A stiff morning breeze from Chesapeake Bay chills the Baltimore County, Md., community of Edgemere, and Carolyn Mroz arrives at her desk, glad to get out of the cold. But she can’t sit down just yet because her swivel chair is occupied by a malfunctioning burglar alarm.

It comes from “Todd’s Inheritance,” a War of 1812-era historical house where the savings banker serves as historical society chairman and “jack of all issues.”

She chuckles about that alarm. The contraption was left earlier that day by a state park ranger who doubles as caretaker of the house, and Mroz (pronounced “Mur-roz”) is where the buck stops for that kind of thing. Mroz moves the assorted parts to the floor, so she can sit, and that’s when you begin to take in the room.

Mroz is also where the buck starts—she’s a community banker, and this is no trophy office. No walls lined with oak, brass, and glass, hung with golf memorabilia, sports trophies, or photos with VIPs.

Look around and you’ll see more than traces of something that leaves Mroz colder than a December breeze off the bay: Compliance.

“It costs us a fortune”
Mroz’s office is stacked and crammed with banking information everywhere, and a huge portion of it deals with compliance issues. Her bookcase groans with the weight of well-thumbed manuals on compliance and human resources topics, including a big orange binder that anyone with a bank compliance history knows well.

None of this is for show. Want to talk RESPA? She’ll tell you more than you ever wanted to hear. Want to dig into the Fed’s new overdraft rule? She’ll bring her own spade.

Bring up just about anything to do with mortgage compliance, in fact, and she knows the compliance like you know your own name. Her bank, Bay-Vanguard Federal Savings Bank, has been a portfolio mortgage lender for decades. Mroz understands the whys and wherefores of regulations such as the Bank Secrecy Act. But there’s much about compliance that irks her.

The right of rescission is a good example. During the 37 years that Mroz has been a savings banker, she has seen three people actually exercise their right of rescission. “All that paper, all those mailings, all that irritation of customers who don’t understand why they can’t get their money right away—for three people?” says Mroz.

A brake on banking
Yet Carolyn Mroz isn’t a compliance officer—not by title, anyway. She’s the president and CEO of $153.8 million-assets Bay-Vanguard. It is an institution where everyone wears many hats.

“Basically, I keep up with the new regs when they come out, or I come up with a committee and we handle the reg by committee,” she says.

“Time that I should be spending out there generating new business I’m instead devoting to keeping up with rules and guidance and training my staff to get them up to speed,” says Mroz.

“Regulation isn’t a free ride—in fact, it’s a very expensive trip,” she says. “Think of all the disclosures we have to make, all of the disclosures we have to print. All the paper used to make one loan. That all costs money.”

And in some ways, the costs are counterproductive. “These expenses shrink the bottom line,” says Mroz, “which takes away money we would have had available to lend, which is what Washington wants us to do.”

Even BSA compliance, as essential as it is, bleeds off vital funds. Mroz says Bay-Vanguard pays $25,000 annually to have its program audited.

Democratic banker takes on CFPA
Bring up the Obama Administration’s proposed Consumer Financial Protection Agency and Mroz rolls her eyes.

“What is going to make that regulatory agency more effective than the five federal regulators we have now?” says Mroz, whose bank is regulated by the Office of Thrift Supervision.

“It’s overkill,” she adds, sounding a bit Republican and conservative.

But Mroz actually defies typecasting. She’s a lifelong Democrat (she allows that you don’t get far in Baltimore if you’re a Republican) and has a populist streak that peeks out now and then. Her institution’s roots are in blue-collar Baltimore County communities, and her knowledge of what her customers want, and need, goes beyond any bureaucrat’s.

Take overdraft service. A segment of Bay-Vanguard’s customers use and value that service. The bank does make money off that usage—“When did making money become a bad thing?” she asks—but it’s because the service is used.

“Who’s not to say that a regulator like CFPA wouldn’t have thrown out overdraft checking early on?” Mroz suggests.

Taking the message to Washington
In her role as chairman of ABA’s America’s Community Banker’s Council, it helps that Mroz lives and works a long stone’s throw from the nation’s capital. She’s as busy as any small-bank CEO who wears multiple hats (marketing is another one). Despite that, she believes advocacy is critical for bankers who don’t want to be taken for a ride in Washington.

She’s done this for years through America’s Community Bankers (which merged with ABA in late 2007), the Maryland Bankers Association, and now ABA.

Mroz sees her chief role as council chairman as “rallying the troops, helping ABA to keep bankers involved in the grass roots, and helping them get everybody working on the same page.” It’s the only way that bankers can hope to stem the tide of regulation, when that’s possible, and make new regulation at least manageable.

