BCB Bancorp in Bayonne, N.J., is turning to the capital markets as the scale of its credit cleanup comes into sharper — and far more painful — focus.
The $3.1 billion-asset company announced that it has launched an underwritten public offering of common stock, with Piper Sandler & Co. serving as sole book-running manager, with plans to raise $85.3 million. BCB also said it expects to report a third-quarter net loss of $126.2 million to $136.1 million — a dramatic escalation from the $14.8 million loss from a quarter earlier.
The size of the swing reflects how much worse BCB’s problem loans turned out to be once the company brought in outside help to dig through its books. That process began in earnest over the summer, shortly after BCB hired Tom O’Brien, a veteran turnaround executive, as CEO.
When BCB reported its second-quarter results in August, the company had a $19 million loan-loss provision, a $5.3 million goodwill impairment, and a $2.6 million write-down tied to a single nonaccrual construction loan moved to held-for-sale.
O’Brien said at the time that BCB was in the middle of “a comprehensive reevaluation” of its credit portfolios with independent consultants, and cautioned that the review of its much larger commercial real estate book was still in its early stages given the portfolio’s “absolute size and complexity.” BCB suspended its common and preferred dividends, halted originations of residential mortgage, home-equity, and consumer loans, and moved to reincorporate in Delaware with annual director elections.
Management said in its latest announcement that it had identified and begun marketing roughly $210 million in problem loans, the bulk of them carrying internal risk ratings of special mention or substandard. The portfolio breaks down into $183.4 million of commercial and multifamily real estate loans, $16.7 million of C&I loans, and $9.8 million of construction loans. BCB has received non-binding indications of interest covering the entire balance and expects most of the sales to close by the end of the third quarter. Any leftover loans would shift to held-for-sale status and carry into the fourth quarter.
The bank is also stepping back from a business line that has long set it apart: cannabis banking. BCB is looking to sell roughly $69 million in cannabis-related loans and $70 million in cannabis-related deposits. Combined with an additional $27 million of weakening CRE loans also being moved to held-for-sale, BCB is reclassifying nearly $306 million in assets this quarter.
BCB expects its net interest margin for the quarter to land between 2.90% and 3.00%, with noninterest income of $5.1 million to $5.7 million and noninterest expense of $17.9 million to $18.5 million. The real damage shows up in credit costs: BCB anticipates a loan-loss provision of $112 million to $120 million, including an $87 million pretax loss tied to loan sales and transfers.
BCB also determined that, given its cumulative losses in recent years and the anticipated loss for the quarter, it’s more likely than not that its net deferred tax assets won’t be realized. As a result, it recorded a valuation allowance against its entire deferred tax asset balance, roughly $50 million, further weighing on the results.
O’Brien cast the quarter as the fulfillment of the mandate he set out when he joined.
“We have spent the last three months reviewing BCB’s legacy credit challenges, re-assessing risk ratings, and developing action plans,” he said in the new press release. “When I joined the company, I stated that my first priority would be to aggressively address these very issues. The actions … do just that.”
O’Brien committed to “work through the credit portfolios and put transparent, actionable solutions in place promptly,” adding that he believes the moves “lay the foundation for a stronger, sustainable and profitable future.”