HarVest, First Mariner receive warnings 

Posted: 8:07 pm Fri, August 27, 2010
By Ben Mook
Daily Record Business Writer

It was a day of warnings for a pair of Maryland banks — one over its stock price and one over the state of its finances.

Details were made public Friday of an agreement between HarVest Bank of Maryland and the Federal Deposit Insurance Corp. to restore the Gaithersburg-based commercial bank to financial health. Also Friday, First Mariner Bancorp, parent company of 1st Mariner Bank, announced it had received a warning that it faced delisting from Nasdaq because its shares had traded for under a $1 for 30 consecutive business days.

Under the terms of a consent order HarVest accepted at the end of June, the bank agreed to a number of fixes to bolster its capital levels and reduce the number of bad loans on its books. The bank has a total risk-based capital ratio — a cushion against unexpected losses — of 9.3 percent, which means it is categorized as being “adequately capitalized.” Anything above 10 percent is considered “well capitalized,” and regulators want HarVest Bank to attain 12 percent.

The bank has been hit with quarterly losses for the last few years, and for the second quarter of 2010 reported a net loss of $867,000. This brings the bank’s losses for the year to $1.39 million through the end of June.

The FDIC is requiring the bank to draft reports and plans of action to address not only the capital issue, but also the number of its non-performing loans it has on the books.

HarVest Bank had $136.5 million in net loans at the end of March, with 10.7 percent of the loans categorized as noncurrent.

HarVest Bank CEO John P. “Jack” Hollerbach said many of the troublesome residential loans are from a portfolio of 93 mortgages purchased from Countrywide Home Loans Inc. in 2006. HarVest is locked in a lawsuit with Countrywide in the U.S. District Court, Maryland, over the portfolio. The bank is challenging how the loans were underwritten and has alleged breach of contract and negligence.

“They weren’t what we expected. We weren’t buying troubled loans,” Hollerbach said. “They kind of sold us a bill of goods, and we’re challenging that.”

Hollerbach said the bank sees the consent order as a collaborative effort with regulators, or a “roadmap” to getting on track. He said the bulk of the planning called for in the consent order, including crafting a strategic plan for the bank and creating plans to raise capital and address bad loans, has already been completed.

“There is no need for a fire sale or anything like that. We we fully expect to work through this,” Hollerbach added. “We have a good, solid business and we expect to get back to full good health.”

Karen Dorway, president and director of research of Coral Gables, Fla.-based BauerFinancial Inc., said the bank could certainly pull through and find its way back to good health, but it will not be easy.

“They do have challenges to get things under control,” Dorway said. “They do have some work to do.”

BauerFinancial has the bank rated now at one star, its second-lowest rating.

“A one-star rating is what we call troubled,” Dorway said. “One-star is a difficult place to be, but many banks have climbed up. But, judging from the numbers at the end of June, I don’t see their rating changing.”

Also Friday, First Mariner announced that it had received a notice on Tuesday that Nasdaq is giving it until Feb. 22 to come into compliance or face delisting. To comply, First Mariner stock must trade at or above $1 for 10 consecutive business days. On Friday, shares of First Mariner closed at 75 cents, up 9 cents, a 13 percent increase.

Officials with First Mariner declined to comment on the delisting announcement.

Like HarVest Bank, First Mariner is operating under federal scrutiny and has been ordered to raise its capital levels.

Independent banking consultant Bert Ely said the bank’s priority would likely be to continue to address the capital issue, and let the stock price issue sort itself out as the bank got healthier.

“Given the six-month timeframe, this is far from the most serious issue First Mariner has to deal with,” Ely said.

First Mariner has not reached its capital goal, but has asked for a deadline extension to meet it. However, with the bank reporting a net loss of $4.7 million for the second quarter of 2010 and a year-to-date loss of $7.9 million, Ely said reaching the capital goal will be that much harder.

“That is the most serious issue facing them,” he said. “If they keep losing money, the capital hole keeps getting deeper and deeper. The question then, is if they’re continuing to bleed, how much more time do they have?”

The FDIC also made public a ruling that banned a former officer with Oakland-based First United Bank & Trust from further participation in the affairs of any financial institution. Without admitting guilt or wrongdoing, Jeremy T. Brooks consented to the order.

The FDIC said it took the action based on Brooks having engaged in “violations, unsafe or unsound banking practices” that caused unspecified financial loss to First United.

First United officials declined to comment, but did confirm that Brooks was no longer an employee.