39,161         458         39,161         458   

Home equity

     296         —           131,332         828         131,628         828   

Indirect auto

     12         —           131,949         778         131,961         778   

Other consumer

     —           —           774         11         774         11   

Unallocated

     —           —           —           171         —           171   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 10,446    $ 193    $ 1,170,217    $ 8,688    $ 1,180,663    $ 8,881   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Information about loans that meet the definition of an impaired loan in ASC 310-10-35 is as follows as of March 31, 2015 (unaudited and in thousands):

 

     Impaired loans with a related allowance for credit losses  
     Recorded Investment      Unpaid
Principal
Balance
     Specific Allowance  

Residential one-to-four family

   $ 1,179       $ 1,180       $ 179   

Commercial real estate

     3,045         3,045         5   

Construction

     —           —           —     

Commercial

     —           —           —     

Home equity

     —           —           —     

Indirect auto

     —           —           —     

Other consumer

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Totals

$ 4,224    $ 4,225    $ 184   
  

 

 

    

 

 

    

 

 

 
     Impaired loans with no related allowance for credit losses  
     Recorded Investment      Unpaid
Principal
Balance
     Specific Allowance  

Residential one-to-four family

   $ 5,047       $ 5,206       $ —     

Commercial real estate

     792         792         —     

Construction

     —           —           —     

Commercial

     —           —           —     

Home equity

     296         298         —     

Indirect auto

     —           —           —     

Other consumer

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Totals

$ 6,135    $ 6,296    $ —     
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Information about loans that meet the definition of an impaired loan in ASC 310-10-35 is as follows as of December 31, 2014 (in thousands):

 

     Impaired loans with a related allowance for credit losses  
     Recorded
Investment
     Unpaid
Principal
Balance
     Specific
Allowance
 

Residential one-to-four family

   $ 1,186       $ 1,186       $ 188   

Commercial real estate

     3,060         3,060         5   

Construction

     —           —           —     

Commercial

     —           —           —     

Home equity

     —           —           —     

Indirect auto

     —           —           —     

Other consumer

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Totals

$ 4,246    $ 4,246    $ 193   
  

 

 

    

 

 

    

 

 

 
     Impaired loans with no related allowance for credit losses  
     Recorded
Investment
     Unpaid
Principal
Balance
     Specific
Allowance
 

Residential one-to-four family

   $ 5,070       $ 5,229       $ —     

Commercial real estate

     822         822         —     

Construction

     —           —           —     

Commercial

     —           —           —     

Home equity

     296         298         —     

Indirect auto

     12         12         —     

Other consumer

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Totals

$ 6,200    $ 6,361    $ —     
  

 

 

    

 

 

    

 

 

 

The following tables set forth information regarding interest income recognized on impaired loans, by portfolio, for the periods indicated (unaudited and in thousands):

 

     Three months ended March 31, 2015      Three months ended March 31, 2014  

With an allowance recorded

   Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Residential one-to-four family

   $ 1,181       $ 8       $ 2,550       $ 105   

Commercial real estate

     3,050         31         3,106         20   

Construction

     —           —           —           —     

Commercial

     —           —           —           —     

Home equity

     —           —           200         1   

Indirect auto

     —           —           —           —     

Other consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Totals

$ 4,231    $ 39    $ 5,856    $ 126   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three months ended March 31, 2015      Three months ended March 31, 2014  

Without an allowance recorded

   Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Residential one-to-four family

   $ 5,053       $ 25       $ 3,143       $ 26   

Commercial real estate

     802         8         956         8   

Construction

     —           —           —           —     

Commercial

     —           —           —           —     

Home equity

     296         2         200         2   

Indirect auto

     5         —           —           —     

Other consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Totals

$ 6,156    $ 35    $ 4,299    $ 36   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following is a summary of past due and non-accrual loans (in thousands):

 

     March 31, 2015 (unaudited)  
     30–59 Days      60–89 Days      90 Days
or More
     Total
Past Due
     90 days
or more
and accruing
     Loans on
Non-accrual
 

Real estate loans:

                 

Residential one-to-four family

   $ 274       $ —         $ 2,659       $ 2,933       $ —         $ 2,659   

Commercial real estate

     —           —           —           —           —           —     

Home equity

     614         —           96         710         —           96   

Construction

     —           —           —           —           —           —     

Other loans:

              —           

Commercial

     —           —           —           —           —           —     

Indirect auto

     470         54         —           524         —           —     

Other consumer

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 1,358    $ 54    $ 2,755    $ 4,167    $ —      $ 2,755   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     30–59 Days      60–89 Days      90 Days
or More
     Total
Past Due
     90 days
or more
and accruing
     Loans on
Non-accrual
 

Real estate loans:

                 

Residential one-to-four family

   $ —         $ 230       $ 2,432       $ 2,662       $ —         $ 2,662   

Commercial real estate

     —           —           —           —           —           —     

Home equity

     270         —           96         366         —           96   

Construction

     —           —           —           —           —           —     

Other loans:

                 

Commercial

     —           —           —           —           —           —     

Indirect auto

     463         45         12         520         —           12   

Other consumer

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 733    $ 275    $ 2,540    $ 3,548    $ —      $ 2,770   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit Quality Information

The Company utilizes a seven grade internal loan rating system for commercial, commercial real estate and construction loans, and a five grade internal loan rating system for certain residential real estate, home equity and consumer loans that are rated if the loans become delinquent.

Loans rated 1 - 3: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 4: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 5: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 6: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 7: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial, commercial real estate loans, and construction loans. On an annual basis, the Company engages an independent third party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process.

On a quarterly basis, the Company formally reviews the ratings on all residential real estate and home equity loans if they have become delinquent. Criteria used to determine the rating consists of loan-to-value and days delinquent.

 

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Table of Contents

The following tables present the Company’s loans by risk rating at March 31, 2015 (unaudited) and December 31, 2014 (in thousands). There were no loans rated as 6 (“doubtful”) or 7 (“loss”) at the dates indicated.

 

     March 31, 2015  
     Loans rated 1-3      Loans rated 4      Loans rated 5      Loans not rated (A)      Total  

Residential one-to-four family

   $ —         $ 1,128       $ 3,393       $ 472,392       $ 476,913   

Commercial real estate

     405,320         770         4,854         —           410,944   

Construction

     40,421         —           —           —           40,421   

Commercial

     36,191         1         —           —           36,192   

Home equity

     —           —           895         133,886         134,781   

Indirect auto

     —           —           —           132,716         132,716   

Other consumer

     —           —           —           486         486   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 481,932    $ 1,899    $ 9,142    $ 739,480    $ 1,232,453   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     Loans rated 1-3      Loans rated 4      Loans rated 5      Loans not rated (A)      Total  

Residential one-to-four family

   $ —         $ 1,134       $ 3,400       $ 446,038       $ 450,572   

Commercial real estate

     386,513         —           8,665         —           395,178   

Construction

     31,389         —           —           —           31,389   

Commercial

     39,159         2         —           —           39,161   

Home equity

     —           —           895         130,733         131,628   

Indirect auto

     —           —           —           131,961         131,961   

Consumer

     —           —           —           774         774   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 457,061    $ 1,136    $ 12,960    $ 709,506    $ 1,180,663   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(A) Residential real estate and home equity loans are not formally risk rated by the Company unless the loan become delinquent.

