BCB Bancorp, Inc. (NJ) (NASDAQ:BCBP)’s banking unit BCB Community Bank introduced Thomas O’Brien as its new president and chief executive officer on a call with analysts and investors, where he laid out an early focus on credit quality, capital structure and tangible book value.
Ryan Blake, chief operating officer of BCB Community Bank, opened the call by introducing O’Brien. O’Brien said he wanted to “get out in front of the story” following the bank’s announcement and provide early commentary to those following the company.
Credit Quality and Capital Structure Take Priority
O’Brien said several issues will warrant immediate attention, including what he described as “a somewhat complex capital stack” and “fixed debt obligations of some significance.” He also pointed to criticized and classified loans and recent losses that he said have challenged the market’s confidence in BCB’s 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 wariness,” O’Brien said. “I believe that needs to be quantified and ring-fenced as quickly as we can.”
O’Brien said he believes in tangible common equity, capital simplicity and the growth of tangible book value per share through long-term core earnings. He said he has “little concern” for short-term measures such as quarterly earnings, loan growth statistics and pipelines, adding that he tries to avoid earnings forecasts and the practice of managing toward estimates.
He also said the subsidiary bank must remain “comfortably well-capitalized.” If that requires a restructuring or capital raise, O’Brien said he “would never hesitate to do what’s necessary to protect the bank.”
O’Brien Signals Aggressive Credit Review
In response to a question from Justin Crowley, an analyst at Piper Sandler, about the complexity of BCB’s situation compared with prior institutions, O’Brien said many distressed banking situations look similar from a high level, often involving risk acceptance, concentrations and credit risk management. He said he had not seen compliance issues at BCB.
“I think it’s just trying to get under the hood and understanding and communicating what we see in the credit risk side to a point that kind of takes away some of the market uncertainty,” O’Brien said.
Asked about the timing and loss severity of credit remediation, O’Brien said he favors moving quickly. He said the loans he has reviewed so far include exposure in cannabis-related lending and small-business loans referred to as “Business Express” loans.
“The faster, the better,” O’Brien said. “I’m not someone to take a long time and dribble things out, and it is what it is.”
O’Brien said he hopes to provide more transparency and clarity by the end of the third quarter and expects to speak more formally and comprehensively around the time of the third-quarter earnings call.
Deposits and Funding Strategy
Chris Marinac of Breen Capital asked about O’Brien’s philosophy on deposits and his early impressions of BCB’s deposit base. O’Brien described BCB’s footprint as “enviable” and said the deposit mix is “reasonably good for a community commercial bank.”
He said he prefers deposits that track with customer relationships, particularly in commercial and industrial banking, and said he has limited patience for credit exposures where the bank does not have a full view of the customer’s financial activity.
O’Brien also said he is not inclined toward wholesale funding as a core liability strategy.
“I’m not a wholesale funding guy,” he said. “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.”
Asset Quality Comes Before Growth
David Konrad, an analyst at KBW, asked how O’Brien would balance asset-quality work with a longer-term growth strategy. O’Brien said the stock’s valuation relative to book value indicates investor skepticism about the company’s stated tangible book value.
“I want to get that answered for my satisfaction, the board’s satisfaction, investor satisfaction,” O’Brien said. “To me, I wouldn’t say the first year, but in the first couple of quarters, I’d say that’s probably job one through 10.”
O’Brien said he evaluates success using several measures, including the regulatory CAMELS ratings process, relative stock-price performance, valuation multiples and whether the company provides shareholders, employees, directors and customers with a credible resource and a solid balance sheet.
Board Composition and Independence
Robert Haber of Mount Grey Partners asked about BCB’s board composition and independence. O’Brien said he has spent time speaking with the board over the past several months and described directors as engaged and strategically aligned.
O’Brien acknowledged concerns that can arise from affiliate transactions and said BCB has “a few.” He said those matters are disclosed and that he does not have a concern, but added that optics are important.
O’Brien said he has told the board it may make sense to add “a couple of additional directors that are purely independent.” He said many board members have substantial personal investments in the company and that the board is aligned on the action agenda.
“We all want the same outcome,” O’Brien said. “We are strategically aligned and committed.”
About BCB Bancorp, Inc. (NJ) (NASDAQ:BCBP)
BCB Bancorp, Inc is a bank holding company incorporated in New Jersey and traded on the NASDAQ under the symbol BCBP. Its primary subsidiary, Bergen Commercial Bank, operates as a full-service community bank focused on serving the financial needs of individuals and businesses in the New York metropolitan area. Headquartered in Clifton, New Jersey, the company has built its reputation on personalized banking relationships and local decision-making.
BCB Bancorp offers a comprehensive suite of deposit products, including checking accounts, savings accounts, money market accounts, and certificates of deposit.
