Spilled Milk: Success Is Not Always Transferable

The Situation: Corleone Hardware, a family-run business since 1951, operated a mixed product business in a 15,000 sq. ft. store run by two sons and loyal associates who were knowledgeable and professional. The cramped but neatly organized store was located in a diversified strip shopping center in an upper income neighborhood. The product mix consisted of hardware, household goods, lawn and garden, and a toy/hobby shop on the second floor. A well-established customer base had generated fairly consistent sales volume which was supplemented by various rent-producing real estate ventures. As Mr. Corleone’s store could not support both sons, they were interested in pursuing an opportunity that came along to purchase a 4-acre plot 6 miles east of the present location and develop a new stand-alone16,000 sq. ft. lawn and garden store in a growing upper income neighborhood.

The Wholesaler provided well-supported studies indicating adequate potential volume to support an upscale store catering to this surrounding clientele. Additionally, a credit analysis that combined the old and new store operations indicated sufficient cash flow to service the debt. The Corleone family provided $800,000 cash equity to purchase the land. An as-built appraisal estimated the property value at $2 million. To further enhance the deal the Wholesaler was willing to provide a $125,000 guarantee to offset the start-up risks. While the Corleone’s believed they had invested sufficient equity and their word was good for repayment, they also agreed to provide guarantees.

The Lender provided a permanent takeout loan for $1.5 million and $150,000 inventory loan on a generous 20-year amortizing 10-year term. Interest rate options were provided in which the Borrower could choose between three different LIBOR options and a 5-year Treasury pricing option. A local institution would provide the construction financing. Everything was in place to create two successful stores to continue the family tradition.

The Findings: After all the fanfare and 18 months into operations, it became apparent the new store was running into difficulties. Sales were well below projected levels and financial statements were neither accurate nor being submitted in a timely manner. Compiled versus required reviewed statements indicated numerous violations with financial covenants. Compounding the problem, the first store reflected losses due to declining volume. The father had to make advances to cover operating losses.

Two lawn and gardens stores that appeared closed down during the winter site inspection as part of the initial due diligence suddenly came to life that spring providing stiff competition. The upper income residents didn’t want to be do-it-yourselfers for their $400,000 homes, so they contracted their chores to landscapers and contractors. While the location did have an increasing traffic pattern, it was not near the level projected by the Wholesaler.

Sales projections were at 60% of that required to service cash flow debt. The property while fitting very nicely with the other upscale retail and commercial properties was probably excessive for this venture. Compounding the problem were the sons’ lack of experience to operate the new facility.

It soon came to light that the real estate ventures had supported an underperforming and overstaffed operation. It could not generate a profit on operations and when the retail environment intensified (including cannibalization from their new store), their weaknesses became more apparent.

The Outcome: The owner decided to cut losses and liquidated the store. Fortunately, there was sufficient real estate value and the Bank was paid in full. The owner, however, lost his equity and his first store and filed Bankruptcy.

David Schallich, Managing Director, Special Assets, National Cooperative Bank, Washington, DC

March-April Calendar Offers Many Options

Alternative Financing Sources provides commercial lenders a comparative look at funding sources that enable you to save deals and solve customer’s dilemmas. Sources to be explored include: Mezzanine Subordinated Loans, SBA 504 Loans, MD Small Business Development Financing Authority programs, Short-term Working Capital Loans, and Leasing. March 25, 2004; 8am-9:30am at the Columbia Hilton, Columbia, MD.

Workout Tools for the Community Bank Loan Officer, co-sponsored by Turnaround Management Association Chesapeake Chapter and CCRMA is a joint breakfast meeting to explore workout tools. Register through TMA by fax (410-335-5731) or phone (410-335-4304). Direct questions to Pam Justis at TMA. April 1, 2004; 8:00am at the Center Club, Baltimore, MD.

Credit Breakfast on Operational Risk provides a look at what operational risk is and how management of that risk can protect your financial institution. RMA’s Director of Operational Risk, Charles Taylor will lead an open discussion and Q&A period where you can explore issues and responses. April 12, 2004; 7:30am- 9:30am at the Columbia Hilton, Columbia, MD.

Economic Outlook for Western Maryland offers a special session with Anirban Basu who will provide valuable insight on the region and the state at-large. Basu is a noted economist who specializes in Maryland and Delaware and whose forecasts are utilized extensively by Maryland’s Department of Human Resources and Maryland’s Office of the Comptroller. April 28, 2004 8:30am-10:30am, Farmers & Mechanics Bank, Frederick, MD.

For additional course details and to register, visit our website at www.rmachesapeake.org.

Young Financial Professional Update

The Chesapeake Chapter Young Financial Professionals (YFP) group continues to be active and is diligently attempting to identify potential participants and encourage their involvement.

The Senior Management Panel Discussion on February 11, 2004, was an overwhelming success. There was a strong turnout and it would have been impossible to identify a more engaging and interesting group of panelists than Glenn Wilson, G. Bradley Sanner, Irene McGarry, and J. William Knott.

