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Ask AMB: Questions & Answers

In these unusual economic times, we know you have questions about American Marine Bank and how we’re doing.

Ask AMB is a resource for you to ask those important questions. Please click the Ask AMB button to submit your question, and visit this page to view questions and answers.

We look forward to hearing from you.
Ask AMB
 

 
 
September 2009 Q&A
9/1/09 What is the current dollar value of failed mortgages or loans AMB is currently holding, and how has the value changed in the last couple of months?
9/1/09 Did the FDIC find significant understatement of book value?
9/1/09 Why is the first quarter loss so big?
9/1/09 Do these losses impact our customers in any way?
9/1/09 Were there increased FDIC insurance premiums in their first half of 2009 or did those recently have to be entered on the balance sheet? Kitsap Bank reported that their premium went from $200,000 to nearly $2,000,000. What will the entry have to be if it hasn't been made yet?
9/1/09 Investing does not bring immediate returns so I do not see how getting an investment bank on board is going to help in the short term.
9/1/09 Are you expecting a Cease and Desist Order from the FDIC?
9/1/09 If you receive a Cease and Desist order, what happens?
9/1/09 Is your retiring CEO receiving any sort of retirement package?
9/1/09 How is it going with your CEO’s replacement?
9/1/09 Is the bank the object of a buy out?
9/1/09 Will the bank be able to improve? What measures have you taken to improve the bank?
9/1/09 Is this a good time to buy stock?
9/1/09 When do you plan on resuming payments to retirees who were heavily invested in AMB Financial Services stock? Also, when can we expect profits and return of dividends?
9/1/09 What other things are we doing to restore interest in the bank’s stock?
9/1/09 Employees at other banks have told me that your bank is going through difficult times. Does this mean that the bank could be at a risk of closing?
9/1/09 Did Rex Townsend favor a board member with big sweetheart construction loan?
9/1/09 I’ve heard your directors and senior management were able to sell their stock before it dropped. Is that true?
9/1/09 Will the bank continue to have bank stock appraised?
9/1/09 When are you planning on doing another one of these conference calls?
9/1/09 When does the board expect to make a decision on Rex Townsend’s replacement?

August 2009 Q&A
8/1/09 I’ve heard rumors that the bank is in trouble. Is that true?
8/1/09 Has the FDIC Insurance coverage changed? How does that affect my account?
8/1/09 Why is the second quarter loss so big?
8/1/09 You show a loss in the second quarter of 2009. How does this loss impact my accounts?
8/1/09 Your ratings through bankrate.com and Bauer Financial are low. Can you explain?
8/1/09 Are you expecting to get a Cease and Desist from the FDIC?
8/1/09 If you receive a C&D, what happens? Will the bank shut down?
8/1/09 Will the bank be able to improve?
8/1/09 American Marine Bank has been active in the community. Will that support change or stop?
8/1/09 What measures have you taken to improve the bank?
8/1/09 Why are banks in trouble right now? Why didn’t they act sooner?
8/1/09 With your stock price being low, does that reflect the health of American Marine Bank?
8/1/09 Has American Marine Bank stopped making loans?
8/1/09 With your CEO retiring, does that put the bank at risk?
   
 
9/1/09 What is the current dollar value of failed mortgages or loans AMB is currently holding, and how has the value changed in the last couple of months?
  By failed mortgages or loans I understand that our shareholder must be referring to non-performing loans or past-due loans in banking terminology. As of July 31, 2009 the ratio of non-performing loans to loans was 10.81%. In dollar terms that is about $29 million. Although this ratio has almost doubled since last July, the trend appears to have peaked at 14.40% in June of this year.
 
   
 
9/1/09 Did the FDIC find significant understatement of book value?
  I believe this question is inquiring if the FDIC found understatement in the Allowance for Loan and Lease Losses, also know in banking terminology as ALLL. As in the case of many other banks the FDIC has visited before us this year, the FDIC did find understatement in our ALLL.

