Cecil Bancorp raises $30.2 million
Bank holding company
sees recapitalization as major step in its recovery
Cecil Bancorp said Friday it had raised $30.2 million from investors to recapitalize the cash-starved bank holding company.
The Elkton-based parent of Cecil Bank said in July it planned to send itself through a bankruptcy auction to secure the financing from a group of private investors.
“This capital injection will restore the Bank to well-capitalized status, allowing us to once again focus on being a strong and secure community bank for the citizens of northeastern Maryland and surrounding areas,” board chairman William H. Cole, also president and CEO of the Baltimore Development Corp., said in a statement.
The investors have not been named, but the group includes investment funds that focus on banks and high-net worth individuals from across the country who were organized by Hovde Group, an investment banking firm.
Cecil Bank foundered under the weight of bad real estate loans in the wake of the recession, losing so much money that its capital base eroded and federal banking regulators ordered it to raise money.
In late June, the bank holding company filed for a Chapter 11 reorganization in Baltimore’s federal bankruptcy court. The move gave the company a way to raise money from investors to pay off its debts and to re-emerge with a clean slate without interrupting business for customers, including deposits and loan commitments.
As part of the recapitalization, Cecil will extinguish its $17.5 million debt to the federal government under the U.S. Treasury Department's Troubled Asset Relief Program, part of the broad bailout for financial institutions following the 2008 financial crisis. Through a stock exchange, the Treasury received $880,000 of what it was owed, according to the restructuring plan.
The bank’s former stockholders, including 1st Mariner Bank and one-time chairman Charles Sposato, saw their shares canceled as new stock was issued to the new investors.
“The capital injection will allow us to return to what I would say is normal banking,” said Terrie G. Spiro, Cecil’s president and CEO.
Beyond returning to business as usual, the bank is ready to move forward with an “exciting new chapter,” Spiro said.
Cecil is drafting a strategic plan, to be completed by the end of the year, that will outline growth into new geographic territory and into new products.
The bank, which primarily serves Cecil County and northern Maryland, had nine branches and about $208 million in assets as of the end of June, according to its most recent regulatory filings.
With its regulatory woes behind it, growth should come more easily to Cecil, said Bert Ely, a Virginia-based banking consultant.
Though the holding company’s bankruptcy reorganization did not impact the bank’s customers, the process can cast a shadow over the entire organization, making it harder to attract new customers and employees, Ely said. Completing the process and moving on should boost the bank’s image in the eyes of its customers and employees.
“They’re out from underneath the cloud of all the problems they’ve had in recent years,” he said. “That can have a very positive effect on the bank in terms of how customers view them.”
Still the market remains challenging for small community banks, Ely said. Competition from national brands and the difficulty of meeting regulatory requirements on smaller budgets continues to drive consolidation among community banks.
Most recently, in August, Howard Bancorp announced plans to acquire 1st Mariner Bank for $163.4 million.
With its debts paid and a clean slate, Cecil could be part of the acquisition game moving forward as either a buyer or seller, Ely said.
In the immediate future, Spiro said she’s focused on growing organically. She said she sees strong demand for community banking, as large companies, such as Amazon and German grocer Lidl, expand and bring more jobs to the county.
“We are getting some wind at our back here in Cecil County,” she said.
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