Q2 2026 BCB Bancorp Inc Earnings Call

August 3, 2026

Speaker #1: Thank you for standing by, and welcome to the BCB Bancorp Inc. second-quarter earnings conference call. All lines have been placed on mute to prevent any background noise.

David Konrad: Welcome to the BCB Bancorp Inc. Q2 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star one. Thank you. I'd now like to turn the call over to our President and CEO, Thomas O'Brien. You may begin.

Operator: Welcome to the BCB Bancorp Inc. Q2 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star one. Thank you. I'd now like to turn the call over to our President and CEO, Thomas O'Brien. You may begin.

Speaker #1: After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.

Speaker #1: If you'd like to withdraw your question again, please press star 1. Thank you. I'd now like to turn the call over to our President and CEO, Thomas O'Brien.

Speaker #1: You may begin.

Speaker #3: Great, thank you. Good morning, everyone, and welcome to the second-quarter call. It's my first 60 days here at the bank, but 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.

Thomas O'Brien: Great. Thank you. Good morning, everyone. Welcome to the Q2 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. We're making good progress and consistent with what I said in my 1 June 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.

Speaker #3: And enjoy those. So, anyhow, as you know, in my first 60 days here, we were engaged in a major undertaking. But we're making good progress, and that's consistent with what I said in my June 1 call.

Speaker #3: 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.

Speaker #3: And I'll allow plenty of time for questions. From my perspective, the highlights of the quarter concern a lot of actions that you're probably already aware of, but we did suspend the dividends on the common and the preferred shares.

Thomas O'Brien: 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 8 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 5 years but accounted in the fully diluted shares on day one. Some governance matters.

Thomas O'Brien: 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 8 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.

Speaker #3: 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 8 basis points; it's over 3% now.

Speaker #3: And you should note, I guess, the loss included about $5.3 million in a goodwill write-off. And that's the only intangible on our balance sheet.

Speaker #3: The tangible book value was impacted by the loss in the quarter, and by the inclusion of the equity compensation that I received on joining, which is earned over five years but accounted for in the fully diluted shares on day one.

Speaker #3: Some governance matters—the board has determined to change the state of incorporation to Delaware and, thereby, will also eliminate the staggered terms of office for directors.

Thomas O'Brien: The board has determined to change the state of incorporation to Delaware and 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 Q3. 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 1 June, 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.

Speaker #3: Both of these are designed to bring BCB into a more contemporary corporate structure. The financial restructuring work is ongoing. Our goal is to have everything done and announced and wrapped up in the third quarter.

Speaker #3: We're taking a very critical look at each credit portfolio, and I'm sure you understand this level of transparency cannot be completed within 60 days.

Speaker #3: But 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 1.

Speaker #3: That will 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.

Thomas O'Brien: 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. These 2 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 Q3 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 1 June.

Thomas O'Brien: 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. 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 Q3 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 1 June.

Speaker #3: The credit issues in the bank really seem to stem from a period beginning maybe in 2020 and probably terminating towards the end of '23 or very early '24.

Speaker #3: The growth at that time was just too aggressive, and we got into some businesses that we didn't fully understand. Over 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.

Speaker #3: 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.

Speaker #3: And again, consistent with what I said in my expectations that I outlined on June 1. But the ultimate goal is to essentially cleanse the financial statements of the uncertainty that has existed for a few years.

Thomas O'Brien: 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, and 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 Q4, 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.

Speaker #3: As I said at the outset, it's a major undertaking. We've got everybody in the bank working diligently on this, and we've brought in a few consultants to help us with that process.

Speaker #3: And those of you that know me, you probably know some of the consultants that we brought in. But again, we're making very good progress.

Speaker #3: 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 '27.

Speaker #3: So, with that operator, it's probably best if we just take some questions here and start with those.

Speaker #1: Certainly. We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Operator: Certainly. We will now begin the question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. If you'd like to withdraw your question, simply press star one again. Your first question today comes from the line of Justin Crowley from Piper Sandler. Your line is open.

Speaker #1: If you'd like to withdraw your question, simply press star 1 again. Your first question today comes from the line of Justin Crowley with Piper Sandler.

Speaker #1: Your line is open.

Speaker #4: Hey, good morning.

Justin Crowley: Hey, good morning.

Speaker #3: Morning, Justin.

Thomas O'Brien: Morning, Justin.

Speaker #4: You know, with the provisioning in charge office this quarter, all coming in CNI, does that reflect just a partial review of that loan category?

Justin Crowley: With the provisioning and charge-offs this quarter all coming in C&I, does that reflect just a partial review of that loan category, or is that reflective of most of the work you need to do in de-risking that book?

