Business context and reporting period
BCB Bancorp, Inc. is the holding company for BCB Community Bank, a New Jersey community bank serving New Jersey and the New York metropolitan area. This Form 10-K covers the fiscal year ended December 31, 2021, with comparisons to 2020. The Bank operated 29 branches and focused primarily on commercial and multifamily real estate lending.
Financial performance and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Net interest income | $97.4 million | $80.4 million |
| Net income | $34.2 million | $20.9 million |
| Net income available to common shareholders | $33.1 million | $19.6 million |
| Diluted earnings per share | $1.92 | $1.14 |
| Net interest margin | 3.46% | 2.83% |
| Return on average assets / equity | 1.17% / 13.3% | Not clearly stated in the provided filing text |
- Balance sheet: Assets were $2.968 billion, up 5.2%; deposits were $2.561 billion, up 10.5%; loans, net, were $2.305 billion, up 0.4%; and stockholders’ equity was $274.0 million, up 10.0%.
- Credit: The $37.1 million allowance for loan losses equaled 1.58% of gross loans, compared with $33.6 million and 1.44% in 2020. Nonaccrual loans fell to $14.9 million (0.64% of loans) from $16.4 million (0.70%). Net charge-offs were $375,000, versus net recoveries of $465,000 in 2020.
- Cash flow: Operating cash flow was $45.9 million, investing cash use was $7.7 million, and financing cash inflow was $112.2 million. Cash and cash equivalents increased $150.4 million to $411.6 million.
- Debt and liquidity: Total borrowings were $109.0 million, down from $228.2 million; FHLB advances were $71.7 million and subordinated debentures $37.3 million. The Company reported more than $880 million in wholesale borrowing capacity and $305.8 million of additional FHLB funding capacity against unencumbered loan collateral. The Bank’s CBLR was 9.92%, above the 8.5% 2021 threshold, and it was categorized as well capitalized.
- Other metrics: Noninterest income was $8.7 million, down from $12.5 million; noninterest expense was essentially unchanged at $54.0 million. The effective tax rate was 29.0%, versus 29.1%.
Material changes versus 2020
- Net income rose 64.2%, chiefly as interest expense fell $17.8 million and loan-loss provision expense declined $5.6 million. The provision was $3.9 million in 2021 versus $9.4 million in 2020.
- Net interest income increased 21.1%, as the average cost of interest-bearing liabilities fell and the net interest margin expanded. Interest income was slightly lower overall.
- Deposits grew by $243.4 million, with growth concentrated in noninterest-bearing and other transaction accounts; certificates of deposit declined $51.0 million. Management attributed deposit growth partly to pandemic-related payments and PPP proceeds.
- The Company repaid or extinguished $115.0 million of FHLB advances during 2021 and recorded $1.6 million of debt-extinguishment expense. Borrowings at year-end fell by $119.2 million.
- Noninterest income decreased $3.8 million, primarily because 2020 included larger gains on premises and investment securities and higher equity-security gains. This was partly offset by higher BOLI income, fees, and PPP referral fees.
- Commercial and multifamily real estate loans represented 73.39% of gross loans. Classified substandard assets declined to $39.2 million from $68.6 million, while special-mention loans increased to $50.4 million from $4.7 million.
Outlook, risks, contingencies and unusual items
- Outlook: Management describes continued emphasis on real estate lending, profitability, balance-sheet strength, deposit growth and possible acquisitions. The filing provides no specific earnings, revenue or margin guidance. Management stated that it would monitor pandemic effects when assessing dividends and capital needs.
- Credit and concentration risks: Commercial real estate and multifamily lending is concentrated, and the Company’s disclosed CRE concentration measure was 375.7% of risk-based capital. Loan performance and collateral values are exposed to local economic conditions; regulators may require stronger controls, higher reserves or capital.
- Interest-rate and funding risks: Changes in rates could compress margins, affect asset values or increase funding costs. The filing also identifies the transition away from U.S. dollar LIBOR, including exposure to LIBOR-linked instruments, as a risk.
- COVID-19: Management reported no significant operational disruption and no deferred loans remaining in the portfolio. Certain COVID-modified loans had balances of about $21.0 million at year-end; repayment depends on borrowers’ cash-flow assumptions. Stress testing for challenged sectors indicated lower collateral shortfalls than in prior quarters.
- Accounting change: CECL was expected to become effective for the Company in 2023. Management was evaluating the impact but could not quantify the adjustment or its effect on capital and results.
- Capital returns and preferred stock: Common dividends were $0.14 per share for each of the first two 2021 quarters and $0.16 for each of the last two. The Company repurchased 301,024 shares in 2021. It issued $3.2 million of Series I preferred stock in December 2021 and redeemed $5.3 million of Series G preferred stock on February 4, 2022.
- Unusual compensation item: A CEO supplemental retirement plan was adopted in December 2021, with $597,000 of expense recorded in 2021; the filing estimates additional expense of $309,000 in 2022 and $320,000 in 2023.
- Contingencies and audit: The Company reported no material legal proceedings. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; the allowance for loan losses was identified as a critical audit matter.
Important facts investors should verify
- Whether deposit growth is durable, particularly given the high uninsured-deposit balance of $1.056 billion and the $569.2 million of certificates maturing within one year.
- Credit quality and reserve adequacy: reconcile nonaccrual, impaired, classified and special-mention balances, and monitor the large CRE/multifamily concentration and sector stress exposures.
- Whether the 2021 margin and earnings improvement can persist as interest rates, deposit costs and loan yields change; review interest-rate sensitivity assumptions and LIBOR transition exposure.
- The actual CECL adoption impact, including any opening allowance adjustment and effect on regulatory capital.
- Capital and liquidity after the February 2022 preferred-stock redemption, continued dividends and repurchases; note the filing cites both more than $880 million of wholesale capacity and $305.8 million of specific additional FHLB capacity.
- Execution and financial effects of the CEO SERP, debt prepayments, and any future branch expansion or acquisitions.