BCB Bancorp, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; comparisons are primarily with FY 2014. BCB Bancorp is the holding company for BCB Community Bank, a community bank operating 15 branches in New Jersey and Staten Island, New York. The bank focuses heavily on commercial and multifamily real-estate lending.
Financial performance and condition
| Metric | FY 2015 / Dec. 31, 2015 | FY 2014 / Dec. 31, 2014 |
|---|---|---|
| Total assets | $1.618 billion | $1.302 billion |
| Net interest income | $53.5 million | $49.9 million |
| Net income | $7.0 million | $7.6 million |
| Diluted EPS | $0.69 | $0.81 |
| Return on average assets / equity | 0.48% / 6.52% | 0.61% / 7.42% |
| Net interest margin | 3.72% | 4.11% |
| Net cash from operating activities | $7.7 million | $4.5 million |
| Cash and cash equivalents | $132.6 million | $32.1 million |
- Growth and funding: Net loans rose 17.6% to $1.420 billion; deposits rose 23.9% to $1.274 billion. Certificates of deposit increased to $611.0 million from $412.6 million, including a promotional deposit campaign. Cash-flow investing activities used $218.0 million, mainly reflecting loan growth; financing activities provided $310.8 million.
- Profitability and margins: Net interest income grew 7.3%, mainly from higher average earning-asset balances, but margin declined as asset yields fell and funding costs rose. Total interest expense increased to $13.9 million from $10.3 million. Noninterest income increased to $7.1 million, including $4.9 million of gains on loan and other-real-estate sales. Noninterest expense rose 20.9% to $46.5 million, led by staffing, branch-related occupancy and equipment costs, and advertising.
- Credit quality: Gross loans were $1.441 billion, of which approximately 73.8% were commercial and multifamily real-estate loans. The allowance for loan losses was $18.0 million, or 1.25% of gross loans; provision expense was $2.3 million and net charge-offs were $389,000. The filing’s main asset-quality table reports nonaccrual loans of $23.4 million and nonperforming assets of $25.0 million, or 1.55% of assets. Troubled debt restructurings totaled $28.5 million, down from $30.7 million.
- Debt, liquidity, and capital: Total borrowings were $204.1 million, comprising $200.0 million of long-term FHLB advances and $4.1 million of subordinated debentures; short-term borrowings were zero at year-end. The company reported $56.0 million of additional FHLB funding capacity using unencumbered loan collateral. Bank capital ratios were 12.06% total risk-based, 10.81% Tier 1 risk-based, and 8.61% Tier 1 leverage; regulators classified the Bank as well capitalized.
- Equity and distributions: Stockholders’ equity rose to $133.5 million, principally reflecting a November common-stock offering that generated $25.6 million net proceeds and a Series C preferred-stock placement that generated $3.85 million net proceeds. Common dividends declared were $0.56 per share for 2015; dividend payments remain subject to regulatory and capital restrictions.
Material changes versus FY 2014
- Assets, loans, and deposits expanded substantially, alongside higher cash balances and increased long-term FHLB borrowing. Management attributed loan growth to its lending strategy and described the growth pace as intended to remain consistent with capital.
- Net income fell about 7.4% despite higher net interest income and noninterest income, as operating expenses increased faster. Diluted EPS declined from $0.81 to $0.69.
- Net interest margin declined from 4.11% to 3.72%. Average loan yield fell from 5.18% to 4.90%; management cited competitive loan pricing and downward repricing of variable-rate loans.
- Nonperforming loans increased to $23.4 million from $19.6 million, while nonperforming assets as a share of total assets improved to 1.55% from 1.77%. Net charge-offs declined to $389,000 from approximately $991,000.
- FY 2014 included securities-sale gains and a $4.0 million pretax loss on a bulk sale of impaired loans; FY 2015 had no comparable securities-sale activity and recorded higher gains on loan sales.
Outlook, risks, contingencies, and unusual items
- Management anticipated additional branch openings in 2016 and described a measured-growth approach. No specific earnings, revenue, or margin guidance is provided.
- Key risks include the high concentration in commercial and multifamily real-estate lending, geographic concentration in New Jersey, interest-rate and margin sensitivity, competition for deposits and loans, growth-related costs, and reliance on brokered deposits. Brokered deposits were $46.7 million, or about 3.7% of deposits.
- Management’s interest-rate model estimated an 8.57% decline in net portfolio value under a 100-basis-point rate increase at year-end. The filing cautions that model assumptions may not predict actual results. Management also warned that sustained low rates could constrain funding-cost reductions and pressure asset yields.
- Off-balance-sheet commitments totaled $151.0 million, including $44.8 million in loan-originating commitments, $39.7 million in construction loans in process, $64.7 million in unused lines, and $1.7 million in standby letters of credit.
- A shareholder class action was settled for $1.95 million, paid in November 2015. The company received $1.75 million from one D&O insurer, Colonial, and continues to pursue recovery from Progressive; that insurance dispute remained pending.
- The company issued 2.76 million common shares at $10 per share and placed 388 Series C preferred shares with a 6% noncumulative dividend rate. The preferred shares are nonconvertible and callable after December 31, 2017.
- The independent auditor issued an unqualified opinion on the consolidated financial statements and internal controls. Management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Reconcile the filing’s differing nonaccrual-loan figures: the main asset-quality table reports $23.4 million, while risk-factor text cites $19.4 million. Confirm the relevant definition and balance.
- Reconcile the reported classified-loan/asset totals: the loan-risk table shows approximately $53.8 million in special-mention and substandard loans, while another business-section disclosure cites $37.4 million of classified assets.
- Confirm the net interest margin calculation: selected financial data and management’s discussion cite 3.72%, while another displayed table in the filing text appears to show 3.61% for 2015.
- Assess the sustainability and funding cost of deposit growth, especially the large increase in certificates of deposit and the $411.7 million scheduled to mature within one year.
- Review commercial real-estate concentration, impaired and restructured loans, collateral valuations, and allowance adequacy as the portfolio expands.
- Track branch expansion costs, the pending Progressive insurance recovery, and compliance with phased-in capital-buffer requirements and dividend restrictions.