BCB Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. Unless stated otherwise, amounts below are in millions. The company conducts its business principally through BCB Community Bank.
Financial performance and position
- Third quarter: Net income was $2.14 million, or $0.24 per diluted share, versus a net loss of $1.35 million, or $0.15 per share, in Q3 2012. Net interest income increased 12.6% to $11.59 million. Total interest income was $14.24 million; non-interest income was $0.76 million.
- First nine months: Net income was $7.11 million, or $0.80 per diluted share, versus a net loss of $3.12 million, or $0.34 per share, in 2012. Net interest income rose 12.3% to $34.58 million. Total interest income was $42.52 million; non-interest income was $2.43 million.
- Margins: Net interest margin was 4.00% in Q3, up from 3.58%; for the nine months it was 4.02%, up from 3.51%. Management attributed improvement to reallocating assets toward higher-yielding loans and lower funding costs.
- Balance sheet at September 30: Assets were $1.183 billion, up 1.0% from year-end 2012. Net loans were $987.4 million, up 7.1%; deposits were $968.0 million, up 2.9%. Cash and cash equivalents were $32.2 million, versus $34.1 million at year-end.
- Credit and provision: The loan-loss provision was $0.45 million for Q3 and $2.25 million for the nine months, compared with $1.60 million and $3.40 million, respectively, in 2012. The allowance was $13.9 million, 1.39% of gross loans and 66.2% of non-performing loans. Non-performing loans were $21.0 million, or 2.10% of gross loans.
- Cash flow, nine months: Operating activities provided $11.3 million; investing activities used $18.4 million; financing activities provided $5.1 million. Cash and cash equivalents declined $2.0 million to $32.2 million.
- Funding, debt and capital: Short-term borrowings were zero, down from $17.0 million at year-end; long-term debt was $114.1 million. Stockholders’ equity was $93.9 million. The Bank reported Tier 1, Tier 1 risk-based, and total risk-based capital ratios of 8.39%, 12.13%, and 13.38%, respectively.
Material changes versus comparable periods
- Profitability turned positive in both comparison periods, supported by higher net interest income, lower provisions and expenses, and improved non-interest income.
- The main year-over-year non-interest income comparison is the 2012 bulk sale of impaired loans: it generated a $3.46 million Q3 loss and a $10.80 million loss for the first nine months of 2012; no corresponding sale occurred in 2013.
- Loan growth was funded in part by using liquidity and reducing the held-to-maturity securities portfolio, which fell $45.7 million from year-end. Deposits shifted away from time deposits toward core deposits; time deposits declined $20.4 million.
- Non-performing loans decreased from $22.9 million at year-end 2012. The allowance increased from $12.4 million at year-end, while nine-month net charge-offs were $0.73 million.
Outlook, risks and unusual items
- Management described its intended balance-sheet growth as measured and dependent on capital levels and business opportunities. The filing provides no quantified earnings or growth guidance.
- Hurricane Sandy-affected loans originally totaled about $38.0 million. By September 30, $29.1 million had been restored or paid off; $8.9 million remained under monitoring. The related additional loan-loss provision was reduced from $500,000 to $43,000.
- Credit risks include concentrations in commercial and multi-family real estate and acquired loans. Classified loans totaled $41.7 million: $18.2 million special mention, $17.1 million substandard, and $6.5 million doubtful. Troubled debt restructurings totaled $36.1 million.
- Interest-rate risk is material. The company’s modeled net portfolio value fell 5.23% under a 100-basis-point rate increase and 37.43% under a 300-basis-point increase. Management cautioned that the model depends on assumptions and is not a precise forecast.
- Several lawsuits are disclosed, including a putative shareholder class action with approximately $350,000 in interim legal fees awarded; payment is stayed. Other described claims seek unspecified damages, and the company reports insurance coverage and says it is defending the cases.
- Management said disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether loan growth, credit quality, non-performing loans, classified assets, and the allowance remain consistent with management’s assessments.
- The sustainability of improved net interest margin amid competitive loan pricing, variable-rate loan repricing, and potential interest-rate changes.
- The status and eventual loss experience of remaining Hurricane Sandy-affected loans and the adequacy of the related provision.
- Capital and liquidity after loan growth, dividends, and share repurchases; the company repurchased 183,199 shares for $1.9 million during the first nine months.
- Developments in the disclosed litigation and any resulting financial exposure.