BCB BANCORP INC quarterly report, Q1 FY2021

BCB Bancorp, Inc. — Q1 2021 Form 10-Q

Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are with December 31, 2020 unless stated otherwise. BCB Bancorp is the holding company for BCB Community Bank, a community bank operating primarily in New Jersey and New York.

Financial performance

Metric	Q1 2021	Comparable period / change
Net interest income	$23.6 million	Up 25.5% from $18.8 million in Q1 2020
Net interest margin	3.48%	Up from 2.63% in Q1 2020
Net income	$7.1 million	Up from $2.5 million in Q1 2020
Net income available to common shareholders / diluted EPS	$6.8 million / $0.40	$2.2 million / $0.12 in Q1 2020
Interest income / interest expense	$28.1 million / $4.5 million	$29.4 million / $10.6 million in Q1 2020
Provision for loan losses	$1.9 million	$1.5 million in Q1 2020
Non-interest income / expense	$2.0 million / $13.6 million	$0.7 million / $14.4 million in Q1 2020
Operating cash flow	$14.4 million	$5.7 million in Q1 2020

Higher net interest income principally reflected lower funding costs: total interest expense declined 57.6%, with the average cost of interest-bearing liabilities falling to 0.85% from 1.78%. The effective tax rate was 29.3%, compared with 29.9% in Q1 2020.

Financial position, liquidity and capital

Total assets were $2.852 billion, up $31.4 million (1.1%) from year-end. Cash and cash equivalents rose to $296.9 million; net loans were $2.296 billion, broadly flat.
Deposits increased $86.1 million (3.7%) to $2.404 billion. Management attributed the growth in part to government relief payments and PPP-related funds. Non-interest-bearing deposits were $454.1 million.
FHLB advances declined $57.9 million to $133.3 million; subordinated debentures were $37.1 million. Total debt obligations, as discussed by management, fell $57.8 million to $170.4 million.
Stockholders’ equity was $253.5 million; the company-reported equity-to-assets ratio was 8.89%. The Bank’s community bank leverage ratio was 10.07%, above the stated 8.50% well-capitalized threshold.
Management reported more than $800 million of wholesale borrowing capacity. It also disclosed up to $245.7 million of additional FHLB funding capacity using unencumbered loan collateral. Time deposits due within one year totaled $586.0 million.
Cash flow from investing activities was a $3.9 million use; financing activities provided $25.2 million. Cash and cash equivalents increased $35.7 million during the quarter.

Material changes and credit quality

Loan-loss allowance rose to $35.5 million, or 1.52% of gross loans, from $33.6 million, or 1.44%, at year-end. The allowance equaled 246.3% of non-accrual loans.
Non-accrual loans were $14.4 million (0.62% of gross loans), down from $16.4 million at year-end but above $4.4 million in Q1 2020. Loans more than 90 days past due totaled $7.9 million; none were accruing.
Special-mention loans increased to $41.2 million from $4.7 million at year-end, while substandard loans declined to $56.2 million from $68.6 million. The filing reported no doubtful- or loss-rated loans.
Management said the Bank had no deferred loans in its portfolio, but customers with prior COVID-19 modifications had balances of approximately $86.2 million at quarter-end. Management stated outcomes depend on borrowers’ projected cash flows.
Net charge-offs were $27,000, versus net recoveries of $300,000 in Q1 2020. Management cited COVID-19 uncertainty and stress in hospitality, restaurants, office space and commercial condominiums when assessing reserves.

Management commentary, outlook and unusual items

Management reported no significant operational disruptions from COVID-19, while warning that pandemic effects on financial condition, liquidity and results remained uncertain. It gave no specific earnings or financial guidance.
Non-interest income benefited from $701,000 of BOLI income and $328,000 of PPP referral fees. The Bank purchased an additional $8.5 million of BOLI in January; BOLI carrying value was $70.2 million at quarter-end.
The company recorded a $540,000 loss on extinguishment of debt after prepaying $53 million of FHLB advances and repaying a scheduled $15 million maturity. Management said the prepayment reduced the weighted-average cost of FHLB borrowings by about 20 basis points on an annualized basis.
Staffing fell to 312 full-time-equivalent employees from 371 in the prior-year quarter, contributing to lower salary expense. The company repurchased 32,093 shares for $412,000 during the quarter.
After quarter-end, the Board declared a $0.14-per-share common dividend, payable May 24, 2021. The company said it would continue to assess COVID-19 effects when determining future dividends and capital needs.
The company was evaluating the transition from LIBOR for certain floating-rate subordinated debt; it did not anticipate a significant financial-statement impact. Adoption of the expected-credit-loss standard (CECL) was scheduled for 2023, with the impact not yet determined.
The filing reported no material legal proceedings and identified no risk factors in this quarterly report. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.

Most important facts for investors to verify

Whether deposit growth and lower funding costs persist, and how upcoming certificate-of-deposit maturities reprice.
Whether COVID-related borrower stress, including the $86.2 million of previously modified loans and elevated special-mention balances, leads to higher delinquencies, non-accruals or provisions.
Whether the allowance remains adequate as economic conditions and collateral values evolve.
The recurring earnings contribution from BOLI and PPP-related fees, versus one-time debt-extinguishment costs and other unusual items.
Liquidity availability and regulatory capital headroom, including the distinction between disclosed FHLB collateral capacity and broader wholesale borrowing capacity.
Future dividend and repurchase decisions, and the eventual effect of CECL adoption and LIBOR replacement.