BCB Bancorp, Inc. Stock

Hello, everyone. Thank you for joining us, and welcome to the BCB Bancorp, Inc. 2026 Third Quarter Earnings Call. [Operator Instructions]

I will now hand the conference over to Thomas O'Brien, President and Chief Executive Officer. Thomas, please go ahead.

Thank you, and good morning, all. I 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 in 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 [indiscernible] 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 admitted to be 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 3.03%, slightly higher than the estimated range of 2.90% to 3% that we had previewed. And this was in spite of the reversal of several interest receivable accruals approximating around $1 million. 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 $100 million, have gone a long way to cleaning up the loan quality problems that have dogged BCB in the recent past. We began 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 30.

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 2 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 assets. So it 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.

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 interest transparently and proactively. I've strengthened the executive ranks of the bank and welcomed 2 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. I'm -- as typical, I suspect the questions are going to be more focused, and we're going to be happy to take those. Jawad is on the call with me. And so operator, we're ready to take questions.

[Operator Instructions] Your first question comes from the line of Justin Crowley with Piper Sandler.

Obviously, a lot of softness in the quarter with the loan sales and still a fair amount sitting in criticized and classified. But as you called out, a pretty healthy allowance to go along with it. So I was 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 -- or any further loss being reflected in the reserve, which Tom, I know you touched on a little.

Yes, sure. That -- I mean, going back to my June 1 call, that asset quality was kind of job 1 through 10. 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, we 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.

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, but -- and in the NPL category, which is down to $22 million. So it's a risk business, but -- 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 in.

Just in that regard...

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 fairly strong progress in reducing our exposure to classified loans.

Right. I hear you on that. That's helpful. And then maybe I just wanted to confirm how you're thinking about ultimately the mechanics of the DTA and the valuation allowance. 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 on one fell swoop as opposed to kind of a current piecemeal?

Yes. 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 supports the decision, I think that's probably the first opportunity we have to reconsider.

Okay. Great. And then maybe just one last one. Just on the 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 next year? I'm sure there'll be some elevated expenses, but just kind of in comparison to what we saw this quarter.

Yes. 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 starting to see that drop off.

Yes. Jawad, feel free to.

Yes. I think just echoing what Tom said, I would size probably $2.5 million 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 of 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.

And then...

No, I'm going to -- Justin, I would say, too, and again, this is just kind of goes back to my experience that 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 fruits 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, Jawad, that $2.5 million 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 our cannabis sale transaction. We are still cleaning up the balance sheet for some leftover trades that are actually 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.

Your next question comes from the line of Ross Haberman with Rlh Investments.

Just very brief numbers questions. Criticized loans of $200 million, does that include the cannabis loan?

So the cannabis loan...

Go ahead please. Go ahead, Tom.

Yes. We'll both talk -- the cannabis loans were mark-to-market -- and -- but I would say, too, that those loans were performing.

And Ross, 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.

Okay. And could you give us a little update on the Business Express loans? I think as of last quarter, they were around $69 million or $70 million. What's the balance? And what are you seeing as the current default rate? And what are your allowance -- what's your quarterly allowance against that?

Go ahead, Jawad.

Sure. 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 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 build. So the reserve coverage increased from 15% to close to 18%. And you would 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 get -- 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 $70 million to $80 million in deposits and about $70 million [indiscernible] loans. But yes, I think we're pretty far along. So there's nothing that's come up that stop, but I feel pretty good about it.

And just one final question. Any further deterioration in any of the loans since you first laid 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 process we went through, I guess, starting in -- after I've been at the bank for about a month of looking at the pass rate of loans was really driven by one particular loan that presented with problems. And we -- and I looked at the existing risk rating and in my view, it was kind of too strong for the risk on credit. So I just said at that point, let's go through all of them. So again, it's hard to predict what the legacy portfolio is. They've all been -- most of them have been visited. We did a probability of default and loss given default and all of that factors into the numbers you saw in the quarter.

There are no further questions at this time. I will now turn the call back to Thomas O'Brien for closing remarks.

Well, 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 BCB and our investor base and others, you'll start to see the -- 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, the last couple of months of the year and I 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. Thank you for attending. You may now disconnect.

Thank you for standing by, and welcome to the BCB Bancorp, Inc. Second Quarter Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to our President and CEO, Thomas O'Brien. You may begin.

