Capital Woes Are Driving Bradford Back to Market
Byline: Bonnie Mcgeer
The last time Bradford Bank in Baltimore tried to go public it had growth in mind, but this time its proposed conversion is more about pumping up capital to satisfy regulators.
The $526.7 million-asset mutual thrift announced in March of last year that it would convert to a public company and use much of the proceeds to buy Patapsco Bancorp Inc. of Baltimore, but Bradford failed to raise the capital it needed, and in January the deal was called off.
Now Bradford is trying to convert again, this time under much different circumstances.
With its credit quality deteriorating and its capital levels down, Bradford said it expects to receive a cease-and-desist order from the Office of Thrift Supervision requiring it to improve capital ratios.
It also needs additional funds to pay its debts. Bradford owes Patapsco a $2 million breakup fee, which will come due Dec. 31, and it owes $3 million on a loan it got to buy Valley Bancorp in January of last year.
Dallas R. Arthur, Bradford's president, acknowledged that its latest stock offering could be no more successful than its last one, because since then bank and thrift stocks have fallen even more out of favor with investors.
But several analysts said that the poor market for bank and thrift stocks promises more upside for conversions, and that investors in the Bradford offering would get far more bang for their buck than they would have in its first attempt to convert.
Bradford needs to sell at least 2.1 million shares at $10 each to complete the offering. But it could sell up to 3.3 million shares if demand is high enough.
Mr. Arthur said that if Bradford sells enough shares to price the offering at the midpoint of the range, that would be 51.18% of Bradford's tangible equity - a substantial discount compared with the conversion it proposed last year, when the midpoint would have been at 117% of tangible equity.
Theodore Kovaleff, an analyst at Granta Capital Group LLC, said pricing is likely to be the main factor in whether Bradford can complete the deal.
For the right price, "the investors will come out of the woodwork," he said.
The conversion market began to get rocky last year, and several offerings were called off. With the challenging market dynamics, the price-to-book ratio has been falling steadily for deals completed this year, Mr. …