It was incorrectly reported in yesterday's Business section that Maryland House of Delegates Speaker Benjamin L. Cardin is a former owner of Old Court Savings & Loan. The savings association was formerly controlled by other members of the Cardin family.
Long lines of depositors withdrew their money from a suburban Baltimore branch of Old Court Savings & Loan yesterday following reports that the privately insured thrift institution had hired a new chief executive to clear up problems caused by rapid growth.
The day-long run was confined to Old Court's Randallstown office and did not spread to any of the 100 other state-chartered S&Ls insured by the Maryland Savings Shares Insurance Corp.
After a hurriedly called meeting in Annapolis, top state officials expressed confidence that depositors would be protected by MSSIC and that Old Court's troubles would not trigger a panic like the one that decimated Ohio's privately insured savings associations earlier this year.
State officials alerted federal financial regulators in Washington as well as the Federal Reserve, which, if necessary, could be called upon to provide cash to pay off nervous depositors.
The run on Old Court's Randallstown office began after The Baltimore Sun reported yesterday morning in a front page story that Old Court had hired a new chief executive to clear up unspecified difficulties caused by rapid growth.
Lines began forming outside Old Court's Randallstown office shortly after it opened and grew to 200 persons as other depositors passing by saw the situation and joined the crowd asking for their funds. Located west of the Baltimore beltway, Randallstown was described by a MSSIC official as an ethnic community with many retired residents who are very sophisticated about their savings.
As the lines grew during the day, two armored trucks delivered more cash from Union Trust Bank. Nonetheless, Old Court for a time invoked a rule limiting withdrawls to $1,000 in cash, paying the remainder by check. Later, the $1,000 cash limit was dropped.
Old Court, the second largest institution insured by the private MSSIC, grew from $140 million in assets to $840 million in three years after it was taken over in 1982 by Jeffrey Levitt, a Baltimore real estate man, and Allan Pearlstein, a Pennsylvania shoe manufacturer.
Under pressure from MSSIC, Levitt last week turned over the chief executive's job to John D. Faulkner, formerly president of Community Savings & Loan Inc. Association of Bethesda and a member of the MSSIC board. Faulker had served as a consultant to Old Court in recent months.
Old Court achieved its stunning growth by paying some of the highest interest rates in the nation -- as much as three percentage points more than average -- said Paul Bauer, publisher of Savers Rate News, which surveys interest rates. Recently, Old Court was offering 11 percent interest, yielding 11.8 percent annually on its premium investment account, compared with 8.25 to 9.5 percent on similar money market accounts at federally insured banks and savings associations in the Washington area.
Out-of-state depositors drawn by ads in The Wall Street Journal and other publications provided about a quarter of Old Court's deposits, but depositors have become increasingly leery of privately insured S&Ls in the wake of the Ohio crisis.
Rapid growth has caused problems for many savings and loan associations, but MSSIC officials yesterday refused to disclose what kind of trouble Old Court was in. They said state law prevents them from detailing the financial condition of any MSSIC institution.
Depositors' waiting for their money said they, too, were uncertain what was wrong with Old Court but were taking out their money just in case.
Several of Old Court's seven branches reported smaller withdrawals, but the Randallstown office stayed open for more than two hours after the normal 3 p.m. closing to serve customers who got in line before the normal closing hour. Later-arriving customers were turned away and told to come back in the morning.
Appearing at a late afternoon press conference with MSSIC President Charles Hogg II, Faulkner said Old Court was "in good shape" and would reopen this morning prepared to pay any depositors who want their money.
"We made good on all withdrawals," stressed Faulkner, describing the day's events as "unusual and unnecessary." Neither MSSIC nor Old Court officials indicated how much money had been withdrawn in the course of the day.
Hogg said MSSIC was ready to lend money to Old Court if necessary, but he refused to say how much the insurance fund could provide. MSSIC insurance protects deposits up to $100,000.
To protect deposits, MSSIC has $295 million in assets plus a $50 million line of credit with a group of banks and the right to borrow from the Federal Reserve's discount window as a last resort.
At the end of 1984, Old Court reported it had $24 million in net worth, or 2.86 percent of liabilities, based on regulatory accounting standards that are not as stringent as generally accepted accounting principles. Old Court's net worth -- the cushion to protect depositors in the event of failure -- falls far short of the 3.75 percent minimum ordinarily demanded by MSSIC. The average regulatory net worth of all MSSIC institutions is 5.26 percent.
According to Lusk Real Estate Information Services, Old Court, the second largest thrift in the state, ranked 10th in originating residential mortgages in Baltimore County last year, making 187 first trusts worth $23.3 million. In the city, it made 48 home loans totalling $9.1 million.
Hogg said Old Court's direct investments in real estate exceed the 15 percent "rule-of-thumb" limit on such risky ventures but denied reports that as much as 50 percent of Old Court's funds were tied up in land and building investments.
The most conspicuous of Old Court's real estate ventures is the proposed $2 billion Poinciana Park development in Orlando, Fla., a venture involving William Levitt, the builder of Levittown, Pa., and a distant relative of Old Court chairman Jeffrey Levitt.
The project, still on the drawing boards, is being developed by Capital Communities Corp., of which Jeffrey Levitt is chairman of the executive committee, a spokesman said. Capital is an affiliate of Old Court Investment Corp., which in turn is a division of Old Court Savings. Each partner put up $1.5 million initially for the project. Ads for Poinciana Park ask potential home buyers to deposit $500 to a savings account with Old Court in order to get a prospectus for the project.
Old Court has "been under scrutiny" of state regulators since before the March S&L crisis in Ohio, according to Ejner J. Johnson, chief of staff for Gov. Harry Hughes, who is on a trip to Israel.
"There were signals that went out from audits of the division of savings and loan that indicated the firm needed some management assistance," he said.
Johnson presided over a meeting in Annapolis with Senate President Melvin A. Steinberg (D-Baltimore County) and House of Delegates Speaker Benjamin L. Cardin.
"I am very confident that state mechanisms have the situation under control," said Cardin, who formerly was a part owner of Old Court. Cardin and some other members of his family sold to Levitt and his partner, but the speaker's cousin Jerome Cardin still owns 18 percent of the stock and another family member, Sanford Cardin, is counsel to Old Court.