BCB Bancorp, Inc. — Third-Quarter 2019 Form 10-Q
Business context and reporting period. BCB Bancorp is the holding company for BCB Community Bank, a community-oriented bank operating primarily in New Jersey and New York. This unaudited filing covers the quarter and nine months ended September 30, 2019; balance-sheet comparisons are with December 31, 2018. Amounts below are in millions unless stated otherwise.
Financial performance and condition
- Third-quarter results: Net interest income was $20.8 million, up 3.4% from $20.1 million. Net income was $5.2 million, up 13.9% from $4.6 million; income available to common shareholders was $4.9 million and diluted EPS was $0.30, compared with $4.3 million and $0.27.
- Nine-month results: Net interest income was $62.5 million, up 10.6% year over year. Net income was $15.9 million, up 37.9%; common income was $14.9 million and diluted EPS was $0.91, compared with $10.8 million and $0.69.
- Revenue and margins: Total interest income increased to $31.4 million in Q3 from $28.0 million; interest expense rose to $10.6 million from $7.9 million. Q3 net interest margin narrowed to 3.06% from 3.22%. For nine months, interest income was $92.6 million versus $74.6 million, while interest expense was $30.1 million versus $18.1 million; net interest margin declined to 3.14% from 3.34%.
- Non-interest items and costs: Q3 non-interest income fell to $1.4 million from $1.9 million, while non-interest expense declined to $13.7 million from $14.4 million. Nine-month non-interest income was $4.4 million versus $6.8 million, including a $2.2 million legal-settlement receipt in Q1 2018; expense declined to $41.3 million from $42.4 million, including the absence of $2.3 million in 2018 merger costs.
- Credit quality: The provision for loan losses was $0.9 million in Q3, approximately level with a year earlier; nine-month provision was $2.5 million, down from $4.3 million. Non-accrual loans were $5.1 million, or 0.22% of gross loans, versus $7.2 million, or 0.31%, at year-end 2018. The allowance was $24.7 million, 1.08% of gross loans, compared with $22.4 million, 0.97%, at year-end. Management considered the allowance adequate, while noting estimates could differ from realized losses.
- Balance sheet and liquidity: Assets rose 5.6% to $2.825 billion. Cash and cash equivalents increased 92.9% to $376.6 million; management attributed the increase mainly to new deposit relationships and FHLB funding and described the cash position as part of its liquidity strategy. Deposits rose 3.8% to $2.263 billion. Net loans declined 1.1% to $2.254 billion as management curtailed growth and repositioned the balance sheet.
- Funding, debt, and capital: FHLB advances were $275.8 million and subordinated debt was $36.8 million at quarter-end. Total debt obligations increased to about $312.6 million from $282.4 million at year-end. Stockholders’ equity rose to $223.7 million from $200.2 million, supported in part by 2019 private placements of common stock ($6.3 million) and Series G preferred stock ($5.3 million). The Bank exceeded regulatory capital requirements; its total capital ratio was 13.03%, and Tier 1 leverage ratio was 9.16%.
- Cash flow: For the nine months, operating cash flow was $15.0 million, investing activities provided $49.4 million, and financing activities provided $117.0 million. Cash increased $181.3 million to $376.6 million. Financing included $82.7 million of deposit growth and a net $30.0 million increase in FHLB advances.
Material changes, outlook, and risks
- Higher loan balances and yields supported interest income, but rising deposit and funding costs outpaced asset-yield increases, compressing net interest margin. Management cited market competition and prior Federal Funds rate increases as contributors to funding costs.
- Management said it was moderating loan growth after significant 2018 expansion, strengthening capital, and maintaining elevated liquidity. Construction loans increased $23.9 million from year-end, partly offsetting declines in other loan categories. Commercial and multifamily real estate loans were about $1.669 billion, the largest portfolio concentration.
- Interest-rate risk is material: the company’s modeled net portfolio value declined 7.00% under a +100-basis-point scenario and 16.72% under +200 basis points; management cautioned that model assumptions limit predictive precision.
- The Bank had $235.2 million of additional FHLB borrowing capacity against unencumbered loan collateral. Time deposits maturing within one year totaled $784.8 million; management expected a significant portion to remain, based on historical experience.
- The filing provides no formal earnings or financial guidance. Management identified risks including economic and real-estate weakness, credit quality, interest rates, funding access and deposit flows, regulatory changes, competition, and successful integration of acquired businesses. The company also specifically noted that legislation could adversely affect New York multifamily and mixed-use loans.
- Lease accounting adoption added $14.0 million of operating lease right-of-use assets and $14.1 million of liabilities; management reported no significant income-statement impact. The company said it was evaluating expected-credit-loss accounting; following an effective-date change, it expected the delay applicable to smaller reporting companies to apply, but had not determined the financial impact.
- The company reported no material legal proceedings and no material change in previously disclosed risk factors. A $0.14-per-share common dividend was declared after quarter-end, payable November 22, 2019.
Key facts investors should verify
- Whether margin pressure continues as deposit costs and competition evolve, and how this affects earnings.
- Credit trends in the sizable commercial and multifamily portfolio, including delinquency, criticized/classified loans, non-accruals, and allowance adequacy.
- Whether the elevated cash balance is productively deployed and deposit growth remains stable, particularly as $784.8 million of time deposits mature within one year.
- Debt funding costs, FHLB advance maturities, and the company’s plan for replacing LIBOR references in subordinated debt agreements.
- The effects of interest-rate changes and New York legislation on loan values, funding costs, and multifamily and mixed-use borrowers.