The Company periodically modifies loans to extend the term or make other concessions to help a borrower stay current on their loan and to avoid foreclosure. Any loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. During the three months ended March 31, 2015 and March 31, 2014, there were no loans modified and determined to be TDRs. At March 31, 2015, the Company had $9.2 million of troubled debt restructurings related to ten loans.

The following table shows the Company’s total TDRs and other pertinent information as of the dates indicated (in thousands):

 

     March 31, 2015      December 31, 2014  
     (unaudited)         

TDRs on Accrual Status

   $ 7,605       $ 7,675   

TDRs on Nonaccrual Status

     1,551         1,551   
  

 

 

    

 

 

 

Total TDRs

$ 9,156    $ 9,226   
  

 

 

    

 

 

 

Amount of specific allocation included in the allowance for loan losses associated with TDRs

$ 174    $ 174   

Additional commitments to lend to a borrower who has been a party to a TDR

$ —      $ —     

 

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Table of Contents

The Company considers a TDR loan to have defaulted when it reaches 90 days past due. There were no TDRs that have been modified during the twelve months ending on March 31, 2015 and March 31, 2014 which have subsequently defaulted during the three month period ending on March 31, 2015 and March 31, 2014, respectively.

NOTE 5 – TRANSFERS AND SERVICING

Certain residential mortgage loans are periodically sold by the Company to the secondary market. Generally, these loans are sold without recourse or other credit enhancements. The Company sells loans and both releases and retains the servicing rights. For loans sold with the servicing rights retained, we provide the servicing for the loans on a per-loan fee basis. The Company also periodically sells auto loans to other financial institutions without recourse or other credit enhancements, and the Company generally provides servicing for these loans.

At March 31, 2015 (unaudited) and December 31, 2014, residential loans previously sold and serviced by the Company were $65.4 million and $69.5 million, respectively. At March 31, 2015 (unaudited) and December 31, 2014, indirect auto loans previously sold and serviced by the Company were $84.1 million and $94.7 million, respectively.

On March 16, 2006, seventeen loans with an aggregate principal balance of $10.5 million were sold to another financial institution. The agreement related to this sale contains provisions requiring the Company to repurchase any loan that becomes 90 days past due during the initial 120 months. The Company will repurchase the past due loan for 100 percent of the unpaid principal plus interest to repurchase date. As of March 31, 2015 (unaudited) and December 31, 2014, the principal balance of these loans sold with recourse amounted to $1.1 million and $1.1 million, respectively. The Company has not incurred any losses related to the loans sold with recourse.

Mortgage servicing rights (MSR) are initially recorded as an asset and measured at fair value when loans are sold to third parties with servicing rights retained. MSR assets are amortized in proportion to, and over the period of, estimated net servicing revenues. The carrying value of these assets is periodically reviewed for impairment using the lower of amortized cost or fair value methodology. The fair value of the servicing rights is determined by estimating the present value of future net cash flows, taking into consideration market loan prepayment speeds, discount rates, servicing costs and other economic factors. For purposes of measuring impairment, the underlying loans are stratified into relatively homogeneous pools based on predominant risk characteristics which include product type (i.e., fixed or adjustable) and interest rate bands. If the aggregate carrying value of the capitalized mortgage servicing rights for a stratum exceeds its fair value, MSR impairment is recognized in earnings through a valuation allowance for the difference. As the loans are repaid and net servicing revenue is earned, the MSR asset is amortized as an offset to loan servicing income. Servicing revenues are expected to exceed this amortization expense. However, if actual prepayment experience or defaults exceed what was originally anticipated, net servicing revenues may be less than expected and mortgage servicing rights may be impaired. No servicing assets or liabilities related to auto loans were recorded, as the contractual servicing fees are adequate to compensate the Company for its servicing responsibilities.

Changes in mortgage servicing rights, which are included in other assets, were as follows (in thousands):

 

     Three months ended March 31,  
     2015      2014  
     (unaudited)  

Balance at beginning of period

   $ 476       $ 411   

Capitalization

     22         7   

Amortization

     (23      (17

Valuation allowance adjustment

     (12      2   
  

 

 

    

 

 

 

Balance at end of period

$ 463    $ 403   
  

 

 

    

 

 

 

 

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Table of Contents

NOTE 6 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS

The securities sold under agreements to repurchase as of March 31, 2015 (unaudited) and December 31, 2014 are securities sold on a short-term basis by the Company that have been accounted for not as sales but as borrowings. The securities consisted of mortgage backed securities issued by U.S. government sponsored entities. The securities were held in the Company’s safekeeping account at the Federal Home Loan Bank of Boston under the control of the Company. The securities are pledged to the purchasers of the securities. The purchasers have agreed to sell to the Company substantially identical securities at the maturity of the agreements. The balance of securities sold under agreements to repurchase as of March 31, 2015 and December 31, 2014 was $1.6 million and $1.4 million, respectively.

Other borrowed funds consist of the recourse obligation recorded in connection with the loans sold with recourse discussed in Note 5. The balance of the recourse obligation at March 31, 2015 (unaudited) and December 31, 2014 was $1.1 million and $1.1 million, respectively.

NOTE 7 – EMPLOYEE AND DIRECTOR BENEFIT PLANS

Supplemental Retirement Plans

The Company has supplemental retirement plans for eligible executive officers that provide for a lump sum benefit upon termination of employment at or after age 55 and completing 10 or more years of service (certain reduced benefits are available prior to attaining age 55 or fewer than 10 years of service), subject to certain limitations as set forth in the agreements. The present value of these future payments is being accrued over the service period. The estimated liability at March 31, 2015 (unaudited) and December 31, 2014 relating to these plans was $1.8 million and $1.8 million, respectively.

The Company has a supplemental retirement plan for eligible directors that provides for monthly benefits based upon years of service to the Company, subject to certain limitations as set forth in the agreements. The present value of these future payments is being accrued over the estimated period of service. The estimated liability at March 31, 2015 (unaudited) and December 31, 2014 relating to this plan was $647,000 and $648,000, respectively.

Effective October 1, 2010, the Company established the Belmont Savings Bank Supplemental Executive Retirement Plan (“Plan”). The purpose of the Plan is to permit certain executive officers of the Company to receive supplemental retirement income from the Company. At March 31, 2015 (unaudited) and December 31, 2014, there were four participants in the Plan. Participants are fully vested after the completion of between five and ten years of service. The plan is unfunded. The estimated liability at March 31, 2015 (unaudited) and December 31, 2014 relating to this plan was $1.1 million and $985,000, respectively.

Incentive Compensation Plan

The Incentive Compensation Plan is a discretionary annual cash-based incentive plan that is an integral part of the participant’s total compensation package and supports the continued growth, profitability and risk management of Belmont Savings Bank. Each year participants are awarded for the achievement of certain performance objectives on a company-wide and individual basis. Compensation expense recognized was $366,000 and $365,000 for the three months ended March 31, 2015 and 2014 (unaudited), respectively.

Defined Contribution Plan

The Company sponsors a 401(k) plan covering substantially all employees meeting certain eligibility requirements. Under the provisions of the plan, employees are able to contribute up to an annual limit of the lesser of 75% of eligible compensation or the maximum allowed by the Internal Revenue Service. The Company’s contributions for the three months ended March 31, 2015 and 2014 (unaudited) totaled $237,000 and $150,000, respectively.

