Stoneham Savings Bank officials have known for a while the bank needs a major tune-up, so when the Division of Banks recently issued a list of orders for shaping up the bank’s management, capital cushion, earnings, liquidity and more, they were prepared.
“No real surprises,” Richard Donovan, Stoneham’s president, told Banker & Tradesman of the Jan. 25 regulatory filing. The DOB ordered the bank to create a plan for improving the institution’s health, including an evaluation – with an outside consultant’s help – of each senior bank officer and trustee to determine whether they’re qualified for their jobs, as well as the task of righting the ship.
Restoring the bank to a satisfactory condition includes correcting problems with “capital adequacy, asset quality, earnings liquidity,” and others.
The most recent FDIC data available illustrates the troubles in Stoneham’s lending portfolio, which Donovan blames largely on the poor economy and collapsed real estate markets. Loans in “nonaccural status,” those either past 90 days delinquent or are otherwise likely to collapse completely, jumped from $8 million in December 2008, to $33 million as of Sept. 30, 2009.
Of its major delinquencies, about $4.5 million is in mortgages, $5 million is in commercial real estate, and $16 million is in construction and land development loans, according to the FDIC.
But Stoneham seems to slowly be righting the ship.
The bank’s capital reserve ratios, or cash in relation to assets, are on their way up. Tier I leverage ratio has traditionally been considered “safe” at 6 percent. Stoneham’s leverage ratio was 5.86 percent in September, and crept up to 5.93 percent at year-end.
As far as correcting its problems, mutual banks like Stoneham can’t easily raise capital to get their ratios up to healthy levels. In Stoneham’s case, the bank appears to have responded by shrinking overall assets from $450 million at the end of 2008, to $426 million as of Sept. 30.
According to the DOB, Stoneham is restricted from extending credit to borrowers with troubled loans, and must give quarterly progress reports.
“This is a very serious regulatory order, and the bank will be taking it very seriously,” said Suzanne Moot, owner of Milton-based consultancy M&M Assoc.
