BCB Bancorp, Inc. — Q2 2013 Form 10-Q
Business context and period: BCB Bancorp is a New Jersey bank holding company whose business is conducted principally through BCB Community Bank. This unaudited quarterly report covers the three and six months ended June 30, 2013; balance-sheet comparisons are with December 31, 2012. Unless stated otherwise, dollar amounts below are in millions.
Financial performance and position
| Metric | Q2 / June 30, 2013 | Comparable period / prior date |
|---|---|---|
| Interest income | $14.20 Q2; $28.28 first half | $13.32 Q2 2012; $26.87 first half 2012 |
| Net interest income | $11.57 Q2; $22.99 first half | $10.25 Q2 2012; $20.55 first half 2012 |
| Net interest margin | 4.04% Q2 and first half | 3.49% Q2 2012; 3.47% first half 2012 |
| Net income (loss) | $2.55 Q2; $4.96 first half | $(3.36) Q2 2012; $(1.77) first half 2012 |
| Net income (loss) available to common; diluted EPS | $2.42; $0.29 Q2. $4.70; $0.56 first half | $(3.36); $(0.37) Q2 2012. $(1.77); $(0.19) first half 2012 |
| Provision for loan losses | $0.60 Q2; $1.80 first half | $1.20 Q2 2012; $1.80 first half 2012 |
| Total assets | $1,167.4 | $1,171.4 at Dec. 31, 2012 |
| Net loans; gross loans | $942.1; $957.7 | $922.3 net; $936.2 gross at Dec. 31, 2012 |
| Deposits | $952.0 | $940.8 at Dec. 31, 2012 |
| Cash and cash equivalents | $51.2 | $34.1 at Dec. 31, 2012 |
| Borrowings | $114.1 long-term; no short-term borrowings | $114.1 long-term and $17.0 short-term at Dec. 31, 2012 |
| Stockholders’ equity | $93.3 | $91.6 at Dec. 31, 2012 |
For the first half, operating cash flow was $8.0 million, investing cash flow was $18.2 million, and financing cash flow was negative $9.2 million. Cash increased $17.1 million to $51.2 million. The Bank’s June 30 capital ratios were 8.37% Tier 1, 12.63% Tier 1 risk-based, and 13.89% total risk-based.
Material changes and performance drivers
- Q2 net interest income rose 13.7% year over year; management attributed the improvement to higher yield on earning assets, lower funding costs, and a shift toward loans. Q2 net interest margin increased 55 basis points. First-half net interest income rose 11.9% and margin increased 57 basis points.
- Net income comparisons were substantially affected by the second-quarter 2012 $7.34 million loss on a bulk sale of impaired loans. No corresponding loss occurred in 2013. The 2012 sale involved approximately $17.4 million of non-performing loans and contributed to lower non-performing loans versus June 2012.
- Non-interest expense declined 5.1% in Q2 and 11.6% in the first half year over year. Lower employee benefits and expenses associated with the previously sold non-performing loan portfolio contributed to the decreases.
- At June 30, non-performing loans were $21.6 million, or 2.26% of gross loans, versus $22.9 million (2.45%) at December 31, 2012 and $34.5 million (4.11%) at June 30, 2012. The allowance was $13.7 million, or 1.43% of gross loans, compared with $12.4 million (1.32%) at year-end. First-half net charge-offs were $0.49 million.
- Classified loans totaled approximately $39.7 million: $15.8 million special mention, $15.5 million substandard, $8.4 million doubtful, and $48,000 loss. Troubled debt restructurings totaled $39.9 million, up from $33.4 million at year-end.
- Assets declined 0.34% from year-end as the $36.8 million reduction in held-to-maturity securities was largely offset by growth in cash and loans. Deposits grew $11.2 million; management reported a shift toward lower-cost core deposits and away from certificates of deposit.
Outlook, risks, contingencies, and unusual items
- Management said it intends to grow the balance sheet at a measured pace consistent with capital levels and business opportunities, while maintaining liquidity for the loan pipeline and seeking reasonable-return secondary-market opportunities. The filing provides no specific earnings or revenue guidance.
- Hurricane Sandy-related review identified 122 loans totaling about $38.0 million. By June 30, borrowers on $25.0 million had completed restoration or paid off loans; the remaining $13.0 million were being monitored. The related provision was reduced from $500,000 initially to $149,000; management said it would continue monitoring the loans.
- Interest-rate risk is material. The company’s modeled net portfolio value fell 3.62% under a 100-basis-point rate increase and 32.28% under a 300-basis-point increase; it rose 8.39% under a 100-basis-point decrease. Management cautioned that the model relies on assumptions and is not a precise forecast of net interest income.
- Credit quality remains a key risk, particularly in commercial and multifamily real estate and acquired loan portfolios. Management’s allowance estimates may differ from realized losses, and regulators may require additional provisions. The company also cited potential deterioration if the local economy weakens.
- The filing describes several lawsuits, including shareholder and other claims. Insurance coverage was reported for certain matters; outcomes and any financial impact were not quantified clearly in the filing.
- The company repurchased 123,942 shares during the first half for $1.26 million and paid $2.03 million in common dividends; it also paid $130,000 in preferred dividends and accrued a further $130,000 preferred dividend for Q2. A $7.34 million 2012 impaired-loan sale loss and 2013 held-to-maturity security sales are notable nonrecurring or unusual items.
Important facts for investors to verify
- Whether the reduction in non-performing loans and classified credit exposure continues, and how the $39.9 million TDR portfolio performs.
- Whether the $13.0 million of remaining Sandy-affected loans progress as expected and whether the related $149,000 provision remains adequate.
- How net interest margin, deposit costs, loan yields, and liquidity respond to changing rates and competition.
- Whether credit losses require additional provisions, given the commercial real estate concentration and acquired-loan exposure.
- The status and potential financial effect of the disclosed litigation, including any insured and uninsured exposure.