A Connecticut thrift is hoping to stave off a possible government takeover and end tour years of capital problems by raising more than $10 million in a rights offering.

Branford Savings Bank, a $169 million-asset thrift, plans to offer stockholders the fight to purchase more shares of common stock at a price below book value.

The thrift has not released the price pending federal approval for the sale.

The thrift also intends to seek stockholder approval for a reverse stock split prior to the rights offering.

The reverse split would turn every 10 shares of Branford into one share.

The bank's shares are currently worth 38 cents each, but would be worth $3.80 under the reverse split if it occurred at the current price.

Shareholders have already promised to buy at least $7 million in fights to new shares.

The bank has also received a commitment from an outside investor for another $3.2 million, which would put it over the $10 million mark.

The thrift, which is operating under a cease-and-desist order issued by the state banking department and the Federal Deposit Insurance Corp. to raise its core capital ratio to 6%, needs $6.5 million to meet requirements.

"If they can raise it, that should be sufficient to weather the storm and they'll come out as a survivor," said Gerard Cassidy, an analyst with Tucker Anthony's Hancock Institutional Equity Services.

Desperate for fast cash, Branford sold its trust division to Sachem Trust, a start-up bank in Guilford, Conn.

That sale generated $525,000 in the second quarter, but the bank still reported a loss of $87,000 in the quarter and $490,000 for the first six months of the year.

The deal, however, helped Branford escape a government takeover.

Prior to the sale, the thrift's capital ratio was just below 2% for the quarter, the minimum level below which a takeover is considered likely.

The deal pushed the bank's capital ratio up to 2.14%.

"We're clearly in the recapitalization process," said Gregory R. Shook, senior vice president. "That's our goal and that's where we're headed."

Mr. Shook is still worried about the thrift's capital level, especially if the offering is not approved by the FDIC and the bank takes more losses.

"It's important that we raise this capital or we may be subject to [a takeover]," Mr. Shook said.

Mr. Cassidy said troubled institutions have some breathing room because regulators aren't as quick to jump in as they were in the earlier phases of the S&L crisis.

"The regulators are giving Branford and others the benefit of the doubt and if [bank officials are] successful in raising capital, they won't have to worry about" a takeover, he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.