The National Bank of Washington -- in an unusually blunt appraisal of a year filled with extraordinary banking, legal and public relations problems -- yesterday released a 1980 annual report and proxy statement that states that few banks "have ever analyzed and restructured themselves so completely."
That conclusion, taken from the bank's annual report to shareholders, is just one part of a campaign largely led by new NBW Chairman Luther Hodges that is designed to put the bank's documented financial and management difficulties before the public, while at the same time emphasizing the new management's focus on the institution's future.
The report opens by tersely stating that the bank "did not perform satisfactorily. We experienced a year marked by questionable loans to some who held leadership positions, and we experienced a massive internal audit of our management and operations.
"We received much negative publicity and were forced to reorganize both our senior management and the board of directors," the report said.
In fact, the bank's profits dropped by a record 42 percent last year and total deposits dropped by 9.9 percent to about $671 million at the end of 1980. "We are looking forward to presenting a much brighter report to you in 1981," Hodges wrote in the annual report.
But the reasons for the bank's problems also are outlined clearly in the proxy statement, which was mailed to shareholders yesterday, shedding more light on the record of the regime that preceded Hodges' that was characterized, according to the internal audit, by a pattern of mishandled loans.
Those transactions have been the subject of investigations by the U.S. attorney for the District of Columbia, the Office of the Comptroller of the Currency and the Securities and Exchange Commission.
The NBW proxy statement discloses for the first time that:
The contract awarded last October to Hodges, former chairman of the North Carolina National Bank and Commerce Department undersecretary, will escalate from $175,000 in salary for the first of its five years to $250,000 by its close.
Further, Hodges will be eligible for a "performance payment if NBW achieves unspecified goals ranging from $100,000 to $150,000, in addition to an annual bonus ranging from $50,000 to $150,000. For 1981 and 1982, those bonuses will be $50,000 and $75,000, respectively.
Potentially, Hodges therefore could earn $550,000 for 1985. By means of comparison, Vincent Burke, chairman of Riggs National Bank, earned about $192,000 in 1980, while Carlton M. Stewart, former chairman of American Security Corp., earned about $195,000 during 1979.
NBW wrote off almost $900,000 for a series of controversial loans to former bank director John W. Lyon and has set up a reserve of another $573,000 for other loans totaling close to $4 million. The audit committee called some of loans to Lyon "unduly lenient." Lyon and his wife still owe the bank more than $835,000 for a personal loan.
The bank also has written off about $1 million in loans and interest to one-time successful real estate entrepreneur Bruce D. Lyons, partner in the firm of Holland & Lyons Associates. NBW said it does not foresee further losses on the loans to Lyons.
In addition, the bank has written off interest payments of about $104,000 tied to loans of about $1 million to another company affiliated with Lyons and other investors. Lyons apparently still owes the bank more than $1.5 million.
The bank also has written off $892,000 on a loan of $4.5 million to the former owners of Laurel Raceway, in addition to a loss of interest and legal fees on those loans totaling about $570,000.
NBW also said that it "expects" to lose about $378,000 on other loans. The Proxy statement provided no further details on those transactions.
The details about the transactions comes as Hodges and the bank's management has completed an elaborate restructuring of its board of directors and key management committees. Under an agreement with the U.S. comptroller's office, two-thirds of the members of the bank's new board are independent of the United Mine Workers, the labor union which owns 76 percent of the bank's stock, Hodges said yesterday.
Besides the frank acknowledgement of the bank's 1980 difficulties, however, Hodges said in his introductory message to stockholders, that the bank "will be a strong and better bank because of the experiences of the recent past."
Hodges went on to say that NBW should "lead the way for the banking industry and the greater Washington community." In an interview, Hodges cited the area's relatively strong economic base and the prospects for the emergence of interstate banking in the area as evidence of NBW's potential.
"There are a lot of positive things to say, but you've got to first admit the problems," he said.