BCB Bancorp, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet comparisons are with December 31, 2012. BCB Bancorp conducts its business principally through BCB Community Bank. Financial statement amounts below are in millions of dollars unless stated otherwise.
Financial performance and condition
| Metric | Q1 2013 / March 31, 2013 | Comparable period / prior date |
|---|---|---|
| Interest income | $14.08 | $13.55 in Q1 2012 |
| Net interest income | $11.42 | $10.30 in Q1 2012 |
| Net interest margin | 4.03% | 3.45% in Q1 2012 |
| Provision for loan losses | $1.20 | $0.60 in Q1 2012 |
| Net income | $2.41; $0.27 per common share, basic and diluted | $1.59; $0.17 per common share, basic and diluted |
| Non-interest income | $0.78 | $1.28 in Q1 2012 |
| Non-interest expense | $6.90 | $8.38 in Q1 2012 |
| Total assets | $1,158.2 | $1,171.4 at December 31, 2012 |
| Net loans | $930.3 | $922.3 at December 31, 2012 |
| Deposits | $943.8 | $940.8 at December 31, 2012 |
| Cash and cash equivalents | $37.0 | $34.1 at December 31, 2012 |
| Stockholders’ equity | $92.7 | $91.6 at December 31, 2012 |
Net interest income increased 10.8% year over year. Management attributed the margin improvement to a higher overall yield on earning assets, reflecting a shift toward loans, and lower funding costs. Average earning assets declined 5.1%, while average interest-bearing liabilities declined 6.9%; their average cost fell to 1.10% from 1.25%. The filing does not provide a conventional net profit margin measure.
Q1 operating cash flow was $2.7 million, investing cash flow was $15.4 million, and financing cash flow was negative $15.2 million, resulting in a $2.9 million increase in cash. Financing activity included repayment of $17.0 million in short-term borrowings. At quarter-end, long-term debt was $114.1 million and short-term borrowings were zero. The Bank reported Tier 1, Tier 1 risk-based, and total risk-based capital ratios of 8.40%, 12.90%, and 14.16%, respectively.
Material changes and credit quality
- Net income rose 51.8% year over year, supported by higher net interest income and lower non-interest expense. The provision for loan losses doubled, and non-interest income fell 38.8%, principally because gains on sales of originated loans declined.
- Total assets fell 1.1% from year-end, mainly as held-to-maturity securities declined $22.4 million, partly offset by loan growth. Net loans increased 0.9%; commercial and multi-family real estate loans were $614.2 million.
- The allowance for loan losses increased to $13.3 million, or 1.41% of gross loans, from $12.4 million, or 1.32%, at year-end. Non-performing loans declined to $18.3 million (1.94% of gross loans) from $22.9 million (2.45%). Q1 net charge-offs were $219,000.
- Loans past due more than 90 days totaled $12.7 million; the filing reports no loans more than 90 days past due and still accruing. Classified loans totaled $47.3 million, including $8.8 million doubtful, $13.7 million substandard, and $18.4 million special mention.
- Deposits increased $3.0 million. Non-interest-bearing deposits grew, while certificates of deposit declined. Management said it was shifting funding toward more liquid, lower-cost core deposits.
Outlook, risks, contingencies, and unusual items
- Management intends to grow the balance sheet at a measured pace consistent with capital and available business opportunities, while maintaining liquidity for loan funding. No numeric earnings or growth guidance is provided.
- Hurricane Sandy affected the Bank’s market area. Of 122 identified loans totaling approximately $38.0 million, $22.0 million had been restored or paid in full; the remaining $16.0 million were being monitored. The Bank recorded an additional $500,000 loan-loss provision related to potential storm losses and said it would continue monthly monitoring.
- Management identified interest-rate risk as a principal market risk. Its model estimated net portfolio value would decline 1.91% under a 100-basis-point rate increase and 25.55% under a 300-basis-point increase. The filing cautions that model assumptions limit predictive precision.
- Key credit risks include the concentration in commercial and multi-family real estate, acquired loans, classified and non-accrual exposures, and possible deterioration if local economic conditions weaken. Management considered the allowance adequate, but noted estimates may change and regulators may require adjustments.
- The Company disclosed several lawsuits, including shareholder derivative litigation and claims involving former institutions or employees. It said insurance coverage was in effect for the described matters and that it intended to defend its interests. The derivative case includes an interim legal-fee award of approximately $350,000 whose payment was stayed; outcomes and any ultimate exposure are uncertain.
- Unusual items included a $224,000 gain on sales of held-to-maturity securities, a $110,000 upward OREO valuation adjustment, and an $84,000 net benefit from OREO-related items. Management said the securities sold had returned at least 85% of original principal, as permitted for such sales.
Most important facts for investors to verify
- Whether the remaining Hurricane Sandy-affected loans are completed or repaid, and whether the $500,000 provision remains adequate.
- Trends in non-performing, delinquent, classified, and restructured loans, especially commercial real estate exposures, and the adequacy of the allowance.
- Whether net interest margin and earnings gains persist as loan yields, funding costs, and the low-rate environment change.
- Liquidity and capital levels alongside loan growth, deposit mix, and the repayment or use of borrowings.
- Developments, insurance coverage, and potential financial exposure in the disclosed legal proceedings.