BCB Bancorp, Inc. (BCBP) Earnings

Management highlights

- CEO Transition & Initial Progress: New CEO Thomas O'Brien has completed 60 days at the firm, and the comprehensive balance sheet and credit portfolio review he outlined in June remains on schedule. All firm staff are working on the review, with outside consultants brought in to support the process. - Capital & Liquidity Actions: The firm suspended dividends on both common and preferred shares to retain holding company liquidity and build bank capital. Management confirms the bank currently maintains a healthy capital base, with the primary structural challenge being excess double leverage at the holding company. - Credit Portfolio Review: Root causes of current credit issues stem from overly aggressive growth between 2020 and early 2024, including entry into business lines that management did not fully understand, resulting in poor underwriting, pricing, and structure for many loans. As of the second quarter: the business express portfolio has completed a comprehensive review; C&I review is 50% complete; the vast majority of the commercial real estate (CRE) portfolio remains under review, with only large individual loans completed to date; the legacy consumer portfolio has had minimal losses, is already exited as an active business, and is not a priority for review. Management has found both positive and negative surprises during the review, with no material average change to overall risk ratings so far. - Corporate Governance Changes: The Board approved reincorporating the firm in Delaware and eliminating staggered director terms, to bring BCB into a more modern corporate governance structure. - Strategic Goals: The overarching priority is to resolve longstanding financial statement uncertainty, provide a clear path forward by the fourth quarter 2026, and position the firm for fiscal 2027.

Guidance

- Management expects to complete the full credit portfolio review and deliver comprehensive, updated strategic and capital plans by around Labor Day 2026, with final clarity on the full scope of adjustments planned by the end of the third quarter 2026. - Operating expenses will be elevated for the next two quarters due to consultant and legal costs associated with the balance sheet cleanup, and are expected to normalize by 2027 if the process is completed successfully. - Management withdrew prior expectations for a major recovery in the C&I loan portfolio, which was previously forecast before the current review began. - Management will not pursue balance sheet growth until the credit review and capital planning process is complete, to preserve flexibility.

Segment performance

BCB Bancorp does not break out performance across multiple product segments in this call. Net income for the quarter included a $5.3 million goodwill write-off. Total loan loss provisioning for the quarter was $19 million, with $16.7 million of that allocated to the Commercial & Industrial (C&I) loan portfolio. Total charge-offs in the quarter were approximately $5.8 million in the C&I segment, concentrated in the business express sub-portfolio and 2 pure C&I loans. The business express loan portfolio, a source of consistent losses in prior years, had $10 million in losses in 2025, similar losses in 2024, and $1.1 million in year-to-date 2026 losses, indicating moderating loss trends. Net interest margin increased 8 basis points to over 3% in the quarter. Core operating revenue has consistently hit $25 million per quarter ($100 million annualized), while elevated credit costs have driven net losses. The cannabis-related loan portfolio totaled $69 million at quarter-end, with no past due loans as of the end of the quarter, and most backed by specialty commercial real estate collateral.

Risks & headwinds

- Overly aggressive prior growth and entry into unfamiliar business lines created material credit risk across the C&I and CRE portfolios, leading to large charge-offs that have driven recent net losses. - The business express loan portfolio has a binary risk profile: performing loans pay off as expected, but defaulting loans result in near-total charge-offs with minimal recovery. - The holding company faces material liquidity and leverage risks from its existing double leverage structure, outstanding debt, and preferred share dividends, which were suspended to address these risks. - A large share of the CRE portfolio remains classified as criticized, and the majority still requires full reunderwriting; specialty collateral CRE loans (such as cannabis-related properties) carry heightened collateral value risk if the borrower defaults, as repositioning the property can sharply reduce its value. - Additional material charge-offs and further reserve builds are expected in coming quarters as the credit review concludes, creating continued uncertainty around near-term profitability and capital needs.

Analyst Q&A

• Q: Justin Crowley (Piper Sandler) asked whether this quarter's C&I provision and charge-offs reflect most of the required derisking work for the C&I portfolio, and what to expect from the upcoming CRE review. /

  A: The quarter's charge-offs included a comprehensive review of the business express sub-portfolio, but work on broader C&I and CRE is still ongoing. $16.7 million of the $19 million total quarter provision went to C&I (excluding business express), and management withdrew prior forecasts of a major C&I portfolio recovery. For CRE, while collateral value generally gives more downside protection than bad C&I loans, criticized classifications remain shockingly high, and the vast majority of the portfolio still requires full reunderwriting. No specific estimate of future provisioning can be provided at this stage.

• Q: Crowley also asked whether BCB can address capital needs via balance sheet shrinkage alone, or if a capital raise will be required, and how management's view of credit risk has changed since the CEO took office. /

  A: Management has not yet reached a conclusion, as the analysis is still ongoing and the holding company structure adds complexity. In the CEO's first two weeks on the job the outlook seemed worse than initial expectations, but more recent findings have improved the overall outlook, with the main issues confirmed as poor pricing, poor structure, and overexposure to unfamiliar lines of business. All options are being modeled, and any updates will be provided by Labor Day.

• Q: Christopher Marinac (Brean Capital) asked when additional C&I charge-offs will be taken after the second quarter's large reserve build. /

  A: The second quarter reserve build was a general qualitative reserve for the whole C&I portfolio, based on consultant feedback and elevated loss trends, not reserves assigned to specific identified bad loans. Additional charge-offs will be identified and taken as the review concludes, with a comprehensive update expected by the end of the review process around Labor Day. There have already been close to $30 million in total 100% charge-offs across the fourth quarter 2025 and second quarter 2026.

• Q: Ross Haberman (Rlh Investments) asked about the status of the firm's $25 million deferred tax asset (DTA) if future large write-downs occur, and about the firm's relationship with regulators. /

  A: Management does not expect to need a valuation reserve against the DTA. BCB's core franchise maintains consistent $25 million per quarter operating revenue, so once the credit cleanup is complete, the DTA will be utilized fairly quickly. There is no public regulatory order in place (none will be disclosed in the upcoming 10-Q), and management maintains open, transparent communication with regulators with a no-surprise policy, and relations are currently good.