BCB Bancorp, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. BCB Bancorp is the holding company for BCB Community Bank, serving New Jersey and New York. Unless stated otherwise, dollar amounts below are in millions.
Financial performance and position
| Metric | Q2 2023 / June 30, 2023 | Comparable period / prior date |
|---|---|---|
| Net interest income | $27.0; net interest margin 2.92% | Q2 2022: $27.7; margin 3.74% |
| Net income | $8.6; diluted EPS $0.50 | Q2 2022: $10.2; diluted EPS $0.58 |
| Six-month net income | $16.7; diluted EPS $0.96 | First half 2022: $20.1; diluted EPS $1.13 |
| Net interest income, first half | $54.5; net interest margin 3.03% | First half 2022: $52.8; margin 3.60% |
| Total assets | $3,872.9 | $3,546.2 at December 31, 2022 |
| Net loans | $3,319.7 | $3,045.3 at December 31, 2022 |
| Deposits | $2,885.7 | $2,811.6 at December 31, 2022 |
| FHLB advances | $622.5 | $382.3 at December 31, 2022 |
| Stockholders’ equity | $299.6 | $291.3 at December 31, 2022 |
For the first half, operating cash flow was $24.5, investing cash outflow was $286.3, and financing cash inflow was $305.6. Cash and cash equivalents ended the period at $273.2, up $43.9 from year-end 2022. The filing reports total liabilities of $3,573.2; FHLB advances plus subordinated debentures were approximately $660.2.
Material changes and credit quality
- Q2 interest income increased 55% year over year to $47.2, but interest expense rose to $20.2 from $2.7 as funding costs increased. Average cost of interest-bearing liabilities rose to 2.80% from 0.50%; the resulting margin compression contributed to lower quarterly net interest income.
- First-half net income fell 16.9% year over year. Net interest income rose 3.1%, but the comparison also reflects a $2.0 credit-loss provision in 2023 versus a $2.6 provision benefit in 2022, higher expenses, and continued losses on equity investments.
- Gross loans increased 8.8% from year-end, led by commercial and multifamily real estate, up $145.7, and commercial business loans, up $86.9. Commercial and multifamily real estate loans totaled $2,490.9, a substantial portfolio concentration.
- The allowance for credit losses was $30.2, or 0.90% of gross loans, versus $32.4, or 1.05%, at year-end 2022. The company adopted CECL on January 1, 2023; the adoption reduced the loan allowance by $4.2 and increased retained earnings by $2.9 net of tax.
- Past-due loans totaled $24.0 at June 30, versus $9.4 at year-end 2022. Non-accrual loans were $5.7, or 0.17% of gross loans; the filing reports no loans over 90 days past due and still accruing.
- Available-for-sale debt securities had $11.7 of gross unrealized losses against $99.3 amortized cost; accumulated other comprehensive loss was $9.4. The company reported equity-investment losses of $0.7 for Q2 and $3.9 for the first half.
Liquidity, capital, outlook, and other notable items
- Management said liquidity was adequate and expected normal-course commitments to be funded. It cited $273.2 of cash and cash equivalents, $281.6 of additional FHLB capacity using unencumbered loan collateral, and wholesale borrowing capacity of more than $1.936 billion. Time deposits of $883.4 were scheduled to mature within one year; management expects a significant portion to remain.
- FHLB advances carried a 4.53% weighted-average rate and 1.27-year weighted-average maturity at quarter-end. The company’s $33.5 subordinated notes transitioned from fixed to floating interest beginning August 1, 2023; management did not expect the LIBOR-to-SOFR change to have a significant financial-statement impact.
- The Bank’s community bank leverage ratio was 8.88% at June 30, compared with an 8.00% capital-adequacy threshold and a 9.00% well-capitalized threshold shown in the filing. The filing also states the Bank exceeded applicable regulatory capital requirements. Investors should distinguish that statement from the reported 9.00% well-capitalized benchmark.
- No financial guidance or quantified forward outlook was provided. Management highlighted higher inflation and interest rates, recession concerns, deposit and liquidity management, funding costs, real-estate values, credit risk, and potential further rate increases as risks. The filing describes heightened banking-sector uncertainty following 2023 bank failures.
- Non-interest expense increased 12.6% in Q2, with higher salaries, regulatory assessments, and data-processing costs among the drivers. Full-time-equivalent employees were 307 versus 301 a year earlier.
- CEO Thomas Coughlin is to retire effective December 31, 2023. Ryan Blake is to become President and Kenneth Emerson interim CEO. The retirement arrangements include a $1.17 million additional SERP annuity purchase and a two-year consulting agreement.
- The Board declared a $0.16-per-share common dividend payable August 18, 2023. The company repurchased 115,000 shares during Q2 at an average $11.92 per share.
Key facts for investors to verify
- Whether deposit retention, deposit pricing, and borrowing levels remain sufficient as $883.4 of time deposits mature within a year.
- How margin and earnings respond to funding-cost changes, including the subordinated debt’s floating-rate transition.
- Trends in past-due, criticized, classified, and non-accrual loans, especially within commercial real estate and construction lending, and the adequacy of the CECL allowance.
- The liquidity and capital implications of unrealized securities losses, available borrowing capacity, and the Bank’s 8.88% leverage ratio relative to the 9.00% well-capitalized benchmark.
- The costs and execution of the CEO succession and retirement arrangements, and whether expense growth moderates.