“It’s not that you don’t want to comply,” says Mroz. “You want to comply. It’s an issue of being able to.” And a significant part of that is cost.

“Our costs are as high as the biggest banks, proportionately,” says Mroz. “And the regulators don’t give us a break because we’re small banks.”

Particularly costly is compliance with Sarbanes-Oxley. Bay-Vanguard is owned by a mutual bank holding company, BV Financial, Inc., the result of a merger that put together two like-sized Baltimore-area savings and loans (Bay Federal and Vanguard)  to share talent and share costs. The irony is that Sarbanes-Oxley has added to costs. “Regulatory compliance costs us a fortune,” says Mroz. “To be honest, we can’t afford a full-time compliance officer.”

 
Actually, a great deal that Washington attempts to accomplish through regulation and its related disclosures could be better achieved through a national focus on financial literacy, Mroz suggests.

“If more Americans had had that ahead of time, we wouldn’t be in the mess we’re in now,” says Mroz. She suggests that some education in the basics would have made a dent in some of the hottest buttons facing banks in recent years, overdrafts and credit cards being two examples.

“Too many people don’t get it,” says Mroz. “They just swipe their cards.”

Consumerism, says Mroz, “is not a bad thing. But sometimes the pendulum swings too far.” Ultimately, she adds, “you can’t legislate people’s responsibility for themselves.”

Family thrift grows up in steel city
Much of how banks are regulated currently would have left Mroz’ father, Paul Snyder, shaking his head in disbelief. He started Vanguard Savings as a local business to serve local people long before the Community Reinvestment Act had even been thought of. Snyder had come to the area after a stint on the board of another savings institution in Baltimore City.

“All of this compliance would have made him crazy,” says Mroz. “He used to do business on a handshake.”

As it became clear that Carolyn would run the savings institution, Snyder taught his daughter three chief lessons: 1. Above all, be honest; 2. “Lend other people’s money as if it were your own, and don’t take more risk than you would with your own”; and 3. “Be compassionate—but don’t be stupid.”

Snyder chose a “handshake” part of Baltimore County to start his financial business. The Edgemere community and surrounding areas were home to steel mills, going back to the 1800s and continuing to the present, albeit in a much more modest way. But in its heyday, the Sparrows Point mill was owned and operated by Bethlehem Steel. While coastal sections of the area have come to be somewhat gentrified, most of it remains working class and retains much of its traditional blue-collar feel.

Vanguard Savings and Loan began in an era when Baltimore City and Baltimore County were home to dozens of savings associations, many originally having ethnic and community roots. Some began as once-a-week operations held in the back of a store. Even today, an informal group of Baltimore-area savings bankers Mroz belongs to, dubbed “The Little Guys,” still gathers periodically to trade notes.

It’s something of a family joke that Paul Snyder started as a “payday lender.” Once out of the army after World War II his first job was running a liquor store. It was common to advance steelworkers enough to buy a bottle before payday.

“Liquor stores are important in a steel town,” says Mroz, who banks several quite proudly. (She likes to tell the story of how her mother, Vera Snyder, briefly owned and operated a bar—“The Irish Inn”—with another woman before becoming a WWII “Rosie the Riveter” at an aircraft plant near Baltimore. Vera Snyder still lives two blocks from the bank’s headquarters.)

Paul Snyder left the liquor store to help out in a family real estate business, and, in time, that led him into starting and operating the savings institution in 1959, and, later, a consumer finance company and an insurance agency.

Snyder encouraged his three daughters to take part in the business from an early age. Carolyn remembers mopping up (literally) at headquarters with her sisters, Diane and Jacqueline, as early as 13. She also logged time running posting machines and calculating savings dividends—manually.

Mroz stepped into day-to-day management in the 1970s. The merger with Bay Federal came in 1996. Mroz and fellow Baltimore savings banker Ed Leonard of Bay Federal (who goes by “Tom”), realized each had strengths the other could use. Leonard is a CPA, for instance, and very technology oriented; Mroz is more in tune with products and compliance.

Today, Mroz and Leonard, who is chairman of Bay-Vanguard, keep an eye out for other merger candidates.

“We’re looking around,” says Mroz, “but in the present economy, unless they are bringing a lot of capital and no problems, I don’t want to be bothered. At least I know what our problems are.”

Change and frustration
Bay-Vanguard moved beyond its historical home-lending niche about seven years ago by expanding into commercial real estate lending and business lending.