Deferred Compensation Plan

The Company has a compensation deferral plan by which selected employees and directors of the Company are entitled to elect, prior to the beginning of each year, to defer the receipt of an amount of their compensation for the forthcoming year. Each agreement allows for the individual to elect to defer a portion of his or her compensation to an individual deferred compensation account established by Belmont Savings Bank. In April 2013, Belmont Savings Bank created a Rabbi Trust, or grantor trust. The Rabbi Trust is maintained by the Company primarily for purposes of providing deferred compensation for certain directors and employees of the Company. The plan is administered by a third party and permits participants to select from a number of investment options for the investment of their account balances. Each participant is always 100% vested in his or her deferred compensation account balance. As of March 31, 2015 (unaudited) and December 31, 2014, the recorded liability relating to the Rabbi Trust was $2.4 million and $2.3 million, respectively.

 

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Table of Contents

Capital Appreciation Plan

Effective September 30, 2010, the Company established the Capital Appreciation Plan. The purpose of this plan was to attract, retain, and motivate certain key employees and directors of the Company. Awards were calculated based on capital appreciation of the Bank and the Bank’s return on average assets, entitling the employee or director to a specific percentage of the Employee or Trustee Capital Appreciation Pool as outlined in the plan. The vesting period ended on June 30, 2014 and the plan was completed. Participants were paid lump sums totaling $266,000. The Company recognized $0 and $31,000 in relation to the plan during the three months ended March 31, 2015 and 2014 (unaudited), respectively.

Employee Stock Ownership Plan

The Company maintains an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. This plan is a tax-qualified retirement plan for the benefit of all Company employees. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax law limits.

The Company contributed funds to a subsidiary to enable it to grant a loan to the ESOP for the purchase of 458,643 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the Company’s subsidiary to purchase Company common stock is payable annually over 30 years at a rate per annum equal to the Prime Rate (3.25% at March 31, 2015). Loan payments are principally funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. Cash dividends paid on allocated shares are distributed to participants and cash dividends paid on unallocated shares are used to repay the outstanding debt of the ESOP. Shares used as collateral to secure the loan are released and available for allocation to eligible employees as the principal and interest on the loan is paid. The Company incurred expenses for the three months ended March 31, 2015 and 2014 (unaudited) of $72,000 and $63,000, respectively.

Severance Agreements

The Company has entered into employment agreements and change in control agreements with certain executive officers which would provide the executive officers with severance payments based on salary, and the continuation of other benefits, upon a change in control as defined in the agreements.

NOTE 8 – PLEDGED ASSETS

The following securities and loans were pledged to secure securities sold under agreements to repurchase, FHLB advances and credit facilities available (in thousands).

 

March 31, 2015 (unaudited)    Securities held-to-maturity
(at cost)
     Loans
receivable
     Total pledged
assets
 

Repurchase agreements

   $ 3,530       $ —         $ 3,530   

FHLB borrowings

     51,680         544,277         595,957   

Federal Reserve Bank LOC

     15,672         —           15,672   
  

 

 

    

 

 

    

 

 

 

Total pledged assets

$ 70,882    $ 544,277    $ 615,159   
  

 

 

    

 

 

    

 

 

 

 

December 31, 2014    Securities held-to-maturity
(at cost)
     Loans
receivable
     Total pledged
assets
 

Repurchase agreements

   $ 3,830       $ —         $ 3,830   

FHLB borrowings

     51,062         518,375         569,437   

Federal Reserve Bank LOC

     15,662         —           15,662   
  

 

 

    

 

 

    

 

 

 

Total pledged assets

$ 70,554    $ 518,375    $ 588,929   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

NOTE 9 – EARNINGS PER SHARE

Basic earnings per share (“EPS”) excludes dilution and is calculated by dividing net income allocated to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents (such as stock options and unvested restricted stock not meeting the definition of a participating security) were issued during the period.

Earnings per share consisted of the following components for the periods indicated (unaudited and dollars in thousands except per share data):

 

    

Three months ended

March 31,

 
     2015      2014  

Net income

   $ 1,374       $ 680   

Undistributed earnings attributable to participating securities

     (34      (23
  

 

 

    

 

 

 

Net income allocated to common stockholders

$ 1,340    $ 657   
  

 

 

    

 

 

 

Weighted average shares outstanding, basic

  8,442,391      8,345,890   

Effect of dilutive shares

  156,728      28,470   
  

 

 

    

 

 

 

Weighted average shares outstanding, assuming dilution

  8,599,119      8,374,360   
  

 

 

    

 

 

 

Basic EPS

$ 0.16    $ 0.08   

Effect of dilutive shares

  —        —     
  

 

 

    

 

 

 

Diluted EPS

$ 0.16    $ 0.08   
  

 

 

    

 

 

 

The following table illustrates average options to purchase shares of common stock that were outstanding but not included in the computation of EPS because they were antidilutive under the treasury stock method (unaudited):

 

     Three months ended
March 31,
 
     2015      2014  

Stock options

     23,867         63,170   

Unallocated common shares held by the ESOP are shown as a reduction in stockholders’ equity and are not included in the weighted-average number of common shares outstanding for either basic or diluted earnings per share calculations.

On June 22, 2013, the Company’s Board of Directors authorized a program to repurchase, from time-to-time and as market and business conditions warrant, up to 500,000 shares of the Company’s common stock. During the three months ended March 31, 2015 and 2014, the Company did not repurchase any shares under the repurchase program.

NOTE 10 – STOCK BASED COMPENSATION

On November 14, 2012, the stockholders of BSB Bancorp, Inc. approved the BSB Bancorp, Inc. 2012 Equity Incentive Plan.

 

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Table of Contents

The following table presents the pre-tax expense associated with stock options and restricted stock awards and the related tax benefits recognized (in thousands and unaudited):

 

     Three months
ended March 31,
2015
     Three months
ended March 31,
2014
 

Stock options

   $ 188       $ 232   

Restricted stock awards

     208         245   
  

 

 

    

 

 

 

Total stock based compensation expense

  396      477   
  

 

 

    

 

 

 

Related tax benefits recognized in earnings

$ 116    $ 146   
  

 

 

    

 

 

 

Total compensation cost related to non-vested awards not yet recognized and the weighted average period (in years) over which it is expected to be recognized is as follows (in thousands):

 

     As of March 31, 2015      As of December 31, 2014  
     (unaudited)                
     Amount      Weighted
average period
     Amount      Weighted
average period
 

Stock options

   $ 2,009         2.8       $ 2,195         3.0   

Restricted stock

     2,134         2.7         2,313         2.9   
  

 

 

       

 

 

    

Total

$ 4,143    $ 4,508   
  

 

 

       

 

 

    

NOTE 11 – FAIR VALUE MEASUREMENTS

Determination of Fair Value

The fair value of an asset or liability is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from one level to another. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value of cash flows or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability and reliability of the assumptions used to determine fair value.

Level 1 - Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 - Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Level 3 inputs are unobservable inputs for the asset or liability.

For assets and liabilities fair value is based upon the lowest level of input that is significant to the fair value measurement.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon models that primarily use, as inputs, observable market based parameters. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for March 31, 2015 and December 31, 2014. There were no significant transfers between level 1 and level 2 of the fair value hierarchy during the three months ended March 31, 2015 (unaudited) and the year ended December 31, 2014.

