UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|
x
|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2008
OR
|
¨
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|
For the transition period from
to
Commission file number: 0-51014
BV FINANCIAL, INC.
(Exact name of small business issuer as specified in its charter)
|
|
|
|
|
Federal
|
|
14-1920944
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
7114 North Point Road, Baltimore, Maryland 21219
(Address of principal executive offices)
(410) 477-5000
(Issuer’s telephone number)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
As of May 9, 2008, there were 2,429,532 shares of the registrant’s common stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes
¨
No
x
BV FINANCIAL, INC.
Form 10-QSB
Table of Contents
i
PART I. FINANCIAL INFORMATION
|
Item 1.
|
Financial Statements
|
BV FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
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March 31,
2008
|
|
|
June 30,
2007
|
|
|
|
|
(Dollars in thousands,
except per share data)
|
|
|
A
SSETS
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,482
|
|
|
$
|
1,547
|
|
|
Interest bearing deposits in other banks
|
|
|
395
|
|
|
|
199
|
|
|
Federal funds sold
|
|
|
9,213
|
|
|
|
3,810
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
11,090
|
|
|
|
5,556
|
|
|
Securities available for sale
|
|
|
9,404
|
|
|
|
3,300
|
|
|
Securities held to maturity
|
|
|
11,136
|
|
|
|
2,656
|
|
|
Loans receivable, net of allowance for loan losses March 31, 2008 - $543; June 30, 2007 - $402
|
|
|
121,624
|
|
|
|
116,051
|
|
|
Goodwill
|
|
|
3,940
|
|
|
|
–
|
|
|
Premises and equipment, net
|
|
|
2,367
|
|
|
|
2,404
|
|
|
Federal Home Loan Bank of Atlanta stock, at cost
|
|
|
654
|
|
|
|
848
|
|
|
Investment in life insurance
|
|
|
2,030
|
|
|
|
1,978
|
|
|
Accrued interest receivable
|
|
|
654
|
|
|
|
538
|
|
|
Other assets
|
|
|
1,290
|
|
|
|
679
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
164,189
|
|
|
$
|
134,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L
IABILITIES
AND
S
TOCKHOLDERS
’ E
QUITY
|
|
|
|
|
|
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|
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|
L
IABILITIES
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
$
|
5,985
|
|
|
$
|
3,571
|
|
|
Interest bearing deposits
|
|
|
131,092
|
|
|
|
94,921
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
137,077
|
|
|
|
98,492
|
|
|
Federal Home Loan Bank advances
|
|
|
7,500
|
|
|
|
13,500
|
|
|
Official checks
|
|
|
595
|
|
|
|
1,779
|
|
|
Advance payments by borrowers for taxes and insurance
|
|
|
837
|
|
|
|
1,139
|
|
|
Other liabilities
|
|
|
1,333
|
|
|
|
882
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
147,342
|
|
|
|
115,792
|
|
|
|
|
|
|
|
|
|
|
|
|
C
OMMITMENTS
AND
C
ONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S
TOCKHOLDERS
’ E
QUITY
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.01 par value; 9,000,000 shares authorized; 2,645,000 shares issued; 2,429,532 and 2,541,859 shares outstanding as of
March 31, 2008 and June 30, 2007, respectively
|
|
|
26
|
|
|
|
26
|
|
|
Paid-in capital
|
|
|
11,118
|
|
|
|
11,083
|
|
|
Unearned employee stock ownership plan shares
|
|
|
(773
|
)
|
|
|
(825
|
)
|
|
Treasury stock, at cost; 215,468 shares and 103,141 shares as of March 31, 2008 and June 30, 2007, respectively
|
|
|
(1,837
|
)
|
|
|
(878
|
)
|
|
Retained earnings
|
|
|
8,349
|
|
|
|
8,866
|
|
|
Accumulated other comprehensive loss
|
|
|
(36
|
)
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
16,847
|
|
|
|
18,218
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
164,189
|
|
|
$
|
134,010
|
|
|
|
|
|
|
|
|
|
|
|
See notes to Unaudited Consolidated Financial Statements.