One thing that stockholders need to understand is that the determination of the ALLL is a dynamic and complex process where we need to follow regulatory guidelines as well as accounting standards. It also involves verifying the adequacy of the loan collateral values. Collateral values, in turn, are determined primarily through third party appraisals which end up being an integral part of the calculation of the ALLL. As it has been in most cases, the understatement of our ALLL was not related to flawed or erroneous methodology but rather to inadequate collateral values resulting from the radical plunge in real estate values reflected in recent appraisals.
 
   
 
9/1/09 Why is the first quarter loss so big?
  The loss in our first quarter financials is reflecting the additional provision we had to take in order to correct the understatement that the FDIC found in the ALLL in the previous question. As I mentioned while answering the previous question, this was directly related to the drop in value of real estate collateral that secures the loans and not an error or flaw in methodology of the calculation. Also a result is from the weakened state of some of our builder/developer borrowers.

This, of course, is not an exclusive trend to AMB; this is an industry trend. According to the FDIC, almost two out of every three banks in the US have increased their provision this year and one out of every five financial institutions in the US took a loss in the first quarter of 2009. We believe there will be no need to make another sizeable provision this year.
 
   
 
9/1/09 Do these losses impact our customers in any way?
  These losses do not have any impact on our customers. Remember: FDIC Insurance protects all our depositors. Accounts are protected for up to $250,000 per depositor, per ownership category through December 31, 2013. This means that depending on how the ownership of each customer’s bank account is set, FDIC insurance could be well above $250,000.

Balances in non-interest bearing checking accounts and checking accounts earning .50% APY or less also have unlimited insurance coverage through June 30, 2010, recently extended by the FDIC from December 31, 2009. Check out www.fdic.gov for details on FDIC insurance coverage.
 
   
 
9/1/09 Were there increased FDIC insurance premiums in their first half of 2009 or did those recently have to be entered on the balance sheet? Kitsap Bank reported that their premium went from $200,000 to nearly $2,000,000. What will the entry have to be if it hasn't been made yet?
  As the banking industry suffers the effects of the economic downturn and the FDIC continues to enter into more bank receiverships, the deposit insurance funds continues to dwindle. As this happens, the FDIC has only two courses of action:
  1. Increase the insurance premiums that banks pay; or
  2. Draw from the line of credit that the Treasury has extended to the FDIC.
Given the current condition of the banking industry it appears that the FDIC will have to continue to increase the insurance premium. As it is, AMB anticipates that we will pay over $1.4 million more in 2009 that was paid in deposit insurance premium during 2008. The bank accrues or expenses the necessary amounts on a monthly basis and makes a payment on a quarterly basis.
 
   
 
9/1/09 Investing does not bring immediate returns so I do not see how getting an investment bank on board is going to help in the short term.
  Before I answer this question I would like to explain how an Investment Bank works. Among other things, Investment Banks help their clients find investors willing to provide capital for companies in need of capital. We are a company looking to raise capital in order to restore our capital affected by the current losses.

As you might remember, we were working on a capital campaign ourselves through a preferred stock offering but we now feel we could benefit from the help of an outside firm. They do this type of work day in and day out, so we are confident that they will be more effective than our previous efforts.

Where do we stand right now in this front:
  • After a rigorous search, the Board has decided to select and engage Keefe, Bruyette & Woods.
  • We are expecting to see results by the 4th quarter of this year.
 
   
 
9/1/09 Are you expecting a Cease and Desist Order from the FDIC?
  A Cease and Desist Order, also know as a C&D is one of many tools that the FDIC has in its tool box used to guide banks get back on track. A C&D is a public regulatory corrective measure that the FDIC has been using quite frequently these days. It is basically a mandated action plan or a list of things a bank must do in order to improve its financial standing.

Based on our exam findings and the FDIC’s recent treatment of other Northwest banks, it is likely that we will be faced with some sort of regulatory action but until we get the final results we can’t say for sure. C&Ds are made public and we would manage that communication to shareholders should that happen.
 
   
 
9/1/09 If you receive a Cease and Desist order, what happens?
  When you get one, what it means is that you get your marching orders and you get to work to accomplish them. The action plan from the FDIC basically spells out what you need to do with benchmarks and time lines.
 