 

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Financial Assets and Financial Liabilities: Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

Securities Available for Sale: The Company’s investment in corporate debt securities is generally classified within level 2 of the fair value hierarchy. For these securities, the Company obtains fair value measurements from independent pricing services. The fair value measurements consider observable data that may include reported trades, dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.

Rabbi Trust Investments: Rabbi Trust investments consist primarily of cash and cash equivalents and mutual funds and were recorded at fair value and included in other assets. The purpose of these Rabbi Trust investments is to fund certain director and executive non-qualified retirement benefits and deferred compensation. For cash and cash equivalents, which have maturities of 90 days or less, their carrying amounts reported in the consolidated balance sheets approximate fair value and were categorized as Level 1. The exchange-traded funds were valued based on quoted prices from the market and were categorized as Level 1.

The following table summarizes financial assets measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

 

     Level 1      Level 2      Level 3      Total
Fair Value
 
     (unaudited)  

At March 31, 2015

           

Securities available-for-sale

           

Corporate debt securities

   $ —         $ 22,197       $ —         $ 22,197   

Trading securities

           

Rabbi trust investments

     2,406         —           —           2,406   
  

 

 

    

 

 

    

 

 

    

 

 

 

Totals

$ 2,406    $ 22,197    $ —      $ 24,603   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Level 1      Level 2      Level 3      Total
Fair Value
 

At December 31, 2014

           

Securities available-for-sale

           

Corporate debt securities

   $ —         $ 22,079       $ —         $ 22,079   

Trading securities

           

Rabbi trust investments

     2,336         —           —           2,336   
  

 

 

    

 

 

    

 

 

    

 

 

 

Totals

$ 2,336    $ 22,079    $ —      $ 24,415   
  

 

 

    

 

 

    

 

 

    

 

 

 

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets measured at fair value on a non-recurring basis during the reported periods include certain impaired loans reported at the fair value of the underlying collateral. Fair value was measured using appraised values of collateral and adjusted as necessary by management based on unobservable inputs for specific properties. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, real estate collateral related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

 

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Table of Contents

The following table (in thousands) presents certain impaired loans that were re-measured and reported at fair value through a specific valuation allowance allocation of the allowance for loan losses based upon the fair value of the underlying collateral at March 31, 2015 (unaudited) and December 31, 2014.

 

     March 31, 2015  
     Level 1      Level 2      Level 3  

Impaired loans

   $ —         $ —         $ 1,958   
  

 

 

    

 

 

    

 

 

 

Totals

$ —      $ —      $ 1,958   
  

 

 

    

 

 

    

 

 

 

 

     December 31, 2014  
     Level 1      Level 2      Level 3  

Impaired loans

   $ —         $ —         $ 1,951   
  

 

 

    

 

 

    

 

 

 

Totals

$ —      $ —      $ 1,951   
  

 

 

    

 

 

    

 

 

 

Non-Financial Assets and Non-Financial Liabilities: The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financial assets measured at fair value on a non-recurring basis during the reported periods include certain foreclosed assets which, upon initial recognition, were re-measured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, were re-measured at fair value through a write-down included in other non-interest expense. Non financial assets also include mortgage servicing right assets that are remeasured and reported at the lower of cost or fair value.

The following tables (in thousands) present the non-financial assets that were re-measured and reported at the lower of cost or fair value at the periods indicated:

 

     March 31, 2015  
     Level 1      Level 2      Level 3  
     (unaudited)  

Mortgage servicing rights

   $ —         $ —         $ 463   
  

 

 

    

 

 

    

 

 

 

Totals

$ —      $ —      $ 463   
  

 

 

    

 

 

    

 

 

 

 

     December 31, 2014  
     Level 1      Level 2      Level 3  

Mortgage servicing rights

   $ —         $ —         $ 476   
  

 

 

    

 

 

    

 

 

 

Totals

$ —      $ —      $ 476   
  

 

 

    

 

 

    

 

 

 

ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The estimated fair value approximates carrying value for cash and cash equivalents, FHLB stock, accrued interest, securities sold under agreements to repurchase, other borrowed funds and mortgagors’ escrow accounts. The methodologies for other financial assets and financial liabilities are discussed below:

Securities held to maturity-The fair values presented are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments and/or discounted cash flow analyses.

Loans- For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

 

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Deposits- 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 certificate accounts are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on certificate accounts.

FHLB advances- The fair values of the Company’s FHLB advances are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

Summary of Fair Values of Financial Instruments not Carried at Fair Value

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments are as follows (in thousands):

 

     March 31, 2015  
     Carrying
Amount
     Fair
Value
     Level 1      Level 2      Level 3  
     (unaudited)  

Financial assets:

              

Cash and cash equivalents

   $ 41,092       $ 41,092       $ 41,092       $ —         $ —     

Interest-bearing time deposits with other banks

     131         132         —           132         —     

Held-to-maturity securities

     119,010         120,876         —           120,876         —     

Federal Home Loan Bank stock

     15,082         15,082         —           15,082         —     

Loans, net

     1,231,068         1,226,768         —           —           1,226,768   

Accrued interest receivable

     3,065         3,065         3,065         —           —     

Financial liabilities:

              

Deposits

     1,042,999         1,046,666         790,984         255,682         —     

Federal Home Loan Bank advances

     269,100         269,967         —           269,967         —     

Securities sold under agreements to repurchase

     1,632         1,632         —           1,632         —     

Other borrowed funds

     1,055         1,065         —           1,065         —     

Accrued interest payable

     1,078         1,078         1,078         —           —     

Mortgagors’ escrow accounts

     1,436         1,436         —           1,436         —     

 

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Table of Contents
     December 31, 2014  
     Carrying
Amount
     Fair
Value
     Level 1      Level 2      Level 3  

Financial assets:

              

Cash and cash equivalents

   $ 51,767       $ 51,767       $ 51,767       $ —         $ —     

Interest-bearing time deposits with other banks

     131         132         —           132         —     

Held-to-maturity securities

     118,528         119,447         —           119,447         —     

Federal Home Loan Bank stock

     13,712         13,712         —           13,712         —     

Loans, net

     1,179,399         1,170,663         —           —           1,170,663   

Accrued interest receivable

     2,977         2,977         2,977         —           —     

Financial liabilities:

              

Deposits

     984,562         987,353         758,349         229,004         —     

Federal Home Loan Bank advances

     285,100         285,266         —           285,266         —     

Securities sold under agreements to repurchase

     1,392         1,392         —           1,392         —     

Other borrowed funds

     1,067         1,056         —           1,056         —     

Accrued interest payable

     961         961         961         —           —     

Mortgagors’ escrow accounts

     1,726         1,726         —           1,726         —     

NOTE 12 – OTHER COMPREHENSIVE INCOME

 

     Three months ended March 31, 2015      Three months ended March 31, 2014  
     (unaudited and in thousands)      (unaudited and in thousands)  
     Pre Tax
Amount
    

Tax

Expense

   

After Tax

Amount

    

Pre Tax

Amount

    

Tax

Expense

   

After Tax

Amount

 

Securities available-for-sale:

               

Change in unrealized gain/loss during the period

   $ 136       $ (53   $ 83       $ 195       $ (78   $ 117   

Reclassification adjustment for net realized gains included in net income

     —           —          —           —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total securities available-for-sale

  136      (53   83      195      (78   117   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Other comprehensive income

$ 136    $ (53 $ 83    $ 195    $ (78 $ 117   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Information on the Company’s accumulated other comprehensive income (loss), net of tax is comprised of the following components as of the periods indicated (unaudited and in thousands):

 

    

Net unrealized (loss)

gain on securities

available for sale

    

Unrecognized

actuarial gain on

defined benefit

pension plan

    

Accumulated
other comprehensive

income (loss)

 

Beginning Balance: January 1, 2015

   $ (72    $ 50       $ (22

Other comprehensive income

     83         —           83   
  

 

 

    

 

 

    

 

 

 

Ending balance: March 31, 2015

$ 11    $ 50    $ 61   
  

 

 

    

 

 

    

 

 

 

Beginning Balance: January 1, 2014

$ (210 $ 22    $ (188

Other comprehensive income

  117      —        117   
  

 

 

    

 

 

    

 

 

 

Ending balance: March 31, 2014

$ (93 $ 22    $ (71
  

 

 

    

 

 

    

 

 

 

 

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

The following analysis discusses the changes in financial condition and results of operation of the Company, and should be read in conjunction with both the unaudited consolidated interim financial statements and notes thereto, appearing in Part 1, Item 1 of this report.