1
BV FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands, except per share data)
|
|
I
NTEREST
I
NCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
1,866
|
|
|
$
|
1,766
|
|
$
|
5,636
|
|
|
$
|
5,287
|
|
Investment securities
|
|
|
203
|
|
|
|
89
|
|
|
390
|
|
|
|
276
|
|
Other
|
|
|
118
|
|
|
|
56
|
|
|
644
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income
|
|
|
2,187
|
|
|
|
1,911
|
|
|
6,670
|
|
|
|
5,717
|
|
I
NTEREST
E
XPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,217
|
|
|
|
924
|
|
|
3,598
|
|
|
|
2,737
|
|
Federal Home Loan Bank advances
|
|
|
90
|
|
|
|
151
|
|
|
379
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense
|
|
|
1,307
|
|
|
|
1,075
|
|
|
3,977
|
|
|
|
3,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
880
|
|
|
|
836
|
|
|
2,693
|
|
|
|
2,488
|
|
P
ROVISION
FOR
L
OAN
L
OSSES
|
|
|
118
|
|
|
|
—
|
|
|
162
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income after Provision for Loan Losses
|
|
|
762
|
|
|
|
836
|
|
|
2,531
|
|
|
|
2,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N
ON
-I
NTEREST
I
NCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees on deposits
|
|
|
27
|
|
|
|
31
|
|
|
91
|
|
|
|
88
|
|
Service fees on loans
|
|
|
8
|
|
|
|
7
|
|
|
22
|
|
|
|
21
|
|
Income from investment in life insurance
|
|
|
18
|
|
|
|
17
|
|
|
53
|
|
|
|
66
|
|
Other income
|
|
|
19
|
|
|
|
13
|
|
|
58
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
|
72
|
|
|
|
68
|
|
|
224
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N
ON
-I
NTEREST
E
XPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses
|
|
|
595
|
|
|
|
507
|
|
|
1,711
|
|
|
|
1,535
|
|
Occupancy
|
|
|
74
|
|
|
|
43
|
|
|
191
|
|
|
|
130
|
|
Data processing
|
|
|
102
|
|
|
|
69
|
|
|
276
|
|
|
|
217
|
|
Telephone and postage
|
|
|
17
|
|
|
|
15
|
|
|
50
|
|
|
|
47
|
|
Advertising
|
|
|
29
|
|
|
|
26
|
|
|
91
|
|
|
|
76
|
|
Professional fees
|
|
|
55
|
|
|
|
49
|
|
|
172
|
|
|
|
181
|
|
Equipment
|
|
|
44
|
|
|
|
36
|
|
|
131
|
|
|
|
105
|
|
Other
|
|
|
138
|
|
|
|
118
|
|
|
391
|
|
|
|
337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expenses
|
|
|
1,054
|
|
|
|
863
|
|
|
3,013
|
|
|
|
2,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before Income Taxes
|
|
|
(220
|
)
|
|
|
41
|
|
|
(258
|
)
|
|
|
66
|
|
(B
ENEFIT
) P
ROVISION
FOR
I
NCOME
T
AXES
|
|
|
(106
|
)
|
|
|
19
|
|
|
(117
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
|
$
|
(114
|
)
|
|
$
|
22
|
|
$
|
(141
|
)
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B
ASIC
AND
D
ILUTED
(L
OSS
) E
ARNINGS
P
ER
S
HARE
|
|
$
|
(0.05
|
)
|
|
$
|
0.01
|
|
$
|
(0.06
|
)
|
|
$
|
0.01
|
|
D
IVIDENDS
D
ECLARED
P
ER
S
HARE
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
$
|
0.15
|
|
|
$
|
0.10
|
See Notes to Unaudited Consolidated Financial Statements.
2
BV FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Three Months
Ended
March 31,
|
|
For Nine Months
Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
Net (Loss) Income
|
|
$
|
(114
|
)
|
|
$
|
22
|
|
$
|
(141
|
)
|
|
$
|
37
|
|
Unrealized net holding gains on available-for-sale securities, net of taxes of $6, $2, $12 and $19
|
|
|
9
|
|
|
|
3
|
|
|
18
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (Loss) Income
|
|
$
|
(105
|
)
|
|
$
|
25
|
|
$
|
(123
|
)
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Consolidated Financial Statements.
3
BV FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
March 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In thousands)
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(141
|
)
|
|
$
|
37
|
|
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Net amortization of discounts and premiums
|
|
|
4
|
|
|
|
5
|
|
|
Provision for loan losses
|
|
|
162
|
|
|
|
5
|
|
|
Amortization of deferred loan fees/costs
|
|
|
53
|
|
|
|
55
|
|
|
Provision for depreciation
|
|
|
124
|
|
|
|
112
|
|
|
Increase in cash surrender value of life insurance
|
|
|
(53
|
)
|
|
|
(66
|
)
|
|
Stock-based compensation expense
|
|
|
144
|
|
|
|
186
|
|
|
Amortization of core deposit intangible
|
|
|
80
|
|
|
|
—
|
|
|
Increase in other assets
|
|
|
(778
|
)
|
|
|
(125
|
)
|
|
Increase in other liabilities
|
|
|
231
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Provided by Operating Activities
|
|
|
(174
|
)
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
Purchases of securities available for sale
|
|
|
(6,117
|
)
|
|
|
(103
|
)
|
|
Purchases of securities held to maturity
|
|
|
(11,352
|
)
|
|
|
—
|
|
|
Proceeds from maturity of securities available for sale
|
|
|
—
|
|
|
|
1,000
|
|
|
Proceeds from maturity of securities held to maturity
|
|
|
2,500
|
|
|
|
—
|
|
|
Principal collected on mortgage backed securities
|
|
|
412
|
|
|
|
131
|
|
|
Net increase in loans
|
|
|
(5,920
|
)
|
|
|
(504
|
)
|
|
Sale (Purchase) of loans
|
|
|
90
|
|
|
|
(384
|
)
|
|
Purchase of premises and equipment
|
|
|
(87
|
)
|
|
|
(61
|
)
|
|
Purchase of Federal Home Loan Bank stock
|
|
|
—
|
|
|
|
91
|
|
|
Proceeds from the sale of Federal Home Loan Bank stock
|
|
|
194
|
|
|
|
—
|
|
|
Net cash received in branch acquisition
|
|
|
43,002
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Investing Activities
|
|
|
22,722
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Used in Financing Activities
|
|
|
|
|
|
|
|
|
|
Decrease in official checks
|
|
|
(1,184
|
)
|
|
|
(3,699
|
)
|
|
Net increase (decrease) in deposits
|
|
|
(8,357
|
)
|
|
|
3,032
|
|
|
Decrease in advance payments by borrowers for taxes and insurance
|
|
|
(302
|
)
|
|
|
(301
|
)
|
|
Advances from Federal Home Loan Bank
|
|
|
7,500
|
|
|
|
2,000
|
|
|
Repayment of advances from Federal Home Loan Bank
|
|
|
(13,500
|
)
|
|
|
(3,000
|
)
|
|
Cash dividends paid
|
|
|
(155
|
)
|
|
|
(119
|
)
|
|
Treasury stock repurchased
|
|
|
(1,016
|
)
|
|
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Financing Activities
|
|
|
(17,014
|
)
|
|
|
(2,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
5,534
|
|
|
|
(1,921
|
)
|
|
Cash and Cash Equivalents – Beginning
|
|
|
5,556
|
|
|
|
9,079
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents – Ending
|
|
$
|
11,090
|
|
|
$
|
7,158
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Cash Flows Information
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
3,594
|
|
|
$
|
3,226
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
63
|
|
|
$
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans transferred to foreclosed real estate/repossessed assets
|
|
$
|
42
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Consolidated Financial Statements.
