BCB BANCORP INC annual report, FY2012

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BCB Bancorp, Inc. — 2012 Form 10-K Summary

Business context and reporting period

For the fiscal year ended December 31, 2012, BCB Bancorp operated as the holding company for BCB Community Bank, a New Jersey community bank with 11 branches. At year-end, the company reported $1.171 billion in assets, $940.8 million in deposits and $91.6 million in stockholders’ equity. Lending is concentrated in New Jersey real estate, particularly commercial and multifamily properties.

Financial results and condition

  • Profitability: Net loss was $2.06 million, or $0.23 per diluted share, versus net income of $6.05 million, or $0.64 per diluted share, in 2011. Return on average assets was -0.17%; return on average equity was -2.26%.
  • Income and margins: Net interest income rose 5.4% to $41.70 million. Net interest margin was 3.60%, unchanged from 2011. Non-interest income was a loss of $7.23 million, chiefly reflecting the loss on non-performing loan sales.
  • Credit costs: Provision for loan losses increased to $4.90 million from $4.10 million. Net charge-offs were $3.05 million, up from $2.01 million. The $12.36 million allowance was 1.32% of gross loans and 54.0% of non-performing loans.
  • Assets and lending: Loans receivable grew 9.7% to $922.3 million, while total assets fell 3.7% to $1.171 billion. Commercial and multifamily real estate loans were $588.3 million, or 62.84% of gross loans.
  • Asset quality: Non-performing assets were $26.2 million, or 2.23% of assets, compared with $54.4 million, or 4.47%, in 2011. Non-performing loans were $22.9 million, or 2.45% of loans, versus $47.8 million, or 5.61%. Management attributed much of the improvement to loan sales.
  • Funding and liquidity: Deposits declined 3.8% to $940.8 million; cash and cash equivalents fell 70.0% to $35.1 million. Year-end borrowings totaled $131.1 million, including $17.0 million of short-term borrowings. The filing reports $39.1 million in loan origination commitments, $41.8 million in undisbursed lines of credit and $2.4 million in standby letters of credit. Cash-flow statement figures are not provided in the supplied filing text.
  • Capital: The Bank’s total risk-based capital ratio was 14.03%, Tier 1 risk-based ratio 12.78%, and Tier 1 leverage ratio 8.38%. The company issued $8.65 million of 6% noncumulative perpetual preferred stock in the fourth quarter, primarily to support Bank capital.
  • Shareholder returns: Common dividends were $0.48 per share for the year. The company repurchased 1,046,726 common shares for $10.9 million; year-end stockholders’ equity declined 8.4% to $91.6 million.

Material changes versus 2011

  • The company moved from a $6.05 million profit to a $2.06 million loss. The principal unusual item was the sale of $25.9 million of non-performing loans at a $10.8 million pretax loss.
  • Non-interest expense increased 18.9% to $33.89 million, including higher salaries, occupancy, equipment and professional fees; OREO expenses also rose. The filing cites acquisition-related operating costs and legacy litigation among the drivers.
  • Loan growth and lower funding costs lifted net interest income, but yields on interest-earning assets declined. Average asset yield fell to 4.63% from 4.81%; average interest-bearing liability cost declined to 1.19% from 1.41%.
  • Deposits decreased by $36.8 million, and cash balances contracted as funds supported loan growth and deposit outflows. The company also prepaid $15.4 million of acquired FHLB advances, recording a $49,000 penalty.

Outlook, risks and contingencies

  • Hurricane Sandy: The storm disrupted branches and local business activity. The Bank was assessing potential damage to collateral and borrowers’ repayment capacity; approximately $41.6 million of assets across about 106 properties were identified in affected areas. Management said the effect on loan losses and non-performing loans was not yet determinable. Insurance may mitigate losses.
  • Credit concentration: Real estate secured approximately 93.5% of loans, and commercial/multifamily lending is a major concentration. Management warned that adverse property values, local economic conditions or borrower cash flows could raise delinquencies and losses.
  • Management outlook: No numerical earnings or growth guidance is provided. Management said it intends to pursue measured asset growth consistent with capital, continue reducing problem loans and work toward returning to profitability.
  • Interest-rate risk: The company’s modeled net portfolio value declined 4.34% under a 100-basis-point rate increase and 13.94% under a 200-basis-point increase. Management cautioned that the model depends on assumptions and is not a precise earnings forecast.
  • Legal matters: The company described several lawsuits seeking unspecified damages, including shareholder and other claims. Insurance coverage was reported for the matters described; one shareholder case had three of five counts dismissed, and an interim legal-fee award of approximately $350,000 was stayed.
  • Controls: Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2012. The filing discusses a material weakness in 2011 concerning documented monitoring and testing of controls over outside service organizations; management reported that controls were revised and tested afterward.
  • Regulation: The filing identifies evolving Dodd-Frank and proposed capital rules as potential sources of increased compliance costs or changes to capital requirements.

Important facts for investors to verify

  • Review the audited statements and notes for operating cash flow, liquidity sources, preferred-stock terms and the full balance-sheet and income-statement detail; cash-flow figures are not clear in the supplied text.
  • Track Sandy-related collateral assessments, borrower performance, insurance recoveries and any resulting changes in provisions, delinquencies or classified assets.
  • Reconcile the improvement in reported asset quality with the $25.9 million portfolio sale, its $10.8 million loss, ongoing charge-offs and remaining impaired loans.
  • Assess deposit trends, certificates of deposit maturing within one year, borrowing availability and the effect of continued loan growth on liquidity and funding costs.
  • Monitor whether the company returns to profitability while maintaining capital ratios and common dividends, and review the status and potential exposure of the disclosed litigation.