BCB Bancorp Inc (NJ) 2026 Q2 Earnings Call

Good morning, everyone, and welcome to the second quarter call. My first 60 days here at the bank. Before we begin, I need to encourage you to read in great, exquisite detail the forward-looking statements that are always attached to our earnings releases and enjoy those. Anyhow, as you know, my first 60 days here, we're engaged in a major undertaking. But we're making good progress and consistent with what I said in my June 1st call, I think the schedule that I laid out at that time continues to be what we operate under. I'll make the assumption for today's call that we don't want to spend a lot of time on the typical ratios and earnings per share. I'll allow plenty of time for questions.

From my perspective, the highlights of the quarter concern a lot of the actions that you're probably already aware of, we did suspend the dividends on the common and the preferred shares to both retain liquidity at the holding company and build capital at the bank. In the quarter, the margin had a little uptick of about eight basis points, over 3% now. You should note, I guess the loss included about $5.3 million in a goodwill write-off. That's the only intangible on our balance sheet. The tangible book value impacted by the loss in the quarter and by the inclusion of the equity compensation that I received on joining. That's earned over five years but accounted in the fully diluted shares on day one. Some governance matters. The board has determined to change the state of incorporation to Delaware, thereby will also eliminate the staggered terms of office for directors.

Both of these are designed to bring BCB into a more contemporary corporate structure. The financial restructure work is ongoing. Our goal is to have everything done and announced, wrapped up in the third quarter. We're taking a very critical look at each credit portfolio. I'm sure you understand this level of transparency cannot be completed within 60 days. We have continued to work and make progress. I'm sure you'll want to ask about capital. I can repeat what I said on June 1st, that we'll always err on the side of keeping the bank well-capitalized. That said, the bank continues to have a healthy capital base. The challenge, as I mentioned previously, is the absolute level of double leverage at the holding company.

The credit issues in the bank really seem to stem from a period beginning maybe in 2020 and probably terminating towards the end of 2023 or very early 2024. The growth at that time was just too aggressive, and we got into some businesses that we didn't fully understand. In these two months, we have worked to double-check risk ratings, and candidly, we've had some good surprises, a couple of negative ones, but on average, no huge changes. I can't predict the third quarter at this time, and I haven't gone to the board with any capital recommendations or projections. I do think we will be in a position to have some meaningful clarity around Labor Day, and again, consistent with what I said in my expectations that I outlined on June 1st.

The ultimate goal is to essentially cleanse the financial statements of the uncertainty that has existed for a few years. As I said at the outset, it's a major undertaking. We've got everybody in the bank working diligently on this. Brought in a few consultants to help us with that process. Those of you that know me, you probably know some of the consultants that we brought in. Again, we're making very good progress. We want to be as thorough and comprehensive as we possibly can to, again, end this uncertainty and provide a clear path forward for going into the fourth quarter and most importantly for the calendar and fiscal year 2027. With that, operator, probably best if we just take some questions here and start with those.

Most of it was in what the bank has called Business Express loans. Then in C&I, there were a couple of loans on the books when I joined the bank that got charged off that were pure C&I. One of the challenges is we've had several loans that were, if not total write-offs, essentially total write-offs. That's, as you know, for banks, that's kind of unusual. That's what you're seeing in the charge-offs in the quarter, both Business Express and I think it was two loans that were in the charge-off category that we're trying to see what we can recover, but it didn't look too promising at the moment we made the charge off. There's more to do on C&I, and commercial real estate we're actively going through right now. On the Business Express, we did make a pretty comprehensive review.

We did site visits, looked at FICO degradation, payment histories, pretty much everything else that gave us some insight into what is a relatively small individual loan portfolio, but has been the source of a lot of loss over, I guess, the last two years.

Hey, Justin, this is Jawad. I would like to just add a little bit more detail. In terms of the reserve build that you saw in the second quarter, it was primarily done in the C&I loan portfolio, excluding the Business Express loans. Out of the $19 million in loan loss provisioning that you saw, $16.7 million was dedicated to the C&I loan portfolio. Three things to note with respect to that portfolio as we cycle through 2026. Previously, we had shared that we were expecting a major recovery in the portfolio, and we no longer have that expectation. Secondly, the portfolio losses dipped in the first quarter to $0.8 million, but as Tom said, in the second quarter, they went up again to approximately $5.8 million.

Thirdly, the new consultants that Tom brought in scanned through the portfolio, and their feedback was used to analyze it under a qualitative framework.

Well, the areas that I would be concerned about as I learn as I go along. Honestly, some have been, as I mentioned, some have been more pleasant surprises that the concerns weren't as large or well-defined as I thought they were early on, and a couple of negative surprises. It's hard for me to frame at this point what it would look like. The real estate portfolio, at least in my prior experience, has, I guess I'd say more value than a C&I loan that goes bad because of the nature of the collateral. Both Sterling and Sun National, we had kind of similar situations with the real estate portfolio. They worked out predictably well. We sold some in those cases, worked out some. The absolute level of the criticized and classified, while it's down a little bit, is still pretty shockingly high.