Speaker #4: Or is that reflective of most of the work you need to do in de-risking that book?

Speaker #3: Most of it was in what the bank has called Business Express loans. And 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.

Thomas O'Brien: 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. 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.

Speaker #3: One of the challenges we've had is that several loans were, if not total write-offs, essentially total write-offs. So that's—yeah, as you know, for banks, that's kind of unusual.

Speaker #3: So 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.

Speaker #3: But it didn't look too promising at the moment we made the charge-off. So there's more to do on CNI. And commercial real estate, we're actively going through right now.

Thomas O'Brien: 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.

Speaker #3: But we did, 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.

Speaker #3: 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 the last, I guess, the last two years.

Jawad Chaudhry: 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 Q2, 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 Q1 to $0.8 million, but as Tom said, in Q2, they went up again to approximately $5.8 million.

Speaker #5: Hey, Justin. This is Joab. 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.

Speaker #5: So out of the 19 million in loan loss provisioning that you saw, 16.7 million was dedicated to the CNI loan portfolio. And three things to note with respect to that portfolio as we cycle through 2026.

Speaker #5: 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.

Jawad Chaudhry: 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 Q1 to $0.8 million, but as Tom said, in Q2, 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.

Speaker #5: And thirdly, the new consultants that Tom brought in came through the portfolio, and their feedback was used to analyze it under a qualitative framework.

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

Speaker #4: Okay, gotcha. That's helpful. And so I guess as we kind of think about as you move over to the commercial real estate side and I know it's going to be hard to put specific numbers around it now, but is there any way for you to help frame for us just what that review process could potentially mean for provisioning and reserve levels?

Justin Crowley: Okay, gotcha. That's helpful. I guess as we kind of think about as you move over to the commercial real estate side, and I know it's going to be hard to put specific numbers around it now, but is there any way for you to help frame for us just what that reprocess could potentially mean for provisioning and reserve levels? Are there certain areas of that portfolio that you're most concerned about from a credit standpoint?

Speaker #4: Are there certain areas of that portfolio that you're most concerned about from a credit standpoint?

Speaker #3: Well, the areas that I would be concerned about are the—as I learn as I go along, and honestly, some have been, as I mentioned—I mean, some have been more pleasant surprises, that their concerns weren't as large or well-defined as I thought they were.

Thomas O'Brien: Well, the areas that I would be concerned about as I learn as I go along, and honestly, some have been, as I mentioned, some have been more pleasant surprises that their 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 more, 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.

Speaker #3: 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 more I guess I'd say more value than a CNI loan that goes bad.

Speaker #3: Because of the nature of the collateral, and both Sterling and Sun National, we had kind of similar situations with the real estate portfolio. And they worked out predictably well.

Thomas O'Brien: 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. I think you have to take that into account also.

Speaker #3: We sold some in those cases, worked out some, but the absolute level of the criticized and classified, while it's down a little bit, is still pretty shockingly high, so.

Speaker #3: I think you have to take that into account, also.

Thomas O'Brien: I think you have to take that into account also.

Speaker #4: And has that how much of that commercial real estate portfolio needs to be kind of re-underwritten? Is that not really reflected at all in kind of the criticized classified numbers we see as of June 30?

Justin Crowley: How much of that commercial real estate portfolio needs to be re-underwritten? Is that not really reflected at all in the criticized classified numbers we see as of 30 June? Recognizing that they still are pretty high.

Speaker #4: Recognizing that they still are already pretty high.

Speaker #3: Yeah, I would say the vast majority continue to be reviewed. Some of the larger ones have been done already, but the vast majority—we still have more analytics to go through.

Thomas O'Brien: Yeah, I would say the vast majority continue to be reviewed. Some of the larger ones have been done already, but the vast majority we still have more analytics to go through.

Speaker #4: Okay, gotcha. And then, just pivoting to the expense side, if we exclude the goodwill charge and some of the severance you called out in the release, do you have a sense for what operating expenses could look like in the quarters ahead?

Justin Crowley: Okay. Got you. Just pivoting, just on the expense side, if we exclude the goodwill charge and some of the severance you called out in the release, do you have a sense for what operating expenses could look like in the quarters ahead?

Speaker #3: I think they'll be elevated because, as I mentioned, we have consultants and we have legal expenses. So it's hard for me to put a number on it now, but they'll be higher for a couple of quarters. Then, if we're doing this right, by '27 they should normalize.

Thomas O'Brien: I think they'll be elevated because we have, as I mentioned, we have consultants, we have legal expenses. Hard for me to put a number on it now, but they'll be higher for a couple of quarters, if we're doing this right, by 2027, they should normalize. If we're not, they'll stay higher, but I think I'm pretty confident we'll spend money wisely here to get the right answers and then deal with more normal levels. It's real hard.