The panelists represented a broad range of institutions in terms of size but their message was consistent. The panelists attributed their own success to hard work; strong ethics; finding the balance between work, family and religion; and strong communication skills. When making promotion decisions, they looked for all the above traits and in addition loyalty.

Their suggestions for setting yourself apart from others along your career path included actively seeking out additional challenges at work and adding a personal touch to correspondences with management, for example hand written thank-you notes.

The YFP Group is hoping to build of the momentum of the Senior Management Panel Discussion for its next event, a co-sponsored networking happy hour with two other young professional groups. The RMA YFPs will be joined by the MACPA Young / New Professionals and the Young Lawyers Section (YLS) of the MD State Bar Association for a networking event. Here are the details:

Registration Fee: $10
When: Thursday, April 22
Time: 5:30 to 8:30 p.m.
Where: Nottingham's Tavern, Columbia
Directions Available at http://www.nottinghams.net/directions.html
Details: Cash bar at happy hour prices - until 7 - plus munchies.

The event will allow members of all groups to network not only amongst themselves, but also with peers in other industries. The networking among the groups should provide not only contact with referral sources, but also a chance to learn more about the work environment for peers in other industries.

If you are a young professional who is interested in joining our email list or know a young professional who would be interested, please contact Charles Ruch at charles.ruch@mercantile.net or Thad Ulrich at thad.ulrich@mercantile.net.

Thank you everyone for your continued support.

Thad Ulrich
Assistant Vice President
Annapolis Banking & Trust Co.

Open Mind & Flexibility Are Key

Although credit related issues are the prime topic, today I am going to deviate from this to focus on career development. As I listened to the Senior Executive Panel Speakers at our recent Young Financial Professional event, entitled “Advancing Your Career in Banking”, it brought to mind the importance of keeping an open mind and remaining flexible throughout your career, especially during times of downsizing, mergers and acquisitions. On occasion, as Mr. Glenn Wilson stated (CEO of Citizens National Bank), one may also encounter unexpected setbacks in their career. That isn’t necessarily a bad thing. One may need to acquire or develop another skill before moving forward; or your expertise may be required in a specific position until management can locate a satisfactory replacement.

Change, although difficult, is generally good. The ability to remain open minded and flexible with new management or changes in departmental processes etc., will serve you well. You will be noticed as a true “team player” and one who is willing to adapt to change.

In today’s environment, those individuals who are unwilling to change or remain complacent are often left behind. In order to continue to progress in your career, keep up to date on what is happening in your profession, read and keep current about your marketplace, learn everything you can about each department in your organization, reach out and attend various events and seminars that will assist you with networking as well as those seminars that enhance your personal growth.

RMA headquarters and your local chapter offer various programs to assist you with every stage of your career development. The Chesapeake Chapter continues to update its calendar with events to meet your needs. You can view our calendar online at www.rmacheasapeake.org. If we are missing a topic of interest to you, please email Cheryl M. Dahut at cdahut@bankannapolis.com.

RMA headquarters offers a Leadership & Management Seminar for Executive development for Senior Managers at Community Banks and Senior Lenders at Regional Banks. More information available at www.rmahq.org.

Jo Taylor, CCRMA President

Click here for a complete list of CCRMA Board Contacts!

Welcome New Members!

We welcome these new institutions and individuals:
Farmers and Merchants Bank is an independent community bank established in 1919 and headquartered in Upperco Maryland. F&M currently operates from 5 locations in Upperco, Hampstead, Greenmount and Reisterstown MD (2).
Further information can be obtained: www.farmersandmerchantsbk.com

Damascus Community Bank founded in 1988, is locally owned and managed. Damascus operates in the Northern part of Montgomery County with 4 branch locations: Damascus, Laytonsville, Hyattstown and Clarksburg. Further information: www.damascuscommbank.com

Fidelity & Trust Bank was founded in November 2003 and is located in Bethesda MD. Fidelity & Trust is a community bank with full service capabilities. The Bank is the Holding company for Fidelity & Trust Mortgage Inc., formed in 1994 with over 26 offices around the country. Fidelity & Trust is a wholly owned subsidiary of Fidelity & Trust Financial Corp. Web site: www.fidelitytrustbank.com

New Member LIST

Robert W. Armstrong
First Liberty National Bank

Rhonda Biemiller
Manufacturers & Traders Trust Co

Michael K. Bloxham
Bay National Bank

James R. Bosley,
Farmers and Merchants Bank

Terry L. Brown
Damascus Community Bank

Russell Bruce
First Liberty National Bank

Rejeanna Foster
EagleBank

Joseph W. Greenville
Damascus Community Bank

Kimberly B. Huntt
Damascus Community Bank

Kathleen Jarret
First Mariner Bank

Kass Keleta
Systems Solutions Management Inc

Mary Lou LeQuire
LeQuire & Associates LLC

Raymond Lyon
SunTrust Bank

Thomas C. Myers
Farmers and Merchants Bank

Gregory J. Olinde
Bay National Bank

Ehab M. El Shamy
Fidelity & Trust Bank

John C. Wasowicz
Bay National Bank