Washington Bancorp, which owns National Bank of Washington, announced yesterday that its profits plunged in the fourth quarter because it substantially increased its loan loss reserve to cover several deteriorating loans.
The bank company -- with $1.3 billion in assets, the third-biggest in the District -- said fourth quarter earnings were $214,000 (15 cents a share), 89 percent below the $2 million ($1.47) it earned in the final three months of 1983.
Despite the dismal fourth quarter, however, the bank company's full-year profits of $8.2 million ($5.92) were 34 percent higher than the $6.1 million ($4.45) Washington Bancorp earned in 1983. National Bank of Washington is the parent company's major asset.
Luther H. Hodges Jr., chairman of the bank company, said it added nearly $7.6 million to its loan loss reserves in the fourth quarter, compared with $1.65 million in the fourth quarter of 1983. The bank made the large addition following an audit by examiners from the Office of the Comptroller of the Currency, the federal agency that regulates nationally chartered banks.
The bank company now has a loan reserve of $15.9 million, equivalent to 49 percent of its problem loans and 2 percent of its total loans.
Last month, the comptroller's office required American Security Bank -- the District's second-biggest -- to make a special loan loss provision of $37 million. American Security said it expects to report a fourth-quarter loss and only tiny earnings for the year as a whole. The bank and the comptroller's office are discussing enforcement actions the federal agency might take.
Hodges said that the regulators approved the procedure that NBW uses to monitor, classify and charge off bad loans but said the examiners required NBW to put its procedures in writing. Hodges said he and other bank officials agreed with the regulators' assessment of NBW's loans.
Hodges said the massive addition to NBW's loan reserve "cleans the decks."
Regulators have become tougher on banks in recent months -- forcing them to strengthen their capital base and to account for problem loans in their earnings statements far more quickly than banks did in the past.
Hodges said that three major domestic loans account for most of the bank's difficulties. Hodges would not identify the companies, but said one is a computer firm, another is building materials supplier and a third is a steel fabricator.
Industry sources said that NBW's major problem is a large loan, in excess of $9 million, to Columbia Data Products -- a Columbia, Md., computer company that has fallen on hard times since selling its first stock shares to the public early last year.
Sources said that the Columbia loan and the other two loans -- which total about $7 million -- account for nearly half of NBW's $32 million in problem loans. Another $7.6 million of NBW's problem list is a loan to Argentina on which payment is overdue. If Argentina is able to pay all its overdue interest by mid-year, as it pledged to do last month in an agreement with its bank lenders, the Argentina loan should come off NBW's problem list by June 30.
The bank company also announced that it has improved its capital base by $10 million as a result of a long-term loan -- called a capital note. Industry sources said Manufacturers Hanover Trust Co., the nation's fourth-largest bank, made the capital note.
NBW has been seeking additional capital for several years because its current capital base hinders its ability to grow. The United Mine Workers of America owns 76 percent of the bank company and has been reluctant to permit the company to sell more stock to raise funds because such a sale would dilute the union's holdings.