Three former directors of MNC Financial Inc., the parent company of Maryland National Bank and American Security Bank of Washington, are connected to $92.8 million in non-performing or potentially non-performing loans held by the MNC banks, according to a recently released MNC proxy statement.
Many of the loans were for Washington area commercial real estate projects that have soured in the past year. Such loans are the target of a stockholder's suit against MNC that is pending in U.S. District Court in Baltimore.
The suit charges that Maryland National and MNC's Washington bank, American Security, made commercial real estate loans that were risky, speculative and "made little or no economic sense," given a decline in the real estate market.
Non-performing loans include those that are past due 90 days or more or are not adhering to the original terms of the loan agreement.
The three former directors connected with the troubled loans are Oliver T. Carr Jr., A. James Clark and Earl L. Linehan, according to MNC's recent proxy statement. The banks made the loans to companies in which the men held ownership positions. All three have resigned from the MNC board.
Carr and Clark deny any conflict of interest. Linehan said a conflict was not possible because the loans in question were made before he became a member of the MNC board.
MNC spokesman Daniel Finney said, "By law, I can't comment beyond the statement in the proxy statement," he said.
Carr, Washington's largest real estate developer, is connected to $55.2 million of the loans as of March 1, the proxy statement said. There are 16 questionable loans, some of which are held by corporations controlled by Carr, and in one case by his daughter and son-in-law.
The loans financed working capital, construction, real estate, restaurants and furnishings, the proxy statement said. About $41.6 million was collateralized by real estate and improvements and another $6.1 million by equipment, furniture, accounts receivable, inventory and property.
However, the proxy statement said the fair market value of these assets "may or may not equal the amounts due under the respective loans."
Joanna Kaplan, a spokeswoman for Carr, said the companies Carr had invested in are in discussions with the bank and the fTC talks are going well. "Our goal in doing so is to ensure that MNC will not suffer any losses in connection with the loans," she said. "We are confident that we will achieve our goal."
Kaplan said Carr resigned from the board to devote more time to other activities and interests. The issue of a possible conflict of interest did not enter into his decision, she said.
Clark, chairman of Clark Construction Group, a construction company in Bethesda, was associated with $31.4 million of the loans as of March 1. These loans were made to several entities Clark invested in.
They financed land and construction materials and were collateralized by land and improvements. However, it is unclear whether the collateral will cover the loans, the proxy statement said.
Louise E. Pulizzi, a spokeswoman for Clark, said the loans were made to entities not associated with the construction group and that Clark was not a managing partner in any of the operations. Clark also did not initiate any of the borrowings, she said.
Pulizzi said Clark concurs with the proxy statement that he received no preferential treatment. However, she said, Clark decided to resign from the board because "he was very sensitive to any appearance of a conflict of interest."
Linehan, president of Woodbrook Capital Inc., a Baltimore investment company, was an investor in a company that owes Maryland National $6.2 million. The money was borrowed by a building materials company in which Linehan owns a 20 percent interest. However, Linehan said he is not an member of management.
The loans were for working capital, equipment, and real estate, the proxy statement said. Linehan stressed that the loans were made by Maryland National before he became a member of MNC's board. He joined the board in early 1990 after MNC acquired Equitable Bank N.A., on whose board Linehan sat.
He would not comment on the bank's classification of the loans as non-performing or potentially non-performing. But he said the company has never lapsed in its payments of interest or principal. He declined to identify the company.
Linehan said he is an active investor, and the investment in the building materials company is only a small part of his portfolio.
The proxy statement said Carr, Clark and Linehan were treated the same as any other borrower. But the stockholders' suit accuses Carr of a conflict of interest and contends that he received favored treatment in getting the loans.
In earlier comment on the lawsuit, Kaplan said the Carr Co. "did not receive any favored treatment in obtaining loans from either bank because of his role as a director."
She said other Carr Co. officials arranged the loans and that Carr himself was not involved in that process.
"Mr. Carr is confident that all the loans . . . will withstand scrutiny as to their propriety and consistency within the normal underwriting criteria employed by Maryland National, and that the ultimate disposition of the lawsuit will be in favor of the defendants," Kaplan said.