Forward-Looking Statements

This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

 

    statements of our goals, intentions and expectations;

 

    statements regarding our business plans, prospects, growth and operating strategies;

 

    statements regarding the asset quality of our loan and investment portfolios; and

 

    estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We do not undertake any obligation to update any forward-looking statements after the date of this document, except as required by law.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

    our ability to successfully implement our business strategy, which includes significant asset and liability growth;

 

    our ability to increase our market share in our market areas and capitalize on growth opportunities;

 

    our ability to successfully implement our branch network expansion strategy;

 

    general economic conditions, either nationally or in our market areas, and conditions in the real estate markets that could affect the demand for our loans and other products and the ability of borrowers to repay loans, lead to declines in credit quality and increased loan losses, and negatively affect the value and salability of the real estate that is the collateral for many of our loans;

 

    competition among depository and other financial institutions;

 

    inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

 

    adverse changes in the securities markets;

 

    changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

 

    government shutdowns;

 

    system failures or breaches of our network security;

 

    our ability to successfully integrate acquired entities, if any;

 

    changes in consumer spending, borrowing and savings habits;

 

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Table of Contents
    changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

 

    changes in our organization, compensation and benefit plans;

 

    changes in our financial condition or results of operations that reduce capital available; and

 

    changes in the financial condition or future prospects of issuers of securities that we own.

Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the filings made by BSB Bancorp, Inc. with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2014 under the heading “Item 1A. Risk Factors.” Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies from those disclosed in BSB Bancorp, Inc.’s 2014 Annual Report on Form 10-K. In applying these accounting policies, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. As discussed in the Company’s 2014 Annual Report on Form 10-K, the three most significant areas in which management applies critical assumptions and estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, investment classification and impairment and deferred income taxes. Management’s estimates and assumptions affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from the amount derived from management’s estimates and assumptions under different conditions.

Comparison of Financial Condition at March 31, 2015 and December 31, 2014

Total Assets. Total assets increased $43.1 million to $1.47 billion at March 31, 2015, from $1.43 billion at December 31, 2014. The increase was primarily the result of a $51.7 million, or 4.4%, increase in net loans, partially offset by a $10.7 million, or 20.6%, decrease in cash and cash equivalents

Loans. Our plan to prudently increase our commercial and consumer loan portfolios is working as we experienced solid growth in our residential real estate loans, commercial real estate loans and construction loans during the three months ending March 31, 2015. Net loans increased by $51.7 million to $1.23 billion at March 31, 2015 from $1.18 billion at December 31, 2014. The increase in net loans was primarily due to increases of $26.3 million, or 5.8%, in residential one-to-four family loans, $15.8 million, or 4.0%, in commercial real estate loans and $9.0 million, or 28.8%, in construction loans.

Investment Securities. Total investment securities increased $600,000, to $141.2 million at March 31, 2015, from $140.6 million at December 31, 2014.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $10.7 million, or 20.6%, to $41.1 million at March 31, 2015, from $51.8 million at December 31, 2014.

Bank-Owned Life Insurance. We invest in bank-owned life insurance to provide a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. At March 31, 2015, our investment in bank-owned life insurance was $24.1 million, an increase of $186,000 from $23.9 million at December 31, 2014, due to increases in cash surrender value of $186,000.

Deposits. Deposits increased $58.4 million, or 5.9%, to $1.04 billion at March 31, 2015 from $984.6 million at December 31, 2014. The increase in deposits was due to an increase of $25.8 million, or 5.2%, in savings accounts, an increase of $25.8 million, or 11.4%, in certificates of deposit, and an increase of $11.0 million, or 15.0% in interest bearing checking accounts, partially offset by a decrease of $4.3 million, or 2.4%, in demand deposits. Core deposits, which we consider to include all deposits other than CDs and brokered CDs, increased by $32.6 million, or 4.3%. Reaching $1.04 billion in deposits was a significant milestone for Belmont Savings. It was achieved through a consistent focus on relationship selling and targeted marketing by our retail, business banking, municipal banking and commercial real estate teams.

 

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Table of Contents

The following table sets forth the Company’s deposit accounts at the dates indicated (dollars in thousands):

 

     March 31, 2015     December 31, 2014  
     Amount      Percent     Amount      Percent  
     (unaudited)               

Deposit type:

          

Demand deposits

   $ 174,904         16.77   $ 179,205         18.20

Interest-bearing checking accounts

     84,248         8.08        73,285         7.44   

Savings accounts

     522,481         50.09        496,686         50.45   

Money market deposits

     9,351         0.90        9,173         0.93   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total transaction accounts

  790,984      75.84      758,349      77.02   
  

 

 

    

 

 

   

 

 

    

 

 

 

Term certificates less than $100,000

  162,678      15.59      140,469      14.27   

Term certificates $100,000 or more

  89,337      8.57      85,744      8.71   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total certificate accounts

  252,015      24.16      226,213      22.98   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total deposits

$ 1,042,999      100.00 $ 984,562      100.00
  

 

 

    

 

 

   

 

 

    

 

 

 

Borrowings. At March 31, 2015, borrowings consisted of advances from the Federal Home Loan Bank of Boston, securities sold to customers under agreements to repurchase, or “repurchase agreements”, and other borrowed funds consisting of the balance of loans that were sold with recourse to another financial institution in March of 2006 that are accounted for as a secured borrowing. As of March 31, 2015, the principal balance of these loans sold with recourse amounted to $1.1 million. We have not incurred any losses related to the loans sold with recourse.

Total borrowings decreased $15.8 million, or 5.5%, to $271.8 million at March 31, 2015, from $287.6 million at December 31, 2014. Advances from the Federal Home Loan Bank of Boston drove this decrease as such advances decreased $16.0 million to $269.1 million at March 31, 2015, from $285.1 million at December 31, 2014.

