Another Conn. Bank Scrambling for Capital

Another 11th-hour rescue appears to be brewing in Connecticut.

Founders Bank in New Haven has hired an investment banker, Ostrowski & Co. of New York, to help it find investors or a buyer.

If successful, Founders would be the fourth Connecticut institution to be rescued from the brink in the last year, joining Connecticut Bank of Commerce, Branford Savings Bank, and Fairfield First Bank and Trust Co.

Under orders from federal regulators, Founders has less than a month to raise at least $1.5 million of capital.

But bank officials say Founders should raise at least $5 million to bring the bank into full compliance with a federal cease-and-desist order requiring a Tier 1 leverage capital ratio of 6%. That would also allow the bank to address its nonperforming loan portfolio, which currently stands at $5.7 million, or 7.23% of total assets.

"What we want to do is to resolve the matters before us in a final way," said Leo M. Connors, president and chief executive. "We want to resolve the need to recapitalize the bank and address the reduction in nonperforming assets and that's what we're intent upon doing."

Mr. Connors and Peter J. Ostrowski, managing director of Ostrowski & Co., declined to comment on the bank's specific plans or prospects.

"The bank's on the financial precipice, but Connecticut has seen teetering institutions get refueled at the last minute so it's not impossible," said John Carusone, president of Hartford's Bank Analysis Center. "However, I think that it's less likely today than it might have been a year or two ago."

Mr. Carusone said investors might be more interested in the small bank as a jumping-off point to grow a large franchise. He questioned the likelihood, however, of an actual sale of the institution.

Although Founders has only two branches, it should be attractive to potential buyers or investors because it has a strong cash flow, Mr. Connors said. Founders had a net interest margin of 4.8% for the first quarter of 1995.

And the bank is only one of two in Connecticut that is a preferred Small Business Administration lender, generating $3.4 million in the last four years from the sale of the guaranteed loans.

"We think this is a very much an opportunity" for investors, Mr. Connors said. "We believe, given the writeoffs the bank has taken, that it is now in a position to move forward. That's the proposition that we make to investors, that they are dealing with a bank that has had a very thorough review and has still intact a very high level of earnings."

The $75 million-asset Founders fell below the 2% minimum Tier 1 leverage capital ratio at the end of April, after federal regulators forced it to write off a large portion of bad loans, causing a loss of $3.7 million for the first quarter. That brings the bank's equity to a deficit of $256,000.

Founders lost $2.6 million in 1994, but officials now expect to show a profit for the second quarter of this year.

Under the rules of prompt corrective action, the Federal Deposit Insurance Corp. gave the bank 90 days to raise its capital ratio above 2% or face seizure.

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