BCBP

BCB Bancorp Inc. 10-Q Summary: Period Ended September 30, 2010

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for BCB Bancorp Inc. and its subsidiaries for the period ended September 30, 2010. The Company is a smaller reporting company incorporated in New Jersey. The reporting period is significantly impacted by the completion of the acquisition of Pamrapo Bancorp, Inc. on July 6, 2010, a transaction valued at approximately $38.6 million in stock.

Key Financial Metrics

Material Changes vs. Prior Period

• Acquisition Impact: Total assets increased 78.4% to $1.13 billion, and deposits increased 95.7% to $907.4 million, primarily due to the acquisition of Pamrapo Bancorp. Loans receivable nearly doubled (98.6% increase) to $798.2 million.
• Profitability Surge: Net income for the three months ended September 30, 2010, jumped to $9.6 million from $984,000 in the prior year quarter. This was driven largely by a $10.2 million "gain on bargain purchase" recognized from the acquisition.
• Non-Interest Income: Increased dramatically to $10.6 million for the quarter (from $227,000 in 2009) due to the acquisition gain. Excluding this gain, core operations would have shown a pre-tax loss of $878,000 for the quarter.
• Expense Growth: Non-interest expenses rose 168.6% to $8.6 million for the quarter, reflecting the integration of Pamrapo's operations, including a $1.1 million payout for voluntary termination packages.
• Asset Quality: Non-performing loans increased to $42.4 million (5.25% of gross loans) from $8.6 million (2.05%) in the prior year, largely due to the inclusion of Pamrapo's loan portfolio. The allowance for loan losses was $7.5 million (0.93% of gross loans).

Outlook, Risks, and Management Commentary

• Management Strategy: Management is focusing on controlled balance sheet growth and maintaining high liquidity ($125.3 million in cash) due to the recessionary environment and low interest rates. They intend to deploy capital as opportunities arise.
• Regulatory Environment: The filing highlights the impact of the Dodd-Frank Act, which changes capital requirements, eliminates the Office of Thrift Supervision, and establishes the Consumer Financial Protection Bureau. BCB Bancorp will be subject to new capital rules and increased FDIC assessments.
• Interest Rate Risk: The Company is asset-sensitive. A 100 basis point increase in interest rates is projected to increase Net Portfolio Value (NPV) by 1.26%. Conversely, a 300 basis point increase would decrease NPV by 18.21%.
• Risks: Key risks include deterioration in economic conditions affecting borrower repayment and collateral values, and potential impairment in the securities portfolio due to market fluctuations.
• Unusual Items: The $10.2 million gain on bargain purchase is a non-recurring, non-taxable item that significantly inflated earnings for the period.

Investor Verification Checklist

• Core Earnings: Verify the Company's profitability excluding the $10.2 million one-time acquisition gain, which resulted in a pre-tax operating loss for the quarter.
• Asset Quality: Review the composition of the $42.4 million in non-performing loans acquired from Pamrapo and the adequacy of the $7.5 million allowance for loan losses.
• Integration Costs: Monitor future quarters for the run-rate of expenses related to the merger, including the $1.1 million severance package and ongoing operational integration costs.
• Liquidity Deployment: Assess the strategy for deploying the $125.3 million cash balance in a low-yield environment to ensure it does not drag on future returns.
• Capital Ratios: Confirm that Tier 1 and Total Risk-Based Capital ratios (14.47% and 15.28% respectively) remain compliant with new Dodd-Frank requirements.