A former Kenosha businessman has offered $8.5 million to buy a controlling interest in locally based Southport Bank.

Gaetano “Guy” Cecchini would wind up with 55 percent of the bank’s shares and directors would grow their investments in Southport Financial Corp., under an investment plan scheduled for a shareholder vote next week.

Common stockholders would see a significant dilution in the value of their shares, as the restructuring calls for the bank to increase its number of shares from 3 million to 30 million.

Cecchini, of Massillon, Ohio, said the overhaul is aimed at resuscitating the bank, which received a Federal Deposit Insurance Corp. sanction late last year, after examiners found the bank to be in a weak financial position.

“Diluting is still being alive and being able to grow tomorrow and recoup what you dilute today,” Cecchini said in a telephone interview Wednesday. “That’s the ideal situation.

“Unless you do something, you’re going to be out of business.”

Board purchase required

A proxy statement mailed to shareholders last month stated Cecchini would require the board to purchase 1.33 million shares of common stock at $3 per share as both a reaffirmation of their commitment to the bank and an expedient way to raise capital. A private offering to outside investors, including current shareholders, would take longer, the statement said.

Southport President and Chief Executive Officer Jerry Schwallier and board chairman Alan Schaefer did not return phone messages left Wednesday. Other board members contacted by the Kenosha News declined to comment on the proposed restructuring.

Investor familiar with city

Cecchini, 73, is a native of Italy who immigrated to Kenosha in 1957, then moved to Ohio to begin a career with McDonald’s Corp. in 1967. While in Kenosha, he worked for and assumed control of his family’s longtime business, Cicchini Fuel Oil and Coal Co., and started a motor scooter and motorcycle company called Little Wheels.

Owning as many as 22 McDonald’s restaurants at one time, he conducted a similar purchase of a struggling bank, Sun Country Bank in Apple Valley, Calif., in the mid-1990s.

To help guide Southport’s recovery, Cecchini said he plans to bring in some new directors with bank experience. Cecchini’s nephew, Attilio J. “Jim” Cicchini, is a member of the current Southport board.

“In most cases, banks get in trouble because they have a board of good businessmen, or average businessmen, but none of them understand the banking business,” Cecchini said. “They are forced to rely on their executives.”

Southport sanctions

An 18-page order released by the FDIC in November calls on Southport to “cease and desist” practices including “operating with management whose policies and practices are detrimental to the bank and jeopardize the safety of its deposits” and “operating with a board of directors that failed to provide adequate supervision.”

Southport began working with the FDIC in March 2009, when a routine examination by bank regulators showed the bank to be in a weak financial position, a bank official said in November.

The bank, which had its assets heavily concentrated in real estate loans, began to see mounting losses and loan defaults as the real estate market collapsed. The bank posted a $2.6 million loss in the second quarter of 2008, and a $6.8 million loss that September.

Schwallier said Southport directors began working to improve the bank’s financial situation in 2008, making staff changes, reducing the size of the board and creating a loss mitigation department to work on problem loans.

Southport not alone

Southport is not the only area bank to fall under regulators’ scrutiny in recent months.

Banks of Wisconsin, known in Kenosha as Bank of Kenosha, recently entered a consent order giving it until March 31 to correct unsafe banking methods and legal violations cited by the FDIC and the Wisconsin Department of Financial Institutions.

The FDIC last year issued a “prompt corrective measures directive” against Racine-based Bank of Elmwood. The bank shut down in October, after it failed to meet deadlines for improving its financial position. Its branch in Kenosha reopened as Tri-City National Bank.Proposed restructuring

Cecchini optimistic

Cecchini said he is optimistic about Southport’s future, in spite of its problems.

Should the restructuring win shareholder approval, he said he will be pleased to do business in his onetime adopted hometown.

“My heart has always been in Kenosha,” Cecchini said.