Sometimes it pays to jump from the frying pan into the fire, as H. David Shumpert is beginning to learn.
In late 1991, after 25 years at Maryland's largest banking company, Mr. Shumpert decided to leave the commercial lending division of MNC Financial Inc., whose real estate loan problems had sent the company into a tailspin. "The bank that I had joined had lost its soul," he recalled this week.
Unable to sell his house quickly and move back home to North Carolina to take up teaching, Mr. Shumpert instead took a chance on the small, struggling Towson-based Bank Maryland Corp., which was suffering from the same kind of imprudent lending policies that had crippled MNC.
It's beginning to look as if that chance will pay off. After reporting two years of heavy losses, Bank Maryland said Monday that it earned $295,158, or 15 cents a share, in the third quarter. It was the company's second consecutive quarterly profit, and more than twice as much as the previous quarter. A year ago, Bank Maryland lost $90,000 in the third quarter, or 4 cents a share.
"As we get our act completely together," said Mr. Shumpert, the president and chief executive, "I think our prospects are fantastic."
The company's earnings are still relatively anemic, and it must depend for future earnings on an equally weak regional economy to fuel its loan growth. But Bank Maryland believes that its local roots and small size will let it capitalize on the merger mania that has left Maryland with very few large locally owned banking companies and left many customers wondering whom they can turn to for special attention.
"We feel we have tremendous opportunity with the NationsBanks and the other large banks focusing on growth" and not as much on customer service, Mr. Shumpert said. "There is tremendous frustration in this area" among small businesses, he said.
Bank Maryland has come a long way from its low point in 1990. Its stock, once as high as $30 a share, had fallen to $1.625 at the end of 1991. (Shares closed yesterday unchanged at $6.50.) Its management team had been completely replaced, and federal and state regulators were restricting some of its activities.
Mr. Shumpert had already resigned from MNC and was planning to go into teaching when he got an offer to try to salvage Bank Maryland, which had about $200 million in assets at the time, and now is down to $186.5 million. Mr. Shumpert took a hard look at the books, drew up a business plan and took the job.
"I believed it could be saved," he said.
The company started as the Bank of Maryland in 1984 with about $6.5 million in capital raised from scores of area business people. The Bank Maryland Corp. holding company was formed in 1987, and it raised another $12 million with a public stock offering at $25 a share.
True to its times, Bank Maryland embarked on an aggressive expansion campaign, both starting up and acquiring small banks from Annapolis to Westminster to Salisbury. Its assets grew from $26 million, before it went public, to a high of about $240 million in less than two years.
Along with the mergers, some with "less than stellar performers," as Mr. Shumpert described it, much of that growth was driven by careless lending to friends and associates of the boards of directors in Bank Maryland's six subsidiary companies, and it nearly destroyed the new company.
Fending off losses
By the time he came on board, Bank Maryland had lost almost $11 million in 1990, most of the previous management had been let go, and the company was headed toward $4.5 million in losses in 1991.
Mr. Shumpert persuaded Mark H. Anders, also an MNC veteran, to become senior credit officer. Together with A. Gary Rever, the company's chief financial officer, who had left MNC six months earlier, they cut costs by merging the six subsidiaries, centralized and tightened lending authority and set up a "special asset division" to work on problem loans.
It took almost a year merely to catalog and determine how far gone the bad loans were before they could focus on the hard work of resolving the problems.
This week's third-quarter earnings report, while not conclusive, seems to indicate that the bank has turned the corner.
Nonperforming assets, which peaked at $7.7 million in June 1992, or a precarious 6 percent of assets, are down to $2.7 million, or 2.2 percent of assets.
That's allowed the company to go three straight quarters without adding to the reserve for possible loan losses, which would have reduced earnings. As bad loans have been written off the books, that reserve has fallen by $765,000 so far this year, or 22 percent. Even so, because of improving loan quality, the reserve now equals 99 percent of the value of the nonperformers, a conservative ratio by banking standards.
Mr. Shumpert says that, once the company's regulatory restrictions are lifted, which should happen next year, Bank Maryland will be ready to add to its 11 branches. Owings Mills is a likely market, he says.