BCB Bancorp, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also provides unaudited quarterly results, including the fourth quarter. BCB Bancorp is the holding company for BCB Community Bank, a New Jersey community bank focused on real-estate lending and deposits.
Financial performance and condition
| Metric | 2014 | 2013 |
|---|---|---|
| Total assets, year-end | $1.302 billion | $1.208 billion |
| Gross loans, year-end | $1.227 billion | $1.037 billion |
| Deposits, year-end | $1.029 billion | $968.7 million |
| Total net interest income | $49.9 million | $46.8 million |
| Net income | $7.6 million | $9.4 million |
| Diluted earnings per share | $0.81 | $1.06 |
| Net interest margin | 4.11% | 4.06% |
| Return on average assets / equity | 0.61% / 7.42% | 0.80% / 10.18% |
| Operating cash flow | $4.5 million | $16.0 million |
Net income fell 19% despite higher net interest income, as non-interest expense rose 22% to $38.4 million. Salaries and benefits increased $4.4 million, largely reflecting 78 additional full-time-equivalent employees, and occupancy, equipment and advertising expenses also rose with branch expansion. The 2014 effective tax rate was 39.9%.
Net cash used in investing activities was $89.1 million, principally reflecting loan growth; financing activities provided $86.9 million. Year-end cash and cash equivalents were $32.1 million. Total liabilities included $26.0 million of short-term debt, $133.0 million of long-term debt and $4.1 million of subordinated debentures. Stockholders’ equity was $102.3 million.
At year-end, Bank capital ratios were 11.73% total risk-based capital, 10.48% Tier 1 risk-based capital and 8.33% Tier 1 leverage. The Bank was categorized as well capitalized under the then-applicable prompt-corrective-action framework. The company reported $95.4 million of additional FHLB borrowing capacity against unencumbered loan collateral.
Material changes and notable items
- Net loans grew 18.4% year over year, while deposits rose 6.2%. Commercial and multifamily real estate loans were $829.1 million, or 67.6% of gross loans; approximately 98% of loans were secured by real estate.
- Non-performing loans declined to $19.6 million, or 1.60% of gross loans, from $20.6 million, or 1.98%. The decline included a bulk sale of impaired loans: approximately $10.4 million proceeds on $14.4 million in stated principal, with a pre-tax loss of about $4.0 million. Non-performing assets were $23.1 million, or 1.77% of assets.
- The allowance for loan losses increased to $16.2 million, equal to 1.32% of gross loans and 82.4% of non-performing loans. Net charge-offs were $991,000, compared with $771,000 in 2013. Troubled debt restructurings totaled $30.7 million, down from $34.5 million.
- Net interest income increased 6.6%, mainly from growth in average interest-earning assets and lower funding costs. Average loan yield declined to 5.18% from 5.46%, reflecting competition and downward repricing.
- The company sold or reclassified its remaining held-to-maturity securities in 2014. Sales generated approximately $2.8 million in gross gains and $470,000 in gross losses; year-end available-for-sale securities were $9.8 million.
- Common dividends declared were $0.54 per share for 2014, versus $0.48 in 2013. Preferred dividends were $800,000. Brokered deposits increased to $56.0 million, about 5% of deposits, from $8.5 million.
- Fourth-quarter 2014 net income was $1.64 million and diluted EPS was $0.17, versus $2.31 million and $0.26 in fourth-quarter 2013. Fourth-quarter net interest income was $12.5 million versus $12.2 million; non-interest expense was $10.5 million versus $8.6 million.
Outlook, risks and contingencies
Management said it intends to grow assets at a measured pace, pursue loan growth and open additional branches. Branches opened in Colonia and Fairfield during 2014; Staten Island and Rutherford locations opened in February 2015. Management attributed lower 2014 earnings primarily to staffing and other investments supporting growth, and cautioned that expansion costs may precede revenue benefits. No numerical earnings or margin guidance was provided.
- Credit and concentration: Significant exposure to commercial and multifamily real estate, New Jersey property values and local economic conditions; larger loans can create greater single-borrower loss exposure. The filing notes uncertainty in estimating future performance of recently originated loans.
- Rates and funding: Interest-rate changes could compress spreads or lower reinvestment yields. Brokered deposits may be less stable and more costly to renew; $268.5 million of certificates of deposit were scheduled to mature within one year.
- Regulation and capital: Basel III requirements took effect in 2015, with the capital conservation buffer phased in from 2016 through 2019. Management warned that regulatory changes could increase costs or constrain capital distributions.
- Commitments: Off-balance-sheet loan-related commitments totaled $217.2 million, including $106.6 million of loan originations, $47.7 million of construction funds and $61.2 million of unused lines of credit.
- Litigation: A proposed settlement of the Kube shareholder class action requires a $1.95 million payment, less insurance reimbursements; the amount was accrued at year-end. Preliminary court approval was granted in January 2015, with a fairness hearing scheduled for May 2015. The company is separately pursuing insurance recovery.
- Other: Management identified cybersecurity, third-party service-provider, competitive, regulatory and geographic risks. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether branch expansion produces loan and deposit growth sufficient to offset rising operating expenses.
- Credit performance and collateral values in the concentrated commercial and multifamily real-estate portfolio, including classified, impaired and restructured loans.
- Whether allowance levels remain adequate as the portfolio grows and charge-offs change.
- Deposit retention and replacement costs, especially for brokered deposits and large certificates maturing within one year.
- Final approval, insurance recoveries and cash cost of the proposed shareholder settlement.
- Capital ratios under Basel III and the effect of required capital buffers on dividends and other distributions.