BCB Bancorp, Inc. — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011; unaudited consolidated results. Balance-sheet comparisons are to December 31, 2010. Figures below are in millions unless stated otherwise.
Financial performance and condition
| Metric | Q3 / September 30, 2011 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $9.39 for Q3; $28.95 for nine months | Q3 2010: $8.11; nine months 2010: $17.54 |
| Net income | $1.19 for Q3; $5.06 for nine months | Q3 2010: $11.94; nine months 2010: $13.58 |
| Net interest margin | 3.52% for Q3; 3.59% for nine months | Q3 2010: 2.90%; nine months 2010: 2.96% |
| Total assets | $1,079.7 | $1,106.9 at Dec. 31, 2010 |
| Loans receivable, net | $749.3 | $773.1 at Dec. 31, 2010 |
| Deposits | $859.6 | $886.3 at Dec. 31, 2010 |
| Long-term debt | $114.1 | Unchanged from Dec. 31, 2010 |
| Cash and cash equivalents | $85.9 | $121.1 at Dec. 31, 2010 |
| Stockholders’ equity | $98.9 | $99.0 at Dec. 31, 2010 |
Q3 provision for loan losses was $0.80 million, unchanged year over year. For the first nine months, operating cash flow was $11.49 million versus cash used of $2.37 million in 2010; investing activities used $14.87 million and financing activities used $31.86 million. Cash and cash equivalents declined $35.24 million during the nine-month period.
At September 30, the allowance for loan losses was $9.04 million, or 1.19% of gross loans. Non-performing loans were $41.8 million, or 5.50% of gross loans; allowance coverage was reported at 21.6%. Regulatory capital ratios were 9.47% Tier 1, 16.74% Tier 1 risk-based, and 17.81% total risk-based.
Changes and drivers
- Q3 net income fell 90% year over year, primarily because Q3 2010 included a $12.6 million non-taxable bargain-purchase gain from the Pamrapo acquisition. Q3 2011 net interest income rose 16%, and non-interest expense fell 22%; however, non-interest income fell to $0.18 million from $12.98 million.
- Nine-month net income declined 62.5%. Net interest income rose 65.1%, reflecting the larger post-Pamrapo balance sheet and improved net interest margin, but this was more than offset by the absence of the prior-year bargain-purchase gain, higher non-interest expenses and taxes, and a slightly higher loan-loss provision.
- Assets declined 2.4% from year-end. Cash fell $35.2 million and net loans fell $23.8 million, partly offset by a $34.2 million increase in held-to-maturity securities. Management said it shifted liquidity into GSE mortgage-backed securities after early repayment of wholesale advances proved cost-prohibitive; it cited yields about 350 basis points above cash deposits.
- Deposits declined 3.0%; long-term borrowings remained flat. Equity was slightly lower after $3.4 million of dividends and $2.0 million of share repurchases, partly offset by earnings.
Outlook, risks and unusual items
- Management described an intention to grow the balance sheet at a measured pace, subject to capital and business opportunities, and to maintain liquidity for loan funding. No quantitative earnings or balance-sheet guidance was provided.
- Credit quality remains a key risk: $41.8 million of loans were non-accrual, $70.6 million were past due, and troubled debt restructurings totaled $17.6 million. Classified loans included $37.9 million substandard and $8.6 million doubtful. Management said the allowance was adequate, while noting estimates may differ from eventual losses and regulators may require additional provisions.
- The company identified interest-rate exposure, economic conditions, loan and investment portfolio quality, deposit flows, competition, and regulatory or accounting changes as risks. Its modeled net portfolio value declined 1.38% under a +100-basis-point rate scenario and 20.17% under +300 basis points; management cautioned that model assumptions limit predictive value.
- On October 14, 2011, after quarter-end, BCB completed its acquisition of Allegiance and issued 644,434 shares valued at approximately $6.2 million. Preliminary acquisition accounting indicated a possible $0.44 million bargain-purchase gain; fair values were not final.
- The filing reports approximately $0.8 million of prior-period-related adjustments in the 2011 results; management said their net effect reduced net income by about $0.48 million and was immaterial to current and prior periods. The 2010 comparative figures were also adjusted for Pamrapo acquisition fair-value information, including a higher bargain-purchase gain.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It disclosed no material legal proceedings.
Important facts for investors to verify
- Whether non-performing loans, delinquencies, TDRs, classified assets, and charge-offs improve or require higher provisions.
- The final fair values and accounting impact of the Allegiance acquisition, and its effect on capital, funding, and future earnings.
- How sustainable net interest margin improvement is, given rate sensitivity, securities yields, deposit pricing, and loan repricing.
- Whether cash, deposit trends, and planned loan growth provide adequate liquidity without increasing reliance on wholesale funding.
- The effect of the prior-period-related adjustments and the Pamrapo comparative restatement when assessing recurring earnings.