Bcb Bancorp Inc (BCBP) Q3 2026 Earnings Call Transcript

Hello, everyone. Thank you for joining us and welcome to the BCB Bancorp Incorporated's 2026 third quarter earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Thomas O'Brien, President and Chief Executive Officer. Thomas, please go ahead.

Thank you, and good morning, all. Appreciate you joining the third quarter earnings call for the company. Obviously, before I begin, I encourage you to read the forward-looking statement as contained in our press release. So I guess I can begin by stating the obvious. I never quite reported a quarter like this in my career. It was momentous for the company in many ways, but I think it's fair to say we successfully accomplished everything that was set out on my June 1st call when I joined the bank, and actually more than that. I also believe that the results of the quarter pretty closely followed the guidance we provided in all of the recent filings and announcements around on the capital issuance and loan sales. For this call, I don't see much value in discussing these telephone book numbers for net income. To the extent you want to, certainly, Jawad will be able to give you, you know, as much color as you want on that. But, you know, honestly, the numbers are so big as to disappear. I'm not sure I can even count that high. But As I said, I think the numbers, while admitted, be huge, hopefully are self-explanatory given our previous disclosures on the strategic plan, capital, and asset quality. So I thought I'd just confine my quick remarks here on the outcomes and the expectations for the period ahead. I think it's probably worthwhile to focus some initial attention on our margin. It came in at 303, slightly higher than the estimated range of 290 to 3 that we had previewed, and this was in spite of the reversal of several interest-receivable accruals, approximating around a million dollars. Deposit costs trended lower, further supporting than them. Not surprisingly, asset quality improved along with the reserve coverage ratios. The sale of mostly criticized and classified loans aggregating over $200 million, along with a write-down to fair market value of another $100 million, have gone a long way to cleaning up the loan quality problems that have dogged. BCB in the recent past. We begin the fourth quarter with a $70 million ACL, over 3% of loans, and a low $22 million in NPLs. We continue to forecast the sale of our remaining cannabis portfolio of loans and deposits in the fourth quarter. All of the loans were marked to market at September 30th. During the third quarter, and in anticipation of the capital raise, our team went through the loan book to identify any needed risk rating changes to more properly align our enhanced process with potential future problems. And so doing, we identified another $77 million of previously tax-rated loans that were subsequently downgraded to either special mention or substandard. We believe that this discipline will continue to focus our attention and our disclosures on the residual credit risk. We believe that the loan-by-loan process that we followed has properly surfaced residual credit risk and accounted for the potential for loss. In the fourth quarter, we anticipated additional problem loans being favorably resolved in a few one-off-type transactions, individual loans being resolved. I should also point out that two larger problem loans were paid in full during the quarter. As a consequence of the restructuring and prior year losses, we established a 100% valuation allowance against our deferred tax asset. So that was $60 million. That is reversible when we have determined that our profitability over the next several quarters and prospectively support a change. Our capital raise was very successful, and the stock price has reacted favorably since. While dilution is something that I would never take likely, the alternative for BCB was much more pessimistic. We believe the interest of all shareholders is best served by protecting the bank and the company with a strong capital structure and by confronting legacy problems head on. Welcome our new investors and appreciate your support. You, together with our existing shareholders, will find us to be working tirelessly in our collective best interests, transparently and proactively. Thank you. We will now

begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Justin Crowley with Piper Sandler. Your line is open. Please go ahead.

Hey, good morning, everyone. Good morning, Justin. Now, obviously, a lot of topics in the quarter, you know, with the loan sales and still a fair amount sitting and criticizing classified. But, you know, as you called out, a pretty healthy allowance to go along with it. So just kind of curious a little more for your thoughts on how exactly you see that level trending into the end of the year with the potential for more sale activity and just overall comfort with the further loss or any further loss being reflected in the reserve, which, Tom, I know you touched on a little.

Yeah, sure. You know, that, I mean, going back to my June 1st call, that, you know, asset quality was kind of, you know, job one through Let's pretend. The process we went through in the quarter, we did a pretty deep dive on every single loan over about a million dollars. And some we, as I mentioned in my remarks, re-risk rated. We have, I think in total, Joanne can correct me if I'm wrong, but about almost $100 million in loans that we have marked to market. And if you look in the, you know, the remaining criticized loans, that's, you know, the lion's share of it. So, I would say, you know, several of these loans we expect to be cleaned up in the quarter, especially in the substandard category, which is relatively low anyhow, and in the NPL category, which is down to $22 million. So, you know, it's a risk business, but I, you know, so I can never say never, but I don't know what else we could have done to identify and price the credits that we have, you know, concern of potential loss.

Justin, the classified loans saw a 70% reduction, pretty meaningful, from $160 million to $46 million, and our reserve coverage went up from 28% to 150%, so, you know, fairly strong progress in reducing our exposure to classified loans.

No, I hear you on that. That's helpful. And then maybe just wanted to confirm just how you're thinking about, you know, ultimately the mechanics of the DTA and the valuation allowance. You know, I guess assuming the bank returns the profitability, let's just say, in the fourth quarter and that can be maintained, you know, what could the timing of that recapture look like and would you expect full recapture just all in one field smooth as opposed to kind of a current piecemeal?

Yeah. No, it's kind of binary, Justin. It's either in or out. So I would – and again, I guess I'd probably reflect on my experience at Sun National Bank with the DTA valuation allowance there. But I would, you know, think by the end of 27, assuming both quantity and quality of earnings in each of the next five quarters support the decision, I think that's probably the first opportunity we'd have to reconsider.

