BCB Bancorp Inc (BCBP) 2026 Q3 法說會逐字稿

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 BCP 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'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 of the coming quarters that fully validate our expectations.

It's probably more than enough of my thoughts here.

That's typical. I suspect the questions are going to be more focused, and we're going to be happy to take those draws on the call with me. And so, operator, we're ready to take questions.

We will now begin the question-and-answer session.

(Event Instructions)

Your first question comes from the line of Justin Crowley with Piper Sandler. Your line is open. Please go ahead.

Hey, good morning, everyone.

Now, obviously a lot of comments in the quarter, with the long sales and still a fair amount getting criticized and classified, but 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.

That, I mean, going back to my June 1st call, that, asset quality was kind of, job one through 10.

The process we went through in the quarter, we did a pretty deep dive on every single loan over about $1,000,000. Some we, as I mentioned in my remarks, we 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 remaining criticized loans, that's, the lion's share of it.

So 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, and in the NPL category, which is down to $22 million. So, it's a risk business, so I can never say never, but I don't know what else we could have done to identify and price the.

The credits that we have, concern of potential loss.

The classified loan saw a 70% reduction, pretty meaningful, from $160 million to $46 million, and our reserve coverage went up from 28% to 150%. So, 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 how you're thinking about, ultimately the mechanics of the DTA and the valuation allowance.

Yeah, I guess assuming the bank returns to profitability, let's just say, in the fourth quarter and that can be maintained, what could the timing of that recapture look like and would you expect full recapture just all in one fell smooth as opposed to kind of occurring 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, think by the end of 27, assuming both quantity and quality of earnings in each of the next 5 quarters. Support the decision, I think that's probably the first opportunity we'd to reconsider.

Okay, great. And then maybe just one last one, just on a level of expenses from here, obviously some added costs in the third quarter, just given everything that was going on, and 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.

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 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 just going to drop off, yeah, go ahead, yeah, you 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. Our fourth quarter would still see some elevation in 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, 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, typically when you go through, 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.

There's, some, I would say positive volatility in that likely or, wouldn't be a surprise.

But I think in terms of, the negative part of that, I think we pretty took a pretty sharp pencil to the numbers.

Right. Okay. And then draw that two and a half or 3 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?

The fourth quarter, 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 trade, those that are actually not held for sale. So it's difficult to give you a precise estimate for the fourth quarter, but yeah, it's a fair statement that a good portion should fall off, and we 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, Catherine.

Your next question comes from the line of Ross Haberman with RLH Investments. Your line is open. Please go ahead.

Good morning, guys.

Thank you for taking the call. Joe, just a couple of just two very brief numbers questions.

Criticized loans of $200 million.

Does that include the cannabis loan?

Go ahead, please. Go ahead, Tom.

Yeah.

We'll both talk about it. The cannabis loans were marked to market.

But I would say, too, that those loans were performing.

And Ross, just to comment on the number that you quoted, I 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 were on $69 or. 70 million? What's the balance, and what are you seeing as the current default rate, and what are you allowing? Well, what's your quarterly allowance against that?

That's.

Sure.

Thank you.

Sure, I had.

Sure, the Business Express loan portfolio balance is approximately sixty-five million now, Ross. The portfolio continues to behave well. You made a call 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 $1 million of losses, but we still did a little bit of a reserve belt, so the reserve coverage increased from 15% to close to 18%. And you will see that detail when we publish our 10-Q.

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, I think.

I'm trying to pull the numbers out of my head here. It's about you know some to 80 million deposits in about 70 But yeah we're pretty far along So there's nothing there's nothing that's come up 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.

The process we went through, I got starting after I'd been at the bank for about a month of looking at the path rated loans was really driven by one particular loan that, presented with problems. And I looked at the existing risk ratings and.

In my view, it's kind of too strong for the risk and the credit.

So, I just said at that point, okay, let's go through all of them.

Again, it's hard to predict, but what the legacy portfolio is, they've all been touched.

Most of them have been visited.

We did a. Probability of default and a loss given default 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.

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, for internal consumption within DCB and our investor base and others, you'll start to see the...

Again, the proofs 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 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.

This concludes today's call.

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