4
BV FINANCIAL, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
March 31, 2008
|
(1)
|
Basis of Presentation
|
The accompanying unaudited
consolidated financial statements have been prepared in accordance with instructions for Form 10-QSB and, therefore, do not include all disclosures necessary for a complete presentation of the financial statements in conformity with accounting
principles generally accepted in the United States of America. However, all adjustments that are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. Such adjustments were of a
normal recurring nature. The results of operations for the period ended March 31, 2008 are not necessarily indicative of the results that may be expected for the entire year. These unaudited consolidated financial statements should be read in
conjunction with BV Financial Inc.’s (the “Company” or “BV Financial”) Annual Report on Form 10-KSB for the year ended June 30, 2007.
Principles of Consolidation
The consolidated financial statements at March 31, 2008 and June 30, 2007 and for the
three and nine months ended March 31, 2008 include the accounts of the Company, Bay-Vanguard Federal Savings Bank (the “Bank”) and its wholly-owned subsidiary, Housing Recovery Corporation. All intercompany balances and transactions
have been eliminated in consolidation.
|
(2)
|
(Loss) Earnings Per Share
|
Basic (loss) earnings
per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding for the appropriate period. Unearned shares under the Bay-Vanguard Federal Savings Bank Employee Stock Ownership Plan (“ESOP”)
are not included in outstanding shares. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding as adjusted for the dilutive effect of stock options and unvested stock awards based on the
“treasury stock” method. The dilutive effect of stock options and unvested stock awards are not considered in the computation of diluted loss per share as such instruments would be anti-dilutive. Information related to the calculation of
(loss) earnings per share is summarized for the three and nine months ended March 31, 2008 and 2007 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
2008
|
|
|
2007
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
Diluted
|
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Net (loss) income
|
|
$
|
(114
|
)
|
|
$
|
(114
|
)
|
|
$
|
22
|
|
$
|
22
|
|
$
|
(141
|
)
|
|
$
|
(141
|
)
|
|
$
|
37
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
2,353
|
|
|
|
2,353
|
|
|
|
2,487
|
|
|
2,487
|
|
|
2,383
|
|
|
|
2,383
|
|
|
|
2,499
|
|
|
2,499
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
1
|
|
Stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average shares
|
|
|
2,353
|
|
|
|
2,353
|
|
|
|
2,487
|
|
|
2,487
|
|
|
2,383
|
|
|
|
2,383
|
|
|
|
2,499
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
On August 24, 2007, the
Bank acquired a branch office located at 8070 Ritchie Highway in Pasadena, Maryland from Greater Atlantic Bank. The Bank paid a premium of $4.4 million on the net liabilities, primarily deposits, assumed at closing. The premium primarily constitutes
goodwill, which will not be amortized and a core deposit intangible of $506,000, which is being amortized over seven years. At the time of closing, the branch office had $51.5 million in deposits.
|
(4)
|
Equity Incentive Plan
|
On November 8, 2005,
stockholders approved the BV Financial, Inc. 2005 Equity Compensation Plan (the “Plan”) that enabled the Company to grant stock options and restricted stock awards to employees and directors. On November 14, 2005, the Company
granted stock options covering 111,456 shares of common stock to certain employees and directors of the Company. The options were granted at the then fair market value of the stock of $8.94, vest over five years and expire ten years from the
date of grant. In addition, the Company awarded 44,577 shares of restricted stock to certain employees and directors. The restricted stock vests over five years.
The Compensation cost charged against income for the Plan was $31,000 and $104,000 for the three and nine months ended March 31, 2008, respectively, and $39,000 and $140,000 for the three and nine months ended
March 31, 2007, respectively. The total income tax benefit recognized was $8,000 and $31,000 for the three and nine months ended March 31, 2008, respectively, and $10,000 and $33,000 for the three and nine months ended March 31,
2007, respectively.
At March 31, 2008, there was $279,000 of total unrecognized compensation cost related to unvested share-based
compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted average period of 2.7 years.
|
(5)
|
Recent Accounting Pronouncements
|
In July 2006, the
FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation
requires that companies recognize in their financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company adopted the provisions of
FIN 48 on July 1, 2007 and determined that upon adoption, it had no impact on our financial statements.
In September 2006, the FASB
issued FASB Statement No. 157,
Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. FASB Statement No. 157 applies to
other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years.
The company has evaluated FASB Statement No. 157 and determined that it will not have a significant impact on our consolidated financial position, results of operations and cash flows.
In December 2007, the FASB issued FASB Staff Position (“FSP”) 157-2, “Effective Date of FASB Statement No. 157,” that permits a
one-year deferral in applying the measurement provisions of Statement No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial
statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized
6
or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred
until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The Company is currently evaluating the impact, if any, that the adoption of FSP 157-2 will have on the Company’s operating income or net
earnings.
