Business context and reporting period
BCB Bancorp, Inc. is the bank holding company for BCB Community Bank, a New Jersey community bank operating 11 branches. Its business centers on deposits, lending and securities, with a strategic emphasis on commercial and multifamily real estate lending. This Form 10-K covers the fiscal year ended December 31, 2013; it is an annual report, not a standalone fourth-quarter filing.
Financial performance and condition
Unless otherwise indicated, amounts are in U.S. dollars.
| Metric | 2013 | 2012 |
|---|---|---|
| Total assets at year-end | $1.208 billion | $1.171 billion |
| Net loans at year-end | $1.020 billion | $922.3 million |
| Deposits at year-end | $968.7 million | $940.8 million |
| Net interest income | $46.8 million | $41.7 million |
| Net income (loss) | $9.4 million | ($2.1 million) |
| Diluted earnings (loss) per share | $1.06 | ($0.23) |
| Net interest margin | 4.06% | 3.60% |
| Return on average assets / equity | 0.80% / 10.18% | (0.17%) / (2.26%) |
| Cash and cash equivalents at year-end | $29.8 million | $34.1 million |
| Stockholders’ equity at year-end | $100.1 million | $91.6 million |
Net interest income rose 12.2%, reflecting higher loan balances and lower funding costs. The provision for loan losses was $2.75 million, down from $4.90 million. Net cash from operating activities was $16.0 million; investing activities used $47.0 million and financing activities provided $26.7 million. Cash and cash equivalents declined $4.3 million during the year.
Total borrowings were approximately $132.1 million at year-end, including $18.0 million of short-term debt, $110.0 million of long-term FHLB advances and $4.1 million of subordinated debentures. The Bank reported regulatory capital ratios of 13.66% total risk-based capital, 12.41% Tier 1 risk-based capital and 8.70% Tier 1 leverage capital, and was categorized as well capitalized.
Credit quality improved on several measures: nonperforming assets fell to $22.8 million, or 1.89% of assets, from $26.2 million, or 2.23%; nonperforming loans were $20.6 million, or 1.98% of gross loans. The allowance for loan losses was $14.3 million, 1.38% of gross loans and 69.7% of nonperforming loans. Commercial and multifamily real estate loans were $677.1 million, or 65.3% of gross loans; approximately 93.7% of total loans were secured by real estate.
Material changes versus the prior comparable period
- BCB returned to profitability from a 2012 net loss. The comparison is substantially affected by the 2012 sale of approximately $25.9 million of nonperforming loans at a pretax loss of about $10.8 million; the 2013 loss on loan sales was $474,000.
- Net loans grew 10.6%, or $98.0 million, as management shifted funds from securities and excess liquidity into lending. Commercial and multifamily lending remained the principal growth focus.
- Deposits increased 3.0%. Noninterest-bearing, NOW and savings balances rose, while certificates of deposit fell by $32.7 million. The average cost of interest-bearing liabilities declined to 1.09% from 1.19%.
- Held-to-maturity securities declined $50.4 million to $114.2 million, primarily from principal repayments and prepayments, alongside sales and limited purchases. The Company reported approximately $9.5 million in sales of eligible held-to-maturity securities and $378,000 in gains on securities sales.
- Net charge-offs declined to $771,000 from $3.05 million, while the allowance increased to $14.3 million from $12.4 million.
- The Company issued $4.01 million of Series B 6% noncumulative perpetual preferred stock in October 2013. Preferred dividends are payable only if declared; the shares are nonconvertible and callable after October 31, 2016.
Outlook, commentary, risks and contingencies
Management said it intends to grow the balance sheet at a measured pace consistent with capital and business opportunities, continue emphasizing commercial and multifamily real estate lending, and strengthen profitability and the balance sheet. The filing does not provide numerical earnings or growth guidance. Management noted that low market rates supported lower deposit costs, while competition and repricing pressured loan yields.
- Credit and concentration risk: Large commercial real estate and multifamily exposures depend on property cash flows and local real estate conditions. Construction and commercial business lending carry additional repayment and collateral risks. The Bank had $46.3 million of impaired loans and $34.5 million of troubled debt restructurings at year-end.
- Geographic and storm exposure: Lending and operations are concentrated in New Jersey. Hurricane Sandy affected local borrowers and property values; $7.5 million of identified storm-impacted loans remained in restoration or monitoring stages. The related additional provision was reduced from $500,000 to $34,000.
- Liquidity and funding: Certificates of deposit totaling $273.1 million were scheduled to mature within one year, including $160.6 million of certificates of at least $100,000 due within 12 months. The Bank also relies on FHLB advances and has substantial unfunded loan commitments.
- Interest-rate risk: The filing’s model estimated that a 100-basis-point rate increase would reduce net portfolio value by 6.35%; a 200-basis-point increase would reduce it by 20.42%. Management cautioned that the model relies on assumptions and is not a precise forecast of earnings effects.
- Commitments and litigation: Off-balance-sheet loan-related commitments totaled $143.4 million, including $30.9 million of loan originations, $46.3 million of construction loans in process, $64.3 million of unused lines and $2.0 million of standby letters of credit. The filing describes several lawsuits and an arbitration, including a shareholder class action and claims seeking unspecified damages; insurance coverage is noted for certain matters.
- Controls and audit: Management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2013, and the financial statement audit opinion was unqualified. The filing also recounts a material weakness identified for 2011 involving documentation and testing of controls over outside service organizations, which management said had been addressed.
Most important facts for investors to verify
- Whether loan growth, credit performance and allowance adequacy remain sound, particularly in the commercial and multifamily portfolio and among impaired and restructured loans.
- The maturity and renewal outcomes for large certificates of deposit, and the Bank’s liquidity and borrowing capacity as loan commitments fund.
- Whether the 2013 earnings improvement is sustainable apart from the unusually large 2012 loan-sale loss and other changes in expenses and credit costs.
- The status, potential exposure and insurance recovery prospects for the disclosed litigation and arbitration.
- Future capital, dividend and share-repurchase decisions, including the effect of preferred dividends and regulatory limits on dividends from the Bank to the holding company.
- That 2013 quarterly results were positive throughout the year; fourth-quarter net income was $2.31 million and diluted EPS was $0.26, compared with a fourth-quarter 2012 net income of $1.06 million and diluted EPS of $0.12.