Great. Thank you. Good morning, everyone, and welcome to the second quarter call, my first 60 days here at the bank. But before we begin, I need to encourage you to read and great exquisite detail, the forward-looking statements that are always attached to our earnings releases and enjoy those.

So anyhow, as you know, my first 60 days here, we are engaged in a major undertaking, but we're making good progress. And consistent with what I said in my June 1 call, I think the schedule that I laid out of that tone 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 and allow time for questions.

From my perspective, the highlights for the quarter, concern a lot of the actions that you're probably already aware but we did suspend the dividends on the common and the preferred shares to both the 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. And you should note, I guess, the loss included about $5.3 million and 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 countered in the fully diluted shares on day 1. 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. 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 wrapped up in the third quarter. 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. 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, 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. 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. The growth at that time was just too aggressive, and we get into some businesses that we didn't fully understand.

In 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 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 1. But 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 on 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. But we're -- again, we're making very good progress. We want to be as thorough and comprehensive as we possibly can to, again, and this uncertainty and provide a clear path forward for going into the fourth quarter and most importantly, for the calendar and fiscal year '27.

So with that operator, probably best if we just take some questions here and start with those.

[Operator Instructions] Your first question today comes from the line of Justin Crowley from Piper Sandler.

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 derisking that book?

Most of it was in what the bank is 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. One of the challenges we've had several loans that were if not total write-offs essentially total write-offs. So that's -- as you know, for banks, that's kind of unusual.

So that's what you're seeing in the charge-offs in the quarter, both Business Express and I think it was 2 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. So there's more to do on C&I and commercial real estate, we're actively going through right now. But we did -- on the Business Express, we did make a pretty comprehensive review.

We did site visits with at FICO degradation payment histories, pretty much everything else that gave us some insight into what is a relatively small individual loan portfolio, but it's been the source of a lot of loss over the last, I guess, the last 2 years.

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 sort of the $19 million in loan loss provisioning that you saw, $16.7 million was dedicated to the C&I loan portfolio. And 3 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 now only 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. And thirdly, the new consultants that Tom brought in can through the portfolio and their feedback was used to analyze it under a qualitative framework.

Okay. Got you. 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 with that view process 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?

Well, the areas that I would be concerned about are as I learn as I go along, and honestly, some have been as I mentioned, I mean, some have been more pleasant surprises that the concerns weren't as larger, well defined as I thought they were early on in 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 and both Sterling and Sun National, we had kind of similar situations with the real estate portfolio. And they worked out predictably well. We sold some in those cases. worked out some. But the absolute level of the criticized and classified wallets, it's down a little bit, it's still pretty shockingly high. So I think you have to take that into account also.

And has that -- how much of that commercial real estate portfolio needs to be kind of re-underwriting? Is that not really reflected at all in kind of the criticized classified numbers we see as of June 30, recognizing that they still are pretty high.

Yes, 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.

Okay. Got you. And then 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?

I think they'll be elevated because we have -- as I mentioned, we have consultants. We have legal expenses. We -- so I -- hard for me to put a number on it now, but they'll be higher for a couple of quarters. And then if we're doing this right, by '27, they should normalize. If we're not, they'll stay higher, but I think pretty confident we'll spend money wisely here to get the right answers and then deal with more normal levels. But it's real hard to put...

Okay. Got you. And then maybe just one last one. I'll take a stab, but you mentioned shoring up capital in your prepared remarks, staying a little capitalized and even with the quarter's loss, just given the size of the balance sheet, capital levels we're able to kind of stay flat. And I know there's a lot more work to do here, and you mentioned nothing decided.

But just -- any early thoughts on to what extent you think you can continue to 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 it might not be a great answer at this stage.

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, 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 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.

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

Well, I've had good days and bad days. I would say, on average, my first couple of weeks, not so good in the last couple of weeks, actually a little better. It really is getting to understand what's here. And some of the issues, frankly, were just poor pricing. Some were just core structure. And as I said in the beginning, we got under businesses we didn't understand. And I would say in some of that context, we didn't structure price things as smartly as we could have.

And I think one of the lessons for any bank is we get into a new business, which is -- it's 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. And I would say we got a little too deep.

Your next question comes from the line of Christopher Marinac from Brean Capital.

Tom, can you talk about when you will be taking the C&I charge-offs given the big C&I reserves is now in place?