In September 2006, the FASB’s Emerging Issues Task Force (EITF) issued EITF Issue No. 06-4, “Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements” (“EITF 06-4”). EITF 06-4 requires the recognition of a liability related to the postretirement benefits covered by an
endorsement split-dollar life insurance arrangement. The consensus highlights that the employer (who is also the policyholder) has a liability for the benefit it is providing to its employee. As such, if the policyholder has agreed to maintain the
insurance policy in force for the employee’s benefit during his or her retirement, then the liability recognized during the employee’s active service period should be based on the future cost of insurance to be incurred during the
employee’s retirement. Alternatively, if the policy holder has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS No. 106 or
Accounting Principles Board (APB) Opinion No. 12, as appropriate. For transition, an entity can choose to apply the guidance using either of the following approaches: (a) a change in accounting principle through retrospective application
to all periods presented or (b) a change in accounting principle through a cumulative-effect adjustment to the balance in retained earnings at the beginning of the year of adoption. Implementation is required in fiscal years beginning after
December 15, 2007, with early adoption permitted. The Company adopted EITF 06-4 during the current quarter by a cumulative-effect adjustment to the balance in retained earnings of $221,544. In addition, the Company estimates that the adoption
of EITF 06-4 will result in an additional annual expense of approximately $60,000.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at
fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for the Company July 1, 2008. The Company is
evaluating the impact that the adoption of SFAS No. 159 will have on its consolidated financial statements.
FASB Statement
No. 141(R) “Business Combinations” was issued in December 2007. This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The
Company believes that this new pronouncement will impact acquisitions made after July 1, 2009.
FASB Statement No. 160
“Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” was issued in December 2007. This Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary
and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The Company believes that this new pronouncement will have an immaterial
impact on the Company’s financial statements in future periods.
7
Staff Accounting Bulletin No. 110 (“SAB 110”) amends and replaces Question 6 of Section
D.2 of Topic 14,
“
Share-Based Payment,” of the Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the “simplified” method in developing an estimate
of expected term of “plain vanilla” share options and allows usage of the “simplified” method for share option grants prior to December 31, 2007. SAB 110 allows public companies which do not have historically sufficient
experience to provide a reasonable estimate to continue use of the “simplified” method for estimating the expected term of “plain vanilla” share option grants after December 31, 2007. SAB 110 was effective January 1,
2008 and did not have an impact as no grants have been made in 2008.
In June 2007, the Emerging Issues Task Force (“EITF”)
reached a consensus on Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”). EITF 06-11 states that an entity should recognize a realized tax benefit associated
with dividends on nonvested equity shares, nonvested equity share units and outstanding equity share options charged to retained earnings as an increase in additional paid in capital. The amount recognized in additional paid in capital should
be included in the pool of excess tax benefits available to absorb potential future tax deficiencies on share-based payment awards. EITF 06-11 should be applied prospectively to income tax benefits of dividends on equity-classified share-based
payment awards that are declared in fiscal years beginning after December 15, 2007. The Company expects that EITF 06-11 will not have an impact on its consolidated financial statements.
|
Item 2.
|
Management’s Discussion and Analysis or Plan of Operation
|
Management’s discussion and analysis of the financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of BV Financial. The information
contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and footnotes appearing in Part I, Item 1 of this document.
Forward-Looking Statements
This quarterly report contains forward-looking statements that are based
on assumptions and may describe future plans, strategies and expectations of Bay-Vanguard, M.H.C., BV Financial and Bay-Vanguard Federal. These forward-looking statements are generally identified by use of the words “believe,”
“expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions.
Bay-Vanguard, M.H.C., BV Financial and Bay-Vanguard Federal’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations
of BV Financial and its subsidiary include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of
the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in BV Financial and Bay-Vanguard’s market
area, changes in real estate market values in BV Financial and Bay-Vanguard’s market area, and changes in relevant accounting principles and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, BV Financial
does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the
occurrence of anticipated or unanticipated events.
8
General
BV Financial was organized as a federally chartered corporation at the direction of Bay-Vanguard Federal Savings Bank (the “Bank” or “Bay-Vanguard Federal”) in January 2005 to become the mid-tier stock holding company
for Bay-Vanguard Federal upon the completion of its reorganization into the mutual holding company form of organization. Pursuant to the Plan of Reorganization, the Bank converted to stock form with all of its stock owned by BV Financial and
organized Bay-Vanguard, M.H.C. as a federally chartered mutual holding company that owns a majority of the common stock of BV Financial.
Bay-Vanguard Federal is headquartered in Baltimore, Maryland and is a community-oriented financial institution offering traditional financial services to its local communities. The Bank is engaged primarily in the business of attracting
deposits from the general public using such funds to originate one-to four-family real estate, mobile home, construction, multi-family and commercial real estate and consumer loans.
The Bank’s savings accounts are insured up to the applicable legal limits by the Federal Deposit Insurance Corporation. Bay-Vanguard Federal is a
member of the Federal Home Loan Bank System.
Critical Accounting Policies
The Company considers accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the
carrying value of certain assets and liabilities or income and expense to be critical accounting policies. The Company considers the allowance for loan losses to be a critical accounting policy.
Allowance for Loan Losses.
The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the
loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among
the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impaired loans; the value of collateral; and the determination of loss factors to be applied to the various
elements of the portfolio. All of these estimates are susceptible to significant change. However, historically, the Company’s estimates and assumptions have provided results that did not differ materially from actual results.
Management reviews the level of the allowance on a quarterly basis, at a minimum, and establishes the provision for loan losses based on an evaluation of
the portfolio, past loss experience, economic conditions and business conditions affecting its primary market area, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, the duration of the
current business cycle, bank regulatory examination results and other factors related to the collectibility of the loan portfolio. Although the Company believes that it uses the best information available to establish the allowance for loan losses,
future additions to the allowance may be necessary if certain future events occur that cause actual results to differ from the assumptions used in making the evaluation. For example, a downturn in the local economy could cause increases in
nonperforming loans. Additionally, a decline in real estate values could cause some of the Company’s loans to become inadequately collateralized. In either case, this may require the Company to increase its provisions for loan losses, which
would negatively impact earnings. See
“Results of Operations for the Three Months Ended March 31, 2008 and 2007
–
Provisions for Loan Losses”
for a description of the increase in the provision for loan losses during
the quarter ended March 31, 2008. Further, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews the Company’s allowance for loan losses.
