Bank of Maryland carves out its niche Institution specializes in small business loans

Banking

H. David Shumpert is a patient man.

Like a mechanic rebuilding a classic car that has been set up on blocks, he has painstakingly put Bank of Maryland together, piece by piece, over nearly five years.

Now he wants to see it run.

Several key hires and a merger with Mason-Dixon Bancshares Inc. last summer have given Bank of Maryland not only the talent, but the money to become a formidable competitor among community banks.

Shumpert's mission is single-minded -- expand the bank quickly and profitably by exploiting a niche that he believes the bigger banks can't serve as well: small business lending.

"Their potential is tremendous," said Arnold Danielson, chairman Danielson Associates Inc., a Rockville-based bank and thrift consulting firm. "There are not a lot of small banks in these markets."

It hasn't been easy bringing the Bank of Maryland to the point where it is today. When Shumpert walked through Bank of

Maryland's doors in August 1991, he wasn't sure it was going to survive.

The bank was spending far too much to maintain its large branch network. It also was overstaffed, employees were overpaid, and the loan portfolio was riddled with bad credits.

Since then, he has slashed the bank's budget by $1.2 million, closed three of 13 branches, fired a handful of employees and cut salaries by 10 percent. He cleaned the bank's loan portfolio, too, by writing off $2.5 million.

Of the bank's $138 million in loans, a whopping 9 percent were delinquent, and many others were poorly underwritten, he said.

He also reorganized management by hiring experienced loan officers and executives who worked at such banks as MNC Financial Inc., Equitable Bancorp and Mercantile Bankshares Corp.

The changes have paid off.

Bank of Maryland had net income of $2.3 million in 1995, up from $954,000 the prior year.

Loans and deposits are growing, and troubled loans have fallen to 1 percent.

"I think the people who made the decision [to hire Shumpert] made a good decision," said J. Marshall Reid, executive vice president with Mercantile-Safe Deposit & Trust Co. "He has done a wonderful job there. He is solid and has good character judgment."

Shumpert, who is president and chief executive, is still adding pieces to his executive team that will undoubtedly help the $241 million-asset bank penetrate business circles.

Last month he made a key hire by landing Hunter F. Calloway. A 25-year veteran in banking, Calloway headed NationsBank Corp.'s real estate banking group in Maryland, which has a $550 million in assets.

And in December, he hired W. Bruce McPherson, the former chief credit officer with MNC Financial Inc., who has about 25 years in banking in Maryland.

At MNC, McPherson oversaw a $9 billion loan portfolio and set up the company's South Charles Realty, which disposed of about $1.8 billion in bad real estate assets under his leadership.

"We are loaded with lending expertise," said Shumpert, who noted that about 70 percent of the bank's loan officers and top management have come from MNC and Baltimore's Equitable Bancorp, which disappeared when it merged with MNC in 1989.

Shumpert said he can afford seasoned veterans because of budget cutting. The belt-tightening has enabled the bank to pay competitive wages and offer bonuses for performance, he said.

L Shumpert is now working to put a stock option plan in place.

In business lending there are numerous niches, and Bank of Maryland wants to exploit two:

Lending money to construction companies and small developers finance strip malls and office buildings.

Construction loans are lucrative because the bank can collect up to 1 percent in fees on the size of the loan, and the credits are on the books for a relatively short period of time. The problem facing Bank of Maryland is that the competition for such loans is fierce.

Asset-based lending, which is providing capital to companies that pledge their assets as collateral. It is a time-consuming business because it requires close monitoring by the loan officer and intensive paperwork.

The plan is to find companies with annual sales ranging from $1 million to $25 million.

Shumpert doesn't think the bigger banks do a good job of serving the small-business market.

"There are a lot of small businesses in that size range that just can't get banked," said Shumpert, who oversaw a $480 million loan portfolio at MNC. "There are growing businesses that need capital."

Others disagree.

"To say the large banks don't want to deal with the little guy is an exaggeration," said Lewis Sosnowik, vice president of bank securities at Bethesda-based Koonce Securities Inc.

NationsBank, for example, has 22 employees who make loans to companies with sales ranging from $1 million to $5 million in the Baltimore area, said David J. Millman, senior vice president of business banking at NationsBank.

"While they [Bank of Maryland] think they are coming up with something novel, I don't think they are," Millman said.

Shumpert isn't worried about NationsBank or First Union Corp.