Bancorp of New Jersey, Inc. :BKJ-US: Earnings Analysis: Q4, 2016 By the Numbers : April 3, 2017

Bancorp of New Jersey, Inc. reports financial results for the quarter ended December 31, 2016.

Highlights

  • Summary numbers: Revenues of USD 6.10 million, Net Earnings of USD 1.00 million.
  • Net interest income margins narrowed from 98.55% to 98.38% compared to the same period last year.
  • Net loan assets changed 2.36% compared to same period last year and 0.05% from previous period, total deposits changed 2.46% compared to same period last year and -1.00% from previous period.
  • Change in operating cash flow of 31.62% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline from worsening in operating margins as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 6.1 6.36 6.15 6.31 5.87
Revenue Growth (%YOY) 3.87 8.58 0.15 6.62 4.97
Earnings (mil) 1 0.68 1.03 1.29 1.03
Earnings Growth (%YOY) -3.48 -49.93 -20.32 14.95 78.28
Net Margin (%) 16.36 10.69 16.76 20.48 17.61
EPS 0.16 0.11 0.16 0.21 0.17
Return on Equity (%) 5.21 3.59 5.51 7.01 5.68
Return on Assets (%) 0.48 0.33 0.51 0.65 0.51

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, BKJ-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if BKJ-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -4.13% and earnings by 46.76% compared to the previous period.

Earnings Growth Analysis

BKJ-US‘s year-on-year earnings decline has been driven by the drop in net interest income margins from 98.55% to 98.38%. This fall in earnings would have been worse were it not for improvements in loan loss provisions, which helped improve the net interest income after provisions margins from 94.04% to 98.38%. In addition, loan loss provisions as a percentage of net interest income were 0% this period and 4.58% a year ago.

Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

The firm’s decline in net interest income margins was influenced by both the relative drops in the levels of net loan assets and the level of total deposits as a percentage of equity. On an absolute basis, net loan assets changed 2.36% compared to the same period last year and 0.05% from the previous period. Total deposits changed 2.46% compared to the same period last year and -1.00% from the previous period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

BKJ-US‘s year-on-year change in operating cash flow of 31.62% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Contraction of operating margins from 26.75% to 25.08% and (2) One-time items that contributed to a decrease in pretax margins from 26.75% to 25.08%

EBIT Margin History
PreTax Margin History

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Company Profile

Bancorp of New Jersey, Inc. operates as a bank holding company. Its primary business is ownership and supervision of the bank. The company is operating through its subsidiary, Bank of New Jersey which conducts a traditional commercial banking business, accepting deposits from the general public, including individuals, businesses, non-profit organizations, and governmental units. The bank makes commercial loans, consumer loans, and both residential and commercial real estate loans. In addition, it provides other customer services and makes investments in securities, as permitted by law. The company was founded in November 2006 and is headquartered in Fort Lee, NJ.

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