A single customer got Baltimore County Savings Bank in trouble. Now it is looking to many customers to get it out.
Still wobbling from a check-kiting fraud last year that cost it millions of dollars, the suburban thrift is hoping that depositors will look past its losses and the government's concerns about its operations to buy up most of the stock in a sale that's expected this summer.
Without a successful offering, the bank says, it could deplete its liquid assets within two years.
Offering stock from such a position may be a tough sell. But Joseph J. Bouffard, the longtime Baltimore banker brought in from outside after the fraud was uncovered to take over leadership of Baltimore County Savings, says some extreme steps must be taken for the bank to get on more solid financial footing.
Not only are federal regulators eyeing his progress closely, but potential investors will be basing their decision to invest, in part, on whether they think he's up to the job. "To turn Baltimore County Savings Bank around, we've got to do some radical things," Bouffard said.
Baltimore County Savings, founded more than five decades ago, has grown from one branch with limited hours to 18 branches in three counties and the city.
BCSB holds nearly $600 million in deposits, and about 95 percent of its loans are made in the Baltimore area. Its charitable arm donates tens of thousands of dollars each year, and the bank is a longtime sponsor of the annual Turkey Bowl, a closely watched local high-school football matchup.
Now the bank is in a jam. Last year, the bank discovered nearly $11 million in losses from a scheme in which a commercial customer, identified in court papers as Baltimore-based A&B Check Cashing, wrote bad checks and covered its tracks with bad checks from other accounts. A&B is out of business, and the FBI is investigating. The bank has warned it may never recover much of the money.
The scheme severely dented the bank's cash reserves, and the negative publicity hurt its ability to attract and keep depositors. Baltimore County Savings' parent company lost $3.2 million in the six months through March and $7.4 million in the fiscal year before then.
Another bank hit by the kiting scheme, Carrollton Bancorp, which lost $1.8 million, has weathered the incident and still reported a profit for last year of $2.6 million.
Even before the scheme was uncovered, Baltimore County Savings had been operating under heightened regulatory scrutiny for a variety of reasons, including lack of a sufficient business plan.
In light of the battering the bank has taken, an initial appraisal included in the stock offering prospectus suggests that its new stock be priced at a steep discount to competitors that have gone public. Bouffard says the discount should be a draw for investors. "It's a good deal," he said.
The bank's previous CEO, Gary C. Loraditch, resigned in July in the wake of the kiting losses, and the board hired Bouffard, a Highlandtown native, away from his job as CEO of Patapsco Bancorp.
In a wide-ranging interview at the Double-T Diner in Perry Hall, down the street from the bank's main offices, Bouffard spoke about the bank's prospects and why he took the position.
"It's a great opportunity," Bouffard said of the job. "It's a good financial institution with tremendous potential in a great market I'm very familiar with."
He has been in banking for more than three decades, and he has never left Baltimore. He is so Bal'more-centric that he jokingly calls his son's decision to move to Northern Virginia "radical."
Bouffard may not be as flashy as other bankers who seek to expand through mergers and branch building, but he is highly regarded. "He's a very solid and focused type of person, and he's got an excellent background in banking knowledge," said Jan W. Clark, president at County National Bank, soon to be part of Olney-based Sandy Spring Bancorp.
And he had the fortitude to survive Edwin F. Hale Sr. at the old Bank of Baltimore. Hale took over the bank after a nasty shareholder fight in the early 1990s and fired many of the executives, though not Bouffard.
With a smile, Bouffard says it was probably only a matter of time before Hale noticed he was still around and fired him, too. Hale says he knew Bouffard was there all along - and kept him because he was "very effective."
"He's just what the doctor ordered for them," Hale, now CEO of First Mariner Bank, said of Bouffard's new role at Baltimore County Savings.
Bouffard has undertaken a balance sheet restructuring that dumped arbitrage investments on which the bank was losing money. To conserve capital, the board decided to stop paying a dividend, to the chagrin of current shareholders.