   
 
9/1/09 Is your retiring CEO receiving any sort of retirement package?
  AMB has 2 retirement benefit plans:

  • an Employee Stock Ownership Plan with 401K provisions also known as KSOP; and
  • an Employee Supplemental Income Plan which is a nonqualified retirement plan.
All AMB employees can be eligible to participate in the KSOP. The Employee Supplemental Income Plan, on the other hand, is only available for some members of the management team since it is a nonqualified retirement plan.

As any other retiring employee, Rex has only received whatever he was eligible to receive under both of these two plans; nothing less, nothing more.
 
   
 
9/1/09 How is it going with your CEO’s replacement?
  The Board is giving a lot of thought to this matter and is carefully evaluating all the alternatives available to the bank. A selection process could be underway shortly. I am confident that the Board will pick the best person for that position.
 
   
 
9/1/09 Is the bank the object of a buyout?
  No, the bank is not the object of a buyout at this time. However, as KBW starts the capital-raising process and investors are contacted, it is very likely that AMB will receive buy-out offers.

What I would like to point out here is that the Board is approaching the capital-raising process with primarily two parameters in mind:
  • Preserve stockholder value as much as possible, and
  • Keep the bank independent if possible.
In any case, once the Board reaches a conclusion in this matter, if the recommended course of action is a buyout, it will have to be submitted for a stockholder vote.
 
   
 
9/1/09 Will the bank be able to improve? What measures have you taken to improve the bank?
  I am convinced that the bank will be able to improve. We have already taken many measures and actions that will slowly but surely improve the bank’s condition.

Our focus is on three key areas:
  1. replenishing or strengthening the bank’s capital (we have already engaged KBW an investment bank);
  2. maintaining or increasing the bank’s liquidity levels (our current levels are good and we have contingency plans; it’s important that your confidence in the bank is key to liquidity);
  3. proactively reducing the amount of non-performing assets (we continue to do the work outs).
 
   
 
9/1/09 Is this a good time to buy stock?
  The price of our stock has been driven down by several factors. The following are the factors that I consider as the most important:
  • the bank’s financial performance
  • the weakened state of the banking industry and of most financial stocks
  • ffinancial needs from many of our stockholders as a result of a slumping economy
On this front I can also inform you that sale orders of our stock have increased over the past year and purchase orders or demand for our shares has remained weak.

We cannot make a public representation to buy or sell bank stock since we only act as a transfer agent for the stock and cannot act as a market maker for our own stock.
 
   
 
9/1/09 When do you plan on resuming payments to retirees who were heavily invested in AMB Financial Services stock? Also, when can we expect profits and return of dividends?
  The bank needs to do primarily two things before we can consider resuming payment of dividends and payments to retirees:
  • Raise the necessary capital to replenish our capital levels
  • Bring the bank back to profitability
 
   
 
9/1/09 What other things are we doing to restore interest in the bank’s stock?
  Interest or demand for the bank stock will improve if the bank’s financial condition improves. And the bank’s financial condition will improve as we accomplish the main three objectives that I mentioned earlier in this presentation:
  • strengthening capital;
  • maintaining or increasing liquidity; and
  • and reducing non-performing loans.
More than ever, the support from and confidence of our stockholders and customers is vitally important and plays a huge role.
 
   
 
9/1/09 Employees at other banks have told me that your bank is going through difficult times. Does this mean that the bank could be at a risk of closing?
  Since early last year this has been the “Rumor du jour” in the banking industry. This rumor has been aimed at many banks and in many cases it has been used by competing banks to discredit their competitors.

What I can say about this is that this rumor has only caused unnecessary panic. At this point I would like to remind our listeners that our depositors are insured by the FDIC deposit insurance, which, as I have mentioned before, is something that we pay for dearly these days.

While our bank has its share of serious challenges, we are taking all the necessary steps to improve our financial performance.
 
