BCB Bancorp, Inc. — 2011 Form 10-K
Business context and period. Covers the fiscal year ended December 31, 2011. BCB Bancorp is the holding company for New Jersey-based BCB Community Bank, a community bank focused substantially on real-estate lending. The Bank completed its acquisition of Allegiance Community Bank on October 14, 2011; it operated 11 branches at year-end.
Financial results and condition
| Metric | 2011 | 2010 |
|---|---|---|
| Total assets at year-end | $1.217 billion | $1.107 billion |
| Loans receivable at year-end | $840.8 million | $773.1 million |
| Deposits at year-end | $977.6 million | $886.3 million |
| Borrowings at year-end | $129.5 million | $114.1 million |
| Stockholders’ equity at year-end | $100.0 million | $99.0 million |
| Net interest income | $39.6 million | $26.4 million |
| Net income | $6.1 million | $14.3 million |
| Diluted earnings per share | $0.64 | $2.05 |
| Net interest margin | 3.60% | 3.05% |
| Return on average assets / equity | 0.54% / 6.14% | 1.62% / 22.67% |
Revenue, margins and earnings. Net interest income rose 50.0%, reflecting a larger average earning-asset base and lower funding costs. Average yield on earning assets was 4.81% and average cost of interest-bearing liabilities was 1.41%. Net income fell 57.8%: non-interest income declined to $2.0 million from $13.9 million, mainly because the prior-year Pamrapo acquisition generated a $12.6 million bargain-purchase gain, compared with $1.2 million from Allegiance in 2011. The 2011 result also reflected a higher loan-loss provision and operating expenses.
Credit quality. Nonperforming assets were $54.4 million, or 4.47% of assets, versus $45.4 million, or 4.10%, in 2010. Nonaccrual loans were $47.8 million; nonperforming loans were 5.61% of loans. The allowance for loan losses was $10.5 million, 1.23% of loans, versus $8.4 million and 1.08% a year earlier. The 2011 provision was $4.1 million, and net charge-offs were $2.0 million.
Liquidity, debt and capital. Cash and cash equivalents were $117.1 million, down from $121.1 million; investment securities totaled $215.5 million, including $207.0 million held to maturity. Management said cash was maintained at an elevated level pending suitable investment opportunities. Deposits grew 10.3%, including $111.4 million acquired with Allegiance. Borrowings were $129.5 million, principally long-term FHLB advances; short-term borrowings were zero at year-end. The Bank reported total risk-based capital of 16.42%, Tier 1 risk-based capital of 15.34%, and Tier 1 leverage of 8.66%. The filing reports a maximum FHLB credit-exposure limit of $608.5 million, not an amount drawn.
Cash flow. The supplied filing text references audited cash-flow statements but does not provide their figures; operating, investing and financing cash-flow values are therefore not clear from the text.
Material changes and management commentary
- Assets increased 9.94% and loans increased 8.8%; management attributed much of the growth to the Allegiance acquisition. Loan originations were $121.1 million, including $69.6 million of commercial and multifamily real-estate loans.
- Commercial and multifamily real-estate loans were $472.4 million, or 55.42% of the portfolio. The Bank acquired $51.8 million of these loans with Allegiance and continued to emphasize this lending, while deemphasizing construction lending.
- Non-interest expense rose 27.3% to $28.0 million, with increases associated with the larger combined institution, staffing, equipment, occupancy and collection costs.
- The Company declared dividends of $0.48 per share for 2011 and repurchased 536,710 shares during the year for $5.6 million, according to management’s discussion.
- Management described its strategy as community-focused growth, profitability, personalized service and real-estate-based lending. The filing gives no specific earnings or growth guidance.
Risks, contingencies and unusual items
- Internal-control material weakness: Management and the independent auditor concluded internal control over financial reporting was ineffective at December 31, 2011 because monitoring controls over outside service organizations were not documented and their operating effectiveness was not tested by year-end. The Company said it tested the controls subsequently and found them effective, and had revised controls; remediation should be verified. Disclosure controls and procedures were separately assessed as effective.
- Concentrated credit exposure: The portfolio is heavily weighted to commercial and multifamily real estate, and approximately 91.1% of total loans were secured by real estate. Local economic weakness or falling property values could increase delinquencies, losses and provisions. A $5.3 million related-borrower relationship was in foreclosure; the Bank expected collateral disposition to avoid a loss.
- Interest-rate and funding risks: Management identified interest-rate exposure as a major market risk. Its model estimated net portfolio value would decline 4.84% under a 100-basis-point rate increase and 22.04% under a 300-basis-point increase; the filing cautions that model assumptions limit predictive precision.
- Other risks: The filing cites regulatory and Dodd-Frank changes, geographic concentration in New Jersey, growth and acquisition integration, allowance-estimation uncertainty, and possible impairment of $7.5 million of FHLB stock. It reports no material legal proceedings at year-end.
- Unusual items: 2011 included a $1.2 million bargain-purchase gain, a $716,000 loss on sale of fixed assets and property held for sale, and a $498,000 loss on sale of foreclosed real estate.
Important facts for investors to verify
- Whether the control weakness over outside service organizations was fully remediated and independently validated after year-end.
- Subsequent performance, collateral values and loss exposure for nonaccrual, impaired, classified and foreclosed assets, including the foreclosure relationship noted above.
- Allowance adequacy relative to portfolio growth, charge-offs and the 5.61% nonperforming-loan ratio.
- Acquisition-related contributions to recurring earnings, excluding bargain-purchase gains, and the sustainability of higher net interest income and margin.
- Deposit retention and repricing, large-certificate maturities, FHLB funding terms, and actual liquidity available under borrowing facilities.
- The complete audited cash-flow statements and notes, which are referenced but not reproduced in the supplied filing text.