Okay, great. And then maybe just one last one, just on a level of expenses from here, you know, obviously some added costs in the third quarter, just given everything that was going on. And, you know, how much of that falls over the run rate as we think about the fourth quarter and then as we get into the next year? I'm sure there'll be some elevated expenses, but just kind of in comparison to what we saw this quarter.

Yeah, I think that's absolutely to be expected. You know, professional fees, legal fees will continue to be a little bit higher in this fourth quarter because of just some of the remaining things that we have going on, including the cannabis transaction. And if I recall, I think we had – it was about $5 million of higher expenses this quarter. And I think, you know, the lion's share of that should start to drop away. And we also have the reincorporation into Delaware, which is coming up in the middle of November. So those are all expenses of kind of the restructure of the entire institution. Okay, so you're going to see that drop-off.

Yeah, go ahead.

Yeah, yeah. Tawad, feel free to...

Yeah, I think just echoing what Tom said, I would size probably $2.5 to $3 million of elevated expenses in the quarter tied to a number of transactions that we executed. Fourth quarter would still see some elevation inflation and expenses. We should be able to give you better guidance, Justin, when we talk about our fourth quarter results for the full year 2027. When we come back, we should be able to give you better guidance.

Okay, but that's two and a half.

Go ahead. No, Justin, I would say, too, and again, this just kind of goes back to my experience, but I mentioned this to the board of directors yesterday also, that typically when you go Through, you know, with the work that we have in this context, you start to see some of the fruits of your labor. You start to see some recoveries, and, you know, there's, you know, some, I would say, positive volatility in that likely or, you know, wouldn't be a surprise. But I think in terms of, you know, the negative part of that, I think we took a pretty sharp pencil to the numbers.

Right. Okay. And then, Jawad, that $2.5 million or $3 million that you called out, you would expect that, at least that, you know, portion of the increase in expenses to maybe fall back out in the fourth quarter? Is that a reasonable assumption?

The fourth quarter, you know, a good portion of that should fall back, Justin, but we are still pursuing our cannabis sale transaction. We are still cleaning up the balance sheet for some leftover trades for sale. So it's difficult to give you a precise estimate for the fourth quarter, but yes, it's a fair statement that a good portion should fall off, and we'll provide better guidance when we come back to talk about our fourth quarter results.

Okay, perfect. I will leave it there. Thanks so much. Thanks.

Your next question comes from the line Ross Haberman with our investments. Your line is open. Please go ahead.

Good morning, guys. Thank you for taking the call. Just a couple of just to be very brief numbers question. Criticized loans of 200Million does that include the cannabis loan?

So the cannabis loans were marked to market, but I would say, too, that those loans were performing.

And, Ross, just to, you know, just to comment on the number that you quoted, our criticized loans that we had reported for the second quarter were $207 million. For the third quarter, that number is $153 million. So it's not $200 million.

Okay. And could you give us a little update on the Business Express loans? I think, as of last quarter, they're around $69 or $70 million. What's the balance, and what are you seeing as the current default rate, and what's the quarterly allowance against that? Sure. Thank you. Sure.

The business express loan portfolio balance is approximately $65 million now, Ross. The portfolio continues to behave well. You may recall in the last call we had talked about we were seeing an average of $3.7 million of quarterly losses through middle of last year. Since then, the portfolio has behaved much better. Our reserve coverage that we had reported for the second quarter for the portfolio was approximately 15%, 1-5. And during the third quarter, the portfolio once again behaved well. We only saw close to a million dollars of losses, but we still did a little bit of a reserve built, so the reserve coverage increased from 15% to close to 18%. And you will see that detail when And

just one final question, Tom, are you optimistic that you're going to sell or have a deal with the cannabis loans and deposits in the fourth quarter? Yes, I think so.

I mean, it's, you know, it's, I think, I'm trying to pull the numbers out of my head here. It's about, you know, 70 to 80 million in deposits and about 70 in loans. But yeah, I think, you know, we're pretty far along. So there's nothing, there's nothing that's come up to stop this deadness track, but I feel pretty good about it.

And just one final question. Any further deterioration in any of the loans since you first made your initial swipe or cut or everything else basically is performing as you expected? And at least at the moment, you're not going to, you don't feel the necessity to make any further larger allowances.

No, absolutely. I think, as I mentioned, the process we went through, I guess, starting after I'd been at the bank for about a month of looking at the

pass-rated

loans was really driven by one particular loan that, you know, presented with problems. And we, and I looked at the existing risk rating, and in my view, it was kind of too strong for the risk in the credit. So I just said at that point, okay, let's go through all of them. Again, it's hard to predict what the legacy portfolio is. They've all been touched. Most of them have been visited. You know, we did a probability of defaults and a loss given defaults and all of that factors into the numbers you saw on the quarter. Thanks for your help. The best of luck. Sure. Yeah, thanks, Ross. Thank you.

There are no further questions at this time. I will now turn the call back to Thomas O'Brien for closing remarks. Well, okay.

That was easier than I expected. So our next call will be in the fourth quarter, the earnings release in probably late January. So I'm expecting a much better announcement at that time. And I think both, you know, for internal consumption within BCB and our investor base and others, you'll start to see the, again, the fruits of our labor and the process we went through. It's obviously pretty complex right now with all these very large numbers being presented, but the diligence in the process and the carefulness that we exercise in terms of assigning risk and potential for loss, I think it's going to give us the protection that we all expect and demand from the bank. And I think, again, I think the fourth quarter will be a very good look for all of us at that process. But at this point, we're pretty optimistic. Fantastic. So, with that, thank you for joining the last couple of months of the year, and I hope it's all a good one for you, and we'll be in touch in early 27. Thank you.

This concludes today's call. Thank you for attending.