Baltimore County Savings Bank announced plans yesterday to reorganize as a fully public company in hopes of raising enough capital to put the bank on solid footing with regulators and depositors after it lost money in an alleged check kiting scheme last year.
The bank, which operates as a mutual holding company, said the funds it expects to raise in a public offering would give management more flexibility as it implements a new business plan. The bank has been operating under new management since shortly after losing $10.7 million in the check kiting scheme, which according to court filings allegedly involved now-defunct A&B; Check Cashing in Baltimore.
Joseph J. Bouffard, president and chief executive of BCSB Bankcorp Inc., said the additional funds also would help the bank prove to regulators that it can weather any downturns that might arise in the future. Baltimore County Savings has been operating under the supervision of regulators, who have been scrutinizing its internal controls and capital structure since December 2005.
"We meet all the financial and regulatory requirements to be well-capitalized under all the standards, but just barely," said Bouffard, who took over after former bank President Gary C. Loraditch resigned last summer. "That poses concerns from a management standpoint and from a regulatory standpoint."
The bank became a publicly traded mutual holding company in 1998, selling 35 percent of its shares to outside investors and leaving the remaining 65 percent in the hands of depositors. The mutual structure is often employed when management wants to raise capital without exposing the bank to potential takeovers.
The company's shares, which are thinly traded on the Nasdaq stock exchange, soared $2.45, or nearly 17 percent, to close at $17.25 per share yesterday.
The plan approved by board members yesterday essentially calls for selling the remaining 65 percent stake in the company to public shareholders. The bank's depositors will have the option of converting their current holdings into the new shares.
Existing shareholders will get new shares with equal value in the newly formed corporate structure, based on the appraised value of the bank, Bouffard said. The bank expects to complete the offering this summer.
The move will make it easier to sell the bank if management decides to take that course in the future.
But Bouffard said regulators prohibit a bank from being sold for at least three years after it has converted from a mutual holding company to a publicly traded corporation. That means there are no plans to sell the bank for some time.