"We will continue doing carefully and conservatively what we've been doing . . . We have not by any means totally mined the business in this town."
-- W. Jarvis Moody, on being elected chairman and chief executive officer of American Security Corp., March 1980.
"This bank is going to recover and be back in a top posture in a reasonably short period of time. We have a solid base of customers -- both depositors and borrowers."
-- Daniel J. Callahan III, on being elected chairman and chief executive officer of American Security Corp., January 1985.
Sharp disagreements over policy five years ago were said to have hastened the retirement of Carleton M. Stewart, then chairman of American Security Corp. Some American Security directors and, indeed, some bank officers, felt that the company's principal subsidiary, American Security Bank, had veered too sharply off its traditional course. The feeling among some officials then was that American Security had moved too far afield in international lending and domestic commercial bank business outside its primary market.
Sources closely associated with American Security five years ago confided then that Stewart wasn't forced out but that he became increasingly frustrated by questions about the direction in which the bank was moving. With Stewart as chairman, American Security opened several loan production offices in major U.S. cities and significantly increased its international business. Some directors believed, however, that American Security should have concentrated more on becoming a stronger regional bank.
Differences of opinion notwithstanding, American Security's strategy seemed to have been the right one at the time. Profits, for example, increased at an annual rate of nearly 9 percent over a five-year period prior to Stewart's resignation.
But Stewart left in 1980, after only four years as chairman, explaining that his decision to retire had nothing to do with the bank and that he had not planned to stay on for more than five years. More important, Stewart emphasized at the time that he and directors felt that the goals they had set "have been substantially met."
Directors' misgivings about previous strategies notwithstanding, one day after succeeding Stewart as chairman, Moody declared that American Security would continue "doing carefully and conservatively what we've been doing."
Last year's rocky slide by American Security, which culminated in a fourth-quarter loss of $11.9 million and close to a $27 million drop in earnings for all of 1984, raises some interesting questions for banking's Monday-morning quarterbacks.
To be sure, American Security still is a financially stable bank. But a long list of problem loans caused a tremendous drag on earnings last year, halting a string of 25 consecutive years of profit increases.
As The Post's James L. Rowe Jr. noted in a story last week, American Security's fourth-quarter loss did not come as a surprise. Neither did the fallout from problem loans that hung ominously over the bank the entire year. Long before the problem loans triggered a visit to American Security by federal regulators late last year, there had been indications that 1983's problems would carry over into 1984.
Indeed, American Security reported to stockholders early last year that in 1983 their bank and the industry as a whole "felt the lagging impact of the recent recession as reflected in higher levels of loan losses and problem loans."
Nonperforming loans at the end of 1983 totaled $62.4 million, or 3.08 percent of total loans, compared with $57 million, or 3.12 percent of all loans made in 1982. Last week, however, American Security reported that it has $145 million of problem loans, which account for 6.6 percent of the bank's total loans.
No one could have foreseen a recession four or five years ago, but loan policy decisions made then and in the interim suggest American Security either adhered too closely to the line that Moody enunciated in that 1980 declaration, or it ignored the caveat in his comment that affirmed the need to proceed "carefully and conservatively."
Moody resigned as chairman last week, citing health reasons for his decision. Doctors believe Moody's health problems can best be remedied by avoiding the demands of running a large regional bank, a bank spokesman explained.
For his part, Callahan is not only confident that American Security can remedy its problems in short order, but indicates that it is likely to shift its lending focus back to the Washington region. That implies, ironically, that at least one of Moody's convictions of five years ago remains valid today: American Security has not totally mined the business in this area.