Baltimore Bancorp took a massive hit yesterday as the company's new managers added $47 million to reserves against possible loan losses and classified almost $145 million in loans as non-performing.
The company said yesterday that it lost just under $40 million in the third quarter because of moves taken by new Chief Executive Charles H. "Buck" Whittum and new Chairman Edwin F. Hale Sr., who led a successful, five-month proxy fight that gave his backers control of the Bank of Baltimore's parent company last month.
The company also said it would eliminate its 15-cents-a-share quarterly dividend for the time being. The company didn't give a specific reason for suspending the dividend, but the $2 million quarterly saving will help the bank repair the damage the weak loans have done to its capital base. The old board had announced plans in August to cut the dividend to 9 cents a share.
"It was unfortunate and painful, but nevertheless necessary, to substantially add to our reserves at this time," Mr. Hale said in a statement. "In our judgment, the addition to reserves and write-down of other real estate owned [reflecting the reduced market value of projects the bank has repossessed] are primarily related to prior periods."
Analysts who follow the company said that the moves were likely tactic by the new board of directors and its new auditors to blame the company's problems, which they said are far from catastrophic, on the vanquished directors led by former CEOs Harry L. Robinson and Robert Comstock.
"They could take a hit if they wanted to and not get blamed for it," said David S. Penn, a banking analyst for Legg Mason Inc. in Baltimore.
Mr. Penn said it isn't possible to know whether the new management is exaggerating the problems it inherited without access to non-public information on specific loans. But he said that the company is likely to be able to deliver on Mr. Whittum's promise yesterday that he doesn't foresee any more major short-term additions to reserves.
"I'd be surprised if this wasn't enough for now; I'd be absolutelyshocked if they low-balled it on purpose," Mr. Penn said. To protect its reputation, the new auditor, Coopers & Lybrand, would be careful not to understate problems at the bank, he said.
Mr. Hale and Mr. Whittum replaced the bank's long-time auditors, the accounting firm of Ernst & Young, with Coopers & Lybrand.
Mr. Hale and the new directors have said for months that they didn't believe Mr. Robinson had been forthright about the bank's loan quality. Elisabeth A. Hayes, an analyst for Chapin, Davis & Co. of Baltimore, said analysts had long suspected the bank had more loan problems than it had admitted, and said it was believed that the former management was able to understate its weaknesses because the state-chartered Bank of Baltimore is regulated by different, more lenient agencies than federally chartered competitors such as Maryland National Bank.
The new board had also criticized Mr. Robinson and his colleagues for buying shares of MNC Financial Inc., the parent of Maryland National Bank, in 1990 for $12 a share. Yesterday's figures included a $3.9 million loss on the value of investment securities, part of which Mr. Burch said reflected the slashed value of the MNC shares.