BCB Bancorp, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; balance-sheet comparisons are to December 31, 2020. BCB Bancorp is the holding company for BCB Community Bank, a community-focused lender operating primarily in New Jersey and New York.
Financial performance and condition
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income | $24.1 million | $18.0 million | $47.6 million | $36.8 million |
| Net income | $8.1 million | $2.7 million | $15.2 million | $5.2 million |
| Net income available to common shareholders | $7.8 million | $2.4 million | $14.6 million | $4.6 million |
| Diluted EPS | $0.45 | $0.14 | $0.85 | $0.26 |
| Net interest margin | 3.47% | 2.45% | 3.48% | 2.54% |
- Q2 net interest income rose 33.8%; lower interest expense was the main contributor. Interest expense fell 57.2%, while interest income increased 2.9%. Six-month net interest income rose 29.5%, despite a 1.0% decrease in interest income.
- Q2 provision for loan losses was $2.3 million, down from $3.3 million; the six-month provision was $4.2 million, down from $4.8 million. Noninterest income increased to $2.8 million in Q2 and $4.8 million for six months, including BOLI income and a gain on sale of premises. Noninterest expense was $13.2 million in Q2 and $26.7 million for six months.
- At June 30, assets were $2.895 billion, up 2.6% from year-end; deposits were $2.446 billion, up 5.5%; and stockholders’ equity was $258.5 million, up 3.7%. Net loans were $2.313 billion, up 0.8%.
- Cash and cash equivalents were $328.3 million, compared with $261.2 million at year-end. Six-month operating cash flow was $21.3 million; investing used $12.8 million and financing provided $58.5 million, resulting in a $67.0 million increase in cash.
- Deposits increased $127.8 million. FHLB advances were $128.4 million on the balance sheet, compared with $191.2 million at year-end; subordinated debentures were $37.2 million. Management reported wholesale borrowing capacity exceeding $800 million. The Bank’s community bank leverage ratio was 10.03%, above the stated 8.5% well-capitalized threshold for 2021.
- The allowance for loan losses was $37.5 million, or 1.59% of gross loans, versus $33.6 million, or 1.44%, at year-end. Nonaccrual loans rose to $22.2 million from $16.4 million; loans over 90 days past due and accruing were $1.7 million.
Material changes and unusual items
- Profitability improved substantially year over year, reflecting reduced funding costs and higher net interest margin. The average cost of interest-bearing liabilities fell to 0.74% in Q2 from 1.55% a year earlier.
- The company repaid $73.0 million of higher-cost FHLB advances during the first half. It recorded debt-extinguishment expense of $194,000 in Q2 and $734,000 for six months; management said the repayments reduced the annualized average cost of FHLB borrowings by about 21 basis points.
- Deposit growth was attributed partly to government relief payments and PPP-related funds. The company reported $17.0 million of listing-service deposits and no brokered certificates of deposit at June 30.
- BOLI was $71.0 million at quarter-end after purchases of $60.0 million in 2020 and $8.5 million in January 2021. BOLI contributed $729,000 of Q2 income and $1.4 million for the first half.
- The company repurchased 97,875 shares for $1.3 million in the first half. A $0.16-per-share common dividend was declared July 14, payable August 18, 2021.
Outlook, risks and contingencies
- No quantified earnings or revenue guidance was provided. Management said results remain exposed to uncertainty from COVID-19 and its effects on borrowers, economic conditions, collateral values, liquidity and operations.
- COVID-related loan modifications outstanding were approximately $52.3 million. Management said these modified loans were expected not to result in losses if borrowers’ projected cash flows materialize; it continues to monitor them. Loan categories stressed for potential collateral shortfalls included hospitality, restaurants, office space, industrial, certain residential loans and commercial condominiums.
- Credit concentration and real-estate risks are material considerations: commercial and multifamily loans totaled $1.715 billion, about 73% of gross loans. Classified substandard loans were $51.9 million, versus $68.6 million at year-end; there were no loans rated doubtful or loss.
- Other cited risks include interest-rate changes, deposit flows and funding costs, competition, regulation, unemployment and real-estate market weakness. LIBOR was expected to be discontinued; the company was reviewing alternative reference rates for affected debentures and did not anticipate a significant financial-statement impact.
- Management reported adequate liquidity, including $328.3 million in cash and liquid assets and substantial wholesale borrowing capacity. It said future dividends and capital needs would be evaluated in light of COVID-19. The filing reported no material legal proceedings or material changes to previously disclosed risk factors.
Investor verification priorities
- Review the trend in nonaccrual loans, delinquency, criticized assets and allowance coverage, particularly in commercial real estate and other stressed sectors.
- Assess whether the $52.3 million of COVID-modified loans perform in line with borrower cash-flow expectations and whether further reserve adjustments are needed.
- Verify the sustainability of higher net interest margin and earnings as funding costs, interest rates and deposit balances change.
- Reconcile available borrowing capacity and FHLB balances across the filing’s disclosures; the balance sheet reports $128.4 million of FHLB advances while MD&A cites $133.3 million of total FHLB borrowings.
- Track nonrecurring or potentially variable income, including BOLI income, PPP referral fees, securities/equity gains and the premises-sale gain, as well as the cost of debt repayments.