BCB Bancorp, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015; financial statements are unaudited. BCB Bancorp is a community bank holding company operating primarily through BCB Community Bank in New Jersey. Amounts below are in millions, except per-share data and ratios.
Financial results and condition
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net interest income | $13.5 | $13.1 | $39.8 | $37.4 |
| Provision for loan losses | $0.07 | $0.65 | $1.9 | $2.1 |
| Non-interest income | $2.0 | $(0.75) | $5.0 | $2.6 |
| Non-interest expense | $11.7 | $9.9 | $32.8 | $27.9 |
| Net income | $2.3 | $1.1 | $6.0 | $6.0 |
| Net income available to common shareholders | $2.0 | $0.9 | $5.4 | $5.4 |
| Basic / diluted EPS | $0.24 / $0.24 | $0.11 / $0.11 | $0.64 / $0.63 | $0.64 / $0.64 |
- Margins: Net interest margin was 3.65% in Q3 and 3.79% for the first nine months, versus 4.31% and 4.13%, respectively, in 2014. The Q3 effective tax rate was 39.1%; the nine-month rate was 40.1%.
- Balance sheet at September 30: Assets were $1.555 billion, up 19.4% from year-end 2014. Net loans were $1.396 billion, up 15.6%; deposits were $1.233 billion, up 19.9%; stockholders’ equity was $108.2 million.
- Loan portfolio and credit: Gross loans were $1.417 billion, including $999.4 million in commercial and multifamily loans. The allowance was $17.7 million, or 1.25% of gross loans. Classified loans totaled $52.6 million: $34.9 million substandard and $17.7 million special mention. The filing reports non-accrual loans of $23.1 million in the notes, while another risk-factor passage cites $18.1 million; see investor verification items.
- Funding and liquidity: Cash and cash equivalents were $95.8 million, versus $32.1 million at December 31, 2014. Deposits grew $204.7 million; $44.7 million came from listing-service CDs and $51.5 million from brokered CDs. Short-term debt was zero; long-term debt was $200 million, versus $133 million at year-end. The company reported $62.7 million of additional FHLB borrowing capacity and $371.6 million of time deposits maturing within one year.
- Cash flow: Nine-month operating cash flow was $11.1 million, investing cash outflow was $193.1 million, and financing cash inflow was $245.6 million. Financing included deposit growth and $67 million of long-term debt proceeds; cash increased $63.7 million.
- Capital: The Bank reported a 7.37% tangible capital ratio, 8.95% Tier 1 leverage ratio, 10.20% total risk-based capital ratio, and 8.95% Common Equity Tier 1 ratio. It exceeded stated regulatory minimums and well-capitalized thresholds at quarter-end.
Changes versus comparable periods
- Q3 net income more than doubled year over year, mainly reflecting higher net interest and non-interest income and a lower loan-loss provision. Nine-month net income was essentially unchanged.
- Loan growth lifted interest income, but yields and margins contracted: management cited competitive loan pricing, downward repricing of variable-rate loans, and higher deposit funding costs. Q3 interest expense rose 43.7% year over year.
- Operating costs increased: nine-month non-interest expense rose 17.5%, including higher salaries, occupancy, equipment, advertising, and other expenses. Management attributed part of the increase to 17 additional full-time equivalent employees and four branch openings over the prior 18 months.
- Comparisons are affected by unusual 2014 items: a $4.0 million loss on a bulk sale of impaired loans and gains on securities sales. No comparable transactions were reported in 2015. Higher 2015 gains on loan sales also contributed to non-interest income.
- Loans past due more than 90 days totaled $9.8 million at September 30, 2015, versus $6.6 million at year-end 2014; total past-due loans were $49.7 million versus $27.8 million. Non-accrual loans were $23.1 million versus $19.6 million at year-end, per the notes.
Outlook, risks, contingencies, and unusual items
- No formal earnings guidance is provided. Management described plans for measured asset growth consistent with capital, continued lending and deposit growth, and potential additional branch openings. It expected the November common-stock offering to increase capital ratios.
- Interest-rate risk is material. The company’s model estimated that a 100-basis-point rate increase would reduce net portfolio value by 9.79%; management cautioned that the model depends on assumptions and is not a precise forecast of net interest income.
- Credit exposure is concentrated in commercial and multifamily real estate. Management identified economic weakness, declining property values, borrower stress, loan concentrations, and changes in collateral values as risks; future provisions may be required, including following regulatory review.
- Other risks include margin pressure, competition for deposits and loans, funding availability and deposit flows, regulatory changes, and the ability to integrate acquisitions. Management stated that actual results could differ from estimates and that current estimates could be affected by worse-than-anticipated conditions.
- A shareholder class action settlement was approved in September 2015 for $1.95 million, expected to be paid by December 15, 2015. The company received $1.75 million from Colonial under an insurance settlement in July; claims against Progressive remained pending. The filing does not clearly specify the ultimate net financial impact of the litigation and insurance recoveries.
- After quarter-end, the company completed a public offering on November 4, 2015, of 2.4 million common shares at $10 per share, generating approximately $22.1 million in net proceeds.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the credit-quality disclosures: the notes report $23.1 million of non-accrual loans, while a risk-factor passage reports $18.1 million; MD&A separately describes $23.1 million of non-performing loans. Confirm definitions and the correct comparable figures.
- Assess commercial and multifamily real-estate concentration, classified and past-due loan trends, troubled debt restructurings, and whether the $17.7 million allowance remains adequate as the portfolio grows.
- Evaluate whether deposit and loan growth can be sustained without further margin compression, higher funding costs, or increased reliance on brokered and listing-service CDs and FHLB advances.
- Confirm the effect of the November offering on shares outstanding, book value per share, and regulatory capital; the filing’s November 6 cover page reports 10,841,627 shares outstanding.
- Track payment and accounting treatment of the $1.95 million class settlement, insurance recoveries, and the unresolved Progressive claim.
- Review sensitivity to interest-rate changes and the assumptions underlying the disclosed net portfolio value model.