FDIC officials outside K Bank just shortly after the bank was… (Baltimore Sun photo by Gus…)
K Bank on Friday became the latest Maryland bank to fail after its board of directors — unable to turn around the finances or find a buyer — took the rare step of voting to turn over the Owings Mills-based institution to state regulators.
Immediately after the regulator takeover, the bank's deposits and most of its assets were sold to regional rival M&T Bank. K Bank's seven branches will reopen Saturday as M&T Bank. This is the second failed Maryland bank taken over by M&T, which also purchased Bradford Bank in Towson last year.
"K Bank's customers can expect a smooth transition," said Mark A. Kaufman, Maryland's commissioner of financial regulation, in a statement. "M&T Bank is a strong institution with a demonstrated commitment to our region."
The failure of privately held K Bank, the 13th-largest Maryland-based bank, shows the continued fallout of the real estate crisis that has saddled lenders with bad loans. K Bank became the fourth bank to fail in Maryland this year and the 140th federally insured bank to fail nationwide.
M&T will assume $500 million in K Bank deposits and has agreed to purchase about $411 million of K Bank's assets, primarily loans and securities. The deal calls for the FDIC and M&T to share in potential loses on $289 million of K Bank's assets.
"This is a logical acquisition for them," banking analyst Bert Ely said of M&T Bank. "They will be able to fold K Bank right in with the other branches M&T has in the area."
Phillip Hosmer, a spokesman for M&T, said K Bank customer deposits, including checking, savings, money market, retirement accounts and certificates of deposit, will be transferred to M&T.
"No one lost any money on deposits in K Bank," Hosmer said.
Hosmer said customers will have access to their accounts at the former K Bank branches through next Friday, when all seven K Bank branches will permanently close, and will be able to use K Bank debit cards through 3 p.m. that day. Customers can continue to write K Bank checks even after the conversion of their accounts.
Next Saturday, K Bank customers should start using M&T branches, which number 123 in the Baltimore area, including some that are less than a mile from former K Bank branches, Hosmer said.
K Bank's estimated 120 employees can apply for any of the more than 150 open positions at M&T in the Baltimore area, Hosmer said.
K Bank has posted heavy losses and reported trouble with bad construction loans. It lost nearly $16.8 million for the year through September, according to Federal Deposit Insurance Corp. documents. In the first nine months of last year, the bank lost $23.9 million.
K Bank came under heightened federal supervision in March last year, when the FDIC ordered the bank to stop making construction and development loans and to boost its capital. Regulators ordered that a key measure of capital be raised to at least 12 percent. Instead, K Bank's capital levels fell, reaching 2.8 percent at the end of September.
President and Chief Executive David H. Wells Jr. had previously told The Baltimore Sun that bank officials agreed with regulators that steps needed to be taken and the bank stopped making construction loans before the FDIC issued its order. Wells could not be reached for comment Friday.
The bank was launched in Randallstown 49 years ago under the name of Key Federal Savings and Loan Association, with savings accounts and home loans as its core business. Over time, it added branches in Baltimore, Carroll, Howard and Harford counties, underwent name changes and moved its headquarters to Owings Mills.
K Bank has ranked among the top five small-business lenders in the state in each of the past 20 years, according to the Maryland Bankers Association.
Alan Chantker, president of the Mid-Atlantic Real Estate Investors Association, said K Bank was a go-to institution for the Baltimore real estate investment community in the heady days of the housing boom. The bank actively sought investors' business, sending a representative to all of the association's meetings.
At that time, it would lend up to 80 percent of the after-repair value of homes purchased for rehab projects — terms that were "quite generous" and are no longer available in today's tighter credit markets, Chantker said.
"Everybody went to them," said Chantker, a Baltimore resident. "They were really very investor-friendly."
Though its loan problems are severe — one in four loans are in arrears — K Bank is not unique in the region, according to Arnold Danielson, chairman of Danielson Associates, a banking consultant in Bethesda.
"Almost every local bank into real estate lending in the Baltimore area experienced serious problems," Danielson said. "Baltimore has been a tough market for real estate lenders."