The means of serving the community may have evolved, but the community banking viewpoint hasn’t changed.

One example that Mroz points to is the aftermath of 2003’s Hurricane Isabel.

The accompanying tidal surge flooded portions of Sparrow’s Point and property damage to shoreline homes was extensive.

“It was chaos for a while there—it was a mini Katrina,” says Mroz. Bay-Vanguard pitched in and helped people navigate through government flood insurance processes, and made many home equity loans to help get repairs under way quickly. As classic housing lenders, it was a natural.

But the bank also pitched in with businesses damaged by the storm. A good example is the Islander Inn. Severely damaged by the tidal surge, the dockside Inn needed to rebuild to stay in business.

Bay-Vanguard saw what was needed was a commercial line of credit, and “we got that loan done in a week,” says Mroz.

In time, the Inn’s insurance came through, and the loan was paid down, but the owners never could have waited that long.

The bank never got into high LTV mortgages because it believed conservative standards serve all best. As a result, the bank has had one foreclosure in five years.

But a frustration Mroz admits to is when regulatory agencies don’t “get it.”

As an example, she cites her consternation with the Community Reinvestment Act and the Home Ownership and Equity Protection Act. (The bank had a “Satisfactory,” in its last CRA exam.)

For some years now, Bay-Vanguard has had a specialty line in financing manufactured housing and mobile homes through networks of specialized brokers. It’s a very intricate business, sometimes shunned by other lenders who fear payment problems from the market. But Bay-Vanguard has worked out a program, including a deal with the brokers that ensures that they have a continuing interest in seeing that borrowers pay their loans.

The effort has been successful enough that Bay-Vanguard expanded it to markets in Pennsylvania. But that old compliance bugaboo reared its head.

First, the bank found the rates that it could charge had to be held down to avoid falling under HOEPA.

To counteract that impact, underwriting standards were increased.  As a result, says Mroz, not as many people can borrow.

Here’s another kick in the pants: “We didn’t get any CRA credit for what we’ve done in Pennsylvania, at all,” says Mroz. But again, she’s learned to be philosophical.

“You can’t let fear for your CRA rating drive the train,” she says. “They were good loans and there was profit to be made. They served a need. That sounds like the right idea to me.” BJ

The electronic version of this article available at: http://www.nxtbook.com/nxtbooks/sb/ababj0210/index.php?startid=22

Most folks, confronted with a lake covered with algae, think “pond scum,” and hope they won’t slip and fall into the muck. But Bob Mroz thinks of gasoline, biodiesel, and jet fuel.

Get savings banker Carolyn Mroz onto the subject of her husband’s post-retirement-hobby-turned-second-career, and she’ll roll her eyes. Some husbands take to making wine in the cellar in retirement—hers turned to algae.

But Robert Mroz, known to some bankers he’s met at ABA meetings as “Algae Man,” is not only quite serious about what he sees in algae, but has won the support of people who understand things most of us can’t fathom—or even pronounce.

One, specifically, is dunaliella tertiolecta, a variety of algae known for its ability to do two things: absorb carbon dioxide and other pollution; and to yield oil that can replace fossil fuels.

Bob’s efforts are already headed towards at least one patent. He and his partner, J. Carlton “Jack” French, a retired advertising man and private pilot, had latched onto an ambition French had: to fly a plane solely on algae-based fuel.

While flying on something many people pay others to keep out of their swimming pools isn’t intuitively attractive, French and Mroz are not wild-eyed inventors. Bob Mroz is an electrical engineer by training, and spent most of his working life in senior project management positions with the Federal Communications Commission.

In time, the experiments, under the company name HY-TEKBio, LLC, moved beyond the basement lab. Now the pair is working with scientists at the University of Maryland Biotechnology Institute.

There, an array of samples of dunaliella tertiolecta, drawn “from everywhere from Texas to Chesapeake Bay,” says Mroz, undergoes testing and experimentation. A key objective is finding the strain with the greatest efficiency.

Here, much simplified, is the basics of the process. Flue gasses from fossil-fuel-fired power plants would be piped, after preparation, into tanks of dunaliella, which would hasten its reproductive and growth cycles. As the algae reproduces, excess algae would be drawn off periodically and converted to fuel through “gasification.”

The prospectus for the company states that the flue gas output from an average-sized 500 megawatt power plant will generate 5,000-7,000 tons of algae daily. That would produce enough algae, the document continues, to produce 800,000 to 900,000 gallons of biofuel daily. The process also produces oxygen.

That’s better than home-made chianti.

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