Bay National Bank said yesterday that it is operating under formal oversight by federal regulators as it tries to recover from losses on bad mortgage loans.
The Baltimore bank was placed under a consent order Feb. 6 by the Office of the Comptroller of the Currency, which charters, regulates and supervises national banks.
The order requires Bay National, which has two full-service banking offices in Baltimore and Salisbury, to devise a plan to improve its liquidity and capital and deal with problem loans.
Bank executives said its problems stem from the collapse of the real estate market. Most of the losses came on loans given to investors who were purchasing homes, many around the Inner Harbor, and renovating them to sell. Many of the investors weren't able to sell the houses as values dropped.
Hugh W. Mohler, the bank's chief executive officer and president, said in a statement that he didn't pay enough attention to risks associated with the lending.
"These were not the traditional single-family home loans," said David E. Borowy, Bay National's senior vice president and chief financial officer. "We fully agree with [the consent order's] intentions and its directive in terms of what needs to be fixed. We believe if we comply, we have a brighter future."
Bay National revealed details about the consent order as it announced a fourth-quarter net loss of 48 cents per share, or $1.02 million, compared with a net loss of 26 cents per share, or $564,000, during the same period a year ago.
The latest quarterly results included a loss provision of $961,000 and charge-offs of $1.96 million because of soured mortgage loans.
The bank had assets of $270.6 million and deposits of $244.6 million as of Dec. 31.
Bay National has already taken several steps to improve its financial footing. Last year, executive management agreed to 20 percent pay cuts and bypassed bonuses, while senior executives took a 10 percent salary cut. Members of the board of directors aren't being paid fees, and a salary freeze has been put in place for other personnel.
The bank had a core capital ratio of 8.31 percent as of Dec. 31, according to documents filed with regulators. Borowy said the bank is in no danger of closing and expects improvements in the first quarter.
The mortgage crisis has weakened a number of local banks and led to the failure last month of Suburban Federal Savings Bank in Crofton. In October, Towson-based AmericasBank was ordered by the Federal Reserve Bank and the Maryland Division of Financial Regulation to address specific issues, such as operational oversight, credit risk management, asset improvement and allowance for loan and lease losses, among others. The bank operates Towson Community Bank and Annapolis Community Bank.
First Mariner Bank, the second-largest bank based in Baltimore, is operating under an informal supervisory agreement and has had to transfer money from its holding company to maintain capital levels. And Baltimore-based Bradford Bank said last fall that it expected the Office of Thrift Supervision to issue a "cease and desist" order preventing it from issuing certain kinds of loans. President Dallas R. Arthur said the bank hasn't received the order and doesn't know when it will be issued.