U.S. seizes Shore's No. 1 thrift Failed loans claim Second National

December 05, 1992|By David Conn | David Conn,SOURCE: Resolution Trust Corp.Staff Writer Staff Writer Marina Sarris contributed to this article.

Federal banking regulators seized Second National Federa Savings Bank yesterday as the Eastern Shore's largest thrift succumbed to high levels of failed real estate loans brought on by imprudent and risky lending.

Citing Second National's depleted financial condition, the federal Office of Thrift Supervision (OTS) placed the 20-year-old company in receivership.

All $1.16 billion in deposits, even those exceeding $100,000 per account, will be guaranteed by federal insurance, according to the Resolution Trust Corp. (RTC), which was appointed to manage the institution.

Customers should see no difference in operations Monday when the thrift, renamed Second National Federal Savings Association, opens its 34 branches. The thrift has 22 branches in Maryland, with the rest in Virginia, Delaware, Pennsylvania and Washington.

Henry A. Berliner Jr., the influential president and chief executive officer of the thrift, as well as a major stockholder, could not be reached for comment yesterday. However, an RTC official said last night that Mr. Berliner had been relieved of his positions.

RTC officials were unable to say which employees, if any, would be let go.

Second National, with almost $1.6 billion in assets, was among three acquired by the government in an unusually active day for the OTS. The agency also seized the largest thrift in New Jersey, Carteret Savings Bank in Newark, and Security Savings Bank of Vineland, N.J.

So far this year, the agency has seized three Maryland thrifts, including Gaithersburg-based Standard Federal Savings Bank, and Irvington Federal Savings Bank in Baltimore.

Regulators moved on Second National because it was "operating in an unsafe and unsound condition," with insufficient capital and no prospect to replenish it without the government's help, the OTS said in a statement.

Capital, roughly the amount by which assets exceed liabilities, is the cushion of money that financial institutions must keep to protect stockholders and the federal deposit insurer against possible losses.

Second National's branch off West Street in Annapolis was quiet at 4:30 p.m. yesterday, and an official there said he did not think customers were aware yet of what had happened.

"The news hasn't gotten out to anyone so right now it's pretty normal," said Don S. Ebbert, an RTC official who was designated to answer media questions at the Annapolis branch.

"We're not anticipating a panic," he said. "There's really no reason for that to happen."

Second National, owned by Second National Bancorporation, with headquarters both in Annapolis and Salisbury, had failed to meet its capital requirements for two years.

"Second National's condition is due primarily to losses on poorly underwritten, high-risk construction, land and commercial real estate loans originated as part of a rapid-growth strategy in the late 1980s," the OTS said. "Many of those loans were made on the basis of deficient appraisals, inadequate borrower equity and insufficient documentation of borrowers' financial condition."

Second National had been trying urgently to raise capital since late 1989, most recently with a planned rights offering, which typically gives shareholders the right to buy discounted stock.

The company had at least $10 million in pledges from board members, said an employee who spoke on condition of anonymity, and was hoping to sign an agreement with New York investment bankers Ladenburg, Thalmann & Co. to manage the offering and find institutional investors for another $30 million in rights.

But that deal hadn't been signed yet, and it's unclear whether the company was sound enough to attract sufficient investment from the capital markets to meet all regulatory requirements.

Second National's failure is especially ironic, given Mr. Berliner's prominent role in federal thrift-asset sales.

Until two weeks ago, Mr. Berliner chaired a regional private sector advisory board to the RTC, and served on two national RTC advisory boards. His Nov. 13 resignation letter from these three boards to Treasury Secretary Nicholas F. Brady made no mention of the troubles his company was having with thrift regulators.

In a statement released yesterday, Mr. Berliner praised "the performance and dedication" of the company's 475 employees, and cited the progress they had made so far this year, including the sale of $85 million in troubled assets.

But the company still had $230.8 million in non-performing assets on Sept. 30, a lethal 14.7 percent of total assets, more than five times higher than the national average.

Second National lost $8.8 million in the third quarter after earning $3.6 million in the first two quarters this year. The company lost $18 million in 1990 and almost $40 million last year.

Although depositors are protected by the government, the company's stockholders have lost most of their investment in Second National. The largest shareholder was Mr. Berliner, 58, a prominent Republican Party activist who helped start the company 20 years ago in Ocean City.

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