BCB Bancorp, Inc. — Q1 2016 Form 10-Q
Business context and reporting period
BCB Bancorp is the holding company for BCB Community Bank, a New Jersey community bank offering commercial and residential lending, deposits, and retail and commercial banking services. This unaudited filing covers the three months ended March 31, 2016; balance-sheet comparisons are with December 31, 2015. Unless stated otherwise, amounts are in millions of dollars.
Financial performance and position
- Income: Interest income was $17.8 million, up 14.9% year over year; net interest income was $13.7 million, up 8.8%. Noninterest income was $1.65 million, up from $1.21 million.
- Profit: Net income rose to $2.04 million from $1.85 million. Net income available to common shareholders was $1.80 million, or $0.16 per diluted share, versus $1.64 million, or $0.20 per share. The weighted-average common share count increased to 11.2 million from 8.4 million.
- Margins and expenses: Net interest margin declined to 3.37% from 3.86%. Average yield on interest-earning assets fell to 4.39% from 4.75%, while average cost of interest-bearing liabilities rose to 1.20% from 1.07%. Noninterest expense increased 17.6% to $11.7 million.
- Credit costs: Provision for loan losses declined to $189,000 from $720,000. Net charge-offs were $63,000 versus $143,000.
- Cash flow and liquidity: Operating cash flow was $4.55 million. Cash and cash equivalents increased $77.6 million during the quarter to $210.2 million, supported principally by $76.5 million of deposit growth and $10.0 million of additional long-term borrowing. Investing activities used $10.1 million, mainly reflecting $9.6 million of net loan growth. The company reported $17.7 million of additional FHLB borrowing capacity at quarter-end; deposits of $484.9 million were scheduled to mature within one year.
- Balance sheet and funding: Total assets were $1.706 billion, up 5.4% from year-end; net loans were $1.430 billion, up 0.7%; deposits were $1.350 billion, up 6.0%. Long-term debt was $210 million and subordinated debentures were $4.1 million; there was no short-term debt outstanding. Stockholders’ equity was $132.3 million, down 0.9%.
- Capital: The Bank’s total risk-based capital ratio was 11.76%, Tier 1 risk-based ratio 10.50%, Common Equity Tier 1 ratio 10.50%, and Tier 1 leverage ratio 8.16%. The filing states the Bank exceeded applicable regulatory capital requirements and was well-capitalized.
Material changes versus comparable periods
- Net income increased, but earnings per common share decreased from $0.20 to $0.16, with the substantially larger average share count contributing to the difference.
- Loan growth and higher average interest-earning assets lifted net interest income, but funding costs rose and net interest margin contracted.
- Noninterest expense rose by $1.75 million. Higher salaries and benefits reflected 31 more full-time-equivalent employees; professional fees were higher partly because the prior-year quarter included a $300,000 reversal of a legal-fee provision.
- Nonperforming loans were $24.0 million, or 1.65% of gross loans, compared with $23.4 million and 1.65% at year-end. The allowance was $18.2 million, or 1.25% of gross loans and 75.6% of nonperforming loans.
Outlook, commentary, risks and unusual items
- Management described a measured asset-growth strategy, maintaining liquidity for the loan pipeline and seeking securities with competitive returns. It anticipated additional branch openings in 2016; a new Staten Island branch opened April 15, 2016.
- Funding growth included listing-service and brokered certificates of deposit of $44.2 million and $34.3 million, respectively. Management cited competition for both loans and deposits as a factor in lower asset yields and higher funding costs.
- The loan portfolio is concentrated in commercial and multifamily real estate: those loans totaled approximately $1.061 billion of gross loans. Management identified real-estate values, economic conditions, credit quality, interest rates, deposit flows, and access to funding among the key risks. At March 31, $39.1 million of loans were classified substandard and $20.4 million special mention; none were classified doubtful or loss.
- Interest-rate modeling showed estimated net portfolio value down 8.90% under a 100-basis-point rate increase and down 27.02% under a 300-basis-point increase. The filing cautions that these estimates depend on assumptions and are not precise forecasts of net interest income.
- A shareholder class-action settlement was approved in 2015, but plaintiffs’ counsel sought approximately $1 million in fees, the stated maximum. The company opposed the request. A related insurance recovery suit continued against Progressive; the company had received $1.75 million from Colonial in 2015. Fee and insurance outcomes remain contingent.
- Two restructured loans totaling $1.136 million were reported as having payment defaults within 12 months of restructuring during the quarter. Management stated its allowance was adequate, while noting estimates may differ from eventual losses and regulators may require adjustments.
- No specific earnings or financial guidance was provided. Management cautioned that actual results may differ from forward-looking statements. Disclosure controls were judged effective, and no material change in internal control over financial reporting was reported.
Investor verification priorities
- Track margin and funding mix, including the cost and renewal behavior of brokered and listing-service certificates of deposit and the effect of continued loan growth.
- Review commercial real-estate concentration, substandard and special-mention balances, nonaccrual loans, TDR performance, and allowance adequacy.
- Confirm liquidity sources and maturities, including the $484.9 million of time deposits due within one year and available FHLB capacity.
- Monitor the shareholder counsel-fee motion and the continuing insurance litigation, including potential costs or recoveries.
- Reconcile the increase in average shares with the period’s common earnings and dividends when assessing per-share returns and capital distributions.