Hurt by an expensive proxy fight and a golden parachute payment to its former chairman, Baltimore Bancorp saw its earnings drop by 44 percent during the second quarter.
The parent company of the Bank of Baltimore reported a second-quarter net income of $3 million, or 24 cents a share, compared with earnings of $5.4 million, or 42 cents a share, during the 1990 second quarter.
The net income was severely hurt by the $1.3 million the bank spent to fight a takeover attempt by dissident stockholders. Another $1.8 million was paid to Harry L. Robinson, who was removed as chairman and chief executive officer at the end of June. He was entitled to the payment under the terms of a contract that runs until Jan. 31, 1994, bank officials said.
Despite the drop, Robert F. Comstock, the new chairman and chief executive officer, was upbeat about the results. "If you factor out all the one-time events, our second-quarter 1991 operating results were slightly below a year ago," Comstock said in a prepared statement. "Considering the weakness of the real estate market and the general economy, and the distractions of a proxy fight, that's a pretty good performance.
"For the long term, we know our profit performance should be be better, so we've put a new operating plan into place that we think will make us a more profitable institution," Comstock said.
For the first six months, net income was $8.1 million, or 63 cents a share, a 22.9 precent drop from the same period a year ago when the company reported earning $10.5 million, or 82 cents a share.
The bank added $5.2 million to its loan-loss reserves during the second quarter compared with a provision of $3.3 million in the 1990 second quarter. Standing at $34.5 million at the end of June, the bank's loan-loss reserves were 92 percent of non-performing loans. In comparison, the $34.2 million in loan-loss reserves at the end of the first quarter represented 78 percent of the non-performing loans.
For the last few months, Baltimore Bancorp has been the target of a takeover attempt by a group of dissident stockholders headed by Edwin F. Hale Sr., the owner of trucking and shipping companies and the Baltimore Blast, a professional indoor soccer team.
In a proxy fight, a group of dissidents tries to persuade shareholders to vote their shares in favor of their candidates for the board. If successful, the dissidents gain control of the company.
The Hale group has succeeded in getting six of its members on the 18-member Baltimore Bancorp board. However, the 4th U.S. Circuit Court of Appeals last week upheld a District Court decision ordering a new vote on whether to enlarge the board. A date of Aug. 29 has been set for the vote.
If the Hale group wins that vote, 10 more dissident shareholders, who had won in previous balloting, would take seats on the board. This would give Hale a majority of a 28-member board.
Throughout the proxy fight, the Hale group has criticized the amount of money spent by management on the contest. The dissidents have also complained to state and federal bank regulators about the payment to Robinson.
Hale has previously said his group will seek reimbursement from Baltimore Bancorp for its expenses in the proxy fight if it succeeds in taking over the board. Hale had estimated the expenses would be about $500,000.
Daniel Burch, executive vice president of Dewe Rogerson Inc., the proxy-solicitation firm working for the dissidents, said the Hale group did not have any comment on the earnings because the new directors still have not received the financial information they have requested.
He said yesterday's board of directors meeting was "less acrimonious" than the one held at the end of June, but the new directors made no progress in gaining access to bank records.
Despite the Hale group's previous criticism of management, Burch said he was surprised that the amount spent on the proxy fight "was that little." Estimates of what Baltimore Bancorp had spent ranged as high as $2 million to $2.5 million, he said.
In another development yesterday, Baltimore Bancorp said it is dismantling its shareholder rights plan, commonly called a "poison pill," as the result of a shareholder vote to eliminate the plan. Such plans have been adopted by various companies to prevent hostile takeovers.
To "redeem" the rights under the plan, shareholders are to receive 1 cent for every share of stock they hold. With 12.7 million shares outstanding, the bank will pay $127,513 on Oct. 1 to shareholders of record as of Sept. 16.