Call it the economy, or software problems, or simply trying to take care of your customers in troubled times, but several Massachusetts banks are struggling with the problem of problem loans.
“We’re nowhere near the level we saw in the late 1980s and early ’90s,” notes Suzanne Moot, a banking consultant and owner of M & M Assoc. in Milton. “But for a handful of banks, the numbers are starting to be troubling.”
According to bank call report data from the Federal Deposit Insurance Corp. as of March, six Massachusetts banks had loans 30 or more days past due that represents 4 percent or more of their total assets, Moot said.
“That’s significant.”
By another measure, while virtually all Bay State-based banks have comfortable capital levels of 8 percent or more, past-due loans make up more than 40 percent of equity capital for 10: Lowell-based Butler Bank, Commonwealth Co-operative Bank in Boston, Adams Co-operative Bank, Meetinghouse Bank in Boston, Lowell Co-operative Bank, The Community Bank in Brockton, Weymouth Bank, The Braintree Co-operative Bank, Strata Bank in Medway, and Mt. Washington Co-operative Bank in Boston.
Some of the loans were in 30-to-89-day overdue status, which is considered less serious than a “non-current” or non-accrued loan – one that’s more than 90 days past due.
Bank Safety?
California-headquartered giant IndyMac Bank, which was taken over by the FDIC in July, making it one of eight banks nationally to fail this year, saw non-current loans rise to more than 90 percent of capital before its failure.
That ratio is just one of many measures the FDIC considers in its bank safety and soundness exams, said agency spokesman David Barr, while acknowledging it’s “an important measure.”
But Stanley Ragalevsky, an attorney with the Boston office of Kirkpatrick & Lockhart Preston Gates Ellis, said that while the FDIC has the power to declare banks insolvent, it’s more often the bank’s primary regulator – the Office of Thrift Supervision or Office of the Comp-troller of the Currency if a bank is federally chartered, or the state Division of Banks for state-chartered institutions – that does so.
Most of Massachusetts’ past-due loans were residential, with three notable exceptions: those at Butler Bank, Strata Bank, and Lowell Co-operative Bank, which were mostly construction loans.
At all these banks, loans were mostly non-accrued as opposed to 30-to-89 days overdue.
In March, Lowell Co-operative and Butler Bank shared the dubious distinction of having the highest percent of loans, as a percent of equity capital, in any kind of past-due status, with Butler Bank at 72.9 percent (slightly more in non-accrual), and Lowell Co-operative at 72.6 percent, virtually all non-accrued.
In June, Butler’s past-due loans-to-capital ratio rose to more than 100 percent.
President and Chief Executive Officer John Pearson said he’s trying to work with customers to keep them in control of their properties.
“As a community bank, we feel that is the right thing to do,” he said.
Accounting rules prohibit his bank from crediting payments actually being made on troubled loans toward interest, he added, meaning some loans remain in non-accrual status even though the customer is paying, until or unless they get caught up.
Lowell Co-operative’s President and CEO Richard P. Coughlin did not return a phone call.
Strata Bank Chief Financial Officer Mark Abbate said that since March, the bank has brought down its total past-due loan balance to $8.2 million, or just under 30 percent of the bank’s capital, an improvement over the 48 percent it was at in March.
Most of the improvement was due to two large construction loans the bank wrote off, he said, adding that virtually all the loans now past-due are less than 90 days overdue.
He and Weymouth Bank Senior Vice President for Lending James Graziano said the state’s new 90-day right-to-cure law means banks will have to wait longer to foreclose these days, if they determine it’s necessary – which could affect future non-performing loans.
Commonwealth Co-operative, Adams Co-operative, Meetinghouse Bank, Weymouth Bank and Mt. Washington Bank had more loans in 30-89 day overdue status than non-accrual, while The Community Bank and The Braintree Co-operative Bank saw a more even split.
Commonwealth Co-operative and Mt. Washington Bank CEOs John J. Doyle Jr. and Edward J. Merritt, respectively, attributed the prob-lems to the tough economy.
“Consumers are really stretched, [especially] with the costs of fuel,” Doyle said.
Most of the problem loans at both banks are residential and less than 90 days past due. Both CEOs said their banks have always been able to collect on that type of loan.
Adams Co-operative Bank President and CEO Joseph Truskowski Jr. said his bank, which does mostly residential lending, has fore-closed on a couple of properties but is trying to work with the borrowers who are long-term customers whose financial problems it be-lieves are temporary.
Meetinghouse Bank Controller Amy Hawe, meanwhile, attributed her bank’s problem loans to software parameters. She said the fact that March was a 31-day month, and software the bank uses to calculate past-due loans is set for 30 days, meant the number of loans actually past-due that month was miscalculated and was, in fact, far less than the amount reported.
“We will certainly take another look at those parameters,” she said.
President and CEO Anthony Paciulli noted that the FDIC has postponed a safety and soundness exam it had planned at the bank this September, which he takes as an indication that the agency has priorities elsewhere.
Some banks had levels of non-accruing loans, measured as a percent of assets, that approached and in some cases exceeded those whose problem loans as a percent of capital were the highest in the state. Norwood Co-operative Bank and Framingham Co-operative Bank – each of which had more than 3 percent of their assets offset by non-accruing loans in March – also have relatively high levels of capital, meaning that even if they had to write off today’s non-accruing loans, they would still be able to maintain more than 65 percent of their capital.
