Capping its recovery from financial difficulties, Baltimore Bancorp has received a "buy' rating on its stock from bank analyst Anthony J. Polini of Mabon Securities Corp.
He said the $2.4 billion-asset banking company is "a budding turnaround play trading well below book value." Its shares have upside price potential of 35% to 40% through next year, he added.
Baltimore Bancorp's stock was unchanged at $9 in late trading Thursday after a gain of 37.5 cents the previous day following Mr. Polini's action.
The stock trades at around 90% of its March 30 book value of $9.81, one of a very few banks remaining at this depressed level. Regional banks on average trade at about 145% of book, the analyst noted.
Mr. Polini expects that the bank will announce strong second-quarter earnings, highlighted by an 8% to 12% decline in nonperforming assets and 31-basis-point improvement in net interest margin from the previous quarter.
He projects that earnings per share will increase at a compound rate of 24% through 1996, helped by a big decline in the loan-loss provision and other credit costs.
The analyst projected earnings of 90 cents a share this year and 85 cents next year. The dividend could be reinstated as early as the first quarter of 1994, he said.
Realty Problems Abating
Baltimore Bancorp has been recovering from bad real estate loans. Its problems peaked in 1991, when it lost $126.5 million. It earned $14.5 million last year.
The bank is among the few at which dissident shareholders, uphappy about the company's performance, were able to replace the board of directors. The new board installed fresh management in mid-1991.
Under chairman Edwin F. Hale Sr. and president Alan M. Leberknight, the bank has substantially reduced its problem loans and recapitalized itself at the behest of regulators.
By the end of July, Baltimore Bancorp expects to raise nearly $30 million by issuing 3.675 million shares under a stock-purchase plan for current shareholders.
5% Discount, No Commissions
The plan offers stockholders the chance to directly purchase additional shares at a 5% discount, with no service charges or brokerage commissions.
Mr. Hale has also been bluntly shareholder oriented.
At last month's annual meeting, he declared: "The bank is for sale if a legitimate company comes in to acquire us. But we are not going to be bottomfished."
Mr. Hale said he would consider a bid equal to 1.25 to 1.65 times the company's book value, which would still provide a premium.
The analyst's 12-month price target for the bank stock is $12, or 11 3% of projected book value. His yearend 1994 target is $13, or 11 8% of likely book value.
"The ongoing recovery at Baltimore Bancorp is solidly indicated by the steady improvement in net interest margin projected through 1993," Mr. Polini said.
He expects the average margin to be 4.50% this year, versus 3.15% last year and 2.44% in 1991. Longer term, he thinks the bank will be "well positioned to maintain a net interest margin in the 4.75%-to-4.85% range."