   
 
9/1/09 Did Rex Townsend favor a board member with big sweetheart construction loan?
  Banking is a highly regulated industry. Banks have regulations for almost anything you can think of and we suffer from chronic auditing. We are audited by many entities to determine if we comply with all the current regulations. One of those regulations is Regulation O. This regulation governs any extension of credit by a bank to an executive officer, director, or principal shareholder. What this regulation dictates primarily is that banks cannot offer more favorable terms to their officers, directors, or principal shareholders than the terms that are offered to our best customers. In addition, any loans to officers, directors, or principal shareholders must be reported to the board of directors on a monthly basis.

AMB is in total compliance with this regulation.

At this point I would also like to make some clarifications with respect to some fraud allegations related to Rex that have reached my desk. In this respect I must stress that these allegations are not true and that there has been no fraud or wrongdoing on Mr. Townsend’s part.
 
   
 
9/1/09 I’ve heard your directors and senior management were able to sell their stock before it dropped. Is that true?
  Absolutely not. All shareholders, no matter if you work for the bank or not, are treated the same when it comes to selling or buying AMB stock. Because the stock is privately held, we act as a transfer agent for sales and purchases between shareholders so it really isn’t feasible for us to sell the stock on demand; we have to match up the sellers with buyers.

Additionally, sellers set their price and we do not play any part in negotiating that price other than providing information on recent sale prices.

Should you hear other rumors or just want the straight story, we encourage you to call us directly. As shareholders, we’re all in this together and participating in the rumor mill doesn’t help our share value.
 
   
 
9/1/09 Will the bank continue to have bank stock appraised?
  The bank primarily has an appraisal done on the shares for KSOP participants because this is required and we will continue to do so on a quarterly basis.
 
   
 
9/1/09 When are you planning on doing another one of these conferences?
  As we see the results and participation from this initial call, we will do them as we see the need.
 
   
 
9/1/09 When does the board expect to make a decision on Rex Townsend’s replacement?
  We've been working on that and we expect to make progress in the next few months or so.
 
   
 
8/1/09 I’ve heard rumors that the bank is in trouble. Is that true?
  We are disappointed that rumors filter to our customers and we feel that they are unfounded. Lack of knowledge often feeds rumors. While the recent economy has presented definite challenges for us and many other banks, we are doing everything we can to improve our condition and we continue to communicate our efforts to employees, customers and shareholders. We are proud of our 60 years in banking. Your confidence in these times is important to us. Always remember, that since the inception of the FDIC in 1933, no one has ever lost a penny in insured deposits.
 
   
 
8/1/09 Has the FDIC Insurance coverage changed? How does that affect my account?
  Yes. On May 20, 2009, an extension was made on the standard FDIC Insurance coverage of $250,000 to December 31, 2013. This extension does not affect the non-interest bearing and qualifying interest bearing checking accounts that currently have unlimited FDIC Insurance through December 31, 2009. However, we anticipate that this deadline may be extended as well. Take a look at the FDIC summary link on our home page or visit www.fdic.gov for more information.
 
   
 
9/1/09 Why is the second quarter loss so big?
  Our first and second quarter financials reflect a much larger provision for loan losses. This is a direct result of the weakened state of some of our builder/developer borrowers and the further drop in appraised value of the real estate collateral that secures their loans with the bank. While we have been consistently increasing our provision over the past year, we felt we needed to make a significant provision starting in the first quarter. This is not just our bank, but an industry trend. According to the FDIC, in the second quarter of 2009, provisions for loan losses increased by 32.8 percent over the second quarter of 2008, and over 28 percent of all insured institutions reported a net loss in the second quarter of 2009.
 
   
 
9/1/09 You show a loss in the second quarter of 2009. How does this loss impact my accounts?
  They don’t. FDIC Insurance protects our depositors. With recent increases in FDIC insurance coverage limits, accounts are protected for up to $250,000 per depositor, per ownership category through December 31, 2013. Non-interest bearing checking accounts and checking accounts earning .50% APY or less have unlimited insurance coverage through June 30, 2010. Check out www.fdic.gov for details.
 
