HarVest Bancorp CEO resigns
The chief executive of HarVest Bancorp, the Gaithersburg holding company of HarVest Bank of Maryland, is stepping down, as a California investor inches closer to acquiring a large stake in the beleaguered company.
John P. Hollerbach, who co-founded HarVest with board member John W. Holaday in 2004, could not be reached for comment about his resignation. According to Chairman John McDonnell, who is heading the company in the interim, Hollerbach "is stepping aside because the transition is ongoing."
Hollerbach played an instrumental role in seeking investors to pony up the $15 million needed to recapitalize the troubled bank, which has been slapped with enforcement orders from the Federal Deposit Insurance Corp. for low capital levels.
In October, Mehrdad Elie, a former chief executive of Alliance Bancorp in Brisbane, Calif., offered to buy $5 million in common stock contingent on Harvest raising the remaining $10 million from other investors.
McDonnell said several investors, including Rockville financier Robert Senko, have floated HarVest the majority of the balance. The chairman would not divulge further details, citing a quiet period relating to the capital raise. He assured, however, that enough money is in place to give Elie the confidence to proceed.
At the end of December, Elie, who did not return repeated calls, filed an application with the Federal Reserve Bank of Richmond to acquire up to 31 percent of HarVest Bancorp's voting shares.
"I'm fairly confident we will get the amount of money we need to be well capitalized this quarter," McDonnell said. "And we'll probably have the regulatory approval this quarter."
Upon that approval, Mesfin Ayenew of Potomac, a former executive with First Republic Bank in San Francisco, will join HarVest Bank as chairman and chief operating officer. Two other executives are slated to come aboard, said McDonnell, who will move into the role of vice chairman of HarVest. Regulators must also okay this new lineup.
McDonnell made no guarantees about the fate of the company's 30 employees, saying, "Any cost reduction efforts are in flux right now."
The completion of the recapitalization initiative may stabilize HarVest, but banking consultant Bert Ely questioned the impact the deal will have on its shareholders. "Essentially, there is going to be a very substantial dilution for existing shareholders," he said. But, "they need that $15 million to deal with all the write-offs that they are facing."
High concentrations in commercial and residential real estate mortgages created a mountain of troubled loans that rose from $2.3 million in 2007 to $22.4 million in 2010, according to the FDIC.
Hollerbach told Capital Business in September that a portfolio of residential mortgages purchased from Countrywide in 2006 constituted more than half of HarVest's underwater loans. The Gaithersburg bank has been locked in a lawsuit for two years with Countrywide, which was taken over by Bank of America.
After a number of loans slid into default in the fourth quarter of 2008, the bank held off on making new loans to retain available capital. A $10 million equity offering to raise capital the following year fell short of expectations, with barely $2 million in shares sold, according to a Securities and Exchange Commission filing.
HarVest enlisted investment bank Janney Montgomery Scott last spring to find investors as the bank's capital levels began a rapid decent. Regulators issued an enforcement order by the summer, pressing the bank to reduce the amount of delinquent debt on its books and boost capital. Since then, however, Harvest has fallen from being adequately capitalized, a determination based on leverage and risk ratios, to undercapitalized.
The bank's equity capital plummeted from $16.9 million in 2009 to $4.9 million at the close of last year. During that same time, HarVest's total assets fell from a high of $227.6 million in 2009 to $161.9 million. The bank lost $12.4 million last year.