BCB Bancorp Inc (NJ) 2026 Q3 Earnings Call

Thomas, please go ahead. Thank you, and good morning, all.

Appreciate you joining the third quarter earnings call for the company. Before I begin, I encourage you to read the forward-looking statement as contained in our press release. 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 1st 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 Jawad 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. 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 $1 million. Deposit cost 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 $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.

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 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. That was $60 million. That is reversible when we have determined that our profitability over the next several quarters can 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. 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 have strengthened the executive ranks of the bank and welcomed two new directors, both with extensive public company experience. I am 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 is probably more than enough of my thoughts here. As typical, I suspect the questions are going to be more focused and we are going to be happy to take those. Jawad is on the call with me. Operator, we are ready to take questions.

Yeah, sure. Going back to my June 1st call, asset quality was kind of job one through ten. The process we went through in the quarter, we did a pretty deep dive on every single loan over about $1 million. And some we, as I mentioned in my remarks, re-risk-rated. We have, I think in total, Jawad 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 remaining criticized loans, that's the lion's share of it. I would say, several of these loans we expect to be cleaned up in the quarter, especially in the substandard category, which is relatively low anyhow, but and in the NPL category, which is down to $22 million.

It is a risk business, so I can never say never, but I do not know what else we could have done to identify and price the credits that we have concern of potential loss in.

Justin- Okay, got it. 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%.