   
 
8/1/09 Your ratings through bankrate.com and Bauer Financial are low. Can you explain?
  We are one of many community banks within the state of Washington that have had their ratings lowered by both Bauer and Bankrate. Financial conditions of banks change rapidly and significantly. Given the current market conditions ratings tend to lose their objectivity and ability to discern between good risks and not so good risk since ratings are a relative measure of risk rather than an absolute measure of risk. Since this downturn is basically a market driven event it is most likely that ratings for all banks will deteriorate. All banks are in this downturn together! The best advice we can give to anyone is to remain calm and to make certain that their deposits at any institution fall within the FDIC insurance limits rather than placing deposits based on the bank’s ratings.
 
   
 
8/1/09 Are you expecting to get a Cease and Desist from the FDIC?
  A Cease and Desist (C&D) is a regulatory action taken by the FDIC as a means of corrective action. Based on our recent exam and the FDIC’s treatment of other Northwest banks, we expect some kind of regulatory action in the coming weeks, but until we have it, we can’t say for sure. The FDIC has significantly ramped up their usage of the Cease and Desist Order with banks. In 2007 the FDIC issued a total of 78 Orders as compared to 142 in 2008. As of the end of May, 2009, the FDIC has already issued 118 Cease and Desist Orders.
 
   
 
8/1/09 If you receive a C&D, what happens? Will the bank shut down?
  Absolutely not; the bank will not shut down. A Cease and Desist lays out a plan mandated by the FDIC. Banks with C&Ds follow the plan and report accordingly. We anticipate that the proactive steps we have already taken in regard to working our non-performing loans and raising capital would be mandated should we receive such enforcement.
 
   
 
8/1/09 Will the bank be able to improve?
  Absolutely.  We literally work every day on our non-performing loan issues. We thank our highly professional and diligent employees for all they’ve done to help work out these non-performing assets. We anticipate that the majority of our loan problems will be worked through by the 4th quarter of 2009.
 
   
 
8/1/09 American Marine Bank has been active in the community. Will that support change or stop?
  Like many companies, we have reduced many expenses this year in anticipation of troubling times. Part of our mission, vision and values includes being actively involved in our communities. The change you will note this year is that we are more than ever encouraging our employees to volunteer as opposed to financially supporting community events. Many of the commitments we made last year have been reduced or eliminated this year, but we are still making efforts to support our local non-profits. As the economy improves and our performance improves, we will continue to support community organizations.
 
   
 
8/1/09 What measures have you taken to improve the bank?
  Our focus is on three key areas; 1) strengthening the bank’s capital; 2) maintaining or increasing the bank’s liquidity levels; and 3) proactively reducing the amount of non-performing assets. On capital, the bank has been working on a preferred stock offering as well as other capital raising initiatives. Currently our liquidity levels are good and we have contingency plans in place should this become an issue. On our non-performing assets, we have been and will continue to work diligently on shoring up our loans. Your confidence in the bank is key to helping with our liquidity levels. Always remember, your deposits are safe with the FDIC insurance coverage, no matter how the bank is currently performing.
 
   
 
8/1/09 Why are banks in trouble right now? Why didn’t they act sooner?
  As bankers, many of us are operating in uncharted waters. These are unprecedented economic conditions. Deterioration in the real estate market has been very sudden and hasn’t given us enough time to react. This is an industry thing; not specific to our bank.
 
   
 
8/1/09 With your stock price being low, does that reflect the health of American Marine Bank?
  Our stock is not publicly traded. Our current share price is a direct result of our shareholders need and willingness to sell at lower prices. Right now in this rough economy, people are looking to find new sources of money and some are being forced to liquidate stock thus driving the price down.
 
   
 
8/1/09 Has American Marine Bank stopped making loans?
  No. We continue to originate new loans. Our appetite for construction and development loans, like many banks, has waned. However, with the favorable rate environment, we’ve seen a nice increase in mortgage loans.
 
   
 
8/1/09 With your CEO retiring, does that put the bank at risk?
  No. The retirement presents an opportunity for us to revitalize the bank as we work through these difficult times in our bank’s history. The Board is evaluating the type of skills needed and will work to find the best candidate for the job.
 

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