BCB Bancorp, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. BCB Bancorp is a New Jersey community bank holding company operating primarily through BCB Community Bank.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net interest income | $18.0 million | $20.9 million | $36.8 million | $41.8 million |
| Provision for loan losses | $3.3 million | $0.8 million | $4.8 million | $1.6 million |
| Net income | $2.7 million | $5.2 million | $5.2 million | $10.7 million |
| Net income available to common shareholders | $2.4 million | $4.9 million | $4.6 million | $10.0 million |
| Diluted earnings per share | $0.14 | $0.30 | $0.26 | $0.62 |
| Net interest margin | 2.45% | 3.16% | 2.54% | 3.17% |
At June 30, total assets were $2.987 billion, loans receivable net of allowance were $2.344 billion, deposits were $2.442 billion, and stockholders’ equity was $241.0 million. Cash and cash equivalents were $412.2 million. Total borrowings, including FHLB advances and subordinated debt, were approximately $279.7 million. The company reported a 8.1% equity-to-assets ratio; the Bank’s community bank leverage ratio was 8.96%, above the 8.00% requirement applicable in Q2.
For the first half, operating cash flow was $2.6 million, investing cash outflow was $210.7 million, and financing cash inflow was $70.0 million. Cash declined $138.1 million from year-end 2019.
Changes and performance drivers
- Q2 net income fell 47.8% year over year; first-half net income fell 50.9%. Lower asset yields and higher credit-loss provisions were key factors.
- Q2 net interest margin contracted 71 basis points year over year to 2.45%. Lower market rates reduced yields; unusually high liquidity also earned low returns. First-half margin was down 63 basis points.
- The allowance for loan losses rose to $28.8 million, or 1.22% of gross loans, from $23.7 million at year-end 2019. Management attributed increased provisioning primarily to COVID-19 economic risks.
- Loans net increased $165.2 million from year-end, including $127.0 million of PPP loans and $48.4 million of purchased loans. Deposits rose $80.2 million, while cash declined as loans and securities expanded.
- Non-interest income fell 16.6% in Q2 and 40.1% for the first half, reflecting fewer loan-sale gains and lower fees. Non-interest expense decreased 14.0% in Q2 and 4.9% for the first half.
Outlook, risks and unusual items
- COVID-19’s effect on borrowers, collateral values, earnings and liquidity remained uncertain. Management cautioned that future loan-loss provisions may be needed as conditions develop.
- At June 30, 621 loans totaling $578.5 million were under payment deferment; by July 21, the balance had declined to $461.7 million, from a mid-June peak of $730.1 million. Deferrals generally ran three months, with possible extensions. Loans modified under applicable COVID-19 guidance were not necessarily classified as TDRs or nonaccrual.
- COVID-sensitive industries identified by the company represented $361.6 million, or 15% of the loan portfolio; $149.4 million of those loans were on deferment at June 30. Key exposures included strip retail, hospitality/hotels, golf and banquet facilities, restaurants and retail.
- Management reported more than $400 million of cash and over $700 million of wholesale borrowing capacity, and stated the Bank exceeded regulatory capital requirements. It expected about $480 million of certificates of deposit to mature within four months and anticipated replacing them at lower rates.
- The Bank had funded approximately $127 million of PPP loans through July 15. Management anticipated recognizing about $370,000 of net deferred PPP fee income in each of Q3 and Q4 2020, excluding potential forgiveness-related recognition.
- The company repurchased 500,000 shares for $4.9 million in the first half; the program was completed in May. Subsequent events included announced redemptions in August of Series C and Series F preferred stock for approximately $3.9 million and $6.5 million, respectively, and a declared $0.14 common dividend payable August 21.
- Interest-rate risk, commercial real estate and business-credit concentrations, deposit flows, and the uncertain pandemic outlook remain material risks. Management reported no material legal proceedings and no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether loan deferments continue to decline, and the repayment and credit performance of loans as deferral periods expire.
- Whether allowance levels adequately reflect COVID-19 risks, particularly in commercial real estate, hospitality, retail and commercial business lending.
- Whether deposit repricing offsets lower asset yields and supports margin recovery.
- The realization and timing of PPP fees and loan forgiveness, and the resulting effects on reported interest income and credit metrics.
- Capital and liquidity after the preferred-stock redemptions, dividends and completed share repurchases.