BCB Bancorp, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are with December 31, 2019 unless noted. BCB Bancorp is the holding company for BCB Community Bank, a community bank operating in New Jersey and New York, with lending concentrated in commercial and multifamily real estate.
Financial results and position
| Metric | Q1 2020 / March 31, 2020 | Comparable period / prior year-end |
|---|---|---|
| Total assets | $2.942 billion | $2.907 billion at December 31, 2019; up 1.2% |
| Net loans | $2.164 billion | $2.178 billion at December 31, 2019; down 0.7% |
| Deposits | $2.376 billion | $2.362 billion at December 31, 2019; up 0.6% |
| Cash and cash equivalents | $595.2 million | $550.4 million at December 31, 2019 |
| Total borrowings | $299.7 million | $282.6 million at December 31, 2019 |
| Stockholders’ equity | $240.6 million | $239.5 million at December 31, 2019 |
| Net interest income | $18.8 million | $20.9 million in Q1 2019 |
| Provision for loan losses | $1.5 million | $0.9 million in Q1 2019 |
| Net income | $2.5 million; $0.12 diluted EPS | $5.5 million; $0.32 diluted EPS in Q1 2019 |
| Net interest margin | 2.63% | 3.18% in Q1 2019 |
| Allowance for loan losses | $25.5 million; 1.17% of gross loans | $23.0 million; 0.99% at March 31, 2019 |
Q1 operating cash flow was $5.7 million; investing activities provided $12.6 million and financing activities provided $26.5 million. Cash and cash equivalents increased by $44.8 million during the quarter.
Material changes and management commentary
- Net income fell 53.8% year over year. Net interest income declined 10.2%, non-interest income fell 58.9% to $0.7 million, and non-interest expense rose 4.3% to $14.4 million. Higher loan-loss provision also reduced earnings.
- Management attributed the lower net interest income primarily to a 52-basis-point decline in average yield on interest-earning assets, partly offset by growth in average earning assets. Average funding costs rose, and the net interest margin contracted.
- Q1 net loan balances declined as management continued to curtail loan growth. Commercial and multifamily balances fell $29.2 million; residential one-to-four-family loans rose $19.8 million.
- Deposits grew by $13.7 million, with increases in transaction accounts partly offset by a $58.3 million decrease in certificates of deposit. FHLB advances increased by $17.0 million net.
- Unrealized gains on available-for-sale securities contributed $2.5 million of after-tax other comprehensive income. Equity investments recorded a $0.4 million unrealized loss in earnings.
COVID-19, outlook, and risks
- Management said the pandemic’s effects were uncertain and could adversely affect customers, asset quality, earnings, liquidity, and capital. The bank reported no significant operational disruption through Q1 and described business-continuity measures, including remote work and modified branch access.
- At March 31, the bank reported 460 COVID-related loan-deferment requests totaling $401.8 million, with an average stated interest rate of 4.5%. Deferrals were generally for three months, with possible extension. The filing notes that these modifications were not reported as non-accrual under applicable guidance.
- Management increased the loan-loss provision in response to pandemic-related uncertainty and weakening local economic conditions. Non-accrual loans were $4.4 million at March 31; the filing cautions that future provisions may be needed and regulatory reviews may require additional reserves.
- Through April 15, the bank had funded approximately $56 million of Paycheck Protection Program loans. Management said April PPP funding totaled approximately $100 million and reported more than $700 million of wholesale borrowing capacity; separately, disclosed additional FHLB capacity against unencumbered collateral was $226.3 million.
- Management identified strip retail, hospitality/hotels, retail, golf courses, and restaurants as vulnerable sectors, representing approximately 6%, 4%, 3%, 3%, and 2% of the loan portfolio, respectively.
- The bank reported a 9.22% community bank leverage ratio and stated that it exceeded applicable regulatory requirements. The company’s equity-to-assets ratio was 8.18%. It was considering suspending share repurchases in Q2; Q1 repurchases totaled $1.3 million.
- No earnings or financial guidance was provided. The board declared a $0.14-per-share common dividend on April 22, payable May 22, 2020. Management said future dividends and capital needs would be reviewed as the pandemic’s effects developed.
- Other disclosed exposures include interest-rate risk, commercial real estate concentration, deposit competition and funding costs, and uncertainty around the pandemic’s effect on goodwill and loan collateral. Management planned to reassess the need for goodwill impairment testing as of June 30, 2020. No material legal proceedings were reported.
Important facts for investors to verify
- Subsequent trends in the $401.8 million of loan deferrals: repayments, extensions, delinquencies, restructurings, and credit losses.
- Whether the $25.5 million allowance remains adequate as local economic conditions and borrower performance evolve.
- Actual PPP originations and funding, related liquidity usage, and the availability and terms of wholesale funding facilities.
- Whether net interest margin and deposit costs stabilize, particularly as time deposits mature and market rates change.
- Management’s decisions on Q2 share repurchases and future dividends, and any effect on capital or liquidity.
- Subsequent goodwill impairment assessments and any further material pandemic-related disclosures or financial effects.