BCB Bancorp, Inc. — Second-Quarter 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; balance-sheet comparisons are to December 31, 2018. BCB Bancorp is a New Jersey bank holding company operating primarily through BCB Community Bank. Dollar amounts below are in millions unless stated otherwise.
Financial performance
- Second quarter: Net income was $5.23 million, up 126% from $2.31 million a year earlier. Net income available to common shareholders was $4.89 million, or $0.30 per basic and diluted share, versus $2.05 million, or $0.13 per share.
- First half: Net income was $10.68 million, up 53.8% from $6.95 million. Common income was $10.02 million, or $0.62 per basic and diluted share, compared with $6.52 million, or $0.43 basic and $0.42 diluted.
- Interest income and margin: Second-quarter net interest income increased 4.4% to $20.87 million; first-half net interest income increased 14.7% to $41.77 million. Net interest margin declined to 3.16% from 3.52% in the quarter and to 3.17% from 3.46% in the first half, as funding costs rose faster than asset yields.
- Credit provision: Provision for loan losses was $0.76 million for the quarter, down from $2.06 million, and $1.64 million for the half, down from $3.40 million. Management stated that the allowance was adequate.
- Other income and expenses: Non-interest income fell 15% to $1.33 million in the quarter and 39.6% to $2.99 million in the half. Non-interest expense fell 13.1% to $13.89 million in the quarter and 1.1% to $27.67 million in the half. The quarter comparison benefited from the absence of $2.04 million of prior-year merger costs.
- Cash flow: First-half operating cash flow was $10.81 million; investing activities used $12.65 million and financing activities provided $34.21 million. Cash and cash equivalents increased $32.38 million to $227.64 million.
Financial position, funding and capital
- Total assets grew 2.4% to $2.738 billion. Net loans rose 0.9% to $2.300 billion; gross loans were $2.325 billion, including $1.702 billion of commercial and multifamily real estate loans.
- Deposits increased 1.3% to $2.208 billion. FHLB advances were $245.8 million and subordinated debt was $36.7 million; combined borrowings and subordinated debt were approximately $282.5 million, essentially unchanged from year-end.
- Stockholders’ equity increased to $221.2 million from $200.2 million, supported in part by a $6.3 million common-stock private placement and $5.3 million Series G preferred-stock issuance. The company declared common dividends of $0.14 per share in each quarter; a further $0.14 dividend was declared for payment in August 2019.
- Bank regulatory capital ratios at June 30 included total capital to risk-weighted assets of 12.67%, common equity Tier 1 of 11.57%, and Tier 1 leverage of 9.28%. The filing says the Bank exceeded applicable requirements.
- Management reported $270.9 million of additional FHLB borrowing capacity. Time deposits maturing within one year totaled $739.1 million; management expected a significant portion to remain. Cash levels were described as part of the liquidity strategy.
- Adoption of lease accounting added $14.65 million of operating lease right-of-use assets and $14.72 million of lease liabilities. The company leased 28 offices.
Changes, outlook and risks
- Loan growth included $27.2 million in construction loans; commercial and multifamily loans grew $4.3 million. Home-equity loans declined $9.0 million. Deposit growth included $45.3 million in money-market checking, partly offset by lower certificates of deposit. Brokered CDs fell to $116.0 million.
- Non-accrual loans declined to $5.49 million, or 0.24% of gross loans, from $7.22 million at year-end. The allowance was $23.79 million, or 1.02% of gross loans, versus $22.36 million, or 0.97%. First-half net charge-offs were $0.21 million. Gross loans past due more than 90 days totaled $8.71 million, largely associated with acquired credit-impaired loans; none were reported as both over 90 days past due and accruing.
- The first-half non-interest income comparison was affected by a $2.2 million legal-settlement gain recognized in the first quarter of 2018, which did not recur. Loan-sale gains also declined. Conversely, lower provision expense and the absence of prior-year merger costs supported earnings comparisons.
- No specific earnings or operating guidance is provided. Management cautions that actual results may differ from estimates and identifies economic conditions, real-estate values, credit quality, funding access, deposit flows, competition, regulation and interest-rate changes as risks.
- A highlighted risk is New York’s June 2019 rent-regulation legislation, which may constrain revenue and property values for certain multifamily and mixed-use borrowers and could affect repayment and collateral support.
- Interest-rate modeling showed estimated net portfolio value declining 7.55% under a 100-basis-point rate increase and 31.33% under a 300-basis-point increase. Management cautions that the model depends on assumptions and is not a precise forecast.
- The company reported no material legal proceedings and no material change in internal control over financial reporting. It is evaluating the expected-credit-loss accounting standard; the filing notes a proposed effective-date delay for smaller reporting companies, subject to approval.
Important facts for investors to verify
- Whether deposit pricing and funding costs continue to outpace loan and securities yields, pressuring net interest margin.
- Credit performance and collateral values in the concentrated commercial/multifamily portfolio, particularly New York rent-regulated properties, and the adequacy of the loan-loss allowance.
- Stability and cost of deposits, including brokered certificates of deposit and the $739.1 million of time deposits maturing within one year.
- Whether reported earnings growth persists after accounting for the prior-year legal settlement and merger-cost comparison effects.
- Capital and per-share impacts of the common and preferred stock issuances, outstanding equity awards, dividends and future funding needs.
- Assumptions underlying the interest-rate sensitivity analysis and the eventual reference-rate transition for debt tied to LIBOR.