BCSB Bankcorp Inc. in Baltimore has pushed back the deadline for buying shares in its second-step conversion offering — and given current subscribers the chance to back out — after warning of worse-than-expected fiscal fourth-quarter results.
The $645 million-asset BCSB, which announced plans to convert from a mutual holding company to a wholly stock-owned institution in February, initially gave depositors until Sept. 27 to subscribe for stock but now has extended the deadline to Oct. 19.
In addition, the company gave investors who had already subscribed to the offering the opportunity to amend or rescind their initial orders.
"We felt we had to put the additional information into the marketplace, and for that reason we decided to push back the deadline to subscribe," Joseph J. Bouffard, BCSB's president and chief executive officer, said in an interview Thursday.
The extension was announced concurrently with a warning from BCSB on Tuesday that it would report a loss of up to $350,000 for its fiscal fourth quarter, which ended Sept. 30, as a result of lower net interest income and a slew of one-time charges. BCSB earned $599,000 in the previous quarter.
Mike Shafir, an analyst at Sterne, Agee & Leach Inc., said the news could hurt BCSB's effort to raise capital.
"For depositors to send in money, they kind of want some insurance to an upside potential for the shares," he said in an interview Wednesday. "We think the typical depositor will need to go carefully examine the most recent news to make a prudent investment decision."
"It is my opinion that there is a greater potential now that they are going to have to go through a syndicated process to get the deal done," Mr. Shafir added.
Mr. Bouffard declined to give further details of the earnings guidance's potential effect on the stock offering.
The development came as falling stock prices and market uncertainty have made it increasingly difficult for financial institutions to find subscribers for their stock. In August alone, five thrifts that were either going public or in the midst of second-step conversions reduced the size of their offerings. And just Wednesday, the $1.1 billion-asset Venture Financial Group Inc. in DuPont, Wash., postponed its plan for an initial public offering.
The earnings guidance was not the only bad news to come out of BCSB in recent years.
The company continues to operate under a December 2005 supervisory agreement with the Office of Thrift Supervision regarding Bank Secrecy Act and Flood Disaster Protection Act compliance. And in June 2006 the company took a $6.9 million after-tax charge to its fiscal third-quarter earnings after being victimized in a check-kiting scheme.
Meanwhile, the company has continued to struggle with profitability, losing $7.4 million in fiscal year 2006, after earning $601,000 the previous year. The company has lost $2.6 million through the first nine months of fiscal 2007.
In the earnings guidance, BCSB said fiscal fourth-quarter net interest income will decline by roughly $190,000 from the previous quarter as a result of accelerated repayments related to its indirect lending portfolio and higher funding costs associated with a new certificate of deposit product. In addition, one-time expenses included $150,000 in compensation for its retiring chief lending officer, $200,000 for Federal Deposit Insurance Corp. premiums, and $296,000 to pursue and defend claims associated with the check-kiting incident.
Still, even given its poor earnings, it is "highly unusual" for a converting thrift to offer investors a chance to unsubscribe from a stock offering, said Theodore P. Kovaleff, an analyst at Sky Capital LLC in New York who closely follows thrift conversions. He said he believes BCSB is extending the offer to avert potential legal liability.
"What they are doing essentially is amending the offering because this is a material change in the company outlook and company numbers," said Mr. Kovaleff, who is also a BCSB shareholder. "A prospectus is supposed to give a picture of the company, and if there are any bumps down the road, they are supposed to be disclosed."
If BCSB were to release lower-than-forecast earnings shortly after the subscription deadline, "they'd be laying themselves open for suits," he added.
Under the offering's terms BCSB would sell up to 4.7 million shares at $10 each and use the proceeds to increase the size of its commercial lending portfolio and to pay down corporate debt.
BCSB was founded in 1955 and became a mutual holding company in 1998. It has 18 branches in the Baltimore area.
