At one point during the three years that Harbor Bank of Maryland operated under heightened federal scrutiny, a regulator asked CEO Joseph Haskins Jr. why he stuck it out. Why not just retire?
But for Haskins, one of the founders of the Baltimore bank in 1982, walking away was not an option.
"I've grown up not running from a challenge, but facing it head on and looking to find a solution," said Haskins, 65. "And so, it isn't in my DNA to wilt under pressure. In fact, it only strengthens my resolve."
Harbor Bank, a minority-owned commercial bank with nearly $251 million in assets, is one of the many institutions that ran into trouble following the financial crisis in 2008. The bank lost money on troubled real estate loans and entered into a consent order in 2010 with federal and state regulators, agreeing to make changes to shore up its finances. Earlier this year, federal regulators lifted that order. Though Harbor still faces challenges — it recently posted a quarterly loss — bank officials say the lender has emerged stronger.
The bank's directors, a who's who of Baltimore business leaders, credit Haskins for calmly steering the bank through the crisis.
"He kept a cool head," said Edward St. John, a bank director and president and CEO of St. John Properties, a Baltimore development company. "I know I couldn't have."
Haskins grew up in Northeast Baltimore, the son of a longshoreman and homemaker. After graduating from Morgan State University in 1971 with a bachelor's degree in economics, he was recruited by Chemical Bank in New York for its management training program and became a loan officer. After a few years, he joined a New Jersey bank. He also earned an MBA in finance at New York University in 1975.
Haskins always planned to return to Baltimore and did so in the mid-1970s at the urging of a friend who said the move would help his career and hometown. Haskins interviewed with large banks in Baltimore but wound up taking a position as vice president of business and finance at what was then Coppin State College. Haskins later earned a master's degree in economics at the Johns Hopkins University in 1979.
Around that time, academics and community activists who wanted to create a bank to serve Baltimore neighborhoods ignored by larger institutions asked Haskins to join the effort, he said. Haskins argued that the bank would need a cadre of successful business people behind it to flourish.
Organizers recruited business leaders, some of whom remain on the board. They include Erich March, vice president of March Funeral Homes; John Paterakis, CEO of H&S Bakery and a developer in Harbor East; and Louis Grasmick, CEO of Louis J. Grasmick Lumber Co. Inc.
Haskins, one of those first directors, left Coppin in 1981 to become an investment broker for a few years, before the bank chose him as CEO in 1987. He later took the helm of its holding company, Harbor Bankshares, created in 1992.
With seven branches, Harbor lends to developers, small businesses, faith-based groups and homebuyers. Closely held, its stock trades infrequently over the counter.
Haskins said he became aware of trouble brewing in the housing market around late 2005. Brokers were submitting applications for subprime mortgages with errors and misinformation, prompting Harbor to cut them off, he said. Blamed for precipitating the housing crash, subprime loans are for less-credit-worthy borrowers.
The bank also increased the amount of equity it required developers to invest in commercial projects, Haskins said.
The financial crisis of fall 2008 upended the housing market and banking.
"All of a sudden, housing just stopped dead in its tracks, and then we had this free-fall in housing values," Haskins said. "During that period, the feeling was that commercial real estate was going to be the next shoe to drop."
Regulators, criticized for missing the subprime crisis, quickly raised lending standards, Haskins said.
Harbor didn't sustain a loss from subprime mortgages, Haskins said. But other loans deemed satisfactory under the old rules were now classified as troubled, even in some cases where borrowers had not missed payments.
Harbor wrote off troubled loans and boosted its reserves for potential losses but, after years of profitability, posted a $1.38 million loss in the fourth quarter of 2008.
For Haskins, that was the most difficult time. "I had never had a loss," he said. "It was like getting hit with a left hook."
The red ink continued, with a loss of $4.9 million in 2009. Near the end of the year, examiners told the bank that they would recommend a consent order. It was issued in April 2010 and spelled out steps that Harbor agreed to take.
"It's a serious matter," said Stuart Greenberg, a banking consultant in Baltimore. "A bank is required under regulatory guidelines to operate in a safe and sound manner. When it enters into an arrangement with regulators, they are not operating as safe and as sound as they should be."
Consent orders also are public and can raise a bank's borrowing costs and affect its relationship with other lenders, Greenberg said.
"Make no mistake, this is a scarlet letter," he said.
Regulators declined to comment, saying the order speaks for itself.
The Federal Deposit Insurance Corp.'s order laid out a course of action that included reducing Harbor's commercial real estate loans and narrowing a gap in its capital levels.
Haskins said he doesn't believe the consent order was warranted but viewed it as a road map. Not all his board members took the news as well.
"These guys didn't arrive at where they are by being sort of wimps or pushovers. They wanted to take the regulators to task," Haskins said.
He had some long talks with the board, explaining that, given the financial crisis, it wasn't wise to put up a fight. If the bank complied, he argued, it could do the painful work of meeting the terms of the order and restore the bank's health.
"Reluctantly, they agreed with me," he said.
State Sen. Delores Kelley, a director since the bank's founding, said the situation reminded her of an old proverb she heard growing up: "When your head is in the lion's mouth, don't wiggle."
Regulators gave bank officials a month or two to come up with a plan to comply with the order.
"You feel you have little option other than to deliver what's been asked lest there will be further repercussions," Haskins said.
The bank set about reducing its commercial real estate loans, writing off troubled loans and having some borrowers refinance loans with other lenders.
Harbor lost $4.1 million in 2010 but made profits of $298,000 in 2011 and $364,000 in 2012.
Some directors called working under the order difficult.
"Exasperating, really exasperating," said George Vaeth Jr., a retired architect and longtime director. "I personally felt that the target kept moving."
Examiners would want the bank to concentrate on one area and then return later wanting it to focus on something else, Vaeth said.
"It's not as tough for the board as it is for the people who work for you," Paterakis said. "They are under tremendous stress by the government telling you that you have to do this and you have to do that. You can't argue."
Director James DeGraffenreidt, retired chairman and CEO of WGL Holdings, said regulators set a high bar for Harbor, but in the end it made the bank stronger. "The heightened scrutiny from the financial crisis caused everybody in the bank to elevate their game," he said.
Haskins said he's worked long hours in recent years, updating regulators monthly, talking to prospective buyers of foreclosed properties, dealing with lawyers and other banks. He needed to give himself an occasional pep talk.
"So I could get through the next day, I had to say, 'Well, Joe, look, you're getting roughed up a little bit, but you are still operational, you are still in the game,' " he said.
Banking consultant Bert Ely said Harbor's capital level is strong but still has some loan quality issues.
In 2013's first quarter, the bank set aside nearly $1.8 million for potential loan losses, wrote off $1.46 million in troubled loans and lost $901,000. "They aren't out of the woods, not that they were that deep in the woods," Ely said.
Haskins said the bank is dealing with two troubled loans, and its performance next quarter will be "much improved."
The bank is looking to the future. The consent order required Harbor to set up a succession plan, and in April it named chief operating officer Darius Davis as bank president.
Other banks and individuals have approached Haskins about buying Harbor. These suitors, he said, were looking for "deals/steals," and the low-ball offers were rejected.
Harbor may merge with another bank someday to reach a higher level of success, Haskins said, but there's no pressure to rush into a deal.
"It's more important to find the right partner."
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