On Wednesday, when Edwin F. Hale Sr. presides over his first annual stockholders meeting as chairman of Baltimore Bancorp, the self-admitted tough-guy owner of shipping interests and the Baltimore Blast is likely to face some difficult questions.
Why does the $3.2 billion Baltimore Bancorp, Maryland's fifth-largest banking company, continue to underperform other banks of its size? Why have several directors resigned from the board in recent months? Why is the company suing its former attorneys? And can the company shrink its large portfolio of problem assets?
Tough questions, perhaps. But the company's primary concern is more basic: raising its proportion of capital to assets. By the end of this year, Baltimore Bancorp must raise a key capital ratio by almost 25 percent, either by raising new capital or reducing assets -- or both. The alternative is possible action by federal regulators, including perhaps a forced downsizing that could require the sale of profitable assets.
Mr. Hale and his advisers say they didn't know when they took over the company in September was how weak the assets were. In the third quarter last year, non-performing assets -- which include loans that are not being repaid and foreclosed properties -- more than tripled from the previous quarter as the new management came in and attempted to wipe the books clean of troubling loans.
Harry L. Robinson, the former chairman who was ousted in June, has another view of recent events. "You do make loans, but you have to manage them as well. That's the key," he said in an interview Friday. "I had been there for 44 years and the bank was profitable in every one of those 44 years."
Still, the new management increased the level of assets considered non-performing by almost $155 million in the third quarter, to $222.1 million. Largely because of reserves set aside for the problem loans, Baltimore Bancorp wound up reporting a $101.5 million loss for 1991. And that figure was boosted by 25 percent in March when the Federal Deposit Insurance Corp. ordered that more loans be written off and more reserves set aside to cover future losses.
At the end of last year, the amount of non-performing loans was equal to 8.2 percent of Baltimore Bancorp's total loans. That was almost twice the average level of all banks in Maryland, Virginia and Washington at that time, and more than two times the national average of 3.69 percent, according to Sheshunoff Information Services Inc. of Austin, Texas.
"It was a little bit worse than we expected it to be," said chief financial officer Joseph A. Cicero, who joined the company in January from Washington's Perpetual Savings Bank. "And it got geometrically worse as things continued."
The stock price has also suffered. After peaking at above $11 a share between the time Mr. Robinson resigned and Mr. Hale replaced him last year, the stock declined to half that amount. It rebounded somewhat earlier this year and closed Friday at $5.875 a share.
Some analysts are still concerned about the amount of reserves that have been set aside to cover losses from loans. Reserves are less than half the value of loans classified as non-performing, contrasted with about 75 percent for MNC Financial Inc. and its subsidiary banks, Maryland National and American Security. "And people question whether MNC is adequately reserved," said David Penn, banking analyst for Legg Mason Inc.
Lisa Todaro, an analyst at SNL Securities in Richmond, noted that Baltimore Bancorp's ratio of reserves to non-performing assets was little more than half the national average at the end of the year.
But John Bailey, a Ferris, Baker Watts analyst in Washington, pointed out that company managers say all previously identified problem loans have been written off the books, which, he said, "makes their reserve level seem a little bit stronger than it would otherwise appear."
Mr. Bailey said one thing investors will want to see is whether the company can begin to diminish its level of non-performing assets, either by renegotiating loans or selling foreclosed properties. "They need to show themselves to be capable workout people as well," he said.
To reduce the amount of troubled assets, unchanged on March 31 from the year-end level of about $237 million, the company has created two sets of workout teams: a four-person squad working on the $68 million of foreclosed real estate -- most of it office buildings, hotels and shopping centers in the Baltimore-Washington area -- and an eight-person staff to handle the soured loans.
Once a month a five-member "watch list committee," meets for )) three days with most of the company's top managers to go over every troubled asset on the books, according to Charles H. "Buck" Whittum Jr., a retired executive vice president from Signet Banking Corp. whom Mr. Hale enlisted in the proxy fight. He said he's involved with the negotiations over every loan restructuring, a process that takes about a third of his time.