BCB Bancorp, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. BCB Bancorp is the holding company for BCB Community Bank, a community-oriented bank operating primarily in New Jersey, with branches in New York. This unaudited quarterly report covers the three and nine months ended September 30, 2022; balance-sheet comparisons are against December 31, 2021.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $31.0 million | $24.6 million | $83.8 million | $72.2 million |
| Provision (credit) for loan losses | $0 | $0.7 million | $(2.6) million | $4.8 million |
| Noninterest income | $1.4 million | $1.3 million | $0.5 million | $6.1 million |
| Noninterest expense | $13.5 million | $13.5 million | $39.5 million | $40.3 million |
| Net income | $13.4 million | $8.3 million | $33.5 million | $23.5 million |
| Diluted earnings per common share | $0.76 | $0.47 | $1.89 | $1.31 |
| Net interest margin | 4.18% | 3.46% | 3.79% | 3.47% |
Quarterly interest income rose 22.2% to $34.4 million as average earning-asset yields and loan balances increased; interest expense declined 2.3% to $3.4 million. For the nine-month period, interest income increased 9.9% and interest expense declined 26.4%. The effective tax rate was 29.3% for both the quarter and nine-month period in 2022.
Financial position, cash flow and liquidity
- Assets and lending: Total assets increased 10.0% from year-end to $3.266 billion. Gross loans grew 20.5% to $2.824 billion, led by $444.1 million of growth in commercial real estate and multifamily loans. Commercial and multifamily loans represented $2.164 billion of gross loans.
- Deposits and borrowings: Deposits increased 5.9% to $2.713 billion. FHLB advances rose to $212.1 million from $71.7 million at year-end; total debt obligations, including subordinated debt, were $249.6 million. The weighted average FHLB advance rate was 2.63%, versus 1.39% at year-end.
- Cash and cash flow: Cash and cash equivalents were $221.0 million, down $190.6 million from year-end. For the first nine months, operating cash flow was $32.8 million, investing cash outflow was $496.9 million—largely reflecting $477.4 million of net loan growth—and financing cash inflow was $273.5 million.
- Funding capacity: Management reported more than $800 million of wholesale borrowing capacity and up to $507.5 million of additional FHLB funding against unencumbered loan collateral. Time deposits maturing within one year totaled $621.8 million; management expected a significant portion to remain.
- Credit quality: The allowance for loan losses was $33.2 million, or 1.18% of gross loans, down from $37.1 million, or 1.58%, at year-end. Nonaccrual loans were $8.5 million, or 0.30% of gross loans, versus $14.9 million at year-end. Nine-month net charge-offs were $1.3 million.
- Capital and securities: Stockholders’ equity was $282.7 million. The Bank’s community bank leverage ratio was 10.33%, above the 9.00% applicable requirement. Available-for-sale debt securities had $7.2 million of gross unrealized losses at quarter-end; the company reported a $7.3 million nine-month after-tax other comprehensive loss, primarily related to higher market rates.
Material changes and unusual items
- Nine-month net income improved despite noninterest income falling 91.2% to $0.5 million. The principal drag was $5.5 million of realized and unrealized equity-investment losses, compared with $4,000 of losses in the prior-year period. Q3 equity-investment losses were $559,000.
- The nine-month loan-loss provision was a $2.6 million credit, compared with a $4.8 million provision in 2021. Management reported no Q3 2022 provision, while recording $918,000 of net charge-offs in the quarter.
- The company redeemed Series D and Series G preferred stock for a combined $14.7 million and issued $6.8 million of Series I preferred stock during the first nine months.
- Prior-year results included debt-extinguishment costs of $1.1 million for the nine-month period, including $337,000 in Q3; there was no comparable expense in 2022. Nine-month 2021 results also included a $371,000 gain on sale of premises.
- Common dividends declared were $0.48 per share for the first nine months. After quarter-end, the board declared a $0.16-per-share dividend, payable November 15, 2022.
Outlook, risks and contingencies
The filing provides no quantified earnings or growth guidance. Management described liquidity as adequate to meet current commitments and cited favorable asset-quality trends. It attributed margin improvement to loan growth and higher loan yields, as well as funding-cost management.
Risks identified include economic weakness, inflation, interest-rate changes, real-estate values and collateral quality, credit losses, deposit flows, access to cost-effective funding, competition, and regulatory changes. The company noted continuing uncertainty about COVID-19’s economic effects. Adoption of the expected-credit-loss standard (CECL) is due in 2023; the financial and capital impact was not yet ascertainable. Subordinated debt rates are scheduled to transition from fixed to floating in August 2023, and the company was reviewing replacement reference rates for LIBOR-based debt. Management anticipated no significant financial-statement impact from the reference-rate change.
The company reported no material legal proceedings and no material changes to the risk factors in its 2021 Form 10-K. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether rapid commercial real estate and multifamily loan growth is sustainable and remains supported by underwriting, collateral values and borrower performance.
- How rising rates affect deposit pricing, funding needs, net interest margin and the market value of securities; the securities portfolio carried $7.2 million of gross unrealized losses.
- Whether equity-investment losses continue and how they affect noninterest income and earnings comparability.
- Whether loan-loss reserves and reported asset-quality trends remain adequate as charge-offs, criticized loans and economic conditions evolve.
- The effect of CECL adoption and the transition from LIBOR on credit-loss estimates, regulatory capital and borrowing costs.
- Whether liquidity remains adequate as $621.8 million of time deposits mature within a year and FHLB borrowing balances have increased.