The city recently inquired about American Marine Bank’s financial state of affairs since the municipality may have $1 million deposited in the Bainbridge-based bank at any given time in order to cover monthly expenditures. Members of the council’s Finance Committee basically wanted to know if AMB could guarantee that the city’s deposits are properly insured – a good question considering the economic nightmare that is occuring nationwide and globally.

President Rex Townsend and two other executives of the 60-year-old bank candidly answered every question the committee asked, though they didn’t appear particularly comfortable divulging information in a public forum that they prefer keeping locked in a vault. But, in answering the security question, the bank has the city covered.

Generally, the bank has three lines of defense.

The Washington Public Protection Act covers all public deposits, and at this time AMB is approved to accept deposits up to $10 million – covering them with U.S. Treasury Bonds it has purchased. (Public deposits are limited by the amount of securites a bank pledges). The FDIC now offers insurance to the tune of $250,000 per relationship. Furthermore, on Oct. 15 it invoked a temporary (until Dec. 31, 2009) Liquidity Guarantee Program, under which all funds held by FDIC-insured banks in non-interest-bearing transaction accounts would be guaranteed – for a fee.

And thirdly, the city is protected by the bank’s equity. Townsend emphasized that the small bank has a “well-capitalized” rating and has stayed in the black throughout the last two years, showing profits each quarter in 2007 and 2008. “We are not actively growing the bank right now,” Townsend said. “We are concentrating on preserving capital and the strength of the institution.”

There was considerable discussion about the bank’s liquidity, which has generally become a major concern since Washington Mutual – deeply embroiled in the sub-prime meltdown – had a major run on its deposits in recent months and eventually was forced to sell.

Townsend admitted that AMB, which has been a major player in the island’s housing industry since 1948, has some “slow loans” and some loans that are not performing at the moment. “But these things do not take into account collateral allowed for all of those and the strength of the borrowers.”

He reassured council members that AMB has a sophisticated model that allows it to consistently track it’s liquidity sources, which include their own balance sheet, the Federal Home Loan Bank, brokered deposits, and the federal discount window – if it came to that. In other words, the city’s checks will not bounce.

Still, while council members on the committee seemed reassured by the report, they may recommend that the city considers adding a larger bank to its portfolio. One of the drawbacks of dealing only with a local bank is that its software may be limited and it can’t provide the more sophisticated online services offered by larger banks.

Currently, the city code names only AMB as its banker, which means it would have to revise the code if it decided to also deal with a secondary bank. Plus, the stability of the likes of Bank of America speaks for itself.

That’s not to say that the city should do less business with American Marine Bank. It’s our bank and it should remain the city’s No. 1 institution as long as it performs well. It’s doing that right now – during an extremely difficult time – and deserves a vote of confidence.