Baltimore Bancorp plans to shrink by about 15 percent this year, as the parent of the Bank of Baltimore sells off $500 million in assets in a bid to boost the bank's sagging capital and cut its reliance on high-priced brokered deposits.
The $500 million in asset sales will let the company pay off $450 million in brokered deposits -- usually in the form of certificates of deposit larger than $100,000 -- that the company's former management had used to fund a push into commercial real estate lending in the late 1980s, Chief Executive Charles H. Whittum Jr. said. He said those CDs pay an average interest rate of 8.8 percent, about double the rates the bank pays on new CDs.
"Obviously, they need to improve their capital position," said David S. Penn, banking analyst at Legg Mason Inc. in Baltimore. "One of the ways to get additional capital is to shrink your assets without losing money. It's probably the cheapest way to do it."
With the smaller asset base, the bank won't need as much capital to keep itself sound, Mr. Whittum said.
The company's investor relations director, David L. Spilman, said Baltimore Bancorp hopes to raise capital through the public markets later this year, though officials said they haven't decided whether to sell stock or issue debt.
The company's stock closed unchanged yesterday at $5.75 a share on the New York Stock Exchange.
Separately, the company said yesterday that William A. Beasman Jr., former chairman of the Savings Bank of Baltimore, Baltimore Bancorp's predecessor company, had rejoined the board as chairman emeritus.
Baltimore Bancorp already has sold $173 million in home equity credit lines and plans to sell $100 million in Treasury notes, more than $50 million in General National Mortgage Association securities and $100 million in mortgage loans, the company said in its annual 10-K filing with the Securities and Exchange Commission released yesterday.
The company had previously announced the sale of $118 million worth of home equity loans to Pittsburgh National Bank, a move that Chairman Edwin F. Hale Sr. said accounted for 40 percent to 50 percent of the company's $5.1 million first-quarter profit.
Mr. Spilman said yesterday that the company has sold an additional $55 million worth of home equity loans to Pittsburgh National this month.