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American Marine Bank agrees to FDIC overview

With the possibility of a FDIC takeover looming, American Marine Bank is working to improve its lending and managements policies while hoping an investor soon comes to the aide of the 61-year-old Bainbridge Island institution.

The bank went public this week with its monetary problems by announcing an agreement for a consent order with the Federal Deposit Insurance Corporation and the state’s Department of Financial Institutions.

Overview by regulators, which began with the FDIC last month, is an attempt to address the bank’s earnings and capital levels, which were “severely impacted” as the bank’s potential loan losses ballooned from $1.8 million on Sept. 30, 2008, to $18,979,699 at the end of this year’s third quarter, according to an AMB press release.

AMB’s net income was $918,199 at the end of the 2008 third quarter; a net loss of $19,034,000 was listed in its Sept. 30, 2009 statement. With headquarters on Bainbridge and 11 banking locations in the Puget Sound area, AMB’s total deposits also took a hit over the last year, dropping about $13 million to $308,391,870 at the end of the 2009 third quarter.

“American Marine Bank has been working closely with banking regulators on a plan to secure the bank’s overall health during these challenging times,” said Renzo Lucioni, AMB’s chief financial officer.

Lucioni also became the bank’s interim president in July 2009 when Rex Townsend, who had led the bank for more than 10 years, abruptly announced his retirement.

The future of the bank, which has been Bainbridge Island’s only hometown financial institution since its founding in 1948, has been at risk since quarterly financial information revealed earlier this year that several large real estate loans were still on the books.

Like many other banks in the region, AMB has experienced defaults in real estate and participation loans since the economy’s real estate-fueled downturn began last year.

For example, AMB was the primary lender for White Horse Development and Golf Club in Kingston, which opened two years ago and filed Chapter 11 bankruptcy in August.

No bids were filed with the trustee at a public auction last Friday, and AMB is now the owner of the golf course and 159 undeveloped lots.

The bank was owed $7.1 million by developers (including former owner Bob Screen of Bainbridge), according to a trustee’s deed filed this week with the Kitsap County Auditor. The golf course reopened last month after the bank hired Touchstone Golf company of Berkeley, Calif, to run the course until a new owner is found.

The outstanding loans, an increase in FDIC insurance premiums and costs associated with “non-performing assets” has put the bank in a loss position for most of 2009. AMB needs to either restructure the loans with borrowers or liquidate assets such as the White Horse development.

AMB’s statement said it is analyzing “the entire loan portfolio to identify any further potential loss and has acquired updated collateral and property appraisals. Risks have been identified and mitigation steps are in process.”

However, capital probably will continue to dip because “year-end financials will likely include another increase to the provision to cover potential losses.”

The bank lists its total assets (see graphic) at the end of the third quarter at more than $374 million, $257 million of which were listed as net loans. The bank’s total assets were more than $408 million at the end of the 2008 third quarter. AMB’s net worth (total shareholders’ equity) was listed on Sept. 30, 2009, at just over $8 million, compared to $26.6 million at that time a year ago.

Under the consent order, details of which the FDIC is expected to make public later this month, the bank said it will “eliminate all assets classified as losses, reduce substandard assets, improve lending and collection policies, and improve liquidity and funds management policies.”

In August AMB hired an investment banking firm, Keefe, Bruyette & Woods, hoping to solve its financial problems through capital investors and/or merger partners. There has been some interest, the bank said, but no new capital has been raised by KBW.

AMB’s press release also threw out this request for a lifeline: “The bank is open to consider all investment opportunities, including local investors in the community.”

Lucioni also made the point that deposit accounts are not affected by the FDIC order as long as they fall within federal guidelines. The FDIC now insures up to $250,000 per depositor.

“Your deposits are safe as long as they fall within the FDIC guidelines and since the inception of the FDIC in 1933,” Lucioni said, “no one has ever lost a penny of insured deposits. We’d like to assure our deposit customers that our commitment to serve has not changed. If you are happy with our service and the people you work with at our branches, our challenges should not affect you.”

But what about public depositors?

By code, the City of Bainbridge currently uses AMB as its “bank of deposit” and often has in excess of $1 million deposited in the bank, especially during payroll periods. City Finance Director Elray Konkel said Wednesday that the community has nothing to worry about.

“AMB is a municipal depository in the state and that requires it to register with the state as holding public funds,” Konkel said. “If the bank failed, then under state law the other banks would have to pony up, in lieu of the FDIC.”

Chris McGann, communications director for the state’s Treasurer’s Office, said Konkel is technically correct in that losses by a failed public depositary bank would be recovered by the remaining banks that make up the state’s collateral pool.

However, McGann added, “public deposits would only be lost in the event that funds are not insured or the failed bank lacks sufficient collateral to cover them.”

New rules established in February of this year by the Public Deposit Protection Commission now requires all banks to back uninsured public deposits with collateral of at least 100 percent, up from a previous requirement of only 10 percent. With troubled banks, higher collateral is required.

Konkel said the City Council has suggested adjusting the code to allow the city to have more than one bank of deposit.

“There’s nothing to worry about, but the idea is to have more than one, just in case,” he said. In case of what?

“The only justifiable reason would be to alleviate any fears on the part of the community,” he added. “Like I said, I have recommended to the council that we have no concerns because we would be covered.”

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