Speaker #3: If we're not, they'll stay higher, but I think we're pretty confident we'll spend money wisely here to get the right answers, and then deal with more normal levels.

Speaker #3: But it's really hard to put a number on it now.

Justin Crowley: Okay

Thomas O'Brien: To put a number now.

Speaker #4: Gotcha. And then maybe just one last one—I'll take a stab at it. You mentioned strong enough capital in your prepared remarks, staying well-capitalized.

Justin Crowley: Got you. Maybe just one last one. I'll take a stab at it. You mentioned shoring up capital in your prepared remarks, staying well-capitalized and even with the quarter's loss, just given the size of the balance sheet, capital levels were able to kind of stay flat. I know there's a lot more work to do here. You mentioned nothing's decided, but just any early thoughts on to what extent you think you can continue accomplishing that through shrinking versus possibly pursuing a raise? Do you think the buffer now is sufficient and that there are enough levers to pull without having to tap the market for additional capital? Just anything there. I realize there might not be a great answer at this stage.

Speaker #4: And even with the quarter's loss, just given the size of the balance sheet, capital levels are able to kind of stay flat. And I know there's a lot more work to do here.

Speaker #4: And you mentioned nothing's decided, but just any early thoughts on to what extent you think you can continue accomplishing that through shrinking versus possibly pursuing a raise?

Speaker #4: Do you think the buffer now is sufficient? And are there enough levers to pull without having to tap the market for additional capital?

Speaker #4: Just anything there. And I realize there might not be a great answer at this stage.

Thomas O'Brien: No, you're exactly right. There's no great answer. I just don't know. As I said, it's complicated by the holding company structure, too. I've got to kind of look at every angle here. We're modeling a whole bunch of different things. Deferred tax assets have to come into play, I just don't know. We'll do it. Whatever we need to do, we'll do it in a way that we get out the information as quickly as we can and as accurately. Try to have no surprises.

Speaker #3: No, you're exactly right. There's no great answer. I just don't know. And as I said, it's complicated by the holding company structure too. So I've got to kind of look at every angle here.

Speaker #3: We're modeling a whole bunch of different things. Deferred tax assets have to come into play, so I just don't know. But we'll do it.

Speaker #3: Whatever we need to do, we'll do it in a way that gets the information out as quickly as we can—and as accurately.

Speaker #3: Try to have no surprises.

Speaker #4: I guess, from what you've seen on the credit side so far, do you feel better or worse from when you first locked them in the door, in terms of how that could potentially necessitate that?

Justin Crowley: I guess from what you've seen on the credit side so far, do you feel better or worse from when you first walked in the door in terms of how that could potentially necessitate that?

Speaker #3: Well, I've had good days and bad days. I would say, on average, my first couple of weeks were not so good. Then the last couple of weeks were actually a little better.

Thomas O'Brien: Well, I've had good days and bad days. I would say on average, my first couple of weeks not so good. The last couple of weeks, actually a little better. It really is getting to understand what's here. Some of the issues, frankly, were just poor pricing. Some were just poor structure. As I said in the beginning, we got into businesses we didn't understand. I would say in some of that context, we didn't structure or price things as smartly as we could have. I think one of the lessons for any bank is when you get into a new business, which is always fine, worth looking at, but you really need to talk to the experts and test the market and test your assumptions before you get too deep. I would say we got a little too deep.

Speaker #3: And it really is about getting to understand what's here, and some of the issues, frankly, were just poor pricing. Some were just poor structure. And as I said in the beginning, we got into businesses we didn't understand.

Speaker #3: And I would say, in some of that context, we didn't structure our pricing as smartly as we could have. And I think one of the lessons for any bank is that when you get into a new business—which is always fine, always worth looking at—you really need to talk to the experts and test the market, and test your assumptions before you get too deep.

Speaker #3: And I would say we got a little too deep.

Speaker #4: Okay, great. I will leave it there. Thank you guys so much.

Justin Crowley: Okay, great. I will leave it there. Thank you guys so much.

Speaker #3: Okay.

Thomas O'Brien: Okay.

Speaker #1: Your next question comes from the line of Christopher Marinak from Brean Capital. Your line is open.

Thomas O'Brien: Your next question comes from the line of Christopher Marinac from Brean Capital. Your line is open.

Operator: Your next question comes from the line of Christopher Marinac from Brean Capital. Your line is open.

Speaker #4: Thanks. Good morning. Tom, can you talk about when you will be taking the CNI charge off, given the big CNI reserves that are now in place?

Christopher Marinac: Thanks. Good morning. Tom, can you talk about when you will be taking the C&I charge-offs given the big C&I reserve that is now in place?