9
Such agency may require the Company to recognize adjustments to the allowance based on its judgments about information available to it at the time of its
examination. An increase to the allowance required to be made by the Office of Thrift Supervision would negatively impact the Company’s earnings. Additionally, a large loss could deplete the allowance and require increased provisions to
replenish the allowance, which would negatively affect earnings.
Comparison of Financial Condition at March 31, 2008 and June 30, 2007
Total assets increased $30.1 million, or 22.5%, to $164.1 million at March 31, 2008 from $134.0 million at June 30, 2007
primarily due to the proceeds from the acquisition of a branch office from Greater Atlantic Bank on August 24, 2007. At the time of the closing, the branch office had $51.5 million in deposits.
Loans receivable increased $5.6 million, or 4.8%, to $121.6 million at March 31, 2008 from $116.0 million at June 30, 2007, primarily due to a
$1.0 million increase in residential real estate loans, a $1.4 million increase in land loans and a $2.4 million increase in non-residential and commercial loans.
Non-residential loans increased due to the Bank’s focus on shorter-term
higher-rate loan products. Residential loans increased due to competitive rates and marketing efforts in our local communities. The change in loan composition also reflected a reclassification of a $1.9 million commercial line of credit loan to a
land development loan.
Securities increased $14.6 million, or 244.9%, from $6.0 million at June 30, 2007 primarily due to the
purchase of $6.0 million in medium-term Federal Home Loan Bank notes, $8.3 million in mortgage-backed securities, $2.0 million in agency notes and a $1.0 million Federal Farm Credit Bank note, offset by the maturity of a $500,000 Fannie Mae note and
the call of $2.0 million in agency notes.
Cash and cash equivalents increased $5.5 million, or 99.6%, from $5.6 million at June 30,
2007 to $11.1 million at March 31, 2008, due to the receipt of funds in connection with the branch acquisition.
Deposits increased
$38.6 million, or 39.2%, to $137.1 million at March 31, 2008, primarily due to the branch acquisition. The increase in deposits was offset primarily by a $7.2 million reduction in certificates of deposit and a $1.6 million reduction in savings
accounts as the Bank continued its efforts to reduce the cost of funds by reducing the rates paid on deposits. Federal Home Loan Bank advances decreased $6.0 million, or 44.4%, to $7.5 million at March 31, 2008 as funds from the branch
acquisition were used to pay down borrowings.
Total equity decreased $1.4 million, or 7.5%, to $16.8 million at March 31, 2008
primarily as a result of the repurchase of 125,981 shares of BV Financial stock at an average price of $8.05, the payment of dividends and by the net loss for the period.
Results of Operations for the Three Months Ended March 31, 2008 and 2007
General.
Net income decreased $136,000, or 618.2%, to a loss of $114,000 for the three months ended March 31, 2008 compared to the same period in the prior year due primarily to a $118,000 increase in the provision for loan losses, a $191,000 increase
in non-interest expenses, offset by a $44,000 increase in net interest income and a $125,000 decrease in the provision for income taxes.
10
Net Interest Income.
The following table summarizes interest income and expense for the
three months ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Interest Income:
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
1,866
|
|
$
|
1,766
|
|
5.7
|
%
|
|
Investment securities
|
|
|
203
|
|
|
89
|
|
128.1
|
|
|
Other
|
|
|
118
|
|
|
56
|
|
110.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
2,187
|
|
|
1,911
|
|
14.4
|
|
|
|
|
|
|
|
Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,217
|
|
|
924
|
|
31.7
|
|
|
Federal Home Loan Bank advances
|
|
|
90
|
|
|
151
|
|
(40.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,307
|
|
|
1,075
|
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
880
|
|
$
|
836
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes average balances and average yield and costs for the three months
ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Average
Balance
|
|
Yield/
Cost
|
|
|
Average
Balance
|
|
Yield/
Cost
|
|
|
|
|
(Dollars in thousands)
|
|
|
Loans
|
|
$
|
120,560
|
|
6.19
|
%
|
|
$
|
113,444
|
|
6.23
|
%
|
|
Investment securities
|
|
|
16,244
|
|
5.00
|
|
|
|
6,997
|
|
5.09
|
|
|
Interest-bearing deposits
|
|
|
545
|
|
3.67
|
|
|
|
3,428
|
|
4.08
|
|
|
Federal funds sold
|
|
|
14,084
|
|
3.21
|
|
|
|
1,614
|
|
5.20
|
|
|
Interest-bearing deposits
|
|
|
130,673
|
|
3.73
|
|
|
|
99,326
|
|
3.72
|
|
|
Federal Home Loan Bank advances
|
|
|
7,687
|
|
4.68
|
|
|
|
13,673
|
|
4.42
|
|
Net interest income for the three months ended March 31, 2008 increased $44,000, or 5.3%,
compared to the same period last year, as a result of an increase in federal funds sold and investment securities due to the proceeds from the branch acquisition and a decrease in interest expense due to a decrease in Federal Home Loan Bank advances
offset by a larger average balance of interest-bearing deposits. Total interest income increased as a result of the growth in average interest-earning assets to $151.4 million from $125.5 million. The growth in average interest-earning assets was
mainly due to an increase in federal funds sold and investment securities, attributable to the assumption of deposits in the branch acquisition. Total interest expense increased as a result of an increase in the average balance of deposits to $130.7
million, compared to average deposits of $99.3 million in 2007. Interest expense on deposits increased due principally to a higher average balance of deposits.
