BCB Bancorp, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. BCB Bancorp is a New Jersey bank holding company operating BCB Community Bank, a community bank serving northern New Jersey and Staten Island, New York.
Business context and financial performance
The Bank primarily gathers deposits and makes loans, with a strong emphasis on commercial and multifamily real estate lending. At year-end it operated 22 branches and reported approximately $1.943 billion in assets.
| Metric | 2017 | 2016 |
|---|---|---|
| Total assets | $1.943 billion | $1.708 billion |
| Gross loans | $1.663 billion | $1.504 billion |
| Deposits | $1.569 billion | $1.392 billion |
| Stockholders’ equity | $176.5 million | $131.1 million |
| Net interest income | $61.9 million | $55.1 million |
| Net income | $10.0 million | $8.0 million |
| Diluted earnings per share | $0.75 | $0.63 |
| Net interest margin | 3.49% | 3.32% |
| Return on average assets / equity | 0.55% / 7.02% | 0.47% / 6.11% |
| Cash and cash equivalents, year-end | $124.2 million | $65.0 million |
Net cash provided by operating activities was $21.0 million; investing activities used $182.9 million, principally reflecting loan growth and securities purchases; financing activities provided $221.1 million. The filing reports no short-term debt at year-end and $185.0 million of long-term borrowings, plus $4.1 million of subordinated debentures. The Bank had $57.2 million of additional FHLB borrowing capacity using unencumbered loan collateral.
Material changes versus 2016
- Assets grew 13.7%, loans net of allowance grew 10.7%, and deposits grew 12.7%. Commercial and multifamily real estate loans were 75.8% of gross loans.
- Net interest income rose 12.4%, supported by higher average earning assets and a lower average cost of interest-bearing liabilities. Loan yields declined from 4.79% to 4.61% amid competition and variable-rate repricing.
- Net income rose 24.7%. Non-interest expense fell 1.8%, while the loan-loss provision increased to $2.1 million from $27,000 and net charge-offs increased to $1.9 million from $860,000.
- Non-interest income rose to $7.5 million, including a $1.6 million gain on sales of foreclosed real estate. Loan-sale gains declined to $2.4 million from $3.3 million.
- Equity increased substantially following a September common-stock offering that raised approximately $42.8 million net. The offering issued about 3.72 million shares, diluting existing shareholders.
- The federal corporate tax rate reduction to 21% caused a $2.2 million deferred-tax remeasurement charge. The reported effective tax rate rose to 50.6% from 39.7%, and fourth-quarter net income fell to $1.34 million from $2.47 million a year earlier.
Asset quality, liquidity, and capital
Non-performing loans were $13.4 million, or 0.80% of gross loans, versus $18.5 million, or 1.23%, in 2016. Non-performing assets were $13.9 million, or 0.71% of assets, compared with $22.0 million, or 1.29%. The allowance for loan losses was $17.4 million, equal to 1.05% of gross loans and 133.28% of non-performing loans. Impaired loans totaled $41.2 million; troubled debt restructurings totaled $28.5 million, including $8.4 million on non-accrual.
Liquidity was supported by $124.2 million in cash and cash equivalents, deposit growth, securities, and available FHLB borrowing capacity. Brokered deposits rose to $60.2 million, or about 3.8% of deposits, from $19.6 million. Certificates of deposit totaled $664.6 million, with $419.6 million scheduled to mature within one year. The Bank’s year-end capital ratios exceeded well-capitalized thresholds: total risk-based capital 13.24%, Tier 1 risk-based capital 12.09%, common equity Tier 1 12.09%, and leverage 9.50%.
Outlook, risks, contingencies, and unusual items
- Management intends to pursue measured asset growth, loan and deposit growth, branch expansion, and acquisitions while maintaining profitability, liquidity, and capital. The filing provides no numerical earnings or growth guidance.
- Credit concentration is a central risk: approximately 76% of loans were commercial and multifamily real estate, and about 99% of total loans were secured by real estate. Performance is exposed to local property markets, borrower cash flows, and New Jersey economic conditions.
- Interest-rate risk remains material. The company’s model showed net portfolio value declining 8.78% under a 100-basis-point rate increase and 18.62% under a 200-basis-point increase; management cautions that the model relies on assumptions and is not a precise earnings forecast.
- Other stated risks include competition, growth and new-branch costs, reliance on brokered deposits, regulatory and compliance costs, cybersecurity and third-party system risks, and the possibility that allowance estimates prove inadequate.
- The pending IA Bancorp merger was expected to close in the second quarter of 2018, subject to regulatory and shareholder approvals. Consideration was structured at approximately 80% BCB stock and 20% cash, with adjustment provisions. BCB recorded $802,000 of merger costs in 2017.
- A shareholder class-action settlement had already been paid, and the court awarded a further $1.0 million in plaintiff counsel fees in 2017. In a related insurance recovery suit, Progressive agreed after year-end to pay BCB $2.2 million by approximately March 10, 2018.
- Common dividends were $0.14 per share quarterly, or $0.56 for 2017. A $0.14 dividend declared in January 2018 was paid in February.
Important facts for investors to verify
- Progress of the IA Bancorp merger, final consideration, integration costs, and realization of expected savings.
- Performance of the large commercial and multifamily real estate portfolio, including classified, impaired, non-accrual, and restructured loans; confirm subsequent credit trends and allowance adequacy.
- Whether deposit growth remains stable and affordable, especially as large certificates mature and brokered deposits and market rates change.
- Actual earnings and margin effects of interest-rate changes, compared with the filing’s modeled net portfolio value sensitivity.
- Receipt and accounting treatment of the $2.2 million Progressive settlement payment and any other legal or merger-related costs.
- Impact of the tax-rate change on recurring tax expense: 2017 earnings include a one-time deferred-tax remeasurement charge.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also reported effective disclosure controls.