Speaker #3: Not so much.

Thomas O'Brien: Not so much.

Speaker #2: Yeah, the CNI reserve—Chris, this is Javad. The CNI reserve that you saw in the second quarter was primarily due to us attaching some high-risk factors using our qualitative framework.

Jawad Chaudhry: Yeah, the C&I reserve, Chris, this is Jawad. The C&I reserve that the build that you saw in Q2 was primarily due to us attaching some high-risk factors using our qualitative framework. They're not assigned specifically to some credits. It's just a general sense that the portfolio has shown an uptick in losses and preliminary feedback from the consultants that Tom brought in. We thought it was prudent to separate this portfolio as a separate entity when we review it under our qualitative framework. We don't have those general reserves in the loan book currently attached to specific loans. To the extent that we do, we would not wait to take charge-offs.

Speaker #2: So they're not assigned specifically to some credits. It's just the general sense that the portfolio has shown enough in losses and preliminary feedback from the consultants that Tom brought in.

Speaker #2: We thought it was prudent to separate this portfolio as a separate entity when we review it under our qualitative framework. So, we don't have those general reserves in the loan book currently attached to specific loans.

Speaker #2: To the extent that we do, we would not wait to take charge-offs.

Christopher Marinac: Got you, Tom. Thank you.

Speaker #4: Gotcha. Thank you.

Thomas O'Brien: Just to add to what I mentioned earlier, and that is that we've had a couple of loans there that were charge-offs. There was virtually the entire loan charged off. That gives us some caution and part of the reason behind looking at the portfolio more holistically.

Speaker #3: And just to add to what I mentioned earlier, and that is that we've had a couple of loans there that were charged off. There was virtually the entire loan charged off.

Speaker #3: So that gives us some caution and is part of the reason behind looking at the portfolio more holistically.

Jawad Chaudhry: Yeah, close to $13 million in total. If you look at Q4 and what we did in Q2, loans charged off with 100% charge-offs.

Speaker #2: Yeah, $13 million—close to $13 million in total—if you look at the fourth quarter and what we did in the second quarter. Loans charged off with 100% charge-offs.

Speaker #4: So, we will still see additional charge-offs in future quarters, I presume. I guess I'm just trying to calibrate the level of that, or maybe that's once you get through Labor Day, Tom, you have a better sense.

Christopher Marinac: We will still see additional charge-offs in future quarters, I presume. I guess I'm just trying to calibrate the level of them or maybe that's once you get through Labor Day, Tom, you have a better sense.

Thomas O'Brien: I think that's a better way to look at it, because this is like, as I mentioned, it's a work in progress, and there's more to be done. Probably the smartest thing to do is to look at it comprehensively at the tail end.

Speaker #3: I think that's a better way to look at it, because this is, like I mentioned, a work in progress. And there's more to be done—probably the smartest thing to do is to look at it comprehensively at the tail end.

Christopher Marinac: Great. If I transition-

Thomas O'Brien: If I could do two quarters at once, it'd be easier.

Speaker #3: If I could do two quarters at once, it'd be easier.

Speaker #4: Understood. And then, what is your thought about the deposit opportunity? I know you've only been there a few months, but what's the opportunity to reposition deposits and get additional costs down on the funding side?

Christopher Marinac: Understood. What is your thought about the deposit opportunity? I know you've only been there a few months, but what's the opportunity to reposition deposits, get additional cost down on the funding side?

Speaker #3: Well, I think we've got—as I said back in June—I mean, we've got an attractive footprint. We've been reasonably cautious, I think, the last year or two in terms of deposit pricing and outreach.

Thomas O'Brien: Well, I think, as I said back in June, we've got an attractive footprint. We've been reasonably cautious, I think the last year or two in terms of deposit pricing and outreach. I think there's a reasonably good market for us to be successful in. That said, I don't want to grow the balance sheet right now until I know what our financial needs are.

Speaker #3: But I think there's a reasonably good market for us to be successful in. That said, I don't want to grow the balance sheet right now until I know what our financial needs are.

Speaker #4: Understood. Thank you for taking our questions this morning.

Christopher Marinac: Understood. Thank you for taking our questions this morning.

Speaker #3: Anytime.

Thomas O'Brien: Anytime.

Speaker #1: Again, as a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Your next question comes from the line of David Conrad from KBW.

Thomas O'Brien: Again as a reminder, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of David Konrad from KBW. Your line is open.

Operator: Again as a reminder, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of David Konrad from KBW. Your line is open.

Speaker #1: Your line is open.

David Konrad: Yes. Hey, good morning. Just a quick follow-up on Justin's questions. If I understood it, in terms of the review, are you completely through the Business Express portfolio and largely through the C&I? Is that how I understood that?

