BCB Bancorp Q3 2026 Earnings Call Transcript
BCB Bancorp (NASDAQ:BCBP) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Access the full call at https://events.q4inc.com/attendee/505095944
Summary
BCB Bancorp Inc. reported a momentous third quarter with financial results aligning closely with prior guidance, particularly in capital issuance and loan sales.
Net interest margin exceeded expectations at 303 basis points, driven by lower deposit costs, improved asset quality, and strategic loan sales.
The company is focused on selling its remaining cannabis portfolio in the fourth quarter and has strengthened its executive team and board of directors.
A successful capital raise improved the stock price, and management is optimistic about resolving additional problem loans in the coming quarters.
The company established a 100% valuation allowance against its deferred tax asset, with potential recapture expected by the end of 2027, contingent on sustained profitability.
Full Transcript
OPERATOR (Moderator)
Hello everyone. Thank you for joining us and welcome to the BCB Bancorp Inc. 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.
Thomas O’Brien (President and Chief Executive Officer)
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. 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 1 call when I joined the bank. And actually more than that, I also believe that the results of the quarter pretty closely follow the guidance we provided and all of the recent filings and announcements around 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 Gerard will be able to give you as much color as you want on that, but 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 admittedly 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. Our margin 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 the NIM. 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 the write-down to fair market value of another hundred 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. In so doing, we identified another 77 million of previously pass-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 anticipate 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 lightly, 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. We 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. I’ve strengthened the executive ranks of the bank and welcomed two new directors, both with extensive public company experience. I’m confident that the painful decisions that we have made will yield the kind of results over the coming quarters that fully validate our expectations. That’s probably more than enough of my thoughts here. As typical, I suspect the questions are going to be more focused and, you know, we’re going to be happy to take those.
Gerard’s on the call with me. And so, Operator, we’re ready to take questions.
OPERATOR (Moderator)
We will now begin the 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. 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 and A roster. Your first question comes from the line of Justin Crowley with Piper Sandler.
Your line is open. Please go ahead.
Justin Crowley (Analyst at Piper Sandler)
Hey, good morning, everyone. Obviously, a lot of toughness in the quarter, you know, with the loan sales and still a fair amount sitting in criticized and 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, which Tom, I know you touched on a little.
Thomas O’Brien (President and Chief Executive Officer)
Yeah, sure. You know, that. I mean, going back to my June 1st call, you know, asset quality was kind of, you know, job one through 10. 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 concern of potential loss.
Jawad Chaudhry, CFA (EVP, Chief Financial Officer)
Just in the classified loans, 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.
Justin Crowley (Analyst at Piper Sandler)
No, I hear you on that. That’s helpful. And then maybe just wanted to confirm 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 to 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 fell swoop as opposed to kind of occurring piecemeal?
Thomas O’Brien (President and Chief Executive Officer)
Yeah, no, it’s kind of binary, Justin. It’s either in or out. So I would—and again, you know, I guess I 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.
Justin Crowley (Analyst at Piper Sandler)
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 out of 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.
Thomas O’Brien (President and Chief Executive Officer)
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. So you want to see that drop off? Yeah, go ahead.
Justin Crowley (Analyst at Piper Sandler)
Yeah. Can you feel free to.
Jawad Chaudhry, CFA (EVP, Chief Financial Officer)
Yeah, I think just echoing what Tom said, I would say it’s probably two and a half 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 in 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.
Thomas O’Brien (President and Chief Executive Officer)
No, I’m going to—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, you know, typically when you go through, you know, the work that we have in this context, you start to see some of the proofs 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 pretty much took a pretty sharp pencil to the numbers.
Justin Crowley (Analyst at Piper Sandler)
Right. Okay. And then Joa, that two and a half or three million, call it, that you called out—you would expect that at least that portion of the increase in expenses to maybe fall back out in the fourth quarter. Is that a reasonable assumption?
Jawad Chaudhry, CFA (EVP, Chief Financial Officer)
The fourth quarter, you know, a good portion of that should fall back, Justin. But we are still pursuing a cannabis sale transaction. We are still cleaning up the balance sheet for some leftover trades that are sitting held 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.
Justin Crowley (Analyst at Piper Sandler)
Okay, perfect. I will leave it there. Thanks so much. Thanks, Katherine.
OPERATOR (Moderator)
Your next question comes from the line of Ross Haberman with RLH Investments. Your line is open. Please go ahead.
Ross Haberman (Investor at RLH Investments)
Good morning guys. Thank you for taking the call. Jarrod, just a couple of just two very brief numbers questions. Criticized loans of 200 million—does that include the cannabis loans?
Jawad Chaudhry, CFA (EVP, Chief Financial Officer)
So the cannabis loan—Go ahead, please. Go ahead, Tom.
Thomas O’Brien (President and Chief Executive Officer)
Yeah, yeah, we’ll both talk. But the cannabis loans were marked to market, and I would say too that those loans were performing.
Jawad Chaudhry, CFA (EVP, Chief Financial Officer)
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.
Ross Haberman (Investor at RLH Investments)
Okay. And could you give us a little update on the Business Express loans? I think as of last quarter they were around 69 or 70 million. What’s the balance and what are you seeing as the current default rate? And what are your quarterly allowance against that?
Jawad Chaudhry, CFA (EVP, Chief Financial Officer)
Sure. Thank you. Go ahead. 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, you know, 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%—one five. 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 build. So the reserve coverage increased from 15% to close to 18%. And you would see that detail when we publish our 10-Q.
Ross Haberman (Investor at RLH Investments)
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?
Thomas O’Brien (President and Chief Executive Officer)
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 loans. But yeah, you know, we’re pretty far along. So there’s nothing, there’s nothing that’s come up that—I feel pretty good about it.
Ross Haberman (Investor at RLH Investments)
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?
Thomas O’Brien (President and Chief Executive Officer)
No, absolutely. I think as I mentioned, the process we went through, 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 I looked at the existing risk rating and, in my view, kind of too strong for the risk and credit. So I just said at that point, okay, let’s go through all of them. So again it’s hard to predict, but with the legacy portfolio, they’ve all been touched, most of them have been visited.
You know, you get a probability of default and a loss given default, and all of that factors into the numbers you saw in the quarter.
Ross Haberman (Investor at RLH Investments)
Thanks for your help. The best of luck.
OPERATOR (Moderator)
There are no further questions at this time. I will now turn the call back to Thomas O’Brien for closing remarks.
Thomas O’Brien (President and Chief Executive Officer)
Well, okay, that was easier than I expected. So our next call will be in the fourth quarter, the earnings release, and 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 in our investor base and others, you’ll start to see, 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 exercised in terms of assigning risk and potential for loss I think is 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. So with that, thank you for joining.
Last couple of months of the year, and hope it’s all a good one for you, and we’ll be in touch in early 27. Thank you.
OPERATOR (Moderator)
This concludes today’s call. Thank you for attending. You may now disconnect.
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