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A deteriorating commercial real estate credit has forced Bancorp 34 in Scottsdale, Arizona, to restate third-quarter earnings and extend the deadline of its pending merger with CBOA Financial.
The $28 million, all-stock deal between Bank 34 and CBOA — the Tucson, Arizona-based holding company for the $411.3 million-asset Commerce Bank of Arizona — was announced April 27 and had to be completed within a year. Both companies agreed Friday to extend the completion deadline two months to June 28, according to a news release issued Friday by the $581 million-asset Bank 34.
The companies agreed further to adjust the exchange ratio upward, according to the release. Originally, CBOA investors were to receive 0.24 shares of Bank 34 stock for each of their shares. Under the new ratio, they would receive 0.2628 shares.
Attempts to reach officials at both companies Tuesday were unsuccessful.
Credit-quality matters notwithstanding, the deal is on track for completion in the first quarter, Bancorp 34 CEO Jim Crotty said in the release. “While we had to address a single isolated credit with a specific reserve in the third quarter, significant progress has been made towards completing the merger,” Crotty said.
Bancorp 34 restated third-quarter earnings to reserve an additional $2.28 million for a single CRE credit it had previously placed on nonaccrual status. As management worked to service the problem credit, it determined deterioration had been present on Sept. 30 and opted to revise its financial statements. The modest $3,000 profit Bancorp 34 previously reported for the third quarter flipped to a $2.275 million loss. Similarly, the $550,000 profit reported for the first nine months of 2023 changed to a loss of $1.73 million.
Bancorp 34 said previously its results included merger expenses of $1.3 million through Sept. 30.
CBOA earned $2.5 million through the first nine months of 2023, according to the Federal Deposit Insurance Corp.
Bancorp 34’s difficulties come as banks around the country have dramatically scaled back commercial real estate originations in the wake of rising delinquencies. According to a report issued earlier this month by Trepp, third-quarter CRE originations by banks totaled $2.5 billion, down 46% on a linked-quarter basis and nearly 70% year over year. A recent academic paper, moreover, concluded nearly half of banks’ office loans — one of the five CRE property types Trepp tracks — appear to be underwater, with loan balances in excess of an individual property’s value.
Bancorp 34 did not provide any details in Friday’s press release about the type of CRE property tied to the problem loan.
Bank 34 joins a number of institutions that have announced delays to planned mergers.
On Wednesday, the $14.1 billion-asset Provident Financial Services in Iselin, New Jersey, and the $11.2 billion-asset Lakeland Bancorp in Oak Ridge, New Jersey, extended the deadline to close their $1.3 billion, all-stock deal to March 31. Announced in Sept. 2022, it was initially scheduled for a second-quarter 2023 close. Two weeks earlier, the outside closing date for the $22.5 billion-asset, Seattle-based WaFd’s $654 million acquisition of the $8.1 billion-asset Luther Burbank Corp. in Santa Rosa, California, was extended through February. None of the companies involved in either merger provided a reason for the delays.