Speaker #4: Yes, hey, good morning. Just a quick follow-up on Justin's questions. If I understood correctly, in terms of the review, are you completely through the Business Express portfolio and largely through the C&I?

Speaker #4: Is that how I understood that?

Speaker #3: So, I think it's safe to say we understand the Business Express a lot better than we did 60 days ago. The way we're looking at it is more on a portfolio basis because of the smaller size of the loans.

Thomas O'Brien: I think it's safe to say we understand the Business Express a lot better than we did 60 days ago. The way we're looking at it is more on a portfolio basis because of the smaller size of the loans. I think it's also safe to say that in the last, say, four quarters, the sludge rose to the top, and they accounted for a large amount of the charge-offs, and they were pretty significant. We are down to now a level that I think we can safely say represents a weak portfolio, but not the major charge-offs we've had. The level of kind of monthly or quarterly write-offs there have been moderated the last couple of months. It tends to be binary. They either-

Speaker #3: And I think it's also safe to say that in the last, say, four quarters, the sludge rose to the top, and they accounted for a large amount of the charge-offs.

Thomas O'Brien: I think it's also safe to say that in the last, say, four quarters, the sludge rose to the top, and they accounted for a large amount of the charge-offs, and they were pretty significant. We are down to now a level that I think we can safely say represents a weak portfolio, but not the major charge-offs we've had. The level of kind of monthly or quarterly write-offs there have been moderated the last couple of months. It tends to be binary. They either-

Speaker #3: And they were pretty significant. We are down now to a level that I think we can safely say represents a weak portfolio, but not the major charge-offs we've had.

Speaker #3: The level of monthly or quarterly write-offs has moderated over the last couple of months. But it tends to be binary—they either work and pay, or they stop, and there's nothing there.

David Konrad: Right

Thomas O'Brien: work and pay, or they stop and there's nothing there. That's a little bit of the challenge. The C&I would say we are halfway through? Halfway through.

Speaker #3: So that's a little bit of the challenge. The CNI, I would say, we are halfway through—halfway through.

Speaker #4: Okay. Okay.

David Konrad: Okay.

Speaker #2: Hey, David from the Business Express Loans, to share some hard numbers with you. If you look at 2025, the total losses in the portfolio were $10 million.

Jawad Chaudhry: Hey, David.

David Konrad: And then-

Jawad Chaudhry: Just on the Business Express loans to share some hard numbers with you. If you look at 2025, the total losses in the portfolio were $10 million. 2024 probably had a similar amount of loss level. If you look at 2026, year to date, the losses came in at $1.1 million. The loss experience has definitely moderated. The reserve coverage on the portfolio sits at 15%, I would still caution, and reiterating what Tom said, it is kind of a binary situation. Once a credit goes bad, it is a loss.

Speaker #2: 2024 probably had a similar amount of loss level. If you look at 2026 year-to-date, the losses came in at $1.1 million. So the loss experience has definitely motivated the reserve coverage on the portfolio, which sits at 15%.

Speaker #2: But I would still caution, and reiterate what Tom said—it is kind of a binary situation. Once a credit goes bad, it is a loss.

David Konrad: Got it. Right. By Labor Day, you hope to be through the rest of the C&I and CRE. I don't know if you're going to really look at the consumer at this point. That's a lot less risk, I guess, at this point.

Speaker #4: Got it. Right. And so by Labor Day, you hope to be through the rest of the C&I and CRE, and I don't know if you're going to really look at the consumer at this point, or—I mean, that's a lot less risk, I guess, at this point.

Thomas O'Brien: Yeah. I've focused all of my time and our collective energies on where we've had losses, and we've had virtually nothing in consumer.

Speaker #3: Yeah, the consumer—I've focused all of my time and our collective energies on where we've had losses, and we've had virtually nothing in consumer.

David Konrad: Right.

Speaker #3: I did. I think you probably noted we exited the consumer business now, anyhow. So most of what there is, it's just kind of the legacy portfolio.

Thomas O'Brien: I think you probably noted we exited the consumer business now anyhow.

David Konrad: Right.

Thomas O'Brien: Most of what there is is just kind of the legacy portfolio. It has behaved fine, so hasn't warranted a lot of attention. In terms of what we might do longer term with it, do we keep it? Do we sell the portfolio? It becomes a servicing issue and so we'll continue to look at it, but it's not an imperative. Just to be clear, too, by Labor Day, I think what I'm planning to do at that point is to be able to outline what I think the situation will look like and what our plans are. I don't know that I'll have the exact final numbers for the quarter, even a reasonable estimate, but I think from a very high level, we should know what the capital needs are, what the portfolios look like, and what our thinking is in terms of disposition of portfolios and what the outcomes of that'll be.

