BCB Bancorp, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. BCB Bancorp conducts its banking business principally through BCB Community Bank. Unless stated otherwise, amounts below are in U.S. dollars; balance-sheet and income-statement figures are in millions.
Financial performance and condition
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Net interest income | $9.88 | $4.69 | $19.55 | $9.43 |
| Provision for loan losses | $0.45 | $0.30 | $0.80 | $0.75 |
| Non-interest income | $0.43 | $0.30 | $0.91 | $0.55 |
| Non-interest expense | $6.56 | $3.18 | $13.21 | $6.45 |
| Net income | $1.95 | $0.92 | $3.87 | $1.64 |
| Basic and diluted EPS | $0.21 | $0.20 | $0.41 | $0.35 |
| Net interest margin | 3.66% | 2.98% | 3.62% | 3.02% |
- At June 30, 2011, total assets were $1.100 billion, down $6.5 million from year-end 2010. Net loans were $765.0 million; held-to-maturity securities were $218.0 million; cash and cash equivalents were $74.1 million.
- Deposits totaled $877.6 million, down $8.7 million from December 31, 2010. Long-term debt was unchanged at $114.1 million. Stockholders’ equity was $99.5 million.
- For the first six months, operating cash flow was $12.1 million; investing cash outflow was $46.9 million and financing cash outflow was $12.1 million. Cash and cash equivalents declined $47.0 million to $74.1 million.
- Management reported Bank capital ratios of 9.34% Tier 1, 16.27% Tier 1 risk-based, and 17.30% total risk-based at quarter-end.
Material changes and credit quality
- Net income rose 112% in Q2 and 136% for the first half versus 2010. Growth in net interest income was chiefly driven by a larger balance sheet following the July 2010 Pamrapo Bancorp acquisition; the 2010 comparison period did not include Pamrapo. Lower funding costs and a higher net interest margin also contributed.
- Non-interest expense more than doubled, principally reflecting Pamrapo-related scale and staffing. Q2 included $256,000 of merger-related costs, primarily for the pending Allegiance transaction. Non-interest income included higher gains on loan sales, partly offset by losses on real estate owned (REO) sales.
- Non-performing loans were $42.5 million, or 5.49% of gross loans, versus $41.8 million, or 5.35%, at December 31, 2010. The allowance for loan losses was $8.7 million, 1.13% of gross loans and 20.5% of non-performing loans. Management considered the allowance adequate, but cautioned that estimates may change and regulators may require additional provisions.
- Loans 90 days or more past due totaled $42.5 million; none were reported as accruing. Classified loans included $40.8 million substandard, $6.4 million doubtful, and $43.4 million special mention; no loans were classified as loss.
Outlook, commentary, and other items
- Management described its approach as controlled, measured balance-sheet growth, subject to capital and business opportunities. It shifted excess cash into government-sponsored-enterprise mortgage-backed securities, citing yields roughly 350 basis points above cash deposits, after concluding that early repayment of wholesale advances was cost-prohibitive. No formal earnings or financial guidance was provided.
- An agreement to acquire Allegiance Community Bank was signed in April 2011. Allegiance shareholders would receive 0.35 BCB shares per share, subject to the merger agreement. Closing was expected in the second half of 2011, subject to regulatory and shareholder approvals and other conditions.
- Interest-rate risk modeling indicated that a 100-basis-point rate increase would reduce net portfolio value by 5.23%; a 300-basis-point increase would reduce it by 28.24%. Management cautioned that model assumptions limit predictive precision.
- The company purchased 130,634 shares of treasury stock during the first half and paid two quarterly dividends totaling $2.3 million. A $6.9 million non-accretable difference on acquired Pamrapo loans was recorded as a reduction of loans receivable. Management sold $2.4 million of eligible held-to-maturity securities in Q2, recording an $18,000 net gain.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing reported no material legal proceedings or applicable new risk factors.
Important facts for investors to verify
- Whether earnings and margin improvement persist after separating Pamrapo acquisition effects from underlying operating performance.
- Trends in non-performing loans, classified assets, charge-offs, REO and the adequacy of the allowance—particularly given acquired loans and the relatively low allowance-to-gross-loans ratio.
- Deposit stability, liquidity after the substantial shift from cash into securities, and the cost and maturity profile of $114.1 million in long-term debt.
- Allegiance merger approvals, timing, consideration adjustments, integration costs and expected financial contribution.
- Exposure to interest-rate changes, including the assumptions underlying the disclosed net portfolio value sensitivity.