The following table sets forth the Company’s short-term borrowings and long-term debt for the dates indicated (in thousands):

 

     March 31, 2015      December 31, 2014  
     (unaudited)         

Long-term borrowed funds:

     

Federal Home Loan Bank of Boston long-term advances

   $ 118,100       $ 103,100   

Other borrowed funds

     1,055         1,067   
  

 

 

    

 

 

 
  119,155      104,167   
  

 

 

    

 

 

 

Short-term borrowed funds:

Federal Home Loan Bank of Boston short-term advances

  151,000      182,000   

Repurchase agreements

  1,632      1,392   
  

 

 

    

 

 

 
  152,632      183,392   
  

 

 

    

 

 

 

Total borrowed funds

$ 271,787    $ 287,559   
  

 

 

    

 

 

 

Stockholders’ Equity. Total stockholders’ equity increased $1.9 million, or 1.4%, to $138.9 million at March 31, 2015 from $137.0 million as of December 31, 2014. This increase is primarily the result of earnings of $1.4 million and a $440,000 increase in additional paid-in capital related to stock-based compensation.

 

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Non-Performing Assets. The following table sets forth the amounts and categories of our non-performing assets at the dates indicated (dollars in thousands):

 

     At March 31,
2015
    At December 31,
2014
 
     (unaudited)        

Non-accrual loans:

    

Real estate loans:

    

Residential one-to-four family

   $ 2,659      $ 2,662   

Commercial real estate

     —          —     

Construction loans

     —          —     

Home equity

     96        96   

Commercial loans

     —          —     

Consumer loans:

    

Indirect auto loans

     —          12   

Other consumer loans

     —          —     
  

 

 

   

 

 

 

Total non-accrual loans

$ 2,755    $ 2,770   
  

 

 

   

 

 

 

Loans delinquent 90 days or greater and still accruing:

Real estate loans:

Residential one-to-four family

$ —      $ —     

Commercial real estate

  —        —     

Construction loans

  —        —     

Home equity

  —        —     

Commercial loans

  —        —     

Consumer loans:

Indirect auto loans

  —        —     

Other consumer loans

  —        —     
  

 

 

   

 

 

 

Total loans 90 days delinquent and still accruing

  —        —     
  

 

 

   

 

 

 

Total non-performing loans

  2,755      2,770   
  

 

 

   

 

 

 

Other real estate owned

  —        —     

Repossessed automobiles

  15      48   
  

 

 

   

 

 

 

Total non-performing assets (NPAs)

$ 2,770    $ 2,818   
  

 

 

   

 

 

 

Troubled debt restructurings:

Troubled debt restructures included in NPAs

$ 1,551    $ 1,551   

Troubled debt restructures not included in NPAs

  7,605      7,675   
  

 

 

   

 

 

 

Total troubled debt restructures

$ 9,156    $ 9,226   
  

 

 

   

 

 

 

Ratios:

Non-performing loans to total loans

  0.22   0.23

Non-performing assets to total assets

  0.19   0.21

It is the general policy of the Bank to consider any loan on non-accrual as an impaired loan. Exceptions to this policy can be made when, in the opinion of senior management, a loan is adequately secured, properly documented and clearly in the process of collection. Any exceptions to policy are reviewed on a monthly basis and must be approved by senior management. At March 31, 2015, there were no loans on non-accrual that were determined to not be impaired.

Troubled Debt Restructurings. We occasionally modify loans to extend the term or make other concessions to help a borrower stay current on their loan and to avoid foreclosure or collection activity. We generally do not forgive principal or interest on loans. At March 31, 2015, we had $9.2 million of troubled debt restructurings related to ten loans as compared to $9.2 million of troubled debt restructurings related to ten loans at December 31, 2014. The balance decreased slightly due to paydowns on performing TDR’s.

Comparison of Operating Results for the Three Months Ended March 31, 2015 and 2014

General. Net income for the three months ended March 31, 2015 was $1.4 million, compared to net income of $680,000 for the three months ended March 31, 2014. The improvement in operating results of $694,000, or 102.1%, for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, resulted from an increase in net interest and dividend income after the provision for loan losses of $1.5 million, partially offset by an increase in noninterest expense of $263,000 and an increase in income tax expense of $563,000.

 

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Net Interest and Dividend Income. Net interest and dividend income increased $1.4 million, or 19.6% to $8.8 million for the three months ended March 31, 2015, compared to $7.3 million for the three months ended March 31, 2014. The increase in net interest and dividend income was primarily due to increases in average net interest-earning assets of $21.7 million, or 8.6%, to $273.6 million for the three months ended March 31, 2015, from $251.9 million for the three months ended March 31, 2014. Partially offsetting this was a decrease in the net interest rate spread of 25 basis points, from 3.61% during the three months ended March 31, 2014 to 2.36% during the three months ended March 31, 2015.

Interest and Dividend Income. Interest and dividend income increased $2.3 million, or 26.3%, to $11.1 million for the three months ended March 31, 2015, from $8.7 million for the three months ended March 31, 2014. The increase in interest and dividend income was primarily due to a $2.3 million increase in interest income on loans. The increase in interest income on loans resulted from an increase in the average balance of loans of $329.7 million to $1.21 billion for the three months ended March 31, 2015, from $882.7 million for the three months ended March 31, 2014, partially offset by a 21 basis point decrease in the average yield on loans to 3.42% from 3.63%, primarily due to lower interest rates on originated and purchased loans during the period.

Interest Expense. Interest expense increased $866,000 to $2.3 million for the three months ended March 31, 2015, from $1.4 million for the three months ended March 31, 2014. The increase resulted from a $307.7 million, or 37.8%, increase in the average balance of interest-bearing liabilities as well as a 12 basis point increase in the cost of interest-bearing liabilities to 0.83% from 0.71%.

Interest expense on interest-bearing deposits increased by $587,000 to $1.8 million for the three months ended March 31, 2015, from $1.2 million for the three months ended March 31, 2014. This increase was primarily due to an increase in the interest expense on CDs and savings accounts of $378,000 and $148,000, respectively. The increase in interest expense on CDs of $378,000 from $537,000 to $915,000, was driven by an increase in the average balance of $80.0 million and an increase in the average cost of 17 basis points to 1.59% from 1.42%. The increase in interest expense on savings accounts of $148,000 from $621,000 to $769,000, was driven by an increase in the average balance of $54.7 million and an increase in the average cost of 6 basis points to 0.62% from 0.56%. We experienced increases in the average cost across all deposit products.

Interest expense on total borrowings increased $279,000 to $539,000 for the three months ended March 31, 2015, from $260,000 for the three months ended March 31, 2014. This increase was primarily due to an increase in the average balance of FHLB advances of $125.5 million, or 73.0%, to $297.3 million for the three months ended March 31, 2015, from $171.9 million for the three months ended March 31, 2014, and an increase in the average cost of FHLB advances of 13 basis points to 0.72% for the three months ended March 31, 2015, from 0.59% for the three months ended March 31, 2014.

Provision for Loan Losses. Based on our methodology for establishing the allowance for loan losses and provision for loan losses as discussed in Note 4 to the Consolidated Financial Statements included in this Form 10-Q, we recorded a provision for loan losses of $338,000 for the three months ended March 31, 2015, compared to $388,000 for the three months ended March 31, 2014. The decrease in the provision for loan losses was driven by lower loan growth. The allowance for loan losses was $9.2 million, or 0.75% of total loans, at March 31, 2015, compared to $8.9 million, or 0.75% of total loans, at December 31, 2014.

Noninterest Income. Noninterest income increased by $33,000 to $757,000 for the three months ended March 31, 2015, from $724,000 for the three months ended March 31, 2014. This increase was primarily driven by additional income from bank owned life insurance of $87,000. This increase was partially offset by a decrease in loan servicing fee income of $56,000.