Speaker #3: It has behaved fine, so it hasn't warranted a lot of attention. In terms of what we might do longer term with it, do we keep it?

Speaker #3: Do we sell the portfolio? It becomes a servicing issue. And so we'll continue to look at it, but it's not an imperative. And just to be clear, too, by Labor Day, I think what I'm planning to do at that point is to be able to outline what I think our the situation will look like and what our plans are.

Speaker #3: I don't know that I'll have the exact final numbers for the quarter, even a reasonable estimate, but I think from a very high level, we should know what the capital needs are, what the portfolio looks like.

Thomas O'Brien: I don't know that I'll have the exact final numbers for the quarter, even a reasonable estimate, but I think from a very high level, we should know what the capital needs are, what the portfolios look like, and what our thinking is in terms of disposition of portfolios and what the outcomes of that'll be.

Speaker #3: And what our thinking is, in terms of disposition of the portfolio, and what the outcomes of that will be.

Speaker #4: Got it. Okay, thank you for the question.

David Konrad: Got it. Okay. Thank you for the question.

Speaker #3: Sure.

Thomas O'Brien: Sure.

Speaker #1: Your next question comes from Ross Haberman with RLH Investments. Your line is open.

Thomas O'Brien: Your next question comes from the line of Ross Haberman from RLH Investments. Your line is open.

Operator: Your next question comes from the line of Ross Haberman from RLH Investments. Your line is open.

Jawad Chaudhry: Line open.

Speaker #4: Morning, gentlemen. Thanks for taking the call.

Jawad Chaudhry: Morning, gentlemen. Thanks for taking the call.

Ross Haberman: Morning, gentlemen. Thanks for taking the call.

Thomas O'Brien: Good to see you the other night.

Speaker #3: Good to see you the other night.

Speaker #4: Yes, it was good seeing you too. I just have a couple of quick ones. The past dues—I think you said there was about $122 million?

Ross Haberman: Yes, it was good seeing you too. I just have a couple of quick ones. The past dues, I think you said there was about $122 million. Could you break that down between the 90-plus and 60 days and less?

Speaker #4: Could you break that down between the '90-plus' and '60 days and less'?

Speaker #3: I'm going to leave that to my CFO.

Thomas O'Brien: I'm going to leave that to my CFO.

Jawad Chaudhry: Ross, I mean.

Speaker #2: Ross, I mean, that would be disclosed in our quarterly filing.

Ross Haberman: Okay, thanks

Jawad Chaudhry: would be disclosed in our quarterly filing.

Speaker #4: Okay.

Ross Haberman: Okay.

Jawad Chaudhry: I don't have the numbers in front of me right now, we will have that breakdown in the quarterly filing that will become public in the next couple of days.

Speaker #2: I don't have the numbers in front of me right now, but we will have that breakdown in the quarterly filing that will become public in the next couple of days.

Speaker #4: Thank you. And the DTA you touched on was a big number. It was like $25 million on the balance sheet. Give us your thoughts on that and how it's going to work?

Ross Haberman: Thank you. The DTA you touched on. It was a big number. It was like $25 million on the balance sheet. Give us your thoughts on that and how is it going to work. If you continue to have some large write-downs in the next quarter or two, what happens to that? Would you have to write that off because you can't utilize it? How does that work?

Speaker #4: Would you have to, if you continue to have some large write-downs here in the next quarter or two, what happens to that? Would you have to write that off?

Speaker #4: Because you can't utilize it. How does that work?

Thomas O'Brien: Well, what you'd normally do, if it's determined to be unlikely to be used, you'd have to do a valuation reserve. We do not believe we're going to be in that position. We think once we're done with this process, the DTA will get utilized actually pretty efficiently. We're only talking about the timing differences, the DTA represent the allowance, that's not the same issue as losses on sale, which are more permanent, I'd say. We'll end up with a regulatory calculation for DTA that encompasses what you're allowed to count in your regulatory capital and what you are not allowed to count. In any case, our view at the moment is that we will have a DTA of some significance, and we'll have an earnings capacity to chew it up pretty quickly.

Speaker #3: Well, what you’d normally do, if it becomes—if it’s determined to be unlikely to be used—you’d have to do an evaluation reserve. We do not believe we’re going to be in that position.

Speaker #3: We think once we're done with this process, the DTA will get utilized actually pretty efficiently. And we're only talking about the timing differences, and the DTA represents the allowance.

Speaker #3: And so that's not the same issue as losses on sale, which are more permanent, I guess I'd say. So we'll end up with a—and there's also a regulatory calculation for DTA.

