Henry A. Berliner Jr. used to talk about integrity in banking. He spoke of bankers assuming responsibility for the problems they caused. And he talked about prudence, including staying close to your market, and sticking with the products you know.
The former president and chief executive officer of Second National Federal Savings Bank, one of three East Coast thrifts federal regulators seized Friday for operating in an unsafe condition, still stands by his integrity. And he acknowledges a share of, though not a monopoly in, the responsibility for his thrift's downfall.
"Everybody's responsible," Mr. Berliner said yesterday in a telephone interview from his Annapolis home, where he was "doing a bit of house-sitting" with his two children. "That includes the regulators, the Congress that changed the rules, the board of directors -- all of us."
Prudence is another thing, at least from the perspective of Monday-morning quarterbacks dissecting the passing of the Eastern Shore's largest thrift, which had nearly $1.6 billion in assets.
The Office of Thrift Supervision,the federal agency which put Second National in receivership, cited the company's reliance on "deficient appraisals, inadequate borrower equity and insufficient documentation of borrowers' financial condition."
The takeover has had no effect on the institution's depositors, who remain insured up to $100,000 per account, according to James McCormack, managing agent for the Resolution Trust Corp., which was given responsibility to run Second National.
Mr. McCormack said the company's 34 branches, 22 of them in Maryland, were relatively quiet Saturday and yesterday. The RTC has retained all of Second National's nearly 500 employees, he said, except Mr. Berliner, 58, who is the largest stockholder in the parent company, Second National Bancorporation.
Mr. Berliner owned more than 900,000 shares, representing about 12.5 percent of the company. Second National closed yesterday at 3.125 cents a share, unchanged from Friday.
Though he's lost much of his net worth, Mr. Berliner said he doesn't fault the OTS. "I have no complaint against the regulators in the sensethey were doing their job," he said.
"I felt they kept us open a lot longer than some other institutions," he added, "and I think that was because of their confidence in our ability to raise capital," which is the cushion of money that financial institutions must keep reserved to protect the federal deposit insurer against possible losses.
Asked about the regulators' claim that the company operated in an unsound manner, Mr. Berliner instead blamed Second National's downfall on onerous capital requirements and deadlines that gave institutions too little time to improve their health.
He also pointed to the regulators' praise for the progress the thrift had made in reducing the level of non-performing assets.
Others were less resigned.
"I was shocked [by the takeover]," said Eugene F. Ford, who was chairman of the company before regulators dissolved the board Friday. "We had no indication before Friday that they were prepared to close the bank, given the progress we'd shown. I couldn't believe it."
The progress came in disposing of troubled assets. The company liquidated $81 million worth of those assets this year, but still had $231 million as of Sept. 30, representing 14.7 percent of total assets.
Mr. Ford also pointed to a pending, although by no means certain, deal to raise between $40 million and $50 million in capital with a stock offering to current and prospective stockholders. Wall Street investment bankers Wertheim, Schroeder & Co. and Ladenburg Thalmann & Co. were discussing the deal with Second National and some of its equity investors.
"I think there were some very positive factors at work" for such an offering, said Philip Erard, senior vice president for corporate finance at Wertheim. Those included an improved market for bank stocks, and the expressed support of existing shareholders.
"We had indicated a willingness to participate in capital raising in the first quarter, assuming [a] favorable" financial condition in the fourth quarter this year, said Everett Morris, president of Enterprise Diversified Holdings Inc., whose subsidiary Public Service Resource Corp. of New Jersey was among Second National's largest preferred stockholders.
But it's unclear if even $50 million in capital would have been enough to bring the company to full health. Regulators indicated Friday that the crushing amount of soured loans from Mr. Berliner's rapid-growth strategy left the company unable to compete effectively.
"Sure, you could say we should've done more," Mr. Berliner said. "But we didn't have any experience with bad loans." Not until late 1989, at least, when sectors of the region's real estate market began to free fall.
Those ventures, when the company began them in the mid-1980s, represented a fork in the road that had taken Second National from essentially a startup in 1972 to one of the region's more profitable thrifts. The core business that Second National strayed from in its last years was mortgage lending for second homes, specifically resort homes at the Maryland and Delaware beaches.
Mr. Berliner, a University of Michigan graduate who attended Georgetown University's law school, had been building his own law firm in Washington when Daniel Anderson and Paul Stokes, real estate developers and boyhood friends of Mr. Berliner, approached him with the idea of establishing a thrift to cater to resort projects.
It turned out to be an underserved niche. With an initial $130,000 of their own, the founders raised another $600,000 from investors. By the time the company went public in 1983 at $13.50 a share, it was the predominant mortgage lender on the Eastern Shore, with dual headquarters in Salisbury and Mr. Berliner's new home town of Annapolis.
It wasn't until the public offering, however, that he shifted his focus from his legal practice to Second National. Among his main efforts, according to those who worked with him, was building the image both of the company and himself.
"He was the marketing man, he was the PR man, he was the front man," said one former associate who spoke on condition of anonymity. It was Mr. Berliner's idea, for instance, to hire publicist Jack Wynn, a freelance journalist whose articles for Barron's, Investors Daily, USA Today and others invariably mentioned the virtues of Second National and Mr. Berliner.