BCB Bancorp, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet comparisons are with December 31, 2017. BCB is a community bank operating primarily through BCB Community Bank in New Jersey and New York. Amounts below are in U.S. dollars; financial statement figures are rounded to millions unless noted.
Financial performance and condition
| Metric | Q1 2018 / March 31, 2018 | Prior comparison |
|---|---|---|
| Total assets | $2.082 billion | $1.943 billion at Dec. 31, 2017; up 7.2% |
| Net loans | $1.765 billion | $1.644 billion at Dec. 31, 2017; up 7.4% |
| Deposits | $1.691 billion | $1.569 billion at Dec. 31, 2017; up 7.8% |
| Borrowed funds | $200.0 million | $185.0 million at Dec. 31, 2017 |
| Cash and cash equivalents | $137.3 million | $124.2 million at Dec. 31, 2017 |
| Net interest income | $16.4 million | $14.6 million in Q1 2017; up 12.6% |
| Net income | $4.6 million | $2.9 million in Q1 2017; up 59.0% |
| Net income available to common shareholders | $4.5 million; basic EPS $0.30, diluted EPS $0.29 | $2.8 million; basic and diluted EPS $0.25 in Q1 2017 |
| Operating cash flow | $9.1 million provided | $8.5 million provided in Q1 2017 |
- Interest and margins: Interest income was $20.9 million, versus $18.5 million; interest expense rose to $4.5 million from $3.9 million. Net interest margin declined to 3.34% from 3.43%, and net interest rate spread fell to 3.15% from 3.27%.
- Credit costs and asset quality: Provision for loan losses was $1.3 million, versus $498,000. Net charge-offs were $380,000, compared with $181,000. Non-performing loans were $10.6 million, or 0.59% of gross loans, down from $13.4 million, or 0.80%, at year-end. The allowance was $18.3 million, 1.03% of gross loans, versus $17.4 million, or 1.05%.
- Other income and expenses: Non-interest income was $3.4 million, versus $2.3 million; non-interest expense was $12.0 million, versus $11.6 million. Income tax provision was $1.8 million, versus $1.9 million; the effective tax rate declined to 28.4% from 40.0%.
- Liquidity and funding: Investing cash outflow was $130.9 million, primarily reflecting a $123.1 million net increase in loans; financing cash inflow was $134.9 million, including $122.0 million in deposit growth and $15.0 million net proceeds from FHLB advances. The company reported $78.0 million of additional FHLB borrowing capacity. Certificates of deposit maturing within one year totaled $492.0 million.
- Capital: Stockholders’ equity was $177.4 million. The Bank reported a 12.49% total risk-based capital ratio, 11.36% Tier 1 risk-based and common equity Tier 1 ratios, and a 9.17% Tier 1 leverage ratio; it exceeded applicable regulatory capital requirements.
Material changes and notable items
- Loan growth was led by commercial real estate and multifamily lending. Management attributed the $120.9 million increase in net loans from year-end to a robust first-quarter pipeline; commercial and multifamily loans increased $101.9 million.
- Deposit growth included $77.3 million in certificates of deposit. At quarter-end the company had $34.5 million of listing-service CDs and $122.4 million of brokered CDs.
- Q1 2018 non-interest income included $2.1 million from a legal settlement. The related $2.2 million payment from Progressive resolved the carrier lawsuit. The prior-year quarter included a $1.2 million gain on sales of other real estate owned, with no comparable gain in Q1 2018.
- The company recorded a $127,000 loss on equity investments following adoption of a new accounting standard. Unrealized losses on available-for-sale debt securities reduced other comprehensive income by $1.7 million and contributed to a $1.8 million increase in accumulated other comprehensive loss.
- After quarter-end, on April 17, 2018, BCB completed its acquisition of IA Bancorp. Consideration included $2.55 million in cash and 631,994 BCB shares. The combined company had approximately $2.31 billion in assets and 28 branches; purchase accounting adjustments were still being determined.
Outlook, risks and contingencies
- Management said it intended to grow assets at a measured pace consistent with capital and business opportunities, maintain adequate liquidity, and fund loan-pipeline needs. The filing provides no numerical earnings or growth guidance.
- Key disclosed risks include credit and collateral exposure, especially in commercial real estate and multifamily lending; interest-rate movements; competition for loans and deposits; funding access and deposit flows; economic and real-estate conditions; and the timing and success of merger integration.
- Interest-rate sensitivity modeling showed estimated net portfolio value falling 28.27% under a +200-basis-point scenario and 41.60% under +300 basis points, versus the no-change case. Management cautioned that the model depends on assumptions and is not a precise forecast.
- At March 31, $20.3 million of assets were classified as substandard and $42,000 as loss. The filing also reported $28.1 million of troubled debt restructurings and $3.4 million of restructured loans that had defaulted within twelve months of restructuring.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. It said there were no changes to the risk factors in the 2017 Form 10-K.
Important facts for investors to verify
- How much of the reported earnings increase is sustainable after excluding the $2.1 million legal-settlement income and considering the prior-year OREO gain.
- Whether rapid loan growth, particularly in commercial real estate and multifamily, changes credit quality, provisioning needs, or portfolio concentration.
- Whether deposit growth can continue at an acceptable cost, given rising deposit costs and reliance on brokered and listing-service CDs.
- How margins and funding costs respond to further rate changes, and whether actual results align with the filing’s interest-rate-risk model.
- The final purchase accounting, integration costs, and realized performance of the IA Bancorp acquisition.