BCB Bancorp, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparisons are generally with the year ended December 31, 2018. BCB Bancorp is the holding company for BCB Community Bank, a community-focused bank operating branches in New Jersey and New York.
Financial results and condition
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Total assets | $2.907 billion | $2.675 billion | Up 8.7% |
| Net interest income | $82.6 million | $77.7 million | Up 6.3% |
| Net income | $21.0 million | $16.8 million | Up 25.5% |
| Net income available to common shareholders | $19.7 million | $15.8 million | After preferred dividends |
| Diluted EPS | $1.20 | $1.01 | Up from prior year |
| Net interest margin | 3.07% | 3.31% | Down 24 basis points |
| Return on average assets / equity | 0.76% / 9.66% | 0.70% / 8.86% | Both improved |
| Deposits | $2.362 billion | $2.181 billion | Up 8.3% |
| Loans, net | $2.178 billion | $2.278 billion | Down 4.4% as management curtailed growth |
| Cash and cash equivalents | $550.4 million | $195.3 million | Up $355.1 million |
| Stockholders’ equity | $239.5 million | $200.2 million | Up 19.6% |
Earnings drivers: Net interest income benefited from higher average earning-asset balances and yields, while interest expense rose faster as deposit and borrowing costs increased. Average interest-bearing liability cost rose to 1.82% from 1.40%. The lower loan-loss provision and reduced merger expenses also supported earnings. Non-interest income declined to $5.4 million from $8.0 million, partly because 2018 included a $2.0 million insurance settlement and higher loan-sale gains.
Cash flow: Net cash from operating activities was $24.3 million, versus $40.0 million in 2018. Investing activities provided $135.1 million, compared with $466.2 million used in 2018, mainly reflecting the shift from loan growth to loan repayments and sales. Financing activities provided $195.7 million, including deposit growth and stock issuance. Cash and cash equivalents ended the year at $550.4 million.
Debt and liquidity: Borrowings totaled $282.6 million, principally $245.8 million of FHLB advances and $36.8 million of subordinated debentures. No overnight FHLB borrowings were outstanding at year-end; the company reported $218.6 million of additional FHLB funding capacity against unencumbered loan collateral. Certificates of deposit totaling $879.9 million mature within one year. Management expected normal liquidity sources to cover current loan commitments and estimated that a significant portion of maturing deposits would remain.
Capital and dividends: The Bank was categorized as well capitalized. At year-end, its total risk-based capital ratio was 13.84%, Tier 1 risk-based ratio 12.72%, and Tier 1 leverage ratio 9.51%. Common dividends were $0.56 per share for the year, or $0.14 quarterly; future payments remain subject to earnings, capital, liquidity, regulatory limits, and board discretion.
Material changes versus 2018
- Assets rose, while year-end net loans declined following management’s decision to curtail loan growth; cash and cash equivalents increased substantially.
- Net income rose 25.5%, but net interest margin narrowed as funding costs increased faster than asset yields.
- Asset quality improved on reported measures: non-performing assets fell to $6.6 million, or 0.23% of assets, from $10.0 million, or 0.37%. Non-performing loans were 0.22% of total loans versus 0.38%.
- The allowance for loan losses increased to $23.7 million, or 1.08% of gross loans, from $22.4 million, or 0.97%. Net charge-offs increased to $694,000 from $146,000.
- Equity increased following 2019 capital raises: approximately $6.3 million gross proceeds from a February common-stock placement, $5.3 million from Series G preferred stock, and $12.5 million gross proceeds from a December common-stock sale to MFP Partners.
Outlook, commentary, risks, and unusual items
- Strategy: Management emphasized community banking, profitability, balance-sheet strength, real-estate-based lending, and organic branch growth, while retaining an interest in acquisitions. The bank opened or acquired three branches in 2019. It curtailed loan growth during the year and described liquidity as a priority.
- Credit concentration: Commercial and multifamily real-estate loans were approximately 72.9% of gross loans; about 95% of total loans were secured by real estate. The company reported a commercial-real-estate concentration of 372% of total capital under the cited regulatory guidance. Management identified property values, borrower cash flows, and regional economic conditions as key credit risks.
- Problem assets: The filing reported $13.5 million in classified assets and $9.7 million in special-mention loans. It also reported $17.7 million of troubled debt restructurings at year-end, including $702,000 on non-accrual status. Non-accruing loans were $4.2 million; the broader non-performing-loan measure was $5.0 million because it also included certain loans more than 90 days past due that were still accruing.
- Interest-rate and funding risks: Net interest income depends heavily on interest rates and deposit pricing. The filing’s modeled net portfolio value fell 5.18% under a 100-basis-point rate increase. The company also disclosed exposure to LIBOR-linked instruments and uncertainty around the planned transition from LIBOR after 2021.
- Other risks: Management cited competition, local economic and real-estate conditions, growth and branch-expansion costs, acquisition execution, cybersecurity and third-party technology risks, regulation, and the adequacy of loan-loss estimates. The company had no brokered deposits at year-end, but reported $92.1 million of reciprocal CDARS deposits.
- Accounting and contingencies: Adoption of the lease standard resulted in $13.2 million of operating-lease right-of-use assets and $13.4 million of lease liabilities. The company was evaluating the potential impact of CECL, which it expected to adopt in 2023; the impact was not yet determined. The filing reported no material legal proceeding expected to materially affect financial condition or results. A New York state tax audit notice for tax years 2016 and 2017 was received in February 2020.
- Fourth quarter: Net income was $5.1 million and diluted EPS was $0.29. The quarter included a $475,000 reversal of provision for loan losses; investors should distinguish this from recurring operating performance.
- Assurance: The independent auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting as of December 31, 2019.
Important facts for investors to verify
- Track commercial real-estate and multifamily exposure, geographic concentration, criticized/classified loans, TDRs, delinquencies, and subsequent charge-offs or reserve changes.
- Assess whether the 2019 earnings increase is sustainable given margin compression, higher deposit costs, lower non-interest income, and the fourth-quarter provision reversal.
- Review liquidity and deposit-retention risk, especially the $879.9 million of certificates maturing within one year and the proportion of deposits paying market-sensitive rates.
- Confirm the terms, cost, and capital treatment of the 2019 common and preferred stock issuances, and the implications of subordinated debt and preferred dividends for common shareholders.
- Monitor interest-rate sensitivity, LIBOR transition plans, and the eventual quantified effects of CECL adoption.
- Evaluate branch economics and management’s plans for growth, acquisitions, and capital returns; the filing provides no specific numerical earnings or growth guidance.