Not so much. The C&I reserve -- Chris, this is Jawad. The C&I reserve that the build that you saw in the second quarter was primarily due to us attaching some high-risk factors using our qualitative framework. So 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 and then we review it under our qualitative framework. So we don't have those general reserves and the loan book currently attached to specific loans. To the extent that we do, we would not wait to take charge-offs.

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 charge-off. So that gives us some caution and part of the reason behind looking at portfolio more holistically.

$30 million -- close to $30 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.

So 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?

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 comprehensively at the tail end.

Transition [indiscernible].

[indiscernible].

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, get additional cost down on the funding side?

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 2 in terms of deposit pricing and outreach, 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.

[Operator Instructions] Your next question comes from the line of David Konrad from KBW.

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?

So I think it's safe to say we understand the business express a lot better than we did days ago. The way we're looking at it is more on a portfolio basis because of the smaller size of the loans. And I think it's also safe to say that in the last, say, 4 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 you would -- 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. but it tends to be binary. They either work and pay or they stop and there's nothing there. So that's a little bit of the challenge.

The C&I, I would say we are halfway through.

David, on the 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. So the loss experience has definitely more the reserve coverage on the portfolio sits at 15%.

But I would still caution related what Tom said, it is kind of a binary situation once a credit goes bad, it is a loss.

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.

Yes. The consumers -- 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. I did -- I think you probably noted, we exited the consumer business now anyhow. So most of what there is just kind of the legacy portfolio. 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? Do we sell the portfolio? It becomes a servicing issue. And so we'll continue to look at, 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. I don't know that I'll have the exact final numbers for the quarter, even a reasonable estimate. But I think we -- 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 will be.

Your next question comes from the line of Ross Haberman from Rlh Investments.

Good to se you the other night.

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 60 days left.

I'm going to leave that to my CFO.

Ross, would be disclosed in our quarterly filings 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.

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 is it going to work would you have to -- if you continue to have some large write-downs in the next quarter or 2, what happens to that, would you have to write that off. because you can't utilize it. How does that work?

Well, what you normally do if it becomes 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. And we're only talking about the timing differences and the DTA represent the allowance. 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 -- and there's also a regulatory calculation for DTA that encompasses what you're allowed to count in your regulatory capital and what you're 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.

And Ross, I'll echo Tom's comments. I know we are focused on credit, and that's the #1 issue at hand. But if you look at the core earnings power of the franchise, we have 5 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 detail 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.

You didn't touch upon the cannabis loans. And I was wondering if any of them are in the -- or any of them are in the past do today.

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

Okay. Do you -- Tom, do you lump those mostly into the CRE?

The cannabis loans?

Yes.

Yes. I would say most of them have real estate collateral. But the -- 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 large write-off either late last year or early this year. It was a warehouse facility, but it was specialty properties.

So I think that's where we where we made our mistake is not understanding and underwriting the nature of the property and how that would impact longer-term values as a collateral. Had a lot of value for its use, but once it wasn't for that use to reposition it, pretty much estimated the value.

Just 2 last questions, if I may. Could you talk about sort of 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, sort of touch upon whatever you can say about that?

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. 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, try to give them the no surprise of rule, and I think they appreciate that.

But on the other hand, there's -- 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. But Again, I'm transparent with them. nothing to hide to just try to tell them how we plan to fix it and what we're finding as we go along.

And just one last question, sort of a technical question. You have got 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? Or you don't have that option?

If we deferred it, it would be an event of default.

All right. All right. 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 -- I'm not sure we bolts an idea to possibly convert all those preferreds to common I'm not sure if that's too dilutive, but that's -- so I was thinking about that idea.

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. And it's both a liquidity issue for the holding company to service the debt and then just the ultimate cost of the debt. 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 equity swap and that was reasonably successful. So it's in our mind and conversations, but nothing definitive at this point.

Your next question comes from the line of Justin Crowley from Piper Sandler.

I actually had a follow-up that actually just kind of got asked the answer, but 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.

Yes. 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, but we're trying to be creative and think about what to do to moderate the intermediate-term risks that presents for us.

And that concludes our question-and-answer session and today's conference call. We thank you for your participation, and you may now disconnect.

Good morning all. This is Ryan Blake with BCB Community Bank. I'm our bank's Chief Operating Officer, and I'm here to introduce Tom O'Brien, who is our new President and Chief Executive Officer. Tom, the floor is yours.

