BCB Bancorp, Inc. — Q1 2022 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2022, compared with Q1 2021; balance-sheet comparisons are with December 31, 2021. BCB is a New Jersey bank holding company operating principally through BCB Community Bank, with a substantial commercial and multifamily real-estate lending business.
Key financial results
- Scale and growth: Total assets were $3.04 billion, up 2.5% from year-end. Net loans rose 4.0% to $2.396 billion, driven mainly by $84.5 million of commercial real-estate and multifamily growth. Deposits increased 2.7% to $2.631 billion.
- Earnings: Net income was $10.0 million versus $7.1 million; net income available to common shareholders was $9.7 million versus $6.8 million. Basic and diluted EPS were $0.57 and $0.56, respectively, compared with $0.40 for both measures a year earlier.
- Interest income and margin: Net interest income increased 6.4% to $25.1 million. Net interest margin was 3.46%, slightly below 3.48% in Q1 2021; the interest-rate spread improved two basis points to 3.32%. Lower funding costs offset lower loan yields.
- Credit costs: The company recorded a $2.6 million reversal of loan-loss provision, versus $1.9 million of provision expense in Q1 2021. The allowance was $34.0 million, or 1.40% of gross loans, compared with $37.1 million, or 1.58%, at year-end. Nonaccrual loans were $9.2 million, down from $14.9 million at year-end.
- Other income and expenses: Noninterest income was a $0.6 million loss, compared with $2.0 million of income, primarily reflecting $2.7 million of realized and unrealized equity-investment losses. Noninterest expense declined 4.6% to $13.0 million. The effective tax rate was 29.4%.
- Cash flow: Operating activities provided $11.8 million; investing activities used $91.0 million, largely reflecting net loan growth; financing activities provided $64.3 million, mainly from deposit growth. Cash and cash equivalents decreased $15.0 million to $396.7 million.
- Liquidity, debt and capital: Total deposits were $2.631 billion; FHLB advances were $71.8 million and subordinated debentures were $37.3 million. Stockholders’ equity was $276.2 million, and the company reported an equity-to-assets ratio of 9.09%. The Bank’s community bank leverage ratio was 10.15%, above the 9.00% well-capitalized threshold. Management cited more than $800 million of wholesale borrowing capacity; it also disclosed up to $263.2 million of additional FHLB funding availability.
Material changes and unusual items
- Net income increased 39.8% year over year, principally due to lower interest expense, the loan-loss provision reversal, and lower noninterest expense. Interest expense fell 41.2% to $2.7 million.
- Equity-investment losses materially reduced noninterest income. Available-for-sale securities also generated a $2.4 million after-tax unrealized loss in other comprehensive income; management considered the impairment temporary.
- The allowance reversal reflected management’s updated loss estimates and lower modeled collateral shortfalls. Q1 net charge-offs were $564,000 versus $27,000 in Q1 2021.
- The company redeemed $5.3 million of Series G preferred stock and issued $2.6 million of Series I preferred stock during the quarter. After quarter-end, it redeemed $9.4 million of Series D preferred stock on May 1, 2022.
Outlook, risks and contingencies
- The filing provides no specific earnings or financial guidance. Management said it expected liquidity to be sufficient for current loan commitments and described the company as well-positioned, while noting that it would monitor capital needs and dividends.
- Management identified economic and COVID-19 uncertainty, borrower repayment capacity, real-estate collateral values, credit concentrations, interest-rate movements, deposit flows, and access to cost-effective funding as risks. Commercial real estate and multifamily loans make up the largest share of the loan portfolio.
- CECL adoption is expected in 2023; the company was evaluating its effects on results, financial position and capital, and said the impact could not yet be determined.
- Subordinated debt is scheduled to transition from a fixed 5.625% rate to a LIBOR-based floating rate beginning August 2023. The company was reviewing alternative reference rates and did not anticipate a significant financial-statement impact.
- The company reported no material change in its stated risk factors, no material legal proceeding, and effective disclosure controls as of quarter-end.
Important facts for investors to verify
- Whether the Q1 provision reversal and lower allowance remain appropriate as loan performance, collateral values and economic conditions evolve.
- The scale and subsequent performance of the commercial real-estate and multifamily portfolio, including delinquent, impaired, criticized and restructured loans.
- The sustainability of earnings given the equity-investment losses, interest-rate sensitivity, and the difference between reported margin and changing funding costs.
- Liquidity and deposit retention, including the $531.1 million of time deposits scheduled to mature within one year and the availability of stated borrowing capacity.
- The effects of the May 2022 Series D redemption, future preferred-stock costs, and the company’s capital position after that transaction.
- Management’s CECL implementation assumptions and the eventual effect of adoption on the allowance, earnings and regulatory capital.