BCB Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014. Unaudited consolidated results cover BCB Bancorp and its subsidiaries, principally BCB Community Bank. Income-statement and cash-flow amounts below are in millions unless otherwise stated.
Financial performance and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Net interest income | $12.24 | $11.57 | $24.31 | $22.99 |
| Provision for loan losses | $0.45 | $0.60 | $1.45 | $1.80 |
| Non-interest income | $2.04 | $0.88 | $3.34 | $1.67 |
| Non-interest expense | $9.47 | $7.59 | $18.02 | $14.49 |
| Net income | $2.63 | $2.55 | $4.87 | $4.96 |
| Net income available to common shareholders | $2.43 | $2.42 | $4.47 | $4.70 |
| Basic / diluted EPS | $0.29 / $0.29 | $0.29 / $0.29 | $0.54 / $0.53 | $0.56 / $0.56 |
- Q2 net interest margin was 4.00%, versus 4.04% a year earlier; six-month margin was 4.03% in both years. Q2 average yield on interest-earning assets fell to 4.83% from 4.96%, while average cost of interest-bearing liabilities declined to 0.99% from 1.08%.
- At June 30, total assets were $1.278 billion, up 5.8% from year-end 2013. Net loans were $1.096 billion, up 7.4%; deposits were $1.010 billion, up 4.2%. Stockholders’ equity was $102.9 million.
- Cash and cash equivalents were $24.3 million, down from $29.8 million at December 31, 2013. Six-month operating cash flow was negative $0.8 million, versus positive $8.0 million in 2013; investing cash flow was negative $71.6 million, largely reflecting loan growth, and financing cash flow was positive $66.9 million. Cash declined by $5.5 million over the period.
- At June 30, short-term debt was $45.5 million, long-term debt $110.0 million, and subordinated debentures $4.1 million. Total deposits were $1.010 billion; $28.0 million of time deposits were scheduled to mature within one year. Management reported approximately $158 million of additional FHLB/FRB funding capacity.
- The Bank reported Tier 1 leverage, Tier 1 risk-based, and total risk-based capital ratios of 8.45%, 11.49%, and 12.75%, respectively, and stated it exceeded applicable regulatory capital requirements.
Material changes and credit quality
- Six-month net income declined about 2% year over year despite higher net interest and non-interest income, as non-interest expense rose 24.4%. Q2 net income increased modestly, with higher income offset by higher expenses.
- Non-interest income included a $1.223 million gain on sale of available-for-sale securities in Q2 2014, with no comparable gain in Q2 2013. Six-month loan-sale gains also rose to $1.007 million from $0.346 million. These items contributed to reported income growth.
- Salaries and benefits rose 32.2% for the first half, which management attributed mainly to 64 additional full-time-equivalent employees (299 versus 235) supporting business development, loan administration, and planned branch expansion. Occupancy, equipment, and advertising costs also increased.
- Gross loans were $1.114 billion, concentrated in commercial and multifamily real estate ($746.2 million). Non-accrual loans increased to $31.5 million from $20.6 million at year-end; non-performing loans were 2.83% of gross loans versus 1.98%. The allowance was $15.0 million, or 1.34% of gross loans and 47.4% of non-performing loans.
- Classified loans totaled $53.3 million: $40.5 million substandard and $12.9 million special mention; none were classified as loss. Management cited late financial reporting and collateral revaluation as reasons for some substandard classifications. Six-month net charge-offs were $0.84 million.
- Other real estate owned was $3.3 million, up from $2.2 million at year-end. The filing reports $36.9 million of troubled debt restructurings at June 30, compared with $34.5 million at December 31.
Outlook, risks, and unusual items
- Management described an intention to grow assets at a measured pace consistent with capital and business opportunities, pursue loan growth and possible secondary-market loan purchases, and potentially open additional branches beginning in the second half of 2014. No quantified earnings or revenue guidance was provided.
- After quarter-end, on July 16 the Bank changed its investment portfolio designation from held-to-maturity to available-for-sale, requiring a two-year AFS designation. On July 17 it sold approximately $98.2 million of principal in primarily longer-term agency mortgage-backed securities, recognizing an approximately $2.2 million pre-tax gain. Management said proceeds would reduce short-term borrowings and support lending, and that the transaction would add balance-sheet flexibility and reduce interest-rate exposure.
- On August 4, CEO and President Donald Mindiak resigned from the Company and related Bank roles. Thomas Coughlin, then Bank CEO and President, was appointed Company CEO and President effective August 4.
- Interest-rate risk is significant given longer-maturity assets and deposit-funded liabilities. The filing’s model estimated an 8.58% decline in net portfolio value under a 100-basis-point rate increase; management cautioned that the model is assumption-dependent and is not a precise forecast.
- The Company is defending a shareholder class action related to the Pamrapo merger. A reduced class was certified in February 2014; a motion to dismiss the remaining claims was denied without prejudice. A separate insurance-recovery suit is pending, with an insurer’s summary-judgment motion scheduled for August 18, 2014.
- Management stated that disclosure controls were effective and that there had been no material change in internal control over financial reporting during the quarter. The filing notes that actual loan losses may differ from estimates and regulators may require additional loan-loss provisions.
Most important facts for investors to verify
- Whether the rise in non-accrual loans, classified assets, and troubled restructurings leads to further charge-offs or higher loan-loss provisions.
- How much reported income depends on securities and loan-sale gains, and the realized effects of the post-quarter securities sale and debt reduction.
- Whether deposit growth, short-term borrowing needs, and available borrowing capacity remain adequate as loans expand.
- Whether higher staffing and planned branch costs produce the growth management expects, and how the CEO transition affects execution.
- Developments in the shareholder litigation and insurance-recovery case, including any financial exposure or settlement.