Speaker #3: That encompasses what you're allowed to count in your regulatory capital and what you are not allowed to count. But in any case, our view at the moment is that we will have a DTA of some significance, and we'll have an earnings capacity to chew it up pretty quickly.

Speaker #2: And Ross, I have a question. Ross, I'll echo Tom's comments. I know we are focused on credit, and that's the number one issue at hand.

Jawad Chaudhry: Ross, I'll echo Tom's comments. I know we are focused on credit, that's the number one issue at hand. If you look at the core earnings power of the franchise, we have five quarters displayed in our press release. The operating revenue of the organization, very consistently, we have posted $25 million per quarter. That's $100 million worth of operating revenue. Unfortunately, the elevated credit costs have been eating into our profitability and turning us into a loss position. Once the balance sheet has been cleaned up from a credit perspective, as Tom said, any DTA that we have, we should be able to utilize it pretty quickly because the core earnings power of the franchise has stayed pretty intact, even though we have shrunk our balance sheet due to the NIM improvement that you have seen over the past several quarters.

Speaker #2: But if you look at the core earnings power of the franchise, we have five quarters displayed in our press release: the operating revenue of the organization.

Speaker #2: Very consistently, we have posted $25 million per quarter. That's $100 million worth of operating revenue. Unfortunately, the elevated credit costs have been eating into our profitability and turning us into a loss position.

Speaker #2: Once the balance sheet has been cleaned up from a credit perspective, as Tom said, any DTA that we have, we should be able to utilize it pretty quickly because the core earnings power of the franchise has remained pretty intact, even though we have shrunk our balance sheet.

Speaker #2: Due to the loan improvement that you have seen over the past several quarters.

Speaker #4: You didn't touch upon the cannabis loans, and I was wondering if any of them are in—or any of them are past due today.

Ross Haberman: You didn't touch upon the cannabis loans, I was wondering if any of them are in the past due today.

Jawad Chaudhry: To the best of my knowledge, the cannabis loans are not in the past due bucket. The total portfolio size, Ross, was $70 million or $69 million at the end of Q2.

Speaker #2: To the best of my knowledge, the cannabis loans are not in the past due bucket. The total portfolio size, Ross, was $70 million—or $69 million at the end of the second quarter.

Speaker #4: Okay. Tom, do you lump those mostly into the CRE?

Ross Haberman: Okay. Tom, do you lump those mostly into the CRE?

Thomas O'Brien: The cannabis loans?

Speaker #3: The cannabis loans?

Speaker #4: Yeah.

Ross Haberman: Yeah.

Speaker #3: Yeah, I would say most of them have real estate collateral. But it tends to be specialty properties, so you've got to keep that in mind.

Thomas O'Brien: Yeah, I would say most of them have real estate collateral, but it tends to be specialty properties, so you've got to keep that in mind. I think the one in Massachusetts that was the consequence of the larger write-off either late last year or early this year. It was a warehouse facility, but it was a specialty property. I think that's where we made our mistake is not understanding and underwriting the nature of the property and how that would impact longer-term values as the collateral. Had a lot of value for its use. Once it wasn't for that use to reposition it pretty much decimated the value.

Speaker #3: I think the one in Massachusetts, that was the consequence of the large write-off either late last year or early this year. It was a warehouse facility, but it was specialty property.

Speaker #3: So, I think that's where we made our mistake—not fully understanding and underwriting the nature of the property and how that would impact longer-term values.

Speaker #3: As a collateral, it had a lot of value for its use, but once it wasn't for that use, to reposition it pretty much decimated the value.

Ross Haberman: Two last questions, if I may. Could you talk about the relations with the regulators, and I don't know if you can even discuss whether you're under an order or not, touch upon whatever you can say about that?

Speaker #4: Just two last questions, if I may. Could you talk about the relations with the regulators, and are you—I don't know if you can even discuss whether you're under an order or not.

Speaker #4: Sort of touch upon whatever you can say about that.

Speaker #3: I can tell you my practice is, if there's an order, we would disclose it. And so, I don't think you're going to read anything about that in the 10-Q.

Thomas O'Brien: I can tell you my practice is if there's an order, we would disclose it. I don't think you're going to read anything about that in the 10-Q. I think our relations are, at this point, quite good. I maintain an open dialogue with them as I've always done. I let them know where we are, what we're doing, and try to give them the no surprise rule, and I think they appreciate that. On the other hand, just like with the investors, there's a lot of uncertainty and what happened and how did this happen and What is the fix going to look like? Again, I'm transparent with them. I've nothing to hide. Just try to tell them how we plan to fix it and what we're finding as we go along.

Speaker #3: I think our relations are, at this point, quite good. I maintain an open dialogue with them, as I've always done. I kind of let them know where we are, what we're doing, and try to give them the 'no surprise' rule.