Great. Thanks, Ryan. Good morning, everyone. And I thought with this morning's announcement from the bank that I would be well served to get out in front of the story a little bit and spend a few minutes providing those who might follow or be interested in the company to hear from me first thing.

I guess I'm hoping that those on this call either already know me, at least by reputation. In my career, I've worked with multiple banking companies who find themselves needing specialized expertise when conditions turn difficult. I've spent a little time getting to know BCB and yet there is an enormous amount of detail and history that I need to get smart on as soon as possible. As has been my practice, I'll probably spend about the first 90 days getting as much knowledge and perspective as I may.

There are a few matters that I can tell you now will warrant my attention. The company has a somewhat complex capital stack, along with fixed debt obligations of some significance. This is not very dissimilar to the capital components at several of the previous companies that I've joined. In addition, I think it's well known the level of criticized and classified loans and recent actual losses have challenged the market's comfort with our tangible book value.

The bank had previously drifted into a few lending categories where the risk-adjusted returns and credit losses have created some volatility and market weariness. I believe that needs to be quantified and ring-fenced as quickly as we can. I'm a believer in tangible common equity, capital simplicity and have a focus on the growth of tangible book value per share from good long-term core earnings. Needless complexity in business models, financial structure or operations tend to elevate risk in my experience. That said, I have a little concern for short-term things like quarterly earnings, loan growth statistics, pipelines and things like that.

I try to make sound decisions based on the best long-term interest of the company and its shareholders. I try to avoid earnings forecast and hitting/missing earnings estimates. I've seen far too many banks kick the can down the road because of the fear of a bad quarter. And again, in my experience, decisions made for purely timing, accounting or tax reasons tend to be pretty shortsighted. So I've never played that game. I believe the best multiples come from transparency and clarity.

The subsidiary bank as the federal insured depository must always be comfortably well capitalized. And in this case, if that requires restructuring or capital raise, I would never hesitate to do what's necessary to protect the bank. That shouldn't come as a surprise to any who know me. You should expect to hear from me more formally and comprehensively, probably about the time of the third quarter earnings call. And I'd probably be a lot smarter on the subject we're engaged in today, but we'll work diligently to get that out and get you all informed.

So BCB has an engaged Board of Directors, many with substantial personal investment. We all want the same outcome. We are strategically aligned and committed. I look forward to working with them, the team at the bank and for our shareholders. I'm happy to take a few questions after these short remarks, but I don't know that I have much in way of more specifics than what I've said here. But Ryan, if we can allow some questions, that's fine.

[Operator Instructions]

First one is going to come from Justin Crowley over at Piper Sandler.

If I could start out with one for you, Tom. Obviously, you've been doing this a long time across a number of different organizations. And I know each situation has its unique set of challenges. But when you take the task at hand with BCB, how would you compare the complexity of what needs to be addressed here, the to-do list versus your time at some prior institutions?

So from 40,000 feet, many of them look the same. It's usually risk acceptance, chasing after a particular loan category to the exclusion of all else, concentrations, credit risk management. So in that sense, I think there's some similarity. Obviously, my last bank had criminal elements to it. This does not. So I'm pleased that I'm not doing that kind of work anymore.

I think there's -- again, a lot of similarities at the high level, but each bank is different individually. The systems are different. The controls are different. Fortunately, I haven't seen any compliance issues here, which would be a challenge. I think it's just trying to get under the hood and understanding and communicating the -- what we see in the credit risk side to a point that kind of takes away some of the market uncertainty.

Okay. Got it. That's helpful. And then with any credit remediation process, which I think we can all agree is the top focus here. The big questions are always what that looks like as far as length of time and then also just ultimate loss severity. And I know it's early days and you'll be able to share more as time goes on, but I'm just curious how you think about weighing those factors more broadly against one another. And just any initial thoughts you may have on how aggressive or decisive you think you'll end up needing to be on that end of things?

I've never been accused of being not aggressive enough. So I'd say past is prologue, faster the better within the confines of what we can do and what the market allows. It's hard for me to get a sense of the loss component just because these portfolios are smaller in terms of dollar denomination per loan, and they are mostly, at least as I've seen so far in the cannabis place and in these small business, I think they call them Business Express loans. So that's going to be an interesting process.

But sooner is better than later. I'm not someone to take a long time and dribble things out, and it is what it is. I'm not going to change it. And if it's better than the market thinks, that's good news. If it's less than that, then we'll address it forthrightly. I hope -- again, I hope to have some pretty good transparency and clarity by the end of the third quarter.