Noninterest Expense. Noninterest expense increased $263,000 to $6.9 million for the three months ended March 31, 2015, from $6.7 million for the three months ended March 31, 2014. This increase was driven by an increase in salaries and employee benefits of $220,000.

Income Tax Expense. We recorded income tax expense of $867,000 for the three months ended March 31, 2015, compared to income tax expense of $304,000 for the three months ended March 31, 2014. The effective tax rate for the three months ended March 31, 2015 was 38.7% compared to 30.9% for the three months ended March 31, 2014. The increase in effective tax rate was primarily the result of a change within an executive SERP agreement causing a one-time reduction to a deferred tax liability during the three months ended March 31, 2014.

 

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The following tables set forth average balances of assets and liabilities, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

 

    

For the Three Months Ended March 31,

(unaudited)

 
     2015     2014  
     (Dollars in thousands)  
     Average
Outstanding
Balance
     Interest      Yield/Rate(1)     Average
Outstanding
Balance
     Interest      Yield/Rate(1)  

Interest-earning assets:

                

Total loans

   $ 1,212,486       $ 10,232         3.42   $ 882,743       $ 7,893         3.63

Securities

     140,724         741         2.14     143,053         806         2.29

Other

     42,593         21         0.20     40,659         21         0.21
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets (5)

  1,395,803    $ 10,994      3.19   1,066,455      8,720      3.32

Non-interest-earning assets

  47,035      29,487   
  

 

 

         

 

 

       

Total assets

$ 1,442,838    $ 1,095,942   
  

 

 

         

 

 

       

Interest-bearing liabilities:

Savings accounts

$ 500,820    $ 769      0.62 $ 446,172      621      0.56

Checking accounts

  78,240      69      0.36   28,769      8      0.11

Money market accounts

  9,335      2      0.09   10,379      2      0.08

Certificates of deposit

  233,853      915      1.59   153,881      537      1.42
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing deposits

  822,248      1,755      0.87   639,201      1,168      0.74

Federal Home Loan Bank advances

  297,322      531      0.72   171,856      251      0.59

Securities sold under agreements to repurchase

  1,574      1      0.26   2,385      1      0.17

Other borrowed funds

  1,062      7      2.67   1,108      8      2.93
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

  1,122,206    $ 2,294      0.83   814,550      1,428      0.71

Non-interest-bearing liabilities

  182,128      149,905   
  

 

 

         

 

 

       

Total liabilities

  1,304,334      964,455   

Stockholders’ Equity

  138,504      131,487   
  

 

 

         

 

 

       

Total liabilities and stockholders’ equity

$ 1,442,838    $ 1,095,942   
  

 

 

         

 

 

       

Net interest income

$ 8,700    $ 7,292   
     

 

 

         

 

 

    

Net interest rate spread (2)

  2.36   2.61

Net interest-earning assets (3)

$ 273,597    $ 251,905   
  

 

 

         

 

 

       

Net interest margin (4)

  2.53   2.77

Average interest-earning assets to interest-bearing liabilities

  124.38   130.93

 

(1) Yields and rates for the three-month periods ended March 31, 2015 and 2014 are annualized.
(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(3) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(4) Net interest margin represents net interest and dividend income divided by average total interest-earning assets.
(5) FHLB stock dividends of $58,000 and $29,000 for the three months ended March 31, 2015 and 2014, respectively, are not included.

 

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The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

 

     Three Months Ended March 31,
2015 vs. 2014 (unaudited)
 
     Change
Due to
Volume
     Change
Due to
Rate
     Total
Change
 
     (In thousands)  

Income on interest-earning assets:

        

Loans

   $ 2,804       $ (465    $ 2,339   

Securities

     (13      (52      (65

Other

     1         (1      —     
  

 

 

    

 

 

    

 

 

 

Total interest-earning assets (1)

$ 2,792    $ (518 $ 2,274   
  

 

 

    

 

 

    

 

 

 

Expense on interest-bearing liabilities:

Savings accounts

$ 80    $ 68    $ 148   

Checking accounts

  27      34      61   

Money market accounts

  —        —        —     

Certificates of deposit

  307      71      378   
  

 

 

    

 

 

    

 

 

 

Total interest-bearing deposits

  414      173      587   
  

 

 

    

 

 

    

 

 

 

Federal Home Loan Bank advances

  215      65      280   

Securities sold under agreements to repurchase

  —        —        —     

Other borrowed funds

  —        (1   (1
  

 

 

    

 

 

    

 

 

 

Total interest-bearing liabilities

  629      237      866   
  

 

 

    

 

 

    

 

 

 

Change in net interest income

$ 2,163    $ (755 $ 1,408   
  

 

 

    

 

 

    

 

 

 

 

(1) Does not include dividends on FHLB stock of $58,000 and $29,000 for the three months ended March 31, 2015 and 2014, respectively.

Management of Market Risk

General. The Bank’s most significant form of market risk is interest rate risk because, as a financial institution, the majority of assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of the Bank’s operations is to manage interest rate risk and limit the exposure of the Bank’s financial condition and results of operations to changes in market interest rates. The Bank’s Asset/Liability Management Committee is responsible for evaluating the interest rate risk inherent in the Bank’s assets and liabilities, for determining the level of risk that is appropriate, given the Bank’s business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our Board of Directors.

Exposure to interest rate risk is managed by Belmont Savings Bank through periodic evaluations of the current interest rate risk inherent in its rate-sensitive assets and liabilities, primarily deposits, borrowings, loans and investment securities, coupled with determinations of the level of risk considered appropriate given Belmont Savings Bank’s capital and liquidity requirements, business strategy and performance objectives. Through such management, Belmont Savings Bank seeks to manage the vulnerability of its net interest income to changes in interest rates.

Strategies used by Belmont Savings Bank to manage the potential volatility of its earnings may include:

 

    The origination and retention of adjustable rate residential one-to-four family loans, adjustable rate home equity lines of credit, adjustable rate commercial loans, commercial real estate loans and indirect automobile loans;

 

    The sale of fixed rate loans;

 

    Investing in securities with relatively short maturities and/or expected average lives;

 

    Emphasizing growth in low-cost core deposits; and

 

    Lengthening liabilities such as term certificates of deposit, brokered certificates of deposit and Federal Home Loan Bank of Boston borrowings as appropriate.

 

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Net Interest Income Analysis. The Bank analyzes its sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income the Bank earns on its interest-earning assets, such as loans and securities, and the interest the Bank pays on its interest-bearing liabilities, such as deposits and borrowings. The Bank estimates what its net interest income would be for a one-year period based on current interest rates. The Bank then calculates what the net interest income would be for the same period under different interest rate assumptions. The Bank also estimates the impact over a five year time horizon. The following table shows the estimated impact on net interest income (“NII”) for the one-year period beginning March 31, 2015 resulting from potential changes in interest rates. These estimates require the Bank to make certain assumptions including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain and, as a result, the Bank cannot precisely predict the impact of changes in interest rates on its net interest income. Although the net interest income table below provides an indication of the Bank’s interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on its net interest income and will differ from actual results.

 

Change in Interest Rates (basis points) (1)

   NII Change Year One
(% Change From Year One
Base)
 

Shock +300

     -14.0

+200

     -5.4

- 100

     -0.4

 

(1) The calculated change for -100 BPS and +200 BPS, assume a gradual parallel shift across the yield curve over a one-year period. The calculated change for “Shock +300” assumes that market rates experience an instantaneous and sustained increase of 300 BPS.

