The photograph in the annual report symbolized a new day for a once-sleepy thrift: Celebrating its push into commercial real estate lending, Second National Federal Savings Bank wanted people to notice that its $10 million loan helped build Annapolis The photograph in the annual report symbolized a new day for a once-sleepy thrift: Celebrating its push into commercial real estate lending, Second National Federal Savings Bank wanted people to notice that its $10 million loan helped build Annapolis' new Ramada Inn.
Second National even put the Ramada photo in the annual report twice, in 1984 and 1985. But now the Ramada is in bankruptcy court, the real estate market is in shambles, and Annapolis-based Second National has problems of its own.
The company announced last month that it would add $16.6 million to loan loss reserves -- to cover delinquencies that had grown from virtually zero to $62 million over the past 15 months. The new reserves, coupled with about $360,000 in additions to reserves announced Friday, gave the company an $11.2 million quarterly loss. The loss shrank Second National's capital, forcing the $1.8 billion-asset company to shrink its loan portfolio by $320 million. And Second National will have to add an additional $8.75 million to reserves over the next 18 months.
"We're getting out of commercial lending until we meet the capital requirements," says President Henry A. Berliner Jr. "We're not going to be able to lend to good customers, and we've had to cut people who have been at the bank for many years."
That's a wry bit of turnabout for Mr. Berliner, who had guided Second National smoothly through crises that sank many other Maryland thrifts. Recent problems at Second National offer this lesson: As the nation slides into a recession, no company is immune.
"In a good economy, even a bad bank will make money," said the 56-year-old banker. "In a bad economy, even a good bank will have some problems with loans."
Probably no state-chartered Maryland thrift came out of the 1985 Maryland Savings Share Insurance Corp. debacle looking better. Second National's fast growth, the relative conservatism of its loan portfolio, and the near-absence of direct real estate investments stood as an eloquent response to highfliers such as Old Court Savings and Loan.
By the time his 1984 letters warning MSSIC about so-called "cowboy" thrifts became public, and his op-ed articles (in which he called for jail time for S&L executives) sank into the public mind, Mr. Berliner had the image of a pin-striped Eliot Ness. He was The Untouchable. The lucrative but sleazy ways of Old Court and others weren't for him.
"We didn't make loans outside our market," Mr. Berliner says. "We didn't lend in Texas. We didn't buy junk bonds. We didn't do anything you weren't used to."
"He saw [the high-flying thrifts] doing things he couldn't do, things that as a lawyer he knew he shouldn't do," says Raymond C. Nichols, president of BSC Financial Group in Baltimore and a member of Second National's board until 1985. "He saw it as lustful, and he resented it."
But even in "The Untouchables" movie, Kevin Costner's Eliot Ness admitted that he had become what he beheld. Much as Mr. Ness imitated mobsters, Mr. Berliner moved his thrift toward faster growth and higher risk, the traits of the thrifts he had disdained.
Second National's loans broadened well beyond mortgages on second homes at the beach, the market it was founded to serve in 1972. Mr. Berliner pushed into three new states by acquiring institutions in Delaware, Virginia and Pennsylvania. Within Maryland, he pushed beyond its Eastern Shore base into the Baltimore-Washington corridor.
Although Second National may have big real estate problems right now -- as Old Court did in 1985 -- it's still no Old Court. Instead, its problems more closely resemble those of the big commercial banks it began to compete with more directly in the 1980s, banking companies such as Signet Banking Corp. and MNC Financial Inc.
Like MNC Financial, Maryland's biggest banking company and the parent of Maryland National Bank, Second National stumbled after pushing into construction lending. Commercial construction loans now account for more than 20 percent of the company's outstanding loans, a percentage comparable to MNC Financial's.
"They were never a stranger to construction lending," says David West, an analyst for Wheat, First Securities Inc. in Richmond, Va. But he sees Second National's problems reflecting the lousy real estate market more than anything Berliner & Co. did wrong.
"Everybody is feeling the pain," he says. "It's not how good you are. It's how bad the environment is."