Got it. Great. And then maybe just one last one. If we think longer term, I'm sure this will also evolve over time. But how do you think you evaluate success in turning things around here? What strategic goals, at least at this juncture, do you think need to be met? And are there certain financial objectives that you think about to go alongside that?

Well, I tend to look at the ratings process that the regulators use, the CAMELS ratings. I look at the relative stock price performance. The multiples to the extent we're at market levels -- better than market levels, I think that's a good metric. But at the end of the day, it's mostly do we have a company that provides shareholders and all the stakeholders, frankly, employees and the Board, customers with a credible resource and opportunity and a solid balance sheet.

Our next question comes from Chris Marinac at Brean Capital.

Tom, I look forward to working with you in this next chapter. I wanted to ask your philosophy about deposits and kind of what your early impressions are of the deposits at BCB and kind of where you'd like to take it?

So I've -- that's actually a really good question. One of the things that I always focus on at the different banks I've been at is what is the deposit mix? What's the structure? What's the opportunity? BCB has a, what I said in the press release, kind of an enviable footprint. And I think the deposit mix is reasonably good for a community commercial bank. I like deposits that track to some extent, the business, especially in the C&I space. I only have limited patience for credit exposures where we don't have a full view of the customers' financial activity.

And -- but as I said, I think BCB has a fairly good deposit base. I know the operating system that we're on was the same one I've had at another bank. And we'll look at each of the branches and see what, if anything, they need to continue to be successful. But I think deposits are always kind of the mother's milk of the community bank space. So we'll spend a lot of time looking at those and trying to do the best we can with cost management. I'm not a wholesale funding guy. I don't really think there's any value created by wholesale deposits or advances or things like that other than for short-term funding needs. But as a liability product, you're not going to see that from me.

Our next question comes from David Konrad at KBW.

Just a question as you're kind of putting together your plan over the next year to 3 years. You talked about your focus on tangible book value and growth there and maybe protection of tangible book value. But just kind of as you put together your plan, how do you emphasize the asset quality issue versus a strategy underneath for growth? Is it all hands on deck on credit first and then move to a strategy? Or can you kind of work both and at the same time?

I would say it's really all hands on deck with getting -- the stock has been trading at 50%, 60% of book. So that tells you somebody doesn't agree with our tangible book value today. So I want to get that answered for my satisfaction, the Board's satisfaction, investors' satisfaction. Let's be sure. Let's be sure we have it right. And to me, I wouldn't say the first year of -- in the first of quarters, I'd say that's probably job 1 through 10.

Our next question comes from [indiscernible].

Tom, I was just hoping to ask a question about the Board complexion. I've followed the company for a number of years, really dating back to the IPO. And like you, I've always felt the bank had a pretty strong core deposit franchise, particularly in the markets that it's in, but it's been clearly masked by recent events and credit concerns and whatnot. So one of my primary concerns has been just around the Board and specifically Board independence. Maybe just spend a moment, if you don't mind, talking about your views of the Board and the construction of the Board, support for any changes that you may or may not, I think, are necessary. And it would be helpful just to get your thoughts on the Board?

Yes, sure. I'm happy to do that. So I have spent a little bit of time talking to the Board in this probably the last 2 months or so -- probably a little more than that. So as I said in my remarks, I mean, the Board is engaged. We've had very, very good discussions on my view of things, their view of things. I would say we are totally aligned and in sync with the kind of the action agenda. There's always some concern when there's affiliate transactions, and we do have a few.

So I've told the Board it probably would make sense to bring in a couple of additional directors that are purely independent. But again, as I said, everybody in the boardroom is engaged and cares. A lot of them are big stockholders. Like a lot of newer charters in the beginning, Board members tend to be involved in different aspects of the business, different than what you might see in a longer-standing existing public company.

And -- but as you mature, those things tend to drift off. And again, I'm conscious of them. They're pretty well disclosed, and I don't have a concern. But on the other hand, optics are important, and I think we probably should -- and I think they will agree and have agreed the more we can satisfy those kind of concerns, the better off price of the stock is and the less overhang there might be in terms of how people view the company.

Okay. At this time, there appear to be no other questions or hands raised or questions in the chat. So I think that will conclude our call for this morning.

Okay. Great. Thank you. Thanks, Ryan, and we'll be in touch.

Thanks, everybody.