The table above indicates that at March 31, 2015, in the event of a 200 basis point increase in interest rates over a one year period, assuming a gradual parallel shift across the yield curve over such period, the Bank would experience a 5.4% decrease in net interest income. At the same date, in the event of a 100 basis point decrease in interest rates over a one year period, assuming a gradual parallel shift across the yield curve over such period, the Bank would experience a 0.4% decrease in net interest income.

Economic Value of Equity Analysis. The Bank also analyzes the sensitivity of its financial condition to changes in interest rates through an economic value of equity model. This analysis measures the difference between predicted changes in the present value of its assets and predicted changes in the present value of its liabilities assuming various changes in current interest rates. The economic value of equity analysis as of March 31, 2015 estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Bank would experience a 14.0% decrease in the economic value of its equity. At the same date, the analysis estimated that, in the event of an instantaneous 100 basis point decrease in interest rates, the Bank would experience a 13.0% decrease in the economic value of its equity. The estimates of changes in the economic value of the Bank’s equity require management to make certain assumptions including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain and, as a result, management cannot precisely predict the impact of changes in interest rates on the economic value of the Bank’s equity. Although the economic value of equity analysis provides an indication of the Bank’s interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on the economic value of the Bank’s equity and will differ from actual results.

Liquidity and Capital Resources. Liquidity is the ability to meet current and future financial obligations. Our primary sources of funds consist of deposit inflows, loan repayments, advances from the Federal Home Loan Bank of Boston, security repayments and loan sales. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we had enough sources of liquidity at March 31, 2015 to satisfy our short- and long-term liquidity needs as of that date.

We regularly monitor and adjust our investments in liquid assets based on our assessment of:

 

    expected loan demand;

 

    expected deposit flows and borrowing maturities;

 

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    yields available on interest-earning deposits and securities; and

 

    the objectives of our asset/liability management program.

Excess liquid assets are invested generally in interest-earning deposits and short-term securities and may also be used to pay off short-term borrowings.

Our most liquid assets are cash and cash equivalents. The level of these assets is dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2015, cash and cash equivalents totaled $41.1 million.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included in our Consolidated Financial Statements.

At March 31, 2015, we had $36.9 million in loan commitments outstanding. In addition to commitments to originate and purchase loans, we had $210.7 million in unused lines of credit to borrowers and $10.1 million in unadvanced funds on construction loans.

Certificates of deposit due within one year of March 31, 2015 totaled $56.6 million, or 5.4%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including loan sales, brokered deposits, repurchase agreements and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2016. We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of March 31, 2015.

Our primary investing activity is originating loans. During the three months ended March 31, 2015 and the year ended December 31, 2014, we originated $136.9 million and $676.2 million of loans, respectively.

Financing activities consist primarily of activity in deposit accounts, Federal Home Loan Bank advances and, to a lesser extent, brokered deposits. We experienced net increases in deposits of $58.4 million and $219.8 million for the three months ended March 31, 2015 and for the year ended December 31, 2014, respectively. At March 31, 2015 and December 31, 2014, the levels of brokered deposits were $111.3 million and $88.6 million, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Boston, which provide an additional source of funds. At March 31, 2015, we had $269.1 million of Federal Home Loan Bank advances. Based on available collateral at that date, we had the ability to borrow up to an additional $147.1 million from the Federal Home Loan Bank of Boston.

We are obligated to make future payments according to various contracts. As of March 31, 2015, our contractual obligations have not changed materially from those disclosed in our 2014 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 13, 2015.

Belmont Savings Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2015, Belmont Savings Bank exceeded all regulatory capital requirements. Belmont Savings Bank is considered “well capitalized” under regulatory guidelines.

The net proceeds from our stock offering completed in October 2011 have significantly increased our liquidity and capital resources. Over time, the level of liquidity will continue to be reduced as net proceeds from the stock offering and additions to capital from income generated are used for general corporate purposes, including the funding of loans. Our financial condition and results of operations will be enhanced by the continued investment of the net proceeds from the stock offering, resulting in increased net interest-earning assets and net interest and dividend income. However, due to the increase in equity resulting from the net proceeds raised in the stock offering, our return on equity has been adversely affected following the stock offering.

At the time of conversion from a mutual holding company to a stock holding company, BSB Bancorp, Inc. substantially restricted retained earnings by establishing a liquidation account and the Bank established a parallel liquidation account. The liquidation account will be maintained for the benefit of eligible holders who continue to maintain their accounts at the Bank after conversion. The liquidation account is reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

 

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The Company’s total stockholders’ equity increased to $138.9 million at March 31, 2015 from $137.0 million at December 31, 2014. This increase is primarily the result of earnings of $1.4 million and a $440,000 increase in additional paid-in capital related to stock based compensation.

Basel III Capital Rules. In July 2013, the Federal Deposit Insurance Corporation and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule became effective for the Company and the Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.

Off-Balance Sheet Arrangements

As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, from time to time we enter into commitments to sell mortgage loans that we originate. For the three months ended March 31, 2015, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is included in Item 2 of this report under “Management of Market Risk.”

 

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, (1) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including our Principal Executive and Principal Financial officers as appropriate to allow timely discussions regarding required disclosures.

The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information known in a timely manner to the appropriate levels of management.

There were no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Table of Contents
PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

 

Item 1A. Risk Factors.

For information regarding the Company’s risk factors, see “Risk Factors” in the Company’s 2014 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 13, 2015. As of March 31, 2015, the risk factors of the Company have not changed materially from those disclosed in the 2014 Annual Report on Form 10-K.

 

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

 

(a) Unregistered Sales of Equity Securities. None

 

(b) Use of Proceeds. None

 

(c) Repurchase of Equity Securities.

The following table provides certain information with regard to shares repurchased by the Company in the first quarter of 2015.

 

Period

   (a) Total
Number of
Shares
Purchased
     (b)
Average Price Paid
per Share
     (c)
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs(1)
     (d)
Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs(1)
 

January 1 - January 31

     —         $ —           —           500,000   

February 1 - February 28

     —           —           —           500,000   

March 1 - March 31

     —           —           —           500,000   
  

 

 

       

 

 

    

Total

  —      $ —        —     
  

 

 

       

 

 

    

 

(1) The Company completed its first stock repurchase program during the second quarter of 2013. On June 22, 2013, the Company’s Board of Directors authorized a second stock repurchase program to acquire up to 500,000 shares, or 5.5% of the Company’s then outstanding common stock. Repurchases will be made from time to time depending on market conditions and other factors, and will be conducted through open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. There is no guarantee as to the exact number of shares to be repurchased by the Company.

 

Item 3. Defaults Upon Senior Securities

None

 

Item 4. Mine Safety Disclosures

Not applicable.

 

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Item 5. Other Information

None

 

Item 6. Exhibits

 

  31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
  31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
  32.0 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer.*
101.0 The following data from the BSB Bancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) the related notes.

 

* This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

 

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Table of Contents

Signatures

Pursuant to the requirements 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.

 

BSB BANCORP, INC.
Date: May 6, 2015 By:

/s/ Robert M. Mahoney

Robert M. Mahoney
President, Chief Executive Officer and Director (Principal Executive Officer)
Date: May 6, 2015 By:

/s/ John A. Citrano

John A. Citrano
Executive Vice President and Chief Financial Officer (Principal Financial Officer)

 

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