Speaker #3: And I think they appreciate that. But on the other hand, there's like with just like with the investors, I mean, there's a lot of uncertainty and what happened and how did this happen and what is the fix going to look like.

Speaker #3: But again, I'm transparent with them. I have nothing to hide—I just try to tell them how we plan to fix it and what we're finding as we go along.

Speaker #4: And just one last question. It's sort of a technical question. You have that subordinated debt—$40-some-odd million, I think it is. Are you allowed, if push comes to shove, are you allowed to defer the interest on that and not have it accelerate?

Ross Haberman: Just one last question. It's sort of a technical question. You have that subordinated debt, $40 some odd million, I think it is.

Thomas O'Brien: Yep.

Ross Haberman: Are you allowed, if push comes to shove, are you allowed to defer the interest on that and not have it accelerate? Or you don't have that option?

Speaker #4: Or do you not have that option?

Thomas O'Brien: If we deferred it would be an event of default.

Speaker #3: If we deferred it, it would be an event of default.

Ross Haberman: All right.

Speaker #4: All right. All right. And just.

Thomas O'Brien: We're not going to do that.

Speaker #3: We're not going to.

Ross Haberman: One possibility, I just want to throw this out as you're looking at all your options in the next quarter or so. I would urge you, well, it's an idea, to possibly convert all those preferred to common. I'm not sure if that's too dilutive, but that's sort of how I was thinking about that idea.

Speaker #4: And one possibility I just want to throw this out as you're looking at all your options in the next quarter. So I would urge you to I'm not sure it's a well, it's an idea to possibly convert all those preferred to common as I'm not sure if that's too dilutive, but that's sort of how I was thinking about that idea.

Speaker #3: Well, as I mentioned, the real financial challenge—at least in the short run here—is that the holding company, because of the debt and the preferred, has both a liquidity issue for the holding company to service the debt and then just the ultimate cost of the debt.

Thomas O'Brien: Well, as I mentioned, the real financial challenge, at least in the short run here, is that the holding company, because of the debt and the preferred. It's both a liquidity issue for the holding company to service the debt and then just the ultimate cost of the debt. There's obviously not the kind of liquidity at the holding company where we could buy in the debt at any great levels. I have thought, actually in one of my prior banks, I did a debt for equity swap. That was reasonably successful. It's in our mind and conversations, but nothing definitive at this point.

Speaker #3: So there's obviously not the kind of liquidity at the holding company where we could buy in the debt at any great levels. I have thought, actually—in one of my prior banks, I did a debt-for-swap.

Speaker #3: And that was reasonably successful. So it's in our minds and conversations, but nothing definitive at this point.

Speaker #4: The best of luck. We'll talk to you in a month or two. Thank you.

Ross Haberman: Best of luck. We'll talk to you in a month or two. Thank you.

Speaker #3: We'll be here.

Thomas O'Brien: We'll be here.

Speaker #1: Your next question comes from Justin Crowley with Piper Sandler. Your line is open.

Thomas O'Brien: Your next question comes from the line of Justin Crowley from Piper Sandler. Your line is open.

Operator: Your next question comes from the line of Justin Crowley from Piper Sandler. Your line is open.

Speaker #4: Hey, I actually had a follow-up that just kind of got asked and answered, but it was really just on the holding company structure.

Justin Crowley: Hey, I actually had a follow-up that actually just kind of got asked and answered. It was really just on the holding company structure, how that complicates things. I don't know if there's anything more to elaborate on just with respect to what you might be looking to do there. I do think you kind of touched on it, though.

Speaker #4: How that complicates things. I don't know if there's anything more to elaborate on, just with respect to what you might be looking to do there.

Speaker #4: I do think you kind of touched on it, though.

Speaker #3: Yeah, no, it's kind of early stage, Justin. The numbers are what they are, and our flexibility around those is constrained, at least at this point.

Thomas O'Brien: Yeah. No, it's kind of early stage, Justin. The numbers are what they are, our flexibility around those is constrained, at least at this point. We're trying to be creative and think about what to do to moderate the intermediate term risks that that presents for us.

Speaker #3: But we're trying to be creative and think about what to do to moderate the intermediate-term risks that presents for us.

Speaker #4: Okay, great. I appreciate it. Thanks so much again.

Justin Crowley: Okay, great. I appreciate it. Thanks so much again.

Speaker #3: Sure.

Thomas O'Brien: Sure.

Thomas O'Brien: That concludes our question and answer session today's conference call. We thank you for your participation, you may now disconnect.

Operator: That concludes our question and answer session today's conference call. We thank you for your participation, you may now disconnect.

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