RMPI Consulting, LLC – Your Risk Management & Process Improvement Specialists – Tel: 617-973-5742
Strategic Thought Leadership for Community Banks


Stoneham bank’s bad loans spread pain

Boston Business Journal – by Tim McLaughlin

The Bee Curious Learning Center for children is getting an education in eviction.

The Tewksbury daycare center recently received an eviction notice from the real estate arm of Stoneham Savings Bank. Battling to contain the damage from a raft of problem loans, Stoneham Savings recently foreclosed on property where Bee Curious is a tenant. The Feb. 8 eviction summons underscores the sort of fallout that can reverberate through a community when even a small bank is in trouble.

“We’re trying to work through issues with the tenants,” Stoneham Savings CEO Richard Donovan said. “We don’t really have a desire to throw them out on the street.”

Before the foreclosure, Bee Curious was battling its landlord and the bank over a leaky roof. The landlord, a real estate trust, defaulted on a $2 million mortgage with Stoneham Savings. The day care center, run by mother-and-daughter team Deborah Keefe and Adrienne Keefe Anzelmo, opened its doors six years ago at 2087 Main St. in Tewksbury. Deborah Keefe declined to comment for this story.

Stoneham Savings has taken control of three parcels, including one with the daycare center, because of mortgage defaults. Steven Sadwick, Tewksbury’s director of community development, said developing the land, which has featured a go-cart track and abandoned buildings, always has been a risky proposition because it is situated on what he described as a “significant floodplain.”

“That creates a challenge to any potential development,” Sadwick said.

The Tewksbury deal is just one of the headaches for Stoneham’s Donovan, former bank examiner with the Federal Deposit Insurance Corp. who was involved with a number of troubled banks during his 19-year tenure with the agency. Now, the shoe is on the other foot.

The loan problems at Stoneham Savings have attracted the scrutiny of state and federal bank regulators. Donovan finds himself fighting fires on several fronts after his bank lost $9.2 million in 2009, eroding its capital cushion.

Donovan said his loan problems are across the board.

“Our first option is to work out or modify loans,” Donovan said. “Our last option, unfortunately, is foreclosure. … We had some stuff just blow up on us at the end of the summer.”

To his credit, Donovan brought in a veteran loan workout specialist, David Brown, a partner at RMPI Consulting LLC of Boston, before regulators showed up at the bank’s doorstep.

“It’s the only bank I have been involved with where that has happened,” Brown said. He said that helped Donovan establish a good relationship with regulators. Brown said regulators are requiring the bank to have a capital ratio of 7 percent, which is lower than a typical 8 percent for banks in a similar situation.

Still, the bank’s nonperforming loans totaled nearly $39 million by the end of 2009. That means nearly 13 percent of the bank’s $306 million in total loans were nonperforming. Most community banks in the state say problem loans are less than 2 percent of total loans.

Real estate and court records show that Stoneham Savings, a bank with $423 million in assets at the end of last year, has problem loans in a number of different communities in and around Boston.

The issues are varied, with each troubled loan bringing problems and costs far beyond just unpaid principal and interest.

In Andover, for example, the bank got stuck with unfinished work on a small residential construction project. The borrower filed for bankruptcy, leaving Stoneham Savings with more than $1.2 million in unpaid principal, interest and fees, according to records in U.S. Bankruptcy Court in Worcester.

In East Boston, the bank learned that every foot counts, especially on a loan to build a three-family on a small vacant lot on Everett Street. Construction on the project began in the summer of 2005. About a year later, most of the project was done, with Stoneham Savings advancing some $356,000 on a $484,500 loan.

Neighbors, however, claimed the construction financed by Stoneham Savings encroached on land — 277 square feet to be exact — that they owned.

The implication was huge. That meant the project did not have the minimum 3,000 square feet of land it takes under Boston zoning rules to build a three-family structure.

Based on the lawsuit from the neighbors, “the good and valid first mortgage lien of Stoneham Savings on the entire … premises was called into doubt,” court papers show.

Construction stopped on the project and the bank eventually foreclosed on the property in 2007. Stoneham Savings ultimately sold the property for about $121,000 to a relative of the neighbors who made the claim on the small strip of land. And nearly five years after making the initial loan, the bank settled its lawsuit against the title company Stoneham Savings said should have identified the land discrepancy.

PDF Click here to download this article in PDF

[ Original Source: Boston Business Journal ]

CONTACT RMPI