11
Provision for Loan Losses.
The following table summarizes the activity in the allowance for
loan losses for the three months ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
Allowance at beginning of period
|
|
$
|
440
|
|
|
$
|
402
|
|
Provision for loan losses
|
|
|
118
|
|
|
|
—
|
|
Charge-offs
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period
|
|
$
|
543
|
|
|
$
|
402
|
|
|
|
|
|
|
|
|
|
The provision for loan losses increased from zero for the three months ended March 31,
2007 to $118,000 for the three months ended March 31, 2008. The increase in the provision for loan losses in part reflects deterioration in a $1.0 million construction loan in which payment by the borrower was conditioned on the sale of the
completed properties. While the borrower is current on his payments, the inability of the borrower to successfully sell the properties in the foreseeable future has caused the loan to be downgraded and the additional reserve to be recognized.
Additionally, as noted below, the increased provision is responsive to an increase in nonperforming assets. Charge-offs consisted of $4,000 on a mobile home loan and $11,000 on a boat loan.
The following table provides information with respect to our nonperforming assets at the dates indicated. The Company did not have any accruing loans
past due 90 days or more or foreclosed real estate at the dates presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31,
2008
|
|
|
At June 30,
2007
|
|
|
% change
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Nonaccruing loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
210
|
|
|
$
|
149
|
|
|
40.9
|
%
|
|
Construction
|
|
|
1,161
|
|
|
|
—
|
|
|
100+
|
|
|
Mobile home
|
|
|
52
|
|
|
|
—
|
|
|
100+
|
|
|
Other consumer
|
|
|
—
|
|
|
|
3
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,423
|
|
|
|
152
|
|
|
836.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring (1)
|
|
|
46
|
|
|
|
64
|
|
|
(28.1
|
)
|
|
Other repossessed assets
|
|
|
42
|
|
|
|
44
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
1,511
|
|
|
$
|
260
|
|
|
481.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans to total loans
|
|
|
1.17
|
%
|
|
|
0.13
|
%
|
|
800.0
|
%
|
|
Total non-performing loans to total assets
|
|
|
0.87
|
|
|
|
0.11
|
|
|
690.9
|
|
|
Total non-performing assets to total assets
|
|
|
0.92
|
|
|
|
0.15
|
|
|
520.0
|
|
|
(1)
|
As defined in Statement of Financial Accounting Standards No. 15.
|
Nonperforming assets increased $1.3 million, or 481.1%, primarily due to a $1.2 million residential construction loan. Management believes the collateral value is more than adequate.
12
Noninterest Income.
The following table summarizes noninterest income for the three months
ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Service fees on deposits
|
|
$
|
27
|
|
$
|
31
|
|
(12.9
|
)%
|
|
Service fees on loans
|
|
|
8
|
|
|
7
|
|
14.3
|
|
|
Income from investment in life insurance policy
|
|
|
18
|
|
|
17
|
|
5.9
|
|
|
Other income
|
|
|
19
|
|
|
13
|
|
46.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
72
|
|
$
|
68
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in non-interest income was due to increases in debit card and ATM fees, offset by a
decrease in service fees on deposits.
Noninterest Expenses.
The following table summarizes noninterest expenses for the
three months ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% change
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Compensation and related expenses
|
|
$
|
595
|
|
|
$
|
507
|
|
|
17.4
|
%
|
|
Occupancy
|
|
|
74
|
|
|
|
43
|
|
|
72.1
|
|
|
Data processing
|
|
|
102
|
|
|
|
69
|
|
|
47.8
|
|
|
Telephone and postage
|
|
|
17
|
|
|
|
15
|
|
|
13.3
|
|
|
Advertising
|
|
|
29
|
|
|
|
26
|
|
|
11.5
|
|
|
Professional fees
|
|
|
55
|
|
|
|
49
|
|
|
12.2
|
|
|
Equipment
|
|
|
44
|
|
|
|
36
|
|
|
22.2
|
|
|
Other
|
|
|
138
|
|
|
|
118
|
|
|
17.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,054
|
|
|
$
|
863
|
|
|
22.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio (1)
|
|
|
110.71
|
%
|
|
|
95.46
|
%
|
|
|
|
|
(1)
|
Computed as noninterest expenses divided by the sum of net interest income and other income.
|
Total non-interest expenses increased $191,000, or 22.1%. Compensation and related expenses increased $88,000, or 17.4%, primarily as a result of
increases in personnel related to the new branch. Occupancy expenses increased primarily due to increase in rental expense related to the new branch. Other expenses increased $20,000, or 17.0%, as a result of increases in office supplies,
information technology expenses, bank charges and insurance mainly as a result of the acquisition of a new branch. Advertising increased as the Company increased its loan product promotions. Data processing costs increased due to additional charges
related to the branch acquisition.
Income Taxes.
Provision for income taxes (benefit) decreased $125,000, or 657.9%, from an
expense of $19,000 for the three months ended March 31, 2007 to a tax benefit of $106,000 for the three
13
months ended March 31, 2008. The effective tax rate was 46.3% for the three months ended March 31, 2007 compared to 48.2% for the three months
ended March 31, 2008.
Results of Operations for the Nine Months Ended March 31, 2008 and 2007
General.
Net income decreased $178,000, or 481.1%, to a loss of $141,000 for the nine months ended March 31, 2008 compared to the same
period in the prior year due primarily to a $157,000 increase in the provision for loan losses, a $385,000 increase in non-interest expenses, offset by a $205,000 increase in net interest income and a $146,000 decrease in the provision for income
taxes.
Net Interest Income.
The following table summarizes changes in interest income and expense for the nine months ended
March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended March 31,
|
|
|
|
|
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Interest Income:
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
5,636
|
|
$
|
5,287
|
|
6.6
|
%
|
|
Investment securities
|
|
|
390
|
|
|
276
|
|
41.3
|
|
|
Other
|
|
|
644
|
|
|
154
|
|
318.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
6,670
|
|
|
5,717
|
|
16.7
|
|
|
|
|
|
|
|
Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
3,598
|
|
|
2,737
|
|
31.5
|
|
|
Federal Home Loan Bank advances
|
|
|
379
|
|
|
492
|
|
(23.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
3,977
|
|
|
3,229
|
|
23.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
2,693
|
|
$
|
2,488
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes average balances and average yield and costs for the nine months
ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Average
Balance
|
|
Yield/
Cost
|
|
|
Average
Balance
|
|
Yield/
Cost
|
|
|
|
|
(Dollars in thousands)
|
|
|
Loans
|
|
$
|
119,600
|
|
6.28
|
%
|
|
$
|
113,441
|
|
6.21
|
%
|
|
Investment securities
|
|
|
9,789
|
|
5.31
|
|
|
|
7,319
|
|
5.03
|
|
|
Interest-earning deposits
|
|
|
568
|
|
4.23
|
|
|
|
3,409
|
|
4.15
|
|
|
Federal funds sold
|
|
|
18,458
|
|
4.51
|
|
|
|
1,152
|
|
5.56
|
|
|
Deposits
|
|
|
129,935
|
|
3.69
|
|
|
|
97,638
|
|
3.74
|
|
|
Federal Home Loan Bank advances
|
|
|
10,302
|
|
4.91
|
|
|
|
14,594
|
|
4.49
|
|
Net interest income for the nine months ended March 31, 2008 increased $205,000, or 8.2%,
compared to the same period last year, as a result of an increase in loans and an increase in federal funds sold and investment securities due to the proceeds from the branch acquisition and a decrease in interest expense for Federal Home Loan Bank
advances, offset by a larger average balance of interest-bearing deposits. Total interest income increased as a result of the growth in average interest-earning assets to
14
$148.4 million from $125.3 million. The growth in average interest-earning assets was mainly due to an increase in federal funds sold and investment
securities, attributable to the assumption of deposits in the branch acquisition, and, to a lesser extent, loan growth.
Total interest
expense increased as a result of an increase in the average balance of deposits to $129.9 million, compared to average deposits of $97.6 million in 2007.
Provision for Loan Losses.
The following table summarizes the activity in the allowance for loan losses for the nine months ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended March 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In thousands)
|
|
|
Allowance at beginning of period
|
|
$
|
402
|
|
|
$
|
410
|
|
|
Provision for loan losses
|
|
|
162
|
|
|
|
5
|
|
|
Charge-offs
|
|
|
(21
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period
|
|
$
|
543
|
|
|
$
|
402
|
|
|
|
|
|
|
|
|
|
|
|
The provision for loan losses increased from $5,000 for the nine months ended
March 31, 2007 to $162,000 for the nine months ended March 31, 2008. The increase in the provision for loan losses reflects deterioration in a $1.0 million construction loan in which payment by the borrower was conditioned on the sale of
the completed properties. While the borrower is current on his payments, the inability of the borrower to successfully sell the properties in the foreseeable future has caused the loan to be downgraded and the additional reserve to be recognized.
Additionally, as noted above, the increased provision is responsive to an increase in nonperforming assets. Charge-offs consisted of two mobile home loans for a total of $7,000 and two boat loans for a total of $14,000.
Noninterest Income.
The following table summarizes noninterest income for the nine months ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended March 31,
|
|
|
|
|
|
|
2008
|
|
2007
|
|
% change
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Service fees on deposits
|
|
$
|
91
|
|
$
|
88
|
|
3.4
|
%
|
|
Service fees on loans
|
|
|
22
|
|
|
21
|
|
4.8
|
|
|
Income from investment in life Insurance
|
|
|
53
|
|
|
66
|
|
(19.7
|
)
|
|
Other income
|
|
|
58
|
|
|
36
|
|
61.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
224
|
|
$
|
211
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in noninterest income was due to increases in debit and ATM card income, offset by a
decrease in the return on the life insurance investment due to lower performance of the life insurance policies which may be attributed to the lower interest rate environment.
15
Noninterest Expenses.
The following table summarizes noninterest expenses for the nine
months ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended March 31,
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% change
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Compensation and related expenses
|
|
$
|
1,711
|
|
|
$
|
1,535
|
|
|
11.5
|
%
|
|
Occupancy
|
|
|
191
|
|
|
|
130
|
|
|
46.9
|
|
|
Data processing
|
|
|
276
|
|
|
|
217
|
|
|
27.2
|
|
|
Telephone and postage
|
|
|
50
|
|
|
|
47
|
|
|
6.4
|
|
|
Advertising
|
|
|
91
|
|
|
|
76
|
|
|
19.7
|
|
|
Professional fees
|
|
|
172
|
|
|
|
181
|
|
|
(5.0
|
)
|
|
Equipment
|
|
|
131
|
|
|
|
105
|
|
|
24.8
|
|
|
Other
|
|
|
391
|
|
|
|
337
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,013
|
|
|
$
|
2,628
|
|
|
14.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio (1)
|
|
|
103.29
|
%
|
|
|
97.37
|
%
|
|
|
|
|
(1)
|
Computed as noninterest expenses divided by the sum of net interest income and other income.
|
Total non-interest expenses increased $385,000, or 14.7%, primarily as a result of increases in compensation and related expenses, occupancy, and data
processing expenses. Occupancy expenses increased primarily due to increase in rental expense related to the new branch. Other expenses increased $54,000, or 16.0%, as a result of the amortization of the core deposit premium which resulted from the
branch acquisition and totaled $80,000, offset by a decrease in debit card expense due to start up costs in 2007 and the settlement costs of a lawsuit in 2007. Advertising increased as the Company increased its loan product promotions. Data
processing costs increased due to additional charges related to the branch acquisition.
Income Taxes.
Provision for income
taxes decreased $146,000, or 503.5%, from $29,000 for the nine months ended March 31, 2007 to a benefit of $117,000 for the nine months ended March 31, 2008. The effective tax rate was 45.4% for the nine months ended March 31, 2008
compared to 43.9% for the nine months ended March 31, 2007.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows,
loan repayments and maturities and sales of investment securities. 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.
We regularly adjust our investments in liquid assets based upon our assessment of
(1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally
in interest-earning deposits and short- and intermediate-term U.S. Treasury and federal agency securities.
16
Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of
these assets depend on our operating, financing, lending and investing activities during any given period. At March 31, 2008, cash and cash equivalents totaled $11.1 million, including interest-bearing deposits of $395,000. Securities
classified as available-for-sale, which provide additional sources of liquidity, totaled $9.4 million at March 31, 2008. In addition, at March 31, 2008, we had the ability to borrow a total of approximately $49.2 million from the Federal
Home Loan Bank of Atlanta. On that date, we had advances outstanding of $7.5 million.
At March 31, 2008, we had $776,000 in
loan commitments outstanding, which included $439,000 in commitments to purchase and originate mobile home loans. In addition to commitments to originate loans, we had $2.0 million in unused lines of credit and $2.4 million of construction loans in
process. Certificates of deposit due within one year of March 31, 2008 totaled $37.5 million, or 27.3% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates
of deposit and lines of credit. 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, 2008. We believe,
however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activities consist of activity in
deposit accounts. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to
increase core deposits. Occasionally, we offer promotional rates on certain deposit products to attract deposits.
We are subject to
various regulatory capital requirements administered by the Office of Thrift Supervision, including risk-based capital measures. 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, 2008, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory
guidelines.
Off-Balance Sheet Arrangements
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying
degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit described in the liquidity and capital
resources section.
For the nine months ended March 31, 2008 and the year ended June 30, 2007, we did not engage in any
off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.
|
Item 3A(T).
|
Controls and Procedures
|
The Company’s
management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by
this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information
17
required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the
“SEC”) (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 the Company’s management, including its principal
executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in the Company’s internal control over financial reporting identified in connection with the
evaluation required by Rule 13(a)-15(e) that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
18
Part II. OTHER INFORMATION
|
Item 1.
|
Legal Proceedings
|
BV Financial is not involved in
any pending legal proceedings. Bay-Vanguard Federal is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by
management to be immaterial to its financial condition and results of operations.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
The following table sets forth information regarding the Company’s repurchases of its common stock during the quarter ended March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
(a)
Total
Number of
Shares
Purchased (1)
|
|
(b)
Average
Price Paid
per Share
|
|
(c)
Total Number
Of Shares
Purchased
As Part of
Publicly
Announced Plans
or
Programs
|
|
(d)
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
|
|
January 1, 2008 to January 31, 2008
|
|
20,900
|
|
$
|
7.30
|
|
20,900
|
|
6,658
|
|
|
|
|
|
|
|
February 1, 2008 to February 29, 2008
|
|
6,658
|
|
|
6.78
|
|
6,658
|
|
—
|
|
|
|
|
|
|
|
March 1, 2008 to March 31, 2008
|
|
—
|
|
|
—
|
|
—
|
|
97,830
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
27,558
|
|
$
|
7.17
|
|
27,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
On August 16, 2007, BV Financial announced the adoption of a stock repurchase program to acquire up to 50,277 shares, or 5%, of BV Financial’s outstanding shares of common
stock. On February 26, 2008, BV Financial announced the completion of its previously disclosed stock repurchase program of 50,277 shares of its common stock. On March 20, 2008, BV Financial announced the adoption of a stock repurchase
program to acquire up to 97,830 shares, or 10%, of BV Financial’s outstanding shares of common stock, excluding shares held by Bay-Vanguard M.H.C. The program will continue until it is completed or terminated by the Board of Directors.
|
|
Item 3.
|
Defaults upon Senior Securities
|
Not Applicable.
|
Item 4.
|
Submission of Matters to a Vote of Security Holders
|
Not Applicable.
19
|
Item 5.
|
Other Information
|
None.
|
|
|
|
|
3.1
|
|
Charter of BV Financial, Inc. (1)
|
|
|
|
|
3.2
|
|
Bylaws of BV Financial, Inc. (1)
|
|
|
|
|
4.0
|
|
Stock Certificate of BV Financial, Inc. (1)
|
|
|
|
|
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
|
|
(1)
|
Incorporated by reference into this document from the Exhibits filed with the Securities and Exchange Commission on the Registration Statement on Form SB-2, and any amendments
thereto, Registration No. 333-119083.
|
20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
BV FINANCIAL, INC.
|
|
|
|
|
|
Dated: May 12, 2008
|
|
By:
|
|
/s/ Carolyn M. Mroz
|
|
|
|
|
|
Carolyn M. Mroz
|
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
(principal executive officer)
|
|
|
|
|
|
Dated: May 12, 2008
|
|
By:
|
|
/s/ Edmund T. Leonard
|
|
|
|
|
|
Edmund T. Leonard
|
|
|
|
|
|
Chairman of the Board and Chief Financial Officer
|
|
|
|
|
|
(principal financial and accounting officer)
|
BV Financial (PK) (USOTC:BVFL)
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