BCB Bancorp, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; balance-sheet comparisons are to December 31, 2014. Financial statement amounts are in thousands of dollars unless otherwise noted. The statements are unaudited. BCB conducts its business principally through BCB Community Bank.
Financial performance and position
| Metric | Q1 2015 / March 31, 2015 | Comparable period / prior year-end |
|---|---|---|
| Total assets | $1.384 billion, up 6.3% since year-end | $1.302 billion at December 31, 2014 |
| Net loans | $1.294 billion, up 7.2% since year-end | $1.208 billion at December 31, 2014 |
| Deposits | $1.086 billion, up 5.6% since year-end | $1.029 billion at December 31, 2014 |
| Interest income / net interest income | $15.520 million / $12.591 million | $14.621 million / $12.064 million in Q1 2014 |
| Net interest margin | 3.86% | 4.03% in Q1 2014 |
| Net income / common EPS | $1.846 million / $0.20 | $2.235 million / $0.24 in Q1 2014 |
| Cash and cash equivalents | $28.535 million | $32.123 million at December 31, 2014 |
| Stockholders’ equity | $102.950 million | $102.252 million at December 31, 2014 |
Net interest income rose 4.4% year over year as average interest-earning assets grew 9.0%, but margin narrowed as the average asset yield fell 13 basis points to 4.75% and the average cost of interest-bearing liabilities rose 4 basis points to 1.07%. Loan interest income increased 12.3%; securities interest income fell 84.3%, reflecting a substantially smaller average securities balance after 2014 securities sales.
Net income declined about 17% year over year. The $1.428 million increase in non-interest expense to $9.984 million more than offset higher net interest income and a lower loan-loss provision. Salaries and benefits rose 17.1%, and occupancy and equipment costs increased alongside branch expansion. Advertising expense rose to $438,000, primarily for expansion marketing and rebranding. Provision for loan losses was $720,000 versus $1.000 million; income tax expense was $1.246 million, with a 40.3% effective tax rate.
Operating cash flow was $4.536 million, compared with $915,000 in Q1 2014. Investing activities used $88.275 million, primarily reflecting $86.942 million of net loan growth; financing activities provided $80.151 million, including deposit growth and $47 million of long-term borrowing proceeds. Cash and cash equivalents decreased $3.588 million during the quarter.
At quarter-end, short-term debt was $3 million and long-term debt was $180 million; subordinated debentures were $4.124 million. Deposits included $287 million of time deposits scheduled to mature within one year. Management reported $62.7 million of additional FHLB borrowing capacity against unencumbered loan collateral and expected sufficient liquidity for current loan commitments. The Bank exceeded regulatory capital requirements; reported ratios included 8.04% tangible capital to tangible assets, 9.30% Tier 1 leverage, 10.55% total risk-based capital and 9.30% Common Equity Tier 1.
Material changes and credit quality
- Gross loans grew to $1.314 billion, driven mainly by commercial and multifamily real estate, construction and residential lending. Commercial and multifamily loans were $897.9 million, making this a major portfolio concentration.
- Non-performing loans declined to $18.1 million, or 1.38% of gross loans, from $19.6 million, or 1.6%, at year-end. The allowance was $16.7 million, 1.27% of gross loans and 92.4% of non-performing loans.
- Classified loans totaled $49.7 million: $30.1 million substandard and $19.6 million special mention; none were classified doubtful or loss. Management cited missing or delayed borrower financial information and collateral being revalued among reasons for substandard classifications.
- Deposits grew, including through five branches opened over the prior 12 months and the use of listing-service and brokered certificates of deposit. Long-term borrowings increased $47 million while short-term borrowings declined $23 million.
Outlook, risks and contingencies
Management described a measured-growth strategy, with plans to open additional branches in 2015 and to grow assets in line with capital and business opportunities. The filing provides no quantitative earnings or growth guidance. Management also noted ongoing historically low short-term rates, competitive loan pricing and funding costs, and the use of medium-term fixed-rate FHLB advances as part of interest-rate risk management.
The filing’s modeled net portfolio value falls 9.54% under a 100-basis-point rate increase and 20.48% under a 200-basis-point increase; management cautions that the model depends on assumptions and is not a precise forecast. Key credit risks include commercial real estate and construction lending, local economic weakness, and potential future loan-loss provisions. The company states its allowance was adequate but notes estimates may differ from actual losses and regulators may require additional provisions.
A shareholder class action settlement of $1.95 million had preliminary court approval, with a fairness hearing scheduled for May 22, 2015. The company was pursuing insurance recovery: it and Colonial had agreed to a $1.75 million settlement, with terms still being negotiated at March 31; claims against Progressive remained pending. The filing does not clearly state the net financial-statement impact or ultimate recovery.
Investor verification priorities
- Track whether loan growth, especially commercial and multifamily real estate, is matched by stable asset quality and adequate reserves.
- Monitor net interest margin, deposit pricing and reliance on brokered or listing-service certificates and FHLB funding.
- Verify branch expansion costs and whether operating expense growth translates into revenue and earnings growth.
- Check the status and accounting impact of the shareholder settlement and related insurance-recovery claims.
- Assess liquidity and refinancing exposure against the $287 million of time deposits maturing within one year and reported FHLB capacity.
- Review the full filing’s interest-rate sensitivity assumptions